CMC Markets PLC · LSE:CMCX
CMC Markets — FY2018 Earnings Presentation
39 slides from CMC Markets's earnings presentation, June 2018
Slide 1: Results presentation, year ended 31 March 2018
Results presentation Year ended 31 March 2018
Slide 2: Agenda
Agenda 1 Key highlights 2 Financials 3 Regulation and outlook 4 Strategy 5 Q&A 2018 Analyst presentation ǀ Pg 2
Slide 3: Key highlights
Key highlights NOI RPC Active clients £187.1m (+16%) £2,964 (+18%) 59,165 (-2%) (FY17: 60,082) (FY17: £160.8m) (FY17: £2,517) Slight fall following Growth in institutional Growth in both the retail targeted marketing business and premium and institutional strategy and one-off client focus business p
Slide 4: CMC Markets continues to make strong strategic progress
CMC Markets continues to make strong strategic progress Delivering on strategic initiatives and positioning the Group post ESMA changes Growth initiative Highlights ü Leading the UK industry in client satisfaction¹ 1 Established markets ü Maintained market-leading position in Germany² and increased
Slide 5: Agenda
Agenda 1 Key highlights 2 Financials 3 Regulation and outlook 4 Strategy 5 Q&A 2018 Analyst presentation ǀ Pg 5
Slide 6: KPIs
KPIs High value client focus continuing to drive success Active clients1 and Revenue per active client (RPC)2 (£) Turnover (£bn) and Trades (m) Net operating income3 (£m) 2,964 68.4 2,828 66.8 2,517 62.7 187.1 2,587 60,082 59,165 2,071 2,016 169.4 57,329 160.8 2016 2017 2018 2016 2017 2018 2016 2017
Slide 7: Income statement
Income statement Operationally leveraged business with revenue growth reflected in profit Net operating income Group (£m) 2018 2017 YoY % § More normalised market conditions and growing institutional CFD and spread bet (incl 175.4 151.3 16% business driving CFD revenue growth binaries) net revenue §
Slide 8: Net revenue bridge (£m)
Net revenue1 bridge (£m) Increased existing client trading activity Existing clients: (£49.4m) Existing clients: 31.2 (£9.2m) (26.8) 5.8 (15.0) 36.5 2.1 (22.6) New and returning clients: 175.4 £33.3m 162.2 2.0 151.3 New and returning clients: £38.5m 2016 Net Existing clients Existing clients Returni
Slide 9: Clients
Clients Increasing number of long-term clients generating higher proportion of revenue Client churn (000’s) 2018 Revenue¹ by client tenure 3 3 9% 3 0-6M 19 15 6-12M 19 10% 1-2Y 2-3YR 44% >3YR 39 42 35 23% (15) 2017 (18) (18) 10% 2016 2017 2018 14% 40% 15% Continuous traders New traders Reactivated S
Slide 10: Performance by region
Performance by region Strong revenue growth across all regions UK revenue bridge (£m) Europe revenue bridge (£m) +18% +12% 15.3 (4.4) 5.9 71.9 50.6 61.0 (0.6) 45.3 2017 Net revenue¹ Active clients² RPC³ 2018 Net revenue¹ 2017 Net revenue¹ Active clients² RPC³ 2018 Net revenue¹ APAC & Canada revenue
Slide 11: Operating costs
Operating costs Cost growth driven by higher discretionary spend and stockbroking investment § Operating expense increase of 13% Group (£m) 2018 2017 YoY % § Discretionary pay driving staff cost increase Net staff costs 57.9 49.4 17% ) § IT costs increased as a result of higher market data charges a
Slide 12: Liquidity and regulatory capital
Liquidity and regulatory capital Increase in available liquidity whilst capital ratio remains high Regulatory capital Total available liquidity Group (£m) 2018 2017 Group (£m) 2018 2017 Core Equity Tier 1 Capital1 202.8 178.6 Own funds 193.9 183.4 Less: intangibles and deferred tax assets (7.9) (6.7
Slide 13: Uses of liquidity
Uses of liquidity Record prime broker margin requirement in January 2018 Uses of total available liquidity Notional exposures (£m) Group (£m) 2018 2017 4,000 3,500 Total available liquidity 306.9 227.2 3,000 Blocked cash¹ (16.6) (19.8) 2,500 Initial margin requirement at broker (103.7) (93.0) 2,000
Slide 14: Agenda
