REG - CMC Markets Plc - Interim Results
17/11/2021 07:05
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RNS Number : 6069S CMC Markets Plc 17 November 2021
17 November 2021
CMC MARKETS PLC
Interim results for the half year ended 30 September 2021
Reiterating FY guidance; core underlying business trending well above
pre-pandemic levels
30 September 2021 30 September 2020 Change 30 September 2019 Change
For the half year ended
Net operating income (£ million) 126.7 230.9 (45%) 102.3 24%
Leveraged net trading revenue (£ million) 101.0 200.4 (50%) 85.1 19%
Non-leveraged net trading revenue (£ million) 24.2 26.3 (8%) 14.5 67%
Other income (£ million) 1.5 4.2 (63%) 2.7 (43%)
Profit before tax (£ million) 36.0 141.1 (74%) 30.1 20%
Basic earnings per share (pence) 9.6 38.3 (75%) 9.5 1%
Dividend per share (pence) 3.50 9.20 (62%) 2.85 23%
Leveraged gross client income (£ million) 127.0 173.6 (27%) 103.5 23%
Leveraged client income retention 80% 115% (35%) 82% (2%)
Leveraged active clients (numbers) 53,834 59,082 (9%) 41,603 29%
Leveraged revenue per active client (£) 1,877 3,392 (45%) 2,047 (8%)
Non-leveraged active clients (numbers) 185,847 168,270 10% 118,468 57%
Notes:
- Net operating income represents total revenue net of introducing partner
commissions and levies
- Leveraged net trading revenue represents contracts for difference ("CFD")
and spread bet gross client income net of rebates, levies and risk management
gains or losses
- Non-leveraged net trading revenue represents stockbroking revenue net of
rebates
- Leveraged gross client income represents spreads, financing and
commissions charged to clients (client transaction costs)
- Leveraged active clients represent those individual clients who have
traded with or held a CFD or spread bet position with CMC Markets on at least
one occasion during the six-month period
- Leveraged revenue per active client represents total trading revenue from
leveraged active clients after deducting rebates and levies
Key highlights
· H1 2022 leveraged net trading revenue at £101.0 million (H1
2021: £200.4 million) down 50% as a result of a decrease in market volatility
resulting in lower client trading activity and client income retention
reverting towards guided levels.
· Leveraged client income retention for the period at 80% with
53,834 active clients, down 9% versus H1 2021, and up 29% versus pre-pandemic
H1 2020 levels. Total client money ("AUM") in the leveraged business stood at
£557 million, a new period-end record high.
· H1 2022 non-leveraged net trading revenue was £24.2 million (H1
2021: £26.3 million) representing 19% of Group net operating income versus
11% in H1 2021. Underlying client numbers increased 10% versus H1 2021, now
standing at 185,847 actives.
· H1 2022 net operating income was £126.7 million. FY 2022 net
operating income guidance reiterated at £250-280 million.
· Operating costs for H1 2022, excluding variable remuneration,
were £83.7 million (H1 2021: £79.1 million). The increase is primarily a
result of the Group's continued investment in technology staff. Variable
remuneration costs decreased to £6.0 million (H1 2021: £9.8 million).
· Announced the acquisition of approximately 500,000 Share
Investing clients currently trading with CMC through our white label
arrangement with Australia and New Zealand Banking Group Limited ("ANZ"). The
clients bring total assets in excess of AUD$45 billion and the transaction is
due to complete in the next 12-18 months.
· Regulatory total capital ratio of 20.0% and net available
liquidity of £182.7 million.
· Interim dividend of 3.50 pence (H1 2021: 9.20 pence) with a total
dividend for the year expected to be in line with policy at 50% of profit
after tax.
· As announced on 15 November 2021, the Board intends to undertake
an exploratory review to consider the viability of a managed separation of the
Group's non-leveraged and leveraged businesses in the interests of maximising
shareholder value.
Lord Cruddas, Chief Executive Officer, commented:
"I'm very pleased to see the business is operating well above pre-pandemic
levels across all our business lines. This is testament to the resilience and
quality of our platform and offering.
Encouragingly for the future, we closed our first half with client money
("AUM") in our leveraged business being maintained close to record highs. It
was also encouraging to see active client numbers increase by 10% in our
non-leveraged business in support of our diversification strategy. Our
non-leveraged business continues to offer the greatest growth potential and
now represents approximately 50% of our trading revenue in Australia and
nearly 20% of Group net operating income. In line with our aim to diversify
and grow our non-leveraged earnings we announced the acquisition of the ANZ
Share Investing clients that, when completed over a 12-18 month period, will
boost our non-leveraged business with approximately 500,000 clients with total
assets in excess of AUD$45bn. We are on a fast track to diversification, using
our existing platform technology to win B2B and B2C non-leveraged business.
This will be further boosted with the launch of our new UK investment platform
planned in the early part of the next financial year, which will offer both
B2C and B2B potential.
In line with this strategy, we believe it is right for us to evaluate the
viability of separating the businesses in order to unlock the significant
value within the current Group structure. The Board is expected to start this
review before year end and complete it by June 2022. We will update on
progress in due course."
Analyst and Investor Presentation
A presentation will be held for equity analysts and investors today, 17
November 2021, at 10:30 a.m. (GMT).
A live webcast of the presentation will be available via the following link:
https://webcasts.cmcmarkets.com/results/2022halfyear
(https://webcasts.cmcmarkets.com/results/2022halfyear)
Should you wish to ask a question, please dial into the presentation on +44
(0)20 3059 5869, and quote "CMC Markets plc H1 2022 Results Conference" when
prompted.
Forthcoming announcement dates
20 January 2022 Q3 2022 trading update
8 April 2022 FY 2022 pre-close update
Forward looking statements
This trading update may include statements that are forward looking in nature.
Forward looking statements involve known and unknown risks, assumptions,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward looking statements. Except as required by the Listing Rules and
applicable law, the Group undertakes no obligation to update, revise or change
any forward-looking statements to reflect events or developments occurring
after the date such statements are published.
Enquiries
CMC Markets Plc
James Cartwright, Investor Relations
Euan Marshall, Chief Financial
Officer
investor.relations@cmcmarkets.com
Camarco
+44 (0) 20 3757 4980
Geoffrey
Pelham-Lane
Jennifer Renwick
Notes to Editors
CMC Markets Plc ("CMC"), whose shares are listed on the London Stock Exchange
under the ticker CMCX (LEI: 213800VB75KAZBFH5U07), was established in 1989 and
is now one of the world's leading online financial trading businesses. The
company serves retail and institutional clients through regulated offices and
branches in 12 countries, with a significant presence in the UK, Australia,
Germany and Singapore. CMC Markets offers an award-winning, online and mobile
trading platform, enabling clients to trade over 10,000 financial instruments
across shares, indices, foreign currencies, commodities and treasuries through
contracts for difference ("CFDs"), financial spread bets (in the UK and
Ireland only) and, in Australia, access stockbroking services. More
information is available at http://www.cmcmarketsplc.com
CHIEF EXECUTIVE'S REVIEW
Leveraged business
H1 2022 leveraged net trading revenue was £101.0 million (H1 2021: £200.4
million). The reduction is a result of a decrease in market volatility
resulting in lower client trading activity throughout the period and lower
client income retention. Client income retention for the period stood at 80%,
broadly in line with target and is expected to continue to recover through the
rest of the year. H1 2022 leveraged active clients are 9% lower compared to H1
2021, but monthly trading client numbers continue to remain close to record
highs and importantly are still up 29% versus pre-pandemic H1 2020 levels.
