REG - CMC Markets Plc - Final Results
13/06/2023 07:00
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RNS Number : 5282C CMC Markets Plc 13 June 2023
13 June 2023
CMC MARKETS PLC
("CMC" or the "Company")
Final results for the year ended 31 March 2023
Net operating income a new record high outside of the pandemic period, in line
with guidance
Building a best-in-class, one stop financial trading and investment services
platform
31 March 2023 31 March 2022 Change %
For the year ended
Net operating income (£ million) 288.4 281.9 2%
Trading net revenue (£ million) 233.1 229.6 1%
Investing net revenue (£ million) 37.9 48.0 (21%)
Interest income (£ million) 13.9 0.8 1,569%
Other operating income (£ million) 3.5 3.5 -
Profit before tax (£ million) 52.2 91.5 (43%)
Basic earnings per share (pence) 14.7 24.6 (40%)
Dividend per share (pence) 7.4 12.4 (40%)
Trading gross client income (£ million) 303.5 288.5 5%
Trading client income retention 77% 80% (3%)
Trading active clients (numbers) 58,737 64,243 (9%)
Trading revenue per active client (£) 3,968 3,575 11%
Investing active clients (numbers) 218,310 246,120 (11%)
Notes:
- Net operating income represents total revenue net of introducing
partner commissions and levies
- Trading net revenue represents CFD and spread bet gross client
income net of rebates, levies and risk management gains or losses
- Investing net revenue represents stockbroking revenue net of
rebates
- Trading gross client income represents spreads, financing and
commissions charged to clients (client transaction costs)
- Trading active clients represent those individual clients who
have traded with or held a CFD or spread bet position on at least one occasion
during the 12-month period
- Trading revenue per active client represents trading net revenue
from active clients after deducting rebates and levies
- Investing active clients represent those individual clients who
have traded on at least one occasion during the period
- 2022 figures restated - more information is available within
note 33 of the 2023 Annual Report and Financial Statements.
Highlights
· Net operating income of £288 million, in line with new guidance
issued on 27 March 2023 and up 2% year over year, a new record high outside of
the COVID-19 period. Trading net revenue up 1% versus 2022, with interest
income up significantly, offset by weaker investing net revenue due to subdued
market conditions.
· Significant milestones achieved this year include the launch and
expansion of the CMC Invest UK offering, regulatory approval for the imminent
launch of CMC Invest Singapore, a larger office in Dubai as part of our
institutional expansion, upgrades to our existing trading platforms and the
successful transfer of over 600,000 ANZ Share Investing clients, with total
assets in excess of AUD$37 billion to CMC.
· 2023 operating expenses excluding variable remuneration increased
by 26% to £217 million, reflecting the investment in people and technology
to support the ongoing strategic growth initiatives.
· Profit before tax of £52 million (2022: £91 million).
· Underlying liquidity remains strong. Regulatory OFR ratio of 369%.
Net available liquidity remained broadly flat at £239 million (2022: £246
million).
Outlook and dividend
· Growth outlook: Quiet market conditions in the first two and a
half months of 2024 have resulted in client trading activity being down
15-20%, which in turn is expected to negatively impact Q1 2024 net operating
income. Expectations of the underlying 30% net operating income growth from
2022 to 2025 remain unchanged, with growth in the existing business driven by
ongoing strength of underlying KPIs including client money AUM, new product
delivery and assuming a return to normalised market conditions.
· Strategy: We will focus on delivering ongoing product diversification
and development of a multi-asset interface across our core trading business.
We continue to invest in our technology to drive expansion towards B2B
partnerships and to open up new markets via our investing and institutional
businesses.
· Costs: Our 2024 investment plans are expected to increase operating
expenses excluding variable remuneration to approximately £240 million.
Employee numbers are expected to peak in 2024 following successful hiring of
additional staff over the past 12 months. Operating cost expansion is expected
to slow in 2025 after two years of significant investment combined with
ongoing cost efficiency initiatives.
· Trading: Our priority for 2024 is to expand our product range,
thereby enhancing our support for our clients' trading and investment
portfolios and increasing our share of their wallet. These include cash
equities, index options, listed futures, cryptocurrencies and a wider range of
investment products.
· Technology: Enhancements planned for the following 12 months are set
to facilitate expansion through B2B partnerships and full delivery of our API
infrastructure. Through shared resources and expertise, CMC and our B2B
partners are expected to benefit from cost savings and improved operational
efficiency.
· Investing: We will expand the development of our Invest platforms
across Australia, Singapore and the UK. The UK D2C market continues to pose a
significant opportunity, with aggregate AuA standing at c.£290 billion¹ even
after weaker capital markets seen over 2022.
· Institutional expansion: We will invest in our institutional offering
to upgrade our product suite. Over the next 12-18 months we will deliver the
regional expansion of our institutional offering via our expanded Dubai office
and dedicated sales teams aimed at partnering with large institutional flow
aggregators.
· Dividend: The Board recommends a final dividend of 3.90 pence per
share (2022: 8.88 pence) resulting in a total dividend payment for the year of
7.40 pence per share (2022: 12.38 pence).
Lord Cruddas, Chief Executive Officer commented:
"Since pioneering online trading over 30 years ago, CMC continues to innovate
and respond to market changes and challenges. Today the Group boasts a broad
financial services offering spanning the globe. Through our new API ecosystem
we can add new products and markets quickly, for both our B2B and B2C clients.
