XTB financial results for the 3rd quarter of 2019
In the third quarter of the year 2019, XTB reported a consolidated net profit of PLN 15,5 million compared to PLN 2,9 million in the third quarter of 2018. Consolidated revenue was PLN 61,0 (Q3 2018: PLN 47,6 million) and operating expenses reached PLN 43,0 million (Q3 2018: PLN 48,8 million). In the third quarter the Group noted a record number of new clients, i.e. 10 042. This is an increase of 105,6% y/y and 8,6% q/q.
The revenues in the Q3 2019 increased by 28,1% y/y, i.e. PLN 13,4 million from PLN 47,6 to PLN 61,0 million. Significant factors which determined the revenue growth were: (i) higher XTB clients turnover of financial instruments reflected by the number of executed transactions i.e. growth of 78 215 lots (from 345 118 to 423 333 lots), (ii) higher profitability per unit lot, i.e. growth of PLN 6 (from PLN 138 to PLN 144).
XTB has a solid foundation in the form of a constantly growing clients base and number of active clients. The intention of the Management Board in 2019 is to further increase the client base. In the period from the beginning of 2019 the Group reported a record number of new clients amounting to 26 131 compared to 14 930 in the comparable period of 2018. In the Q3 2019 the number of new clients increased by 796 q/q i.e. 8,6% q/q. This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as shares and ETFs. The average number of active clients was higher by 7 859 compared to Q3 2018, i.e. 38,8% y/y.
XTB’s aim is to provide a diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyses other possibilities of expanding the product offer, which could cause the introduction of new products in 2019 and subsequent years.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that CFDs based on currency dominated. Their share in the structure of revenues on financial instruments in the Q3 2019 reached 51,6% against 22,0% a year earlier. This is a consequence of the high interest of XTB clients in instruments based on the EURUSD currency pair. The second most-profitable class of assets were CFDs based on stock indices. Their share in the structure of revenues on financial instruments in the Q3 2019 reached 36,5% (Q3 2018: 18,6%). The most popular instruments among this class were instruments based on the German DAX stock index (DE30) and the US indices US100 and US500. Revenues on CFD instruments based on commodities accounted for 8,8% of total revenues against 58,9% a year earlier.
XTB clients, looking for investment opportunities to earn money, generally trade in financial instruments that are characterized by high market volatility in a given period. This may lead to fluctuations in the revenue structure by the asset class, which should be treated as a natural element of the business model. From the point of view of XTB, it is important that the range of financial instruments in the Group’s offer is as broad as possible and allows clients to use every upcoming market opportunity to earn money.
XTB places great importance on the geographical diversification of revenues. The countries from which the Group derives more than 15% of revenues are Poland and Spain with the share of 41,4% (Q3 2018: 38,4%) and 18,5% (Q3 2018: 12,5%) respectively. The share of other countries in the geographical structure of revenues does not exceed in any case 15%.
XTB also puts a strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities (X Open Hub), under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from quarter to quarter, analogically to the retail segment, which is typical for the business model adopted by the Group.
It should be noted that, similar to the retail segment, ESMA product intervention could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will been increase in volatility of institutional clients in the future
Operating expenses in the third quarter of 2019 amounted to PLN 43,0 million and were lower by PLN 5,9 million compared to the same period last year. The most important changes y/y occurred in:
• costs of salaries and employee benefits, an increase of PLN 1,7 million related to new employment and employee severance payment;
• costs of maintenance and lease of buildings, a decrease of PLN 1,1 million and consequently an increase in depreciation costs by PLN 0,9 million, mainly due to a change in the approach to the cost of renting office space from 2019, relating to the entry into force of IFRS 16 Leasing;
• other cpsts, a decrease of PLN 7,8 million as a result of one-off event in Q3 2018, i.e. which was an administrative fine imposed by the Polish Financial Supervision Authority in the amount of PLN 9,9 million.
In Q3 2019 operating expenses slightly increased by PLN 0,5 million q/q, mainly due to higher salaries and employee benefits costs by PLN 0,6 million.
The Management Board expects in the Q4 2019 operating expenses to be at a level comparable to that observed in the previous quarters this year. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on the impact of the results and profitability of the Group and on responsiveness of the clients to the actions taken. The impact of product intervention introduced by relevant regulators on local markets of European Union countries on the Group’s revenues will determine, if necessary, a revision of the cost assumptions for further months of 2019.
The entry into force of product intervention, introduced by relevant regulators on local markets of European Union countries, creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. The natural consequence of relevant regulators on local markets of European Union countries decision should be a wave of consolidation on the market that would allow XTB to consolidate its strong position on the European market. Less influential brokers, unable to withstand regulatory pressure and strong competition from a very significant brokers, will naturally disappear from the market. Consequently large brokers should expect the client base to grow.
XTB has a stable market position and dynamically growing customer base. The Group plans further development by expanding the customer base and product offer, penetrating existing markets and expanding geographically to new markets to build a global brand.