Total AUM in the leveraged business stood at £557 million, a new period-end
record high. The Group's strategic initiatives across the leveraged business
remain unchanged. We continue to look at ways to grow the business through an
increased product offering as well as investing in our institutional
business.
Non-leveraged business
The Group's non-leveraged net trading revenue was £24.2 million for H1 2022
(H1 2021: £26.3 million). Underlying active client numbers are up 10% versus
H1 2021, now standing at 185,847. Client non-leveraged Assets Under
Administration ("AUA") reached a new record high at AU$74.8bn, up 30% versus
H1 2021 and up 67% versus pre-pandemic H1 2020 levels. Our Australian business
recently won the Finder award for best overall Share Trading Platform 2021 as
well as winning the Canstar best platform for the 11th year running.
H1 2022 non-leveraged net trading revenue represented some 19% of total Group
net operating income. As previously highlighted, this diversification of our
earnings is core to our strategic vision to bring enhanced growth, longer
client partnerships and reduced volatility in future earnings.
ANZ Bank client acquisition
During September 2021 CMC announced the acquisition of Australia and New
Zealand Banking Group Limited's ("ANZ") Share Investing client base for a sum
of AUD$25 million. The transaction involves the acquisition of approximately
500,000 ANZ Share Investing clients, with total assets in excess of AUD$45
billion. The AUD$25 million consideration will be funded from the Group's
existing cash resources.
With this acquisition, the existing white label technology partnership, which
has seen CMC's trading technology power ANZ's share investing business since
2018, will come to an end. The existing white label partnership
generated £39.5 million in net trading revenue for CMC in FY 2021 and
£16.7 million in H1 2022. The CMC platform will offer clients a wide range of
additional benefits currently unavailable with ANZ. These include access to
enhanced, market-leading mobile apps and complementary education tools and
resources. Following transition, the legacy ANZ Share Investing clients will
benefit from lower brokerage charges across four major international markets
and the local Australian market, and will give CMC the opportunity to drive
greater value from its enlarged client base.
The transaction further establishes CMC as a financial technology leader in
the Australian market and removes the uncertainty around the finite term of
the existing ANZ white label partnership. The transaction is expected to take
12 to 18 months to fully transition clients and is another significant step in
the ongoing diversification of the Group's global business. These clients will
continue to support multi-year growth in the region and remains core to our
non-leveraged growth strategy.
Operating expenses
Operating costs for H1 2022, excluding variable remuneration, were £83.7
million (H1 2021: £79.1 million). As previously highlighted, this increase is
primarily a result of the Group's continued investment in technology which has
resulted in higher personnel costs. Offsetting this, marketing spend was lower
over the period although is expected to increase in H2. Given the reduced
performance of the Group, variable remuneration decreased to £6.0
million (H1 2021: £9.8 million).
Marketing and client acquisition
Reduced market volatility in the period resulted in lower client demand for
our leveraged and non-leveraged products. This translated into fewer
opportunities to acquire high value clients and, as a result, marketing spend
during the period was 10% lower than H1 2021 alongside a reduction in the
number of client applications. Marketing spend for H2 2022 is expected to
increase to similar levels as spent in FY 2021.
Regulatory change
The Australian Securities and Investments Commission ("ASIC") announced new
regulatory measures relating to CFDs in October 2020 that came into effect on
29 March 2021. We are supportive of the regulatory change, as we have always
operated to the highest standards, and our experience with the European
Securities and Markets Authority ("ESMA") measures show that they are, in the
medium to long term, positive for CMC and our clients.
After the introduction of these new measures, regulatory conditions are now
more harmonised globally and we can continue to focus on growing our business
in an industry where regulatory arbitrage is reduced. These regulatory changes
reduced the notional value of retail client trading in Australia. This,
combined with lower market volatility, resulted in less active client trading
than in the prior period, in line with our expectations and with that seen in
the ESMA region in FY 2019.
Strategic initiatives
In June we announced our intention to launch a UK non-leveraged platform. This
is an opportunity for CMC to use its industry leading platform and brand to
build a significant new business line. It is becoming increasingly apparent
that mobile digital delivery will dominate the next generation of investment
platforms. For CMC, diversifying our business from a primarily leveraged CFD
provider to also include provision of non-leveraged wealth management
platforms is a natural evolution. Our 30-year history has already allowed us
to build a world class technology-based trading platform. We already own the
core building blocks to facilitate this transition through our prime broking
relationships and strong relationships with regulators and other stakeholders
and are proud to already offer our clients a resilient and dependable platform
with first-class user experience. The UK has already seen dramatic growth in
direct to customer ("D2C") investment platform AUA over recent years, with
data suggesting that the UK's D2C platform AUA currently stands at just below
£300 billion and has been growing at 16 % p.a. since 2008.
Institutional ("B2B")
Looking at the growth of our Australian non-leveraged business over the past
decade, it has been built on B2B partnerships. We now have some 160 B2B
partners across the region. We ultimately see a similar opportunity for us to
utilise the same strategy in the UK non-leveraged business. On the leveraged
side, we continue to pursue leveraged institutional and B2C opportunities and
our institutional offering continues to provide great growth potential for
both business lines.
Dividend
The Group is maintaining its dividend policy at 50% of profit after tax. The
Board has declared an interim dividend of 3.50 pence per share (2021: 9.20
pence per share), with a view to paying a final dividend in line with the
Group's policy. The interim dividend will be paid on 20 December 2021 to those
members on the register at the close of business on 26 November 2021.
Outlook
CMC reiterates its prior guidance and expects FY 2022 net operating income to
be between £250-280 million. We continue to expect 2022 operating expenses
excluding variable remuneration to be moderately higher year-on-year, with H2
2022 operating expenses excluding variable remuneration to be circa 6% higher
than H1 2022 due to an expected pickup in marketing spend.
The Group continues to invest in technology and people in both the leveraged
and non-leveraged businesses that present significant opportunities to deliver
long-term value for shareholders.
OPERATING review
Summary
Net operating income decreased by £104.2 million (45%) to £126.7 million,
with a decrease in market volatility resulting in lower client trading
activity and lower client income retention throughout the period. This lower
volatility and trading activity impacted both the leveraged and non-leveraged
businesses.
Leveraged net trading revenue decreased by £99.4 million (50%) driven by
decreases in both gross client income and client income retention. The
decrease in gross client income was a result of the significant volatility in
the market in H1 2021 resulting in exceptionally high client trading activity,
with H1 2022 returning to more normalised levels. Client income retention was
lower during the period at 80% (H1 2021: 115%) as a result of a change in the
mix of asset classes traded by clients and lower natural hedging of flow
within indices. This resulted in revenue per active client ("RPC") decreasing
by £1,515 (45%) to £1,877.