We believe this breadth and level of flexibility, through one industry
standard connection protocol, will be the best-in-class B2B and B2C financial
services platform on the market.
During the past year, we have made progress to refine and deliver our
diversification strategy. We have improved our product range across our core
trading CFD and spread bet businesses, offering our clients access to a wider
range of financial instruments through our award-winning platforms. We have
leveraged our existing technology to launch a new investment platform in the
UK, with a Singapore platform launching imminently, as well as opening a new
office in Dubai to support the rapid growth we are seeing in our institutional
business.
Through our new API ecosystem we are leveraging our technology to facilitate
growth through B2B expansion. By partnering with our clients directly we are
able to offer access to our deep liquidity, products, and technology stacks.
Fostering additional B2B partnerships is front and centre in our strategy to
achieve sustainable long-term growth.
CMC is changing quickly. Investment in our trading platforms continues and
over the coming six months we're positioned to launch cash equities, options
and listed futures across our various platforms to allow our clients better
opportunities to trade or hedge existing portfolio positions. Invest UK will
be launching SIPPs and mutual funds, whilst Invest Singapore will initially
offer equities, ETFs, options and futures. Additionally, over the course of
the next 12 months, we plan to introduce a new multi-asset platform capable of
trading a much wider range of instruments. I look forward to updating you
later this year on further progress."
(1) Platforum February 2023.
Analyst and Investor Presentation
A presentation will be held for equity analysts and investors today at 10.30
a.m. (BST) A live video webcast of the presentation will be available via the
following link: Participants need to submit the registration form to access
the webcast; Register for Webcast
(https://www.lsegissuerservices.com/spark/CMCMarkets/events/1d853d9f-a2b3-445e-a2cc-eba07aff592a)
Alternatively, you can register for the conference call by registering via the
following link; Register Conference Call
(https://uk01.z.antigena.com/l/ol8ZIkEh4pgOB3YG78t7TtVKO6UIlUhY~SFa5dML7YO6HtiMsN-9SKiXqIHb5-qKDDXYf_yt5H15rLmf8efNY_kfj~fkPSjc-ndlf~Wrl1YlAp9D_Q2wZ9BihNtj1~kTiTW7ivUUDwBGc3~Wk1BTjPtP6U-JJb5d9qLLlu3UZLZXMI5MbY4YCA5Fe4juVjD5DfDMtcZVvBuMLCkEgepC12wpg8OQwsqYYOd_5VtZVF81Kku937NAKUY8JnY~cu3)
Annual Report and Financial Statements
A copy of the Company's Annual Report and Financial Statements for the year
ended 31 March 2023 (the "2023 Annual Report and Financial Statements") is
available within the Investor Relations section of the Company website here;
Annual Report (http://www.cmcmarkets.com/group/results/annual-reports)
In compliance with The Disclosure Guidance and Transparency Rules (DTR) 6.3.5,
the information in the document below is extracted from the Company's 2023
Annual Report and Financial Statements. This material is not a substitute for
reading the 2023 Annual Report and Financial Statements in full and any page
numbers and cross references in the extracted information below refer to page
numbers and cross-references in the 2023 Annual Report and Financial
Statements.
Forthcoming announcement dates
Thursday 27 July 2023 Q1 2023 trading update
Thursday 5 October 2023 H1 2023 pre-close trading update
Forward Looking Statements
This announcement and Appendix 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.
MAR disclosure statement
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
Enquiries
CMC Markets Plc
James Cartwright, Chief Operating Officer
Euan Marshall, Chief Financial Officer
investor.relations@cmcmarkets.com
Media enquiries
Camarco
Geoffrey Pelham-Lane / Jennifer Renwick Tel: 020 3757 4994
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. The Group 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") and financial spread bets
(in the UK and Ireland only). Clients can also place financial binary bets
through Countdowns and, in Australia and the UK, access stockbroking
services. More information is available at http://www.cmcmarkets.com/group/
(http://www.cmcmarkets.com/group/)
CHAIRMAN'S STATEMENT
The Board's strategy of income diversification through adapting and building
on our superior technology continues to develop. Whilst many of the benefits
of this diversification will only be seen over the longer term, it is becoming
more apparent as we continue to develop our offering how our business will
change to the benefit of our stakeholders over time.
We have maintained an ongoing dialogue with our clients and gathered their
feedback in order to develop further our products and platforms. Our staff
continue to be pivotal to both this development and our growth strategy. As
well as continuing to invest in our current people, enhancing engagement
processes and career development practices, we have invested in additional
resources in order to ensure we are able to continue to adapt at the correct
pace to achieve our growth plans.
Results and dividend
Net operating income rose 2% to £288.4 million in the year, following a more
challenging environment in the final quarter of 2023 with lower monetisation
of client trading activity and increasing costs arising from the fulfilment of
our growth strategy.
Profit after tax for the year was £41.4 million. The Board recommends a final
dividend of 3.90 pence per share which results in a total dividend payment of
7.40 pence for the year, equal to 50% of profit after tax.