Agenda 1 Key highlights 2 Financials 3 Regulation and outlook 4 Strategy 5 Q&A 2018 Analyst presentation ǀ Pg 14
Slide 15: Regulatory timeline
Regulatory timeline Greater clarity as regulators announce measures 1 2 Dec 2016 Jan 2018 Jul 2016 BaFin and FCA 1 Jun 2018 announce ESMA publishes ESMA issues call for evidence Mar 2018 ESMA publish 1 Aug 2018 warning against intentions to official notice in under new ESMA announces CFD restriction
Slide 16: ESMA product intervention: impact on CMC
ESMA product intervention The Group is supportive of regulatory change Intervention measure CMC response • Partly mitigated by professional opt up Retail client leverage limits between 30:1 and 2:1, depending on the volatility of the underlying asset ? • Impact on remaining retail client behaviour u
Slide 17: Premium vs Professional
Premium vs Professional Premium clients are not always elective professional Premium client definition Elective professional quantitative criteria § Defined by value to CMC, not by qualitative criteria § Eligibility based on meeting two of the following criteria: § Measured based on transactional va
Slide 18: Professional offering timeline
Professional offering timeline Consistent and steady progress made in opting up clients 1 Professional revenue as percentage of total UK and Europe Professional application approval 45% 4,000 2 40% 3,500 35% 3,000 71% of 2,500 30% applications 2,000 unsuccessful 3 25% 1,500 20% 1,000 15% 500 4 10% J
Slide 19: Other regulatory matters
Other regulatory matters Staying ahead of regulatory change § MiFID II and MIFIR o Required reshaping aspects of the business to enhance transparency, increase investor protection and reinforce existing systems and controls o Significant work carried out to change our dealings with third parties, te
Slide 20: Financial outlook
Financial outlook Continued investment in the business to drive long-term shareholder returns § Revenue o Professional opt up, on course for 40%+ o Anticipate a 10-15% impact on 2018 Group CFD revenues o Partially mitigated by ANZ Bank retail ‘go-live’ in September 2018 § Costs o Costs will be moder
Slide 21: Agenda
Agenda 1 Key highlights 2 Financials 3 Regulation and outlook 4 Strategy 5 Q&A 2018 Analyst presentation ǀ Pg 21
Slide 22: Technological innovation
Technological innovation Investment in technology drives growth of the business 2018 2018 2010 2016 Equities DMA and ANZ Partnership Next Generation Knock-outs MT4 platform launched Platform proves First CFD New revenue streams scalability of the Cutting-edge technology provider to offer developed t
Slide 23: CMC's strategy
CMC’s strategy The Group is focused on high value, quality clients and institutional business Client value Pro High value Institutions Market size Target market Superior client service • We do not aim to attract low value, short-term clients • We target fewer but more valuable, long-tenure Technolog
Slide 24: Marketing update
Marketing update 2017/18 progress to date and 2018/19 plans Progress this year CMC Professional account launch • Rolled out our new digital framework enabling greater scale and targeting efficiencies across our paid media • Investment in client onboarding channels starting to yield returns on market
Slide 25: Geographic expansion
Geographic expansion Continue to look for new opportunities and grow existing geographies § China o Opened Shanghai education office in October 2017. As the Chinese market develops we are well positioned to take advantage of this and have a constructive dialogue with regulators § Middle East o Apply
Slide 26: Institutional growth
Institutional growth Increasing revenue and growing suite of products 394 § Relationships enabled customers in 42 countries to trade during 2018 § 131 active relationships in Q4 2018 (Q4 2017: 121) despite 262 the termination of a number of relationships following MiFID II review § 54 new active rel