Leveraged active client numbers decreased by 9% in comparison to H1 2021,
however monthly active clients remain significantly above pre-COVID-19 levels,
demonstrating the structural shift in the Group's client base.
Non-leveraged net trading revenue was 8% lower at £24.2 million (H1 2021:
£26.3 million), with decreased client trading activity during the less
volatile market environment offset by an active client base which was 10%
larger than H1 2021 and 57% higher than H1 2020.
Statutory profit before tax decreased by £105.1 million (74%) to £36.0
million as a result of the decrease in net operating income, combined with
increased operating expenses as the Group continues to invest in technology.
Profit before tax margin(1) decreased by 32.7% from 61.1% to 28.4%.
Net operating income overview
For the half year ended 30 September 2021 30 September 2020 Change Change %
£ million
Leveraged net trading revenue 101.0 200.4 (99.4) (50%)
Non-leveraged net trading revenue 24.2 26.3 (2.1) (8%)
Net trading revenue(2) 125.2 226.7 (101.5) (45%)
Interest income 0.3 0.5 (0.2) (27%)
Other operating income 1.2 3.7 (2.5) (67%)
Net operating income 126.7 230.9 (104.2) (45%)
B2B and B2C net trading revenue
For the half year ended 30 September 2021 30 September 2020 Change
£ million B2C(3) B2B(4) Total B2C B2B Total B2C B2B Total
Leveraged net trading revenue 85.0 16.0 101.0 183.0 17.4 200.4 (54%) (8%) (50%)
Non-leveraged net trading revenue 4.9 19.3 24.2 4.8 21.5 26.3 1% (10%) (8%)
Net trading revenue 89.9 35.3 125.2 187.8 38.9 226.7 (52%) (9%) (45%)
( )
(1 )Statutory profit before tax as a percentage of net operating income
(2 )CFD and spread bet gross client income net of rebates, levies and risk
management gains or losses and stockbroking revenue net of rebates
(3 )Business to Consumer ("B2C") - revenue from retail and professional
clients
(4) Business to Business ("B2B") - revenue from institutional clients
Regional performance overview: Leveraged
For the half year ended 30 September 30 September Change
2021
2020
Net trading revenue (£m) Gross client income(1) (£m) Active Clients RPC (£) Net trading revenue (£m) Gross client income(1) (£m) Active Clients RPC (£) Net trading revenue Gross client income(1) Active Clients RPC
UK 34.5 47.6 13,590 2,543 66.4 63.3 14,871 4,468 (48%) (25%) (9%) (43%)
Europe 18.6 20.6 13,664 1,359 38.7 28.3 17,191 2,252 (52%) (27%) (21%) (40%)
UK & Europe 53.1 68.2 27,254 1,946 105.1 91.6 32,062 3,280 (50%) (26%) (15%) (41%)
APAC & Canada 47.9 58.8 26,580 1,802 95.3 82.0 27,020 3,525 (50%) (28%) (2%) (49%)
Total 101.0 127.0 53,834 1,877 200.4 173.6 59,082 3,392 (50%) (27%) (9%) (45%)
(1)Spreads, financing and commissions on CFD client trades.
Given the exceptional volatility in the prior period, all regions saw
decreases in revenue per active client, driven by lower gross client income in
all regions and reduced client income retention across the Group. Active
client figures also reduced in all regions, primarily a result of the lower
volatility presenting fewer opportunities for clients to trade.
UK
Active clients decreased by 9% to 13,590 (H1 2021: 14,871), as a result of a
reduction in market volatility, however they remained significantly above
pre-COVID-19 levels (H1 2020: 9,259). Gross client income decreased by 25% to
£47.6 million (H1 2021: £63.3 million) driven by lower active clients in
addition to a reduction in trading activity compared to prior year.
Revenue per active client decreased by 43% to £2,543 (H1 2021: £4,468) due
to lower gross client income and a reduction in client income retention
leading to lower net trading revenue.
Europe
Europe comprises offices in Austria, Germany, Norway, Poland and Spain. Active
client numbers were 21% lower than prior year, with gross client income
decreasing by 27% to £20.6 million as a result.
Revenue per active client also decreased by 40% to £1,359 (H1 2021: £2,252)
due to lower gross client income and a reduction in client income retention
leading to lower net trading revenue.
APAC and Canada
Our APAC and Canada business services clients from our Sydney, Auckland,
Singapore, Toronto and Shanghai offices along with other regions where we have
no physical presence.
Active client numbers decreased by 2% to 26,580 (H1 2021: 27,020), driven by
the Australia office, which was impacted both by new regulation and lower
market volatility. Gross client income decreased by 28% to £58.8 million
(H1 2021: £82.0 million), with regulatory changes implemented by the
Australian Securities and Investments Commission ("ASIC") reducing the
notional value of retail client trading, combined with lower market
volatility, resulting in less active client trading than in the prior period.
Non-leveraged
Net trading revenue
For the half year ended 30 September 2021 30 September 2020 Change Change %
£ million
B2B net trading revenue 19.3 21.5 (2.2) (10%)
B2C net trading revenue 4.9 4.8 0.1 1%
Net trading revenue 24.2 26.3 (2.1) (8%)
Active clients
For the half year ended 30 September 2021 30 September 2020
Change %
B2C active clients 41,590 32,225 29%
B2B active clients 144,257 136,045 6%
Total non-leveraged active clients 185,847 168,270 10%
The non-leveraged business continued to display growth in active clients, with
a 10% increase compared to H1 2021. Despite the increase in active clients,
net trading revenue decreased 8% to £24.2 million, driven by subdued market
volatility resulting in fewer opportunities for clients to trade.
Operating expenses
For the half year ended 30 September 2021 30 September 2020 Change %
£m
Net staff costs - fixed (excluding variable remuneration) 34.1 28.8 (18%)
IT costs 14.2 12.7 (12%)
Marketing costs 10.8 12.0 10%
Sales-related costs 0.9 2.8 68%
Premises costs 1.8 1.7 (2%)
Legal and professional fees 4.7 3.3 (40%)
Regulatory fees 3.2 2.6 (23%)
Depreciation and amortisation 6.4 5.5 (17%)
Irrecoverable sales tax 1.0 3.3 71%
Other 6.6 6.4 (7%)
Operating expenses excluding variable remuneration 83.7 79.1 (6%)
Variable remuneration 6.0 9.8 39%
Operating expenses including variable remuneration 89.7 88.9 (1%)
Interest 1.0 0.9 (11%)
Total costs 90.7 89.8 (1%)
Operating expenses excluding variable remuneration increased by £4.6 million
(6%) to £83.7 million. This was driven by an increase in staff costs (£5.3
million) driven by significant investment in technology, trading and product
staff over the period and increased IT costs (£1.5 million) as a result of
higher market data charges and investments in strategic projects.
Irrecoverable sales taxes decreased by £2.3 million (71%) due to a one-off
recovery and ongoing lower irrecoverable VAT in the UK. Sales-related costs
decreased by £1.9m (68%) driven primarily by release of provisions in H1 2022
that initially arose in H1 2021, and marketing costs decreased by £1.2m (10%)
as there were fewer opportunities for targeted marketing in the period due to
the lower market volatility.