Board
As discussed in the 2022 Annual Report and Financial Statements, we were sorry
to lose Clare Salmon from the Board during the year. We were however delighted
to welcome both Susanne Chishti and Clare Francis to the Board during the
course of the year. Susanne is our Non-Executive Director responsible for
workforce engagement, and Clare is Chair of the Group Risk Committee and our
Director responsible for Consumer Duty.
People and stakeholders
Our workforce is our most valuable resource, and their efforts towards
fulfilling our strategic goals in diversifying our business have resulted in
solid progress across all business areas working towards that goal.
Our people strategy this last year has become a much more prominent item in
Board and relevant Board Committee meetings. The scope of the work undertaken
by Susanne as our designated Non-Executive Director responsible for workforce
engagement is set out on page 86 of the 2023 Annual Report and Financial
Statements.
The Board would like to express gratitude to all our employees for their
significant contributions.
Sustainable growth
Sustainability is an essential factor in the decision-making process for
financial institutions that aim to achieve long-term growth. Integrating
sustainability into business strategies helps financial institutions to reduce
risks, increase opportunities, and enhance their reputation.
At CMC we recognise that customers and investors are increasingly demanding
that businesses prioritise sustainability, and financial institutions that
fail to do so may face reputational damage or loss of business. Read more in
our Sustainability section on pages 34 to 48 of the 2023 Annual Report and
Financial Statements.
Outlook
We will continue our diversification strategy and seek growth into new
products and geographies. The business is evolving at pace and investment will
continue in partnership with our clients in order to maximise opportunities as
they arise.
The Board recognises that this rapid period of growth does place pressure on
our resources. The Board regularly discusses the risks and opportunities
surrounding our strategy and this will continue to be a key area of
consideration over the coming year as our growth plan continues to develop at
pace.
The Board will also be carefully monitoring volatility in financial markets
and ensuring that the Group is prepared to deal with any unexpected events and
taking note of certain market events creating uncertainty in recent months. We
have made significant investments in our infrastructure in order to ensure we
have a stable foundation on which to continue to grow and maintain
our resilience.
James Richards
Chairman
13 June 2023
CEO REPORT
During the past year, we have made progress to refine and deliver our
diversification strategy. We have improved our product range across our core
trading CFD and spread bet businesses, offering our clients access to a wider
range of financial instruments through our award-winning platforms. We have
leveraged our existing technology to launch the new investment platform in the
UK, with Singapore to follow imminently, as well as opening a larger office in
Dubai to support the rapid growth we are seeing in our institutional business.
Our strategy is based on leveraging our technology to facilitate growth
through B2B expansion. By partnering with our clients directly we are able to
offer them access to our deep liquidity, products, and technology stacks. We
have already proven our ability to deliver in Australia, evidenced by the
Australia and New Zealand Banking Group Limited ("ANZ") relationship, with an
extensive network of B2B partnerships in CMC Invest Australia.
CMC and our B2B partners typically benefit from shared resources and
expertise, which can lead to cost savings and improved operational efficiency.
Fostering additional B2B partnerships is front and centre in our strategy to
achieve sustainable long-term growth.
Trading business investment and expansion
We continue to invest in our trading platforms, and we will be launching cash
equities and options across our various platforms over the next six months to
allow our clients better opportunities to trade or hedge existing portfolio
positions. Over the course of the next 12 months, we plan to introduce a new
multi-asset platform capable of trading a much wider range of instruments
over and above our traditional CFD and spread betting asset classes.
Investing business expansion
Our focus on the self-directed investment platform space continues, offering
improved technology, and client experience, with lower transaction costs and
fees. In addition to the successful release of our Invest UK platform, our CMC
Invest brand has been rolled out to our existing Australian stockbroking
business and I am pleased to announce that we will be imminently launching our
CMC Invest Singapore offering as well. In Singapore, CMC Invest will initially
offer equities, exchange-traded funds, options, and futures building on the
offering in Australia. The UK D2C market represents a significant opportunity,
with aggregate assets under administration ("AuA") standing at c.£290
billion¹ even after weaker capital markets seen over 2022.
Our Invest UK platform, which launched to the general public in September
2022, has delivered a number of milestones this year, with the current
offering now including equities, ETFs, ESG screening and flexible ISAs.
Expansion into mutual funds and SIPPs will shortly follow. We see significant
potential in the UK market, including great B2B opportunities, and while B2C
client numbers are currently low given the recent launch, we expect these to
grow significantly over the coming years.
In Australia, we have successfully migrated the Share Investing client base of
ANZ, which involved over 600,000 clients with total assets exceeding AUD$37
billion.
Whilst market activity had been lower over the past year, the migrated clients
will place CMC in a stronger position to deliver enhanced access to improved
mobile apps, education tools and resources, and lower brokerage commissions
across four major international markets and the local Australian market.
Institutional offering expansion via CMC Connect
In our institutional trading business, we continue to grow volumes as a
non-bank liquidity provider and are successfully forging new trading
relationships across the globe. We provide global market access to our
clients, enabling them to realise their revenue potential through multi-asset
liquidity provision and award-winning trading technology.
Through our CMC Connect brand, we offer larger institutions the ability
to develop a white-label trading proposition for their client base. This can
be custom-built in a bespoke fashion to best suit the needs of our partners.
By combining both our natural client order flow and a range of external
pricing sources we can offer consistent liquidity, market depth and best
execution.