Slide 27: Stockbroking: ANZ partnership update
Stockbroking Jun 2018 ANZ partnership update M3 P May 2017 Joint Implementation P Dec 2017 Data Migration Services – P May 2018 Sept 2018 Data Migration – retail Milestone 3 plan drafted and build and integration test dress rehearsals Retail go-live approved complete complete P Sept 2017 Intermediar
Slide 28: Strategic outlook
Strategic outlook Growth opportunities are underpinned by technology § Focus on higher value, professional clients and institutional business § Expansion into new geographies, taking advantage of scalability of the platform § As a quality provider, regulatory change brings opportunity § CMC Pro a cl
Slide 29: Agenda
Agenda 1 Key highlights 2 Financials 3 Regulation and outlook 4 Strategy 5 Q&A 2018 Analyst presentation ǀ Pg 29
Slide 30: Appendices
Appendices
Slide 31: Selected KPIs by half year
Appendix 1 Selected KPIs by half year Net revenue1 (£m) 2016 2017 2018 H1 H2 Full Year H1 H2 Full Year H1 H2 Full Year UK 29.5 33.6 63.1 29.1 31.9 61.0 34.8 37.1 71.9 Europe 22.1 26.4 48.5 19.6 25.7 45.3 23.6 27.0 50.6 APAC & Canada 23.5 27.1 50.6 22.2 22.8 45.0 26.2 26.7 52.9 Total 75.1 87.1 162.2
Slide 32: Revenue composition
Appendix 2 Revenue composition 2018 CFD and Stockbroking revenue1 by asset class 2017 CFD and Stockbroking revenue1 by asset class Stockbroking Cryptocurrencies, Stockbroking 5% 0% Binary options 5% Binary options 4% 5% Shares Shares 12% 11% FX 26% FX 28% Index Index 39% 41% Treasury 0% Treasury 0%
Slide 33: Income statement
Appendix 3 Income statement Group (£m) 2018 2017 YoY % Total revenue 211.2 187.7 13% Rebates & levies (24.1) (26.9) 10% Net operating income1 187.1 160.8 16% Operating expenses (125.9) (111.6) (13%) Finance costs (1.1) (0.7) (60%) Profit before taxation 60.1 48.5 24% Taxation (10.4) (9.3) (11%) Prof
Slide 34: Balance sheet
Appendix 4 Balance sheet Group (£m) 2018 2017 YoY % Non-current assets Intangible assets 4.4 2.1 106% Property, plant and equipment 20.7 18.2 14% Financial investments 10.8 - - Deferred tax assets 8.8 8.1 8% Trade and other receivables 2.2 - - Total non-current assets 46.9 28.4 65% Current assets Tr
Slide 35: Own funds flow statement
Appendix 5 Own funds flow statement Group (£m) 2018 2017 YoY % Operating activities Profit before tax 60.1 48.5 24% Adjustments for: Finance costs 1.1 0.7 60% Depreciation and amortisation 6.8 5.8 17% Other non-cash adjustments 1.3 5.7 (77%) Tax paid (13.8) (11.4) (21%) Own funds generated from oper
Slide 36: Client assets and prime broker requirements
Appendix 6 Client assets and prime broker requirements Client assets under management (AUM) Broker margin requirements (£m) 340 Max - £134m 140.0 320 Max - £114m 120.0 300 100.0 Client AUM (£m) 280 Max - £78m 80.0 260 60.0 240 40.0 220 200 20.0 2018 Analyst presentation ǀ Pg 36
Slide 37: Major Indices volatility
Appendix 7 Major Indices volatility Closing VIX1 Closing VDAX-NEW1 40 45 35 40 30 35 25 30 20 25 15 20 10 15 5 10 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 VIX H1 2017 average H2 2017 average VDAX-NEW H1 2017 average H2 2017 average H1 2018 average H2 2018 average H1 2018
Slide 38: Our institutional offering
Appendix 8 Our institutional offering 1 2 3 White label Grey label API Clients Large banks and brokers Introducing brokers / managers Banks, brokers, funds, trading desks “Own-branded” Introduce and/or trade on behalf of Purpose Provide additional liquidity front-to-back brokerage solution clients u
Slide 39: Disclaimer
Disclaimer Certain statements in this presentation constitute or may constitute forward-looking statements. Any statement in this presentation that is not a statement of historical fact including, without limitation, those regarding the Company’s future expectations, operations, financial performanc