Variable remuneration decreased to £6.0 million (H1 2021: £9.8 million), due
to the strong operating performance in H1 2022, with costs returning to more
normalised levels in line with company performance.
Taxation
The effective tax rate for H1 2022 was 22.7%, up from the H1 2021 effective
tax rate, which was 21.5%. The effective tax rate has increased in the period
due to a higher proportion of Group PBT being generated in Australia, where
the corporation tax rate is higher, and the prior period benefiting from the
utilisation of deferred tax credits.
Balance sheet and own funds
Intangible assets increased by £15.6 million to £25.9 million (31 March
2021: £10.3 million) as a result of the transaction with Australia and New
Zealand Banking Group Limited ("ANZ") to transition approximately 500,000 of
ANZ's Share Investing clients to CMC (AUD$25m) and the capitalisation of staff
costs related to technology projects.
Amounts due from brokers decreased by £73.0 million to £180.9 million due to
a decrease in initial margin at brokers. Other assets increased due to
cryptocurrency holdings being reported under this new category. The Group held
an immaterial balance of cryptocurrencies as at FY 2021, which were reported
within amounts due from brokers.
Cash and cash equivalents increased during the period, with a cash outflow for
the prior year final dividend of £62.4m being offset by lower IM at brokers
in the period, along with cash inflows from the Group's operating performance,
resulting in a £12.7 million increase.
Title transfer funds increased by £11.2m, reflecting the ongoing high levels
of account funding by a small population of mainly institutional clients.
Own funds decreased by £36.2 million to £334.2 million (31 March 2021:
£370.4 million) during the six month period with the decrease largely due to
the payment of the final FY21 dividend.
Principal risks and uncertainties
Details of the Group's approach to risk management and its principal risks and
uncertainties were set out on pages 37 to 45 of the 2021 Group Annual Report
and Financial Statements (available on the Group website
https://www.cmcmarketsplc.com (https://www.cmcmarketsplc.com) ). During the
six months to 30 September 2021 and up to the date of approval of the interim
financial statements, there have been no significant changes to the Group's
risk management framework. The Group categorises its principal risks into
three categories: business and strategic risks; financial risks; and
operational risks. The Group's top and emerging risks, which form either a
subset of one or multiple principal risks within the three principal risk
categories, and continue to be at the forefront of Group discussions, are
regulatory change across the Group, the Group's approach to the UK's exit from
the European Union and the development and release of a UK non-leveraged
platform.
RESPONSIBILITY STATEMENT
The directors listed below (being all the directors of CMC Markets plc)
confirm that to the best of our knowledge, these condensed consolidated
interim financial statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority and that the interim management report includes a
fair review of information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· the interim management report includes a fair review of the
important events that have occurred during the first six months of the
financial year and their impact on the consolidated interim financial
statements, together with a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· material related party transactions in the first six months of
the financial year and any material changes in the related-party transactions
described in the last annual report.
Neither the Group nor the directors accept any liability to any person in
relation to the interim results for the half year ended 30 September 2021,
except to the extent that such liability could arise under English law.
Accordingly, any liability to a person who has demonstrated reliance on any
untrue or misleading statement or omission shall be determined in accordance
with Section 90A and Schedule 10A of the Financial Services and Markets Act
2000.
By order of the board of directors
Lord
Cruddas
Chief Executive Officer
17 November 2021
CMC Markets plc Board of Directors
Executive Directors
Lord Peter Cruddas (Chief Executive Officer)
David Fineberg (Deputy Chief Executive Officer)
Matthew Lewis (Head of Asia Pacific and Canada)
Euan Marshall (Chief Financial Officer)
Non-Executive Directors
James Richards (Chairman)
Sarah Ing
Clare Salmon
Paul Wainscott
CONSOLIDATED INTERIM INCOME STATEMENT
For the half year ended 30 September 2021
£ '000 Note 30 September 2021 30 September 2020
Revenue 3 148,767 255,622
Interest income 348 478
Total revenue 149,115 256,100
Introducing partner commissions and betting levies (22,377) (25,235)
Net operating income 2 126,738 230,865
Operating expenses 4 (89,667) (88,859)
Net impairment losses on financial assets (21) -
Operating profit 37,050 142,006
Finance costs (1,002) (900)
Profit before taxation 36,048 141,106
Taxation 5 (8,173) (30,315)
Profit for the period attributable to owners of the parent 27,875 110,791
Earnings per share
Basic earnings per share (p) 6 9.6p 38.3p
Diluted earnings per share (p) 6 9.6p 38.1p
CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
For the half year ended 30 September 2021
£ '000 30 September 2021 30 September 2020
Profit for the period 27,875 110,791
Other comprehensive income/(expense):
Items that may be subsequently reclassified to income statement
Gain/(loss) on net investment hedges 1,179 (2,572)
Currency translation differences (1,810) 6,777
Changes in the fair value of debt instruments at fair value through other (5) (32)
comprehensive income
Other comprehensive (expense)/income for the period (636) 4,173
Total comprehensive income for the period 27,239 114,964
CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
At 30 September 2021
£ '000 Note 30 September 2021 31 March
2021
ASSETS
Non-current assets
Intangible assets 8 25,903 10,330
Property, plant and equipment 9 26,560 26,105
Deferred tax assets 5,318 6,370
Trade and other receivables 10 1,775 1,800
Total non-current assets 59,556 44,605
Current assets
Trade and other receivables 10 128,567 127,119
Derivative financial instruments 2,820 3,241
Current tax recoverable 2,242 1,749
Other assets 11 35,544 -
Financial investments 12 28,103 28,104
Amounts due from brokers 180,919 253,895
Cash and cash equivalents 13 131,619 118,921
Total current assets 509,814 533,029
TOTAL ASSETS 569,370 577,634
LIABILITIES
Current liabilities
Trade and other payables 14 181,647 152,253
Derivative financial instruments 2,919 3,077
Borrowings 194 945
Lease liabilities 15 4,869 4,599
Provisions 885 1,889
Total current liabilities 190,514 162,763
Non-current liabilities
Borrowings - 194
Lease liabilities 15 10,653 10,727
Deferred tax liabilities 1,446 1,622
Provisions 1,627 1,811
Total non-current liabilities 13,726 14,354
TOTAL LIABILITIES 204,240 177,117
EQUITY
Equity attributable to owners of the Company
Share capital 73,474 73,299
Share premium 46,236 46,236
Own shares held in trust (441) (382)
Other reserves (49,970) (49,334)
Retained earnings 295,831 330,698
Total equity 365,130 400,517
TOTAL EQUITY AND LIABILITIES 569,370 577,634
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the half year ended 30 September 2021
£ '000 Note Share capital Share premium Own shares held in trust Other reserves Retained earnings Total Equity
At 31 March 2020 72,899 46,236 (433) (51,836) 216,013 282,879
New shares issued 400 - - - - 400
Profit for the period - - - - 110,791 110,791
Other comprehensive income for the period - - - 4,173 - 4,173
Acquisition of own shares held in trusts - - (319) - - (319)
Utilisation of own shares held in trust - - 370 - - 370
Share-based payments - - - - (3,114) (3,114)
Tax on share-based payments 5 - - - - 790 790
Dividends 7 - - - - (35,393) (35,393)
At 30 September 2020 73,299 46,236 (382) (47,663) 289,087 360,577
At 31 March 2021 73,299 46,236 (382) (49,334) 330,698 400,517
New shares issued 175 - - - - 175
Profit for the period - - - - 27,875 27,875
Other comprehensive expense for the period - - - (636) - (636)
Acquisition of own shares held in trusts - - (277) - - (277)
Utilisation of own shares held in trust - - 218 - - 218
Share-based payments - - - - (1,107) (1,107)
Tax on share-based payments 5 - - - - 779 779
Dividends 7 - - - - (62,414) (62,414)