(1) Platforum February 2023.
Technology at our core
CMC has been a pioneer of platform technology, providing technology-backed
solutions for B2C and B2B clients and partners for over 30 years. This gives
us the scale, leverage, and agility to launch new platforms and enter new
markets rapidly, as well as drive down transaction costs.
At CMC, we continue to embrace innovative technologies and new ways of working
to deliver our digital transformation. We have demonstrated our ability to
deliver complex work programmes in the recent delivery of our CMC Invest UK
platform, but this is just one example where our internal technology
development team continue to excel.
Through our new API ecosystem, we can add new products and markets quickly for
our B2B and B2C clients. We believe this breadth and level of flexibility
through one industry standard connection protocol, will be the best-in-class
B2B and B2C financial services platform on the market. Importantly, it will
also allow the Group to grow and add new products quickly so we can expand
into different markets around the world.
Our experience gained from the launch of our Invest UK offering will also
accelerate the delivery of additional functionality across both our existing
trading and institutional business over the coming year. One example is that
the Group is now in a strong position to offer cash equities on the Next
Generation platform to institutional clients.
Our product development is augmented with the use of cloud technology through
our strategic partner Amazon Web Services ("AWS") that provides
the foundations for rapid cost-effective delivery of our growth plans.
Through its cloud platform, CMC can take advantage of the scale, elasticity
and reduced operational burden offered by AWS to deliver an improved customer
experience faster and with greater stability.
Financial performance
Over the past 12 months global markets have been volatile, influenced by a
variety of factors, including the recovery from the COVID-19 pandemic,
geopolitical developments, and shifting economic policies particularly in the
adjustment to rising inflation and interest rates.
Activity across our platforms reflected these trends. The trading business
benefited from the volatility seen in global FX rates whilst on the other hand
activity was lower in our Invest Australia business with lower client activity
than had been seen in the prior year, primarily driven by the reversal seen in
global equity markets from the peaks of 2021. Nevertheless, complementing the
volatility on global exchange rates, commodity price fluctuations also
presented a significant opportunity for our clients. Our wide-ranging, and
expanding, product offering across both our trading and investing business
gives me confidence in our ability to deliver returns for shareholders
regardless of the wider macroeconomic environment.
Interest income increased substantially in the period at £13.9 million
(versus £0.8 million in 2022) due to increases in global interest rates and
resulting income from client and own cash balances. Overall, the Group net
operating income increased 2% versus the prior period, to £288.4 million. The
Group's total cost base increased by 24% from £190.4¹ million to £236.2
million during the year, mainly because of the significant investments in
people and technology to deliver our diversification and growth strategy.
Variable remuneration increased by £0.6(3) million to £16.7 million
reflecting the increase in staff over the period. Profit before tax at £52.2
million was £39.3(1) million lower than the previous year. Our dividend
policy remains unchanged, at 50% of profit after tax, therefore resulting in a
proposed final dividend per share of 3.90 pence.
Despite market volatility, the Group's underlying fundamentals remain strong
in the trading business. The Group's strategy of targeting and retaining
higher value, sophisticated clients continues to prove successful, with client
money levels remaining close to record highs seen in the prior year, an
encouraging indicator of future investing potential.
The number of active clients within Invest Australia has decreased by 12% to
216,665, with B2C clients increasing by 120% to 123,681, and B2B clients
decreasing by 51% to 92,984. Active clients within the trading business
decreased by 9% to 58,737 but monthly average active clients remain 25% above
pre-COVID-19 levels.
(1) 2022 figure restated, refer to note 33 of the 2023 Annual Report and
Financial Statements for more information.
(2) A definition of net available liquidity can be found on page 65 of the
2023 Annual Report and Financial Statements.
(3) 2022 figures restated to include social taxes on annual discretionary
bonus within variable remuneration.
The Group's balance sheet reflects its strong financial position, with net
available liquidity² of £239.2 million and a regulatory own funds
requirement ratio ("OFR") of 369% at year end. This compares with £245.9
million and a regulatory OFR ratio of 489% at year-end 2022.
Regulatory change
The regulatory framework has proved to be stable over the past 12 months. The
last meaningful change occurred on 29 March 2021, when ASIC implemented
measures regarding CFDs. These measures helped to harmonise regulatory
conditions globally, allowing the Group to focus on growing its business. As
expected, the new measures have reduced the notional value of retail client
trading in Australia and, combined with lower market volatility, resulted in
less active client trading than in the prior period.
In April 2022, ASIC extended its product intervention order for CFDs, which
imposes conditions on the issue and distribution of CFDs for another five
years, until 23 May 2027. This extension has provided greater regulatory
visibility for the Group, ensuring that it can continue to operate within the
regulatory framework while growing its business.
People and sustainability
As the focus on sustainability continues to shape the financial markets, our
objective is to equip our clients and employees with the necessary resources
and knowledge to make responsible and confident investment decisions. We
recognise and embrace the responsibility bestowed upon the finance industry to
contribute to the world-wide sustainability efforts. Furthermore, we
understand that incorporating sustainable practices can bring tangible
business benefits. These advantages not only bolster the long-term
sustainability of the Group but also empower us to fulfil our mission of
delivering our clients an unmatched technology-driven investment experience,
along with exceptional access to capital markets.
