CMC Markets PLC · LSE:CMCX
CMC Markets — FY2019 Earnings Presentation
39 slides from CMC Markets's earnings presentation, Jun 6, 2019
Slide 1: Year ended 31 March 2019
Year ended 31 March 2019 6 June 2019
Slide 2: Cnic
Cnic
Slide 3: Regulatory change and market conditions impact short-term profitability
Regulatory change and market conditions impact short-term profitability Continued focus on servicing high value clients and diversifying revenue streams • ESMA • Group prepared for regulatory change from 1 August 2018 • Elective professional clients accounted for 64% of H2 ESMA region revenue • ANZ
Slide 4: Agenda
Agenda 1. Financial performance 2. Market conditions and regulation 3. Strategic update 4. Q&A 4
Slide 5: Cnic
Cnic
Slide 6: KPIs
KPIs Performance driven by market conditions and regulatory change Active clients¹ and Revenue per active client² (RPC) Turnover (£bn) and trades (m) Net operating income³ (£m) £2,964 68.4 £2,517 64.5 62.7 £2,068 187.1 2,587 160.8 60,082 59,165 2,259 2,016 130.8 53,308 2017 2018 2019 2017 2018 2019
Slide 7: Income statement
Income statement Reduction in NOI through to bottom line, reflecting the operational gearing of the Group Group (£m) 2019 2018 YoY % Net operating income CFD and spread bet (incl. • 37% decrease in CFD and spread bet net revenue driven by: 110.2 175.4 (37%) binaries) net revenue • Periods of low mar
Slide 8: CFD & SB net revenue by region
CFD & SB net revenue by region All regions impacted by combination of market conditions and regulatory change Net revenue (£m) H1 2019 H2 2019 % 2019 2018 % UK 27.6 19.7 (29%) 47.3 71.9 (34%) Europe 16.3 10.8 (33%) 27.1 50.6 (46%) Total ESMA region 43.9 30.5 (31%) 74.4 122.5 (39%) APAC & Canada 19.2
Slide 9: Operating expenses
Operating expenses Costs remain well controlled given larger stockbroking business Group (£m) 2019 2018 YoY % • Slight decrease in operating expenses of £2.8m (2%) • Net staff costs decreased by 11% due to: Net staff costs 51.7 57.9 (11%) • Lower discretionary bonus costs driven by Group performance
Slide 10: Liquidity and regulatory capital
Liquidity and regulatory capital Regulatory capital • Capital ratio decrease due to a higher total risk exposure; this was Group (£m) 2019 2018 driven by an increase in market risk capital requirement caused by changes to the Group’s market risk management during the year Core Equity Tier 1 Capital1
Slide 11: Cnic
Cnic
Slide 12: Market conditions
Market conditions Low volatility across asset classes affecting client trading EUR/USD daily Hi / Lo price ranges • FY19 saw periods of unusually quiet market conditions 1.20% Q4 • FX volatility currently at the lowest level since 1.00% September 2014, with major pairs trading in tight ranges 0.80%
Slide 13: ESMA client trading
ESMA client trading ESMA region stats by regulatory classification Net revenue (£m) H1 2019 H2 2019¹ % ESMA Professional 19.6 ESMA Retail 10.9 Total ESMA region 43.9 30.5 (31%) Active clients H1 2019 H2 2019 % ESMA Professional 2,095 ESMA Retail 21,202 Total ESMA region 27,700 23,297 (16%) Revenue p
Slide 14: ESMA impact
ESMA impact Retail trading stabilised after initial drop FY19 average daily retail trading volumes¹ ESMA ESMA Retail implementation date • Still a short timeframe for analysis • This period has coincided with a low volatility environment, which has also led to reduced activity from clients not affec
Slide 15: Account coverage - ESMA retail
Client position duration and ESMA retail client coverage Regulatory change and market conditions have encouraged clients to hold onto positions FX Spot • ESMA retail clients continue to trade, but have been holding onto positions for longer 60 • Higher margin requirements mean that clients do not ha
Slide 16: Revised risk management strategy
Revised risk management strategy Regulatory change Market conditions • ESMA Retail clients continue to trade, but are holding onto positions • Subdued and range-bound market conditions have also reduced for longer client turnover • Lower trading volumes correspond to lower spread revenue • This lead
Slide 17: Other regulatory matters
Other regulatory matters Staying ahead of regulatory change • Regulatory update • Australia: ASIC granted intervention powers in April 2019, similar to those given to ESMA • It is currently unclear how and when these powers will be used • We will benefit from the experience gained in the UK & Europe
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Slide 19: Refocusing our strategy
Refocusing our strategy Moving from five strategic initiatives to three Established markets Geographic expansion Maintain a competitive and Digital initiatives Institutional offering compliant product offering Ongoing focus on: • Investing in our technology • Diversifying revenue streams • High valu
Slide 20: Diversifying through technology
Diversifying through technology • Strategy of focusing resources on technology development CMC modular technology and geographic expansion through B2B business, rather than marketing spend • Releases of new products and enhancements during the year puts us in a strong position for growth • Instituti