At 30 September 2021 73,474 46,236 (441) (49,970) 295,831 365,130
CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
For the half year ended 30 September 2021
£ '000 Note 30 September 2021 30 September 2020
Cash flows from operating activities
Cash generated from operations 16 105,515 123,236
Interest income 875 921
Tax paid (7,051) (13,640)
Net cash generated from operating activities 99,339 110,517
Cash flows from investing activities
Purchase of property, plant and equipment (2,340) (2,041)
Investment in intangible assets (16,910) (4,389)
Purchase of financial investments (14,805) (14,873)
Proceeds from maturity of financial investments 14,255 14,345
Inflow/(Outflow) on net investment hedges 1,361 (1,817)
Net cash used in investing activities (18,439) (8,775)
Cash flows from financing activities
Proceeds from borrowings 9,999 -
Repayment of borrowings (10,944) (1,108)
Principal elements of lease payments (3,038) (3,093)
Proceeds from issue of Ordinary Shares - 81
Acquisition of own shares (102) -
Dividends paid (62,414) (35,393)
Finance costs (985) (898)
Net cash used in financing activities (67,484) (40,411)
Net increase in cash and cash equivalents 13,416 61,331
Cash and cash equivalents at the beginning of the period 118,921 84,307
Effect of foreign exchange rate changes (718) 4,454
Cash and cash equivalents at the end of the period 131,619 150,092
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the half year ended 30 September 2021
1. Basis of preparation
Basis of accounting and accounting policies
The condensed consolidated interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. The condensed
consolidated interim financial statements do not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006. Within the notes
to the condensed consolidated interim financial statements, all current and
comparative data covering periods to (or as at) 30 September is unaudited.
The Group's statutory financial statements for the year ended 31 March 2021
have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 ('IFRS') and the
applicable legal requirements of the Companies Act 2006. In addition to
complying with international accounting standards in conformity with the
requirements of the Companies Act 2006, the consolidated financial statements
also comply with international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union. These
financial statements have been delivered to the Registrar of Companies. The
auditors' opinion on those financial statements was unqualified and did not
contain a statement made under Section 498 of the Companies Act 2006. The 31
March 2021 balances presented in these condensed consolidated interim
financial statements are from those financial statements and are audited.
The accounting policies applied in these condensed consolidated interim
financial statements are consistent with those applied in the Group's
statutory financial statements for the year ended 31 March 2021, except for
the change in accounting policy related to cryptocurrency assets explained
below. The condensed consolidated interim financial statements should be read
in conjunction with the statutory financial statements for the year ended 31
March 2021. In the year ending 31 March 2022 the consolidated financial
statements of the Group will be prepared in accordance with IFRS as adopted by
the UK Endorsement Board. This change in basis of preparation is required by
UK company law for the purpose of financial reporting as a result of the UK's
exit from the EU on 31 January 2020 and the cessation of the transition period
on 31 December 2020. This change does not constitute a change in accounting
policy but rather a change in accounting framework. There is no impact on
recognition, measurement or disclosure between the two frameworks in the
period reported.
The condensed consolidated interim financial statements have been prepared
under the historical cost convention, except in the case of "Financial
instruments at fair value through profit or loss (FVPL)" and "Financial
instruments at fair value through other comprehensive income (FVOCI)". The
financial information is rounded to the nearest thousand, except where
otherwise indicated.
Accounting policy - Other assets
Other assets represent cryptocurrencies controlled by the Group. The Group
offers various cryptocurrency-related products that can be traded on its
platform. The Group purchases and sells cryptocurrencies as part of its
hedging activity.
The Group holds cryptocurrency assets for trading in the ordinary course of
its business, effectively acting as a commodity broker-dealer in respect of
the underlying cryptocurrency assets. In the prior period cryptocurrency
assets were disclosed within Amount due from brokers (31 March 2021:
£1,520,000). The assets will continue to be measured at fair value less cost
to sell with changes in valuation being recorded within revenue in the income
statement in the period in which they arise. Cryptocurrency assets are not
financial instruments, and they are categorised as non-financial assets.
Cryptocurrency assets continue to be held at fair value through profit and
loss therefore this accounting policy impacts classification only. Other
assets amount to £35,544,000 and are presented as a separate line in the
consolidated statement of financial position.
There is no further impact for the half year ended 30 September 2021 and for
the year ended 31 March 2021.
Future accounting developments
The Group did not implement the requirements of any Standards or
Interpretations that were in issue but were not required to be adopted by the
Group at the half year. No other Standards or Interpretations have been issued
that are expected to have an impact on the Group's financial statements.
There is no material impact expected of reference rate reform for the half
year ended 30 September 2021 and will not lead to a remeasurement gain or
loss.
Significant accounting judgements and estimates
The preparation of condensed consolidated interim financial statements in
conformity with IFRS requires the use of certain significant accounting
judgements. It also requires management to exercise its judgement in the
process of applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or where assumptions and estimates
are significant to the condensed consolidated interim financial statements
are:
Deferred taxes
The carrying amounts of deferred tax assets are reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Contingent liabilities
Judgement has been applied in evaluating the accounting treatment of the
specific matters described in Note 20 (Contingent Liabilities), notably the
probability of any obligation or future payments arising.
Accounting for cryptocurrencies
The Group has recognised £35,544,000 (31 March 2021: £1,520,000 in ''Amounts
due from brokers'') of cryptocurrency assets and rights to cryptocurrency
assets on its Statement of Financial Position as at 30 September 2021. These
assets are used for hedging purposes and held for sale in the ordinary course
of business. A judgement has been made to apply the measurement principles of
IFRS 13 Fair value measurement in accounting for these assets. The assets are
presented as 'other assets' on the Consolidated Statement of Financial
Position. The measurement and disclosure of cryptocurrency assets is
considered to be a significant accounting judgement.
Intangible assets
The Group has recognised £13,317,000 of intangible assets under development
on its Statement of Financial Position as at 30 September 2021. These assets
relate to the transaction with Australia and New Zealand Banking Group Limited
("ANZ") to transition its portfolio of Share Investing clients to CMC for
AUD$25m. A judgement has been made to apply the measurement principles of IAS
38 Intangibles in accounting for these assets.
No significant estimates were used in the preparation of the condensed
consolidated interim financial statements.
Going concern
The Group has considerable financial resources, a broad range of products and
a geographically diversified business. Consequently, the Directors believe
that the Group is well placed to manage its business risks in the context of
the current economic outlook. Accordingly, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future, a period of not less than 12 months from
the date of this report. They therefore continue to adopt the going concern
basis in preparing these condensed consolidated interim financial statements.