Clients
At the core of our business, we prioritise our clients and their satisfaction.
We remain committed to developing our platforms and investing in innovation
to ensure that our user experience remains industry leading, promoting client
retention and lifetime value. We are pleased to welcome over 600,000 new
clients to our Invest Australia business now fully transitioned from ANZ Share
Investing, and we look forward to providing them with new functionality and an
enhanced experience.
Furthermore, we have already embarked on partnering with new investors over
the long term through our Invest UK and Singapore platforms, aiming to help
them achieve prosperity at every stage of their investment journey.
Share buyback programme
On 15 March 2022, the Company initiated a share buyback programme of
up to £30 million, demonstrating its strong capital position and
consideration of ongoing investment requirements for the business. This
buyback programme was part of the Group's balanced approach to shareholder
returns, in conjunction with the current dividend policy and was completed on
17 October 2022.
Dividend
The Board has proposed a final dividend payment of £10.9 million, which
equates to 3.90 pence per share (compared to 8.88 pence in 2022), resulting in
a total dividend payment of 7.40 pence per share for the year (compared to
12.38 pence in 2022). This amount represents 50% of profit after tax, in
accordance with Group policy. This policy results in sharing the benefits of
profitable growth to shareholders through a distribution alongside retaining
an equal amount of profits in the business, which are largely equivalent to
cash generation, to invest in future growth. The Group Board considers the
liquidity and regulatory capital risks associated with paying a dividend in
accordance with the policy through the review of and consideration of stress
scenarios.
Outlook
We acknowledge the current uncertainty prevailing not only in the financial
markets but also in various sectors and industries. Our experience in the past
few years has reinforced the importance of being prepared for the unexpected
and the extraordinary.
Our platforms have demonstrated their ability to continue servicing clients
robustly even in extreme market volatility, and, as a result, we have earned
trust and a reputation for stability.
Over the past year we have made significant investments in our infrastructure,
which have served us well and will continue to do so, providing a solid
foundation for us to explore future opportunities.
Our performance this year reflects our focus on our trading and investment
businesses and ongoing success with B2B technology partnerships. We have a
large addressable market, and we see an enormous opportunity to grow with a
more predictable and stable revenue stream.
As we continue to evolve and expand our investment offering, we are leveraging
our technology to enter new markets and geographies.
We are looking forward to updating investors on our strategy's short-term
and long-term expansion.
Lord Cruddas
Chief Executive Officer
13 June 2023
Financial review
Net operating income of £288.4 million increased by £6.5 million compared to
2022, driven by increased client income, particularly in the institutional B2B
channel, and a significant increase in interest income as a result of global
interest rate rises. Operating expenses¹ increased by £45.6 million as a
result of the Group's significant investments in technology, people, and
product throughout the year along with the impact of the elevated inflationary
environment seen across all regions. This resulted in a statutory profit
before tax of £52.2 million (2022¹: £91.5 million).
The Group saw a decrease in active clients across both its trading and
investing businesses in 2023. The decrease in investing clients was a result
of unfavourable market conditions for long-term investors persisting
throughout much of the year, leading to lower overall client activity. On the
trading side, the decrease was largely driven by the cohort onboarded during
the "meme stock" period in the first calendar quarter of 2021. However, the
Group's continued focus on high value, sophisticated retail and institutional
clients resulted in higher client income year on year. The Group also exited
the year with significant prospects for future client growth, with the
development of the CMC Invest platforms in the UK and Singapore along with a
significant expansion in our institutional product offering giving multiple
channels for both client acquisition and revenue per client expansion.
Our ambitious digital transformation and technology investment plan has made
significant progress throughout 2023 with more frequent product enhancements
along with the retail launch of the CMC Invest platform in the UK and the
rollout of the platform in Singapore on track for release imminently. The
improvements to our product offering within the institutional space has also
seen an immediate impact, with notional volumes in the B2B business up 95%
year on year and our ambition for ongoing 20%+ CAGR in volumes remaining on
track.
The Group Own Funds Ratio ("OFR") remains strong at 369%. Our total available
liquidity decreased to £414.1 million (2022: £469.0 million) primarily due
to the share buyback programme that completed in October 2022. The strong
liquidity and capital position gives the Group an exceptional platform to
continue investing in its core strategic initiatives.
Summary income statement
£m 2023 2022 Change Change %
Net operating income 288.4 281.9 6.5 2%
Operating expenses¹ (233.9) (188.3) (45.6) (24%)
Operating profit 54.5 93.6 (39.1) (42%)
Finance costs¹ (2.3) (2.1) (0.2) (7%)
Profit before taxation¹ 52.2 91.5 (39.3) (43%)
PBT margin(1,2) 18.1% 32.5% (14.4%) -
Profit after tax¹ 41.4 71.5 (30.1) (42%)
Pence 2023 2022 Change Change %
Basic EPS¹ 14.7 24.6 (9.9) (40%)
Ordinary dividend per share(3) 7.4 12.4 (5.0) (40%)
Summary
Net operating income for the year increased by £6.5 million (2%) to £288.4
million, primarily through a result of strong growth in interest income and
the institutional business, offset by a decrease in revenue in the investing
business. On the trading side, increases in institutional volumes resulted in
higher client income, with retail client income remaining broadly flat despite
an overall drop in active clients, and risk management remaining solid, albeit
with client income retention falling slightly from the levels seen in 2022.