Slide 21: Strategic update: Established markets
Strategic update Established markets • Our core markets of the UK, Germany and Australia continue to generate a significant proportion of the Group’s revenue • These established markets generated 74% of CFD and spread bet net revenue in 2019 • Loyal client bases; 55% of FY19 UK Germany Australia act
Slide 22: Strategic update: Institutional
Strategic update Institutional • Our institutional business continues to grow, with our offering providing access to new markets, geographies we do not have a physical presence in, and revenue diversification • Attractive opportunity through low acquisition and servicing costs • We will continue to
Slide 23: Strategic update: Client experience optimisation
Strategic update Client experience optimisation Customer experience optimisation focus areas: • On boarding Simplification of client journey • Funding & removal of pain points: • Professional opt up process (Opto) • Sector “Search traffic” continues to transition from desktop to mobile Enhance m
Slide 24: Outlook
Outlook Confident of increased profitability in 2020 • Revenue • Confident in meeting CFD and spread bet net revenue expectations¹ • Expect to see increased revenues due to: • Revised risk management • Institutional growth • Stockbroking • Costs • Costs expected to be marginally higher, before takin
Slide 25: Cnic
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Slide 26: Cnic
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Slide 27: Appendix 1: Selected KPIs by half year
Appendix 1 Selected KPIs by half year Net revenue¹ (£m) 2017 2018 2019 H1 H2 Full year H1 H2 Full year H1 H2 Full year UK 29.1 31.9 61.0 34.8 37.1 71.9 27.6 19.7 47.3 Europe 19.6 25.7 45.3 23.6 27.0 50.6 16.3 10.8 27.1 APAC & Canada 22.2 22.8 45.0 26.2 26.7 52.9 19.2 16.6 35.8 Total 70.9 80.4 151.3
Slide 28: Appendix 2: Revenue composition
Appendix 2 Revenue composition 2019 CFD and Stockbroking revenue1 by asset class 2018 CFD and Stockbroking revenue1 by asset class Stockbroking Stockbroking Binary options 5% 11% 4% Binary options 3% Index FX FX² 41% 26% 14% Treasury Index 1% 52% Commodity 4% Shares Commodity Treasury 14% 12% Shares
Slide 29: Appendix 3: Income statement
Appendix 3 Income statement Group (£m) 2019 2018 YoY % Total revenue 165.9 211.2 (21%) Rebates & levies (35.1) (24.1) 45% Net operating income1 130.8 187.1 (30%) Operating expenses (123.1) (125.9) (2%) Finance costs (1.4) (1.1) 23% Profit before taxation 6.3 60.1 (89%) Taxation (0.4) (10.4) (96%) Pr
Slide 30: Appendix 4: Balance sheet
Appendix 4 Balance sheet Group (£m) 2019 2018 YoY % Non-current assets Intangible assets 5.0 4.4 14% Property, plant and equipment 18.1 20.7 (12%) Financial investments 11.3 10.8 5% Deferred tax assets 11.6 8.8 32% Trade and other receivables 2.7 2.2 20% Total non-current assets 48.7 46.9 4% Current
Slide 31: Appendix 5: Own funds flow statement
Appendix 5 Own funds flow statement Group (£m) 2019 2018 YoY % Operating activities Profit before tax 6.3 60.1 (89%) Adjustments for: Finance costs 1.4 1.1 23% Depreciation and amortisation 7.3 6.8 8% Other non-cash adjustments 0.7 1.3 (46%) Tax paid (7.6) (13.8) 45% Own funds generated from operati
Slide 32: Appendix 6: Client assets and prime broker requirements
Appendix 6 Client assets and prime broker requirements Client assets under management (£m) Broker margin requirements (£m) 360 180 340 160 Max - £134m 140 320 Max - £124m Max - £114m 120 300 100 280 80 260 60 240 40 220 20 200 0 32
Slide 33: Appendix 7: Client churn and tenure
Appendix 7 Client churn and tenure Client churn (000’s) 2019 revenue¹ by client tenure 3 3 3% 7% 3 19 15 10 0 to 6 months 22% 6 to 12 months 1 to 2 years 51% 2 to 3 years 39 42 40 >3 years 17% 2018 (18) (18) (19) 9% 10% 44% 2017 2018 2019 23% Continuous traders New traders Reactivated Stopped Tradin
Slide 34: Appendix 8: Net revenue bridge
Appendix 8 Net revenue¹ bridge (£m) Existing clients: Existing clients: (£77.4m) (£9.2m) 31.2 (50.7) 5.8 (15.0) 2.1 (26.7) New and returning clients: 10.0 £33.3m 2.3 175.3 151.3 New and returning clients: £12.3m 110.2 2017 Net Existing clients Existing clients Returning clients New clients 2018 Net
Slide 35: Appendix 9: Our institutional offering
Appendix 9 Our institutional offering 1 2 3 Liquidity services White label Grey label (Market access via API connection or Institutional User Interface) Clients Large banks and brokers Introducing brokers / managers Banks, brokers, hedge funds, trading desks “Own-branded” Introduce and/or trade on b
Slide 36: Appendix 10: Criteria for professional designations
Appendix 10 Criteria for professional designations Different regulators apply different criteria: Criteria No. of Leverage Region Evidence Designation criteria to limits (Regulator) required Wealth Experience Other fulfil apply from ≥ 1 year of relevant ≥ 10 trades of a significant Various - at UK &
Slide 37: 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
Slide 38: Take a better position
Slide 39: Slide 39