Seasonality of operations
The Directors consider that, given the impact of market volatility, and the
growth in overseas business, there is no predictable seasonality to the
Group's operations.
2. Segmental reporting
The Group's principal business is providing leveraged online retail financial
services and providing its clients with the ability to trade contracts for
difference (CFD) and financial spread betting on a range of underlying shares,
indices, foreign currencies, commodities and treasuries. The Group also makes
these services available to institutional partners through white label and
introducing broker arrangements. The Group's CFDs are traded worldwide; spread
bets only in the UK and Ireland and the Group provides stockbroking services
only in Australia. The Group's business is generally managed on a geographical
basis and for management purposes, the Group is organised into four segments:
· Leveraged - CFD and Spreadbet - UK and Ireland ("UK & IE");
· Leveraged - CFD - Europe;
· Leveraged - CFD - Australia, New Zealand and Singapore ("APAC")
and Canada; and
· Non-leveraged - Stockbroking - Australia
These segments are in line with the management information received by the
Chief Operating Decision Maker (CODM).
Revenues and costs are allocated to the segments that originated the
transaction. Costs generated centrally are allocated to segments on an
equitable basis, mainly based on revenue, headcount or active client levels,
or where central costs are directly attributed to specific segments.
Leveraged Non-leveraged
30 September 2021 UK & IE Europe APAC & Canada Australia Total
£ '000 Central
Segment revenue net of Introducing partner commissions and betting levies 35,117 18,622 48,393 24,258 - 126,390
Interest income/(expense) (253) (1) 156 446 - 348
Net operating income 34,864 18,621 48,549 24,704 - 126,738
Segment operating expenses (8,680) (2,957) (11,939) (5,756) (60,356) (89,688)
Segment contribution 26,184 15,664 36,610 18,948 (60,356) 37,050
Allocation of central operating expenses (17,328) (14,737) (18,397) (9,894) 60,356 -
Operating profit 8,856 927 18,213 9,054 - 37,050
Finance costs (250) (14) (103) (87) (548) (1,002)
Allocation of central finance costs (237) (106) (205) - 548 -
Profit before taxation 8,369 807 17,905 8,967 - 36,048
Leveraged Non-leveraged
30 September 2020 UK & IE Europe APAC & Canada Australia Central Total
£ '000
Segment revenue net of Introducing partner commissions and betting levies 69,506 38,796 95,733 26,352 - 230,387
Interest income 89 - 320 69 - 478
Net operating income 69,595 38,796 96,053 26,421 - 230,865
Segment operating expenses (9,970) (2,924) (9,565) (5,253) (61,147) (88,859)
Segment contribution 59,625 35,872 86,488 21,168 (61,147) 142,006
Allocation of central operating expenses (17,907) (15,732) (17,483) (10,025) 61,147 -
Operating profit 41,718 20,140 69,005 11,143 - 142,006
Finance costs (261) (17) (119) (111) (392) (900)
Allocation of central finance costs (153) (67) (172) - 392 -
Profit before taxation 41,304 20,056 68,714 11,032 - 141,106
The measurement of net operating income for segmental analysis is consistent
with that in the income statement.
The Group uses 'Segment contribution' to assess the financial performance of
each segment. Segment contribution comprises operating profit for the period
before finance costs, taxation and an allocation of central operating
expenses.
The measurement of segment assets for segmental analysis is consistent with
that in the balance sheet. The total non-current assets other than deferred
tax assets, broken down by location of the assets, is shown below.
£ '000 30 September 2021 31 March
2021
UK 26,638 22,662
Australia 24,953 12,693
Other countries 2,647 2,880
Total non-current assets 54,238 38,235
3. Revenue
£ '000 30 September 2021 30 September 2020
Leveraged 110,035 211,791
Non-leveraged 37,540 40,195
Other 1,192 3,636
Revenue 148,767 255,622
Leveraged revenue represents CFD and Spread bet revenue. Non leveraged revenue
represents Stockbroking revenue.
4. Operating Expenses
£ '000 30 September 2021 30 September 2020
Net staff costs 40,081 38,559
IT costs 14,156 12,676
Sales and marketing 11,653 14,799
Premises 1,754 1,727
Legal and Professional fees 4,654 3,325
Regulatory fees 3,240 2,645
Depreciation and amortisation 6,429 5,493
Irrecoverable sales tax 970 3,337
Other 6,730 6,298
Operating expenses 89,667 88,859
5. Taxation
£ '000 30 September 2021 30 September 2020
Analysis of charge for the period:
Current tax
Current tax on profit for the period 7,462 21,122
Adjustments in respect of previous periods - (116)
Total current tax 7,462 21,006
Deferred tax
Origination and reversal of temporary differences 1,049 9,311
Adjustments in respect of prior periods (338) (2)
Impact of change in tax rate - -
Total deferred tax 711 9,309
Total tax 8,173 30,315
The standard rate of UK corporation tax was 19% with effect from 1 April 2017.
Taxation outside the UK is calculated at the rates prevailing in the
respective jurisdictions. The effective tax rate for the half year ended 30
September 2021 was 22.67% (Half year ended 30 September 2020: 21.48%), differs
from the standard rate of UK corporation tax rate of 19% (Half year ended 30
September 2020: 19%). The differences are explained below:
£ '000 30 September 2021 30 September 2020
Profit before taxation 36,048 141,106
Profit multiplied by the standard rate of corporation tax in the UK of 19% (30 6,849 26,810
September 2020: 19%)
Adjustment in respect of foreign tax rates 1,334 3,266
Adjustments in respect of prior periods (338) (118)
Impact of change in tax rate 126 -
Expenses not deductible for tax purposes 142 116
Income not subject to tax (42) 11
Share awards 87 -
Other differences 15 230
Total tax 8,173 30,315
£ '000 30 September 2021 30 September 2020
Tax on items recognised directly in Equity
Tax on share-based payments (779) (790)
6. Earnings per share (EPS)
Basic EPS is calculated by dividing the earnings attributable to the equity
owners of the Company by the weighted average number of ordinary shares in
issue during each period excluding those held in employee share trusts which
are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue, excluding those held in employee share trusts, is adjusted to assume
conversion of all dilutive potential weighted average ordinary shares, which
consists of share options granted to employees and shares issuable to client
investors at IPO.
£ '000 30 September 2021 30 September 2020
Earnings attributable to ordinary shareholders (£ '000) 27,875 110,791
Weighted average number of shares used in the calculation of basic earnings 290,669 288,985
per share ('000)
Dilutive effect of share options ('000) 1,016 1,833
Weighted average number of shares used in the calculation of diluted earnings 291,685 290,818
per share ('000)
Basic earnings per share (p) 9.6p 38.3p
Diluted earnings per share (p) 9.6p 38.1p
For the half year ended 30 September 2021, 1,016,000 (Half year ended 30
September 2020: 1,833,000) potentially dilutive weighted average ordinary
shares in respect of share options in issue were included in the calculation
of diluted EPS.