The investing business saw a decrease in trading activity as a result of
unfavourable market conditions throughout the year. 2023 net operating income
represents a record for the Group when excluding the COVID-19 impacted 2021.
Total costs¹ have increased by £45.8 million (24%) to £236.2 million, with
the primary driver being investments in our strategic initiatives resulting in
higher personnel costs, professional fees and technology costs. The high
global inflationary environment also impacted the cost base in all three
regions that the Group operates in.
Profit before tax¹(,)² decreased to £52.2 million from £91.5 million and
PBT margin¹(,2) decreased to 18.1% from 32.5%, reflecting the high level of
operational gearing in the business.
(1) 2022 figures restated - more information is available within note 33 of
the 2023 Annual Report and Financial Statements.
(2) Statutory profit before tax as a percentage of net operating income.
(3) Ordinary dividends paid/proposed relating to the financial year, based on
issued share capital as at 31 March of each financial year.
Net operating income overview
£m 2023 2022 Change %
Trading net revenue 233.1 229.6 1%
Investing net revenue (excl. interest income) 37.9 48.0 (21%)
Net revenue(1) 271.0 277.6 (2%)
Interest income 13.9 0.8 1,569%
Other operating income 3.5 3.5 -
Net operating income 288.4 281.9 2%
(1) CFD and spread bet gross client income net of rebates, levies and risk
management gains or losses and stockbroking revenue net of rebates.
Trading net revenue increased by £3.5 million (1%) driven by increases in
gross client income being largely offset by client income retention decreasing
to 77%. The increase in gross client income was a result of market volatility
broadly remaining at levels seen in H2 2022, resulting in higher levels of
client trading, despite an overall decrease in active clients. Client income
retention was lower during the period at 77% (2022: 80%) as a result of a
change in the mix of asset classes traded by clients. This resulted in revenue
per active client ("RPC") increasing by £393 (11%) to £3,968.
Trading active client numbers decreased by 9% in comparison to 2022; however,
monthly average active clients remain 25% above pre-COVID-19 levels,
demonstrating the structural shift in the Group's client base.
Investing net revenue was 21% lower at £37.9 million (2022: £48.0 million),
with an unfavourable market environment resulting from uncertainty around the
global economic outlook, inflationary pressures and the resultant impact on
interest rates dampening client activity.
B2B and B2C net trading revenue
2023 2022 Change %
£m
B2C B2B Total B2C B2B Total B2C B2B Total
Trading net revenue 173.0 60.1 233.1 185.5 44.1 229.6 (7%) 36% 1%
Investing net revenue 14.6 23.3 37.9 9.6 38.4 48.0 53% (39%) (21%)
Net revenue 187.6 83.4 271.0 195.1 82.5 277.6 (4%) 1% (2%)
B2C trading net revenue fell 7% due to decreases in active clients and lower
client income retention. The increase in B2B revenue was a result of the
enhancements to the institutional product offering attracting new clients and
higher trading levels from current clients, with an associated increase in net
revenue.
The investing business saw a shift from B2B to B2C as a result of the
completion of the transfer of the ANZ Bank Share Investing clients during the
year.
Regional performance overview: trading
2023 2022 Change %
Net trading revenue £m Gross client income £m(1) Active Clients RPC Net trading revenue £m Gross client income £m(1) Active Clients RPC Net trading revenue Gross client income(1) Active Clients RPCRPC
£
£
UK & Ireland 88.8 114.8 14,717 6,035 78.8 107.1 16,264 4,848 12% 7% (10%) 24%
Europe 50.2 61.3 14,254 3,520 43.7 51.1 15,747 2,778 15% 20% (9%) 27%
UK & Europe 139.0 176.1 28,971 4,797 122.5 158.2 32,011 3,827 13% 11% (9%) 25%
APAC & Canada 94.1 127.4 29,766 3,160 107.1 130.3 32,232 3,322 (12%) (2%) (8%) (5%)
Total 233.1 303.5 58,737 3,968 229.6 288.5 64,243 3,575 1% 5% (9%) 11%
(1) Spreads, financing and commissions on CFD client trades.
Trading
UK and Europe
Net revenue and client income grew by £16.5 million (13%) and £17.8 million
(11%) to £139.0 million and £176.0 million respectively. This was despite a
9% (3,040) decrease in active clients, resulting in RPC growth of 25% (£970).
UK
Client income increased by 7% against the prior year to £114.8 million (2022:
£107.1 million), driven by growth in the B2B business. The drop in active
clients was predominantly driven by the B2C business, which saw a commensurate
drop in client income.
Europe
Europe comprises offices in Austria, Germany, Norway, Poland and Spain.
Client income and net revenue grew by 20% (£10.2 million) and 15%
(£6.5 million) to £61.3 million and £50.2 million respectively, driven by
B2B growth. RPC increased by 27% to £3,520 (2022: £2,778) due to the higher
net revenue achievement combined with a 9% (1,493) decrease in the number of
active clients.
APAC & Canada
Our APAC & Canada business services clients from our Sydney, Auckland,
Singapore, Toronto and Shanghai offices along with other regions where we have
no physical presence. Active clients were down 8% to 29,766 (2022: 32,232);
however, the region continues to retain its high value client base resulting
in a comparatively smaller drop in client income of 2% to £127.4 million
(2022: £130.3 million).
Investing
Investing net revenue from the Invest Australia business fell 21% to
£37.9 million (2022: £48.0 million) impacted by heightened geopolitical
uncertainties and the resultant inflationary pressures, dampening investor
appetite for cash equities. Partially offsetting the impact was a material
increase in interest income at £6.5 million (2022: £0.9 million).
While active clients decreased 12% to 217k (2022: 246k), client logins across
all platforms were up 5%, indicating strong client engagement and readiness to
trade at the right market opportunity. Further, AuA at AUD$73 billion,
remained stable despite reduced discretionary expenditure.
Interest income
Global interest rates, having remained at historically low levels for many
years, saw significant increases in all regions from the second half of
calendar year 2022, resulting in interest income increasing to £13.9 million
from £0.8 million in 2022.
The majority of the Group's interest income is earned through our segregated
client deposits in our UK, Australia, New Zealand and Invest Australia
subsidiaries. Our investing business generated 47% of the Group's interest
income, with 53% being generated in our trading business. The Group
continually monitors its returns on both own and segregated client deposits to
ensure optimal returns.
Expenses
Total costs(1) increased by £45.8 million (24%) to £236.2 million.
£m 2023 2022 Change %
Net staff costs - fixed (excluding variable remuneration)¹ 84.9 68.8 (23%)
IT costs 33.7 28.7 (17%)
Marketing costs 32.3 24.5 (32%)
Sales-related costs 6.0 2.8 (110%)
Premises costs² 5.7 4.5 (27%)
Legal and professional fees 8.6 8.6 -
Regulatory fees 9.4 5.6 (69%)
Depreciation and amortisation² 15.6 12.4 (26%)
Irrecoverable sales tax 3.0 2.8 (7%)
Other 18.0 13.5 (33%)
Operating expenses excluding variable remuneration² 217.2 172.2 (26%)
Variable remuneration¹ 16.7 16.1 (3%)
Operating expenses including variable remuneration² 233.9 188.3 (24%)
Interest² 2.3 2.1 (7%)
Total costs² 236.2 190.4 (24%)
Net staff costs
Net staff costs including variable remuneration increased £16.7 million (20%)
to £101.6 million following significant investment across the business,
particularly within technology, marketing and product functions, to support
the delivery of strategic projects. The global inflationary environment and
post COVID-19 employment market also resulted in growth in gross pay within
certain areas of the business to ensure the Group continues to remunerate
staff in line with market rates to assist talent retention within the
organisation. Variable remuneration increased in line with headcount growth,
offset by reductions in the Group discretionary bonus in line with
performance.
£m 2023 2022 Change %
Gross staff costs excluding variable remuneration¹ 92.9 72.4 (28%)
Performance related pay¹ 14.5 13.7 (5%)
Share-based payments 2.2 2.4 8%
Total employee costs 109.6 88.5 (24%)
Contract staff costs 3.1 3.9 20%
Net capitalisation (11.1) (7.5) 48%
Net staff costs 101.6 84.9 (20%)
(1) 2022 figures restated to include social taxes for annual discretionary
bonus within variable remuneration. Social tax for annual discretionary bonus
were previously included within net staff costs.
(2) 2022 figures restated - more information is available within note 33 in
the 2023 Annual Report and Financial Statements.
Depreciation and amortisation costs
Depreciation and amortisation have increased by £3.2 million (26%) to
£15.6 million, primarily due to amortisation of staff development costs
which were capitalised at the end of the previous financial year and increased
depreciation and amortisation of IT assets delivering the product roadmap.
Marketing costs
Marketing costs increased by £7.8 million (32%) to £32.3 million driven by
£2.6 million of marketing for the new Invest UK platform, £2.4 million of
additional marketing within Invest Australia and increased spend across all
regions within the trading business.
Sales-related costs
Sales-related costs increased by £3.2 million (110%) to £6.0 million
primarily due to a release of provisions for client complaints within 2022 and
additional client-related costs during the year following the relaxing of
COVID-19 restrictions.
IT costs
IT costs increased by £5.0 million (17%) to £33.7 million as a result of a
larger IT systems footprint given the expanded product offering.
Regulatory fees
Regulatory fees increased by £3.8 million (69%) primarily as a result of a
higher FSCS levy.
Premises costs
Premises costs increased £1.2 million (27%) due to global inflationary
pressures, predominantly across utilities.
Other expenses
Other costs increased due to a number of factors, with the main drivers being
FX losses on balance sheet revaluation and higher bank charges being partially
offset by lower bad debt charges.
Taxation
The effective tax rate for 2023 was 20.6%, down from the 2022 effective tax
rate, which was 21.9%. The effective tax rate has decreased in the period due
to a lower proportion of Group PBT being generated in Australia, where the
corporation tax rate is higher than the UK.
Profit after tax for the year
The decrease in profit after tax for the year of £30.1 million (42%) was due
to higher net operating income being offset by increases in expenses incurred
as part of the investment roadmap and the impacts of the global inflationary
environment.