7. Dividends
£ '000 30 September 2021 30 September 2020
Prior year final dividend of 21.43p per share (30 September 2020: 12.18p) 62,414 35,393
An interim dividend for 2022 of 3.50p per share, amounting to £10,200,000 has
been approved by the board but has not been included as a liability at 30
September 2021. The dividend will be paid on 20 December 2021 to those members
on the register at the close of business on 26 November 2021.
8. Intangible assets
£ '000 Goodwill Computer software Trademarks and trading licences Client relationships Assets under development Total
At 31 March 2021
Cost 11,500 125,995 1,397 2,995 6,148 148,035
Accumulated amortisation (11,500) (122,075) (1,135) (2,995) - (137,705)
Carrying amount - 3,920 262 - 6,148 10,330
Half year ended 30 September 2021
Carrying amount at the beginning of the period - 3,920 262 - 6,148 10,330
Additions - 44 - - 16,866 16,910
Transfers - 5,210 - - (5,210) -
Amortisation charge - (1,322) (24) - - (1,346)
Foreign currency translation - (41) (1) - 51 9
Carrying amount at the end of the period - 7,811 237 - 17,855 25,903
At 30 September 2021
Cost 11,500 130,611 1,385 2,915 17,855 164,266
Accumulated amortisation (11,500) (122,800) (1,148) (2,915) - (138,363)
Carrying amount - 7,811 237 - 17,855 25,903
Additions of £16,866,000 in Assets under development are primarily due to the
transaction with Australia and New Zealand Banking Group Limited ("ANZ") to
transition ANZ's portfolio of Share Investing clients to CMC for AUD$25m.
9. Property, plant and equipment
£ '000 Leasehold improvements Furniture, fixtures and equipment Computer hardware Right-of-use assets Total
At 31 March 2021
Cost 19,273 9,656 36,249 19,146 84,324
Accumulated depreciation (14,393) (8,795) (27,235) (7,796) (58,219)
Carrying amount 4,880 861 9,014 11,350 26,105
Half year ended 30 September 2021
Carrying amount at the beginning of the period 4,880 861 9,014 11,350 26,105
Additions 106 44 2,190 3,381 5,721
Disposals - - (14) - (14)
Depreciation charge (849) (215) (1,546) (2,473) (5,083)
Foreign currency translation (33) (9) (35) (92) (169)
Carrying amount at the end of the period 4,104 681 9,609 12,166 26,560
At 30 September 2021
Cost 19,205 9,657 38,289 22,344 89,495
Accumulated depreciation (15,101) (8,976) (28,680) (10,178) (62,935)
Carrying amount 4,104 681 9,609 12,166 26,560
10. Trade and other receivables
£ '000 30 September 2021 31 March 2021
Current
Gross trade receivables 8,799 9,103
Less: provision for impairment of trade receivables (7,626) (7,762)
Trade receivables 1,173 1,341
Prepayments and accrued income 11,407 9,799
Stockbroking debtors 114,105 99,035
Other debtors 1,882 16,944
128,567 127,119
Non-current
Other debtors 1,775 1,800
Total 130,342 128,919
Stockbroking debtors represent the amount receivable in respect of equity
security transactions executed on behalf of clients with a corresponding
balance included within trade and other payables (note 14).
11. Other assets
Other assets are cryptocurrencies, which are owned and controlled by the Group
for the purpose of hedging the Group's exposure to clients' cryptocurrency
trading positions. The Group holds cryptocurrencies on exchange and in vault
as follows:
£ '000 30 September 2021 31 March 2021
Exchange 21,087 -
Vaults 14,457 -
35,544 -
12. Financial investments
£ '000 30 September 2021 31 March 2021
UK Government securities:
At the beginning of the period / year 28,037 25,385
Purchase of securities 14,805 28,933
Maturity of securities and Coupon receipts (14,782) (26,256)
Accrued interest (17) 29
Changes in the fair value of debt instruments at fair value through other (5) (54)
comprehensive income
At the end of the period / year 28,038 28,037
Equity securities:
At the beginning of the period / year 67 60
Foreign currency translation (2) 7
At the end of the period / year 65 67
Total 28,103 28,104
£ '000 30 September 2021 31 March 2021
Analysis of financial investments
Non-current - -
Current 28,103 28,104
Total 28,103 28,104
Financial investments are shown as current assets when they have a maturity of
less than one year and as non-current when they have a maturity of more than
one year.
13. Cash and cash equivalents
£ '000 30 September 2021 31 March 2021
Gross cash and cash equivalents 688,685 668,304
Less: Client monies (557,066) (549,383)
Cash and cash equivalents 131,619 118,921
Analysed as:
Cash at bank 131,619 118,921
Cash and cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
14. Trade and other payables
£ '000 30 September 2021 31 March 2021
Current
Gross trade payables 598,971 580,062
Less: Client monies (557,066) (549,383)
Trade payables 41,905 30,679
Tax and social security 904 236
Stockbroking creditors 102,177 89,091
Other creditors, accruals and deferred income 36,661 32,247
181,647 152,253
Stockbroking creditors represent the amount payable in respect of equity and
securities transactions executed on behalf of clients with a corresponding
balance included within trade and other receivables (note 10).
15. Lease liabilities
£ '000 30 September 2021 31 March 2021
At the beginning of the period / year 15,326 19,273
Additions / Modifications of new leases during the period / year 3,399 1,181
Interest expense 372 818
Lease payments made during the year (3,410) (6,875)
Foreign currency translation (165) 929
At the end of the period / year 15,522 15,326
£ '000 30 September 2021 31 March 2021
Analysis of lease liabilities
Non-current 10,653 10,727
Current 4,869 4,599
Total 15,522 15,326
16. Cash generated from operations
£ '000 30 September 2021 30 September 2020
Cash flows from operating activities
Profit before taxation 36,048 141,106
Adjustments for:
Interest income (348) (478)
Finance costs 1,002 900
Depreciation 5,083 4,583
Amortisation of intangible assets 1,346 910
Research and development tax credit - (97)
Profit on disposal of property, plant and equipment - (109)
Share-based payment (886) (2,746)
Other non-cash movements including exchange rate movements (1,101) 800
Changes in working capital:
(Increase)/decrease in trade and other receivables and other assets (1,391) 41,740
Decrease/(increase) in amounts due from brokers 71,456 (26,688)
Increase in other assets (34,024) (1,024)
Increase/(decrease) in trade and other payables 29,394 (37,721)
Increase in net derivative financial instruments liabilities 81 1,846
(Decrease)/increase in provisions (1,145) 214
Cash generated from operations 105,515 123,236
17. Liquidity
The Group has access to the following liquidity resources that make up total
available liquidity:
· Own funds. The primary source of liquidity for the Group. It
represents the funds that the business has generated historically, including
any unrealised gains / losses on open hedging positions. All cash held on
behalf of segregated clients is excluded. Own funds consists mainly of cash
and cash equivalents and also includes investments in UK government securities
which are held to meet the Group's liquid asset buffer (LAB - as agreed with
FCA). These UK government securities are BIPRU 12.7 eligible securities and
are available to meet liabilities which fall due in periods of stress.
· Title Transfer Funds (TTFs). This represents funds received from
professional clients and eligible counterparties (as defined in the FCA
Handbook) that are held under a Title Transfer Collateral Agreement (TTCA); a
means by which a professional client or eligible counterparty may agree that
full ownership of such funds is unconditionally transferred to the Group. The
Group considers these funds as an ancillary source of liquidity and places no
reliance on its stability.
· Available committed facility (off-balance sheet liquidity). The
Group has access to a syndicated revolving credit facility of up to £55.0
million (31 March 2021: £55.0 million) in order to fund any potential
fluctuations in margins required to be posted at brokers to support our risk
management strategy. The maximum amount of the facility available at any one
time is dependent upon the initial margin requirements at brokers and margin
received from clients. The facility consists of a one year term facility of
£27.5 million and a three year term facility of £27.5 million, both of which
were renewed in March 2021.
The Group's use of total available liquidity resources consist of:
· Blocked cash. Amounts held to meet the requirements of local
market regulators and amounts held at overseas subsidiaries in excess of local
segregated client requirements to meet potential future client requirements.
· Initial margin requirement at broker. The total GBP equivalent
initial margin required by prime brokers to cover the Group's hedge derivative
positions.
Own funds on 30 September 2021 were £334,181,000 (31 March 2021:
£370,405,000). Short-term financial investments, amounts due from brokers,
other assets and amounts receivable / (payable) on the derivative financial
instruments have been included within 'own funds' in order to provide a clear
presentation of the Group's potential cash resources.
£ '000 30 September 2021 31 March 2021
Cash and cash equivalents 131,619 118,921
Amount due from brokers 180,919 253,895
Other assets 35,544 -
Financial investments 28,103 28,104
Derivative financial instruments (Current Assets) 2,820 3,241
379,005 404,161
Less: Title transfer funds (41,905) (30,679)
Less: Derivative financial instruments (Current Liabilities) (2,919) (3,077)
Own Funds 334,181 370,405
Title transfer funds 41,905 30,679
Available committed facility 55,000 55,000
Total Available liquidity 431,086 456,084
Less: Blocked cash (67,198) (75,371)
Less: Initial margin requirement at broker (181,148) (170,093)
Net available liquidity 182,740 210,620
The following Own Funds Flow Statement summarises the Group's generation of
own funds during each period and excludes all cash flows in relation to monies
held on behalf of clients.
£ '000 30 September 2021 31 March 2021
Operating activities
Profit before tax 36,048 224,010
Adjustments for:
Finance costs 1,002 1,762
Depreciation and amortisation 6,429 11,239
Other non-cash adjustments (2,176) (4,083)
Tax paid (7,051) (33,620)
Own funds generated from operating activities 34,252 199,308
Movement in working capital 15,632 13,863
Outflow from investing activities
Net Purchase of property, plant and equipment and intangible assets (19,250) (12,190)
Other outflow from investing activities 1,361 (1,761)
Outflow from financing activities
Proceeds from issue of Ordinary Shares - 80
Interest paid (1,002) (1,762)
Dividends paid (62,414) (62,128)
Other outflow from financing activities (4,085) (7,291)
Total outflow from investing and financing activities (85,390) (85,052)
(Decrease)/increase in own funds (35,506) 128,119
Own funds at the beginning of the period / year 370,405 238,340
Effect of foreign exchange rate changes (718) 3,946
Own funds at the end of the period / year 334,181 370,405
18. Fair value measurement disclosures
The Group's assets and liabilities that are measured at fair value are
derivative financial instruments and financial investments. The table below
categorises those financial instruments measured at fair value based on the
following fair value measurement hierarchy:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices); or
Level 3 - inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs)
30 September 2021 Level 1 Level 2 Level 3 Total
£ '000
Financial investments 28,038 - 65 28,103
Derivative financial instruments (Current Assets) - 2,820 - 2,820
Derivative financial instruments (Current Liabilities) - (2,919) - (2,919)
28,038 (99) 65 28,004
31 March 2021 Level 1 Level 2 Level 3 Total
£ '000
Financial investments 28,037 - 67 28,104
Derivative financial instruments (Current Assets) - 3,241 - 3,241
Derivative financial instruments (Current Liabilities) - (3,077) - (3,077)
28,037 164 67 28,268
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
the use of quoted market prices or dealer quotes for similar instruments; and
for foreign currency forwards - present value of future cash flows based on
the forward exchange rates at the balance sheet date.
All of the resulting fair value estimates are included in level 2.
Fair value of financial assets and liabilities measured at amortised cost
The fair value of the following financial assets and liabilities not held at
fair value approximates to their carrying value:
Cash and cash equivalents
Amounts due from brokers
Trade and other receivables
Trade and other payables
Borrowings
19. Related party transactions
There have been no significant changes to the nature of related parties
disclosed in the statutory financial statements for the Group as at and for
the year ended 31 March 2021.
Directors' transactions
There were no director transactions during the half year ended 30 September
2021 and 30 September 2020.
20. Contingent liabilities
The Group engages in retail client relationships and partnership contracts
that could result in non-performance claims and from time to time is involved
in disputes during the ordinary course of business. The Group provides for
claims where costs are likely to be incurred, and there are no contingent
liabilities which are expected to have a material adverse financial impact on
the Group.
UK banking surcharge
In the absence of them qualifying for a specific exemption, the Group's
regulated companies in the UK would be subject to the Bank Corporation Tax
surcharge of 8% on taxable profits over £25m. The group has concluded that
the relevant entities meet the exemption requirements and therefore the
related tax charge, which would amount to £16m in respect of all relevant
periods, has not been provided for.
The Group's position is supported by external advice although it is possible
that it could be challenged.
Brexit approach
There is regulatory uncertainty regarding the Group's historical approach to
the use of reverse solicitation provisions allowing EEA clients to trade with
UK subsidiaries after 31 December 2020. The risk to the approach has been
mitigated given the majority of EEA clients' activities with the UK subsidiary
ceased prior to 31 March 2021. The Group is proactively engaging with the
regulatory authorities in the EEA markets where the UK subsidiary continued to
service clients after 31 December 2020. Whilst it is possible that regulatory
censure may result from these matters, they are in their very early stages and
such an outcome is not currently considered probable.
21. Forward looking statements
This announcement may include statements that are forward looking in nature.
Forward looking statements involve known and unknown risks, assumptions,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward looking statements. Except as required by the Listing Rules and
applicable law, the Group undertakes no obligation to update, revise or change
any forward looking statements to reflect events or developments occurring
after the date such statements are published.
22. Subsequent events
There are no events after the interim period that have not been reflected in
the condensed consolidated interim financial statements.
Independent review report to CMC Markets plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed CMC Markets plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim Results of CMC
Markets plc for the 6 month period ended 30 September 2021 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
· the consolidated interim statement of financial position as at 30
September 2021;
· the consolidated interim income statement and the consolidated
interim statement of comprehensive income for the period then ended;
· the consolidated interim statement of cash flows for the period
then ended;
· the consolidated interim statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results of CMC
Markets plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results based on our review. This report, including
the conclusion, has been prepared for and only for the company for the purpose
of complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 November 2021
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