Dividend
Dividends of £35.0 million were paid during the year (2022: £72.6 million),
with £25.3 million relating to a final dividend for the prior year paid
in August 2022, and a £9.8 million interim dividend paid in January 2023
relating to current year performance. The Group has proposed a final ordinary
dividend of 3.90 pence per share (2022: 8.88 pence per share).
Non-Statutory Summary Group Balance Sheet
£m - 2023 2022
Intangible assets 35.3 30.4
Property, plant and equipment 14.1 13.0
Net lease liability (2.7) (4.1)
Fixed Assets 46.7 39.3
Cash and cash equivalents 146.2 176.6
Net amounts due from brokers 179.3 196.5
Financial investments 30.6 27.9
Other assets 2.0 13.4
Net derivative financial instruments 1.1 (0.4)
Title transfer funds (49.5) (44.1)
Own Funds 309.7 369.9
Working capital 8.2 (43.0)
Net tax (payable) / receivable 8.6 -
Deferred tax net asset 0.8 2.7
Net Assets 374.0 368.9
The table above is a non-statutory view of the Group Balance Sheet and line names do not necessarily have their statutory meanings. A reconciliation to the primary statements can be found on page 188 in the 2023 Annual Report and Financial Statements.
2022 figures restated, more information is available within note 33 of the 2023 Annual Report and Financial Statements.
Fixed assets
Intangible assets increased by £4.9 million to £35.3 million (2022: £30.4 million) as a result of the capitalisation of internal resource dedicated to the development of new products and functionality in 2023.
Net lease liability decreased by £1.4 million during the year due to the net
length of lease contracts being lower at the end of 2023 than the prior year.
Own funds
Net amounts due from brokers relate to cash held at brokers either for initial margin or balances in excess of this for cash management purposes. The reduced client trading exposures throughout the year, particularly in equities, resulted in decreases in holdings at brokers for hedging purposes.
Cash and cash equivalents have decreased during the year primarily as a result of the Group's share buyback scheme that commenced in March 2022 and completed in October 2022 and £9.0 million payments to ANZ Bank to complete the transition of its Share Investing clients, partially offset by the Group's operating performance, in addition to the Group holding less cash at our brokers for margining purposes.
Financial investments mainly relate to eligible assets held by the Group as core liquid assets used to meet Group regulatory liquidity requirements.
Title transfer funds increased by £5.4 million, reflecting the high levels of account funding by a small population of mainly institutional clients.
Working capital
The £51.2 million decrease in working capital requirements year on year is primarily as a result of the increased market volatility in Q4 of the prior year, which significantly increased the value of stockbroking payables yet to settle at the prior year end.
Net tax receivable
Tax moved to a net receivable position due to overpayments in the UK and Australia.
Deferred tax net asset
Deferred net tax assets decreased as a result of accelerated research and development tax deductions in the UK and Australia.
Impact of climate risk
We have assessed the impact of climate risk on our balance sheet and have concluded that there is no material impact on the Financial Statements for the year ended 31 March 2023.
Regulatory capital resources
The Group and its UK regulated subsidiaries fall into scope of the FCA's Investment Firms Prudential Regime ("IFPR"), with the Group's German subsidiary, CMC Markets Germany GmbH, subject to the provisions of the Investment Firms Regulation and Directive ("IFR/IFD").
The Group's total capital resources increased to £326.8 million (2022: £311.5 million) with increases in retained earnings for the year being partly offset by the interim and proposed final dividend distribution. In accordance with the IFPR all deferred tax assets must now be fully deducted from core equity tier 1 capital ("CET1 capital").
At 31 March 2023 the Group had a total OFR ratio of 369%, down from 489% in 2022 as a result of an increase in own funds requirements.
The following table summarises the Group's capital adequacy position at the year end. The Group's approach to capital management is described in note 30 in the 2023 Annual Report and Financial Statements.
£m 2023 2022
CET1 capital¹ 363.1 344.5
Less: intangibles and net deferred tax assets(2) (36.3) (33.0)
Total capital resources after relevant deductions 326.8 311.5
Own funds requirements ("OFR")(3) 88.6 63.6
Total OFR ratio (%)(4) 369% 489%
(1) Total audited capital resources as at the end of the financial year of
£374.0 million, less proposed dividends.
(2) In accordance with the IFPR, all deferred tax assets must be fully
deducted from CET1 capital. Deferred tax assets are the net of assets and
liabilities shown in note 14 of the 2023 Annual Report and Financial
Statements.
(3) The minimum capital requirement in accordance with MIFIDPRU 4.3.
(4) The OFR ratio represents CET1 capital as a percentage of OFR.
Liquidity
The Group has access to the following sources of liquidity 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 consist mainly of cash and
cash equivalents. They also include investments in UK government securities,
of which the majority are held to meet the Group's regulatory liquidity
requirements, short-term financial investments, amounts due from brokers and
amounts receivable/payable on the Group's derivative financial instruments.
For more details refer to note 30 of the 2023 Annual Report and Financial
Statements.
· 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 does not require clients to sign a TTCA in order to be treated as a
professional client and as a result their funds remain segregated. The Group
considers these funds as an ancillary source of liquidity and places no
reliance on them for its stability.
· Available committed facility (off-balance sheet liquidity): The
Group has access to a facility of up to £55.0 million (2022: £55.0 million)
in order to fund any potential fluctuations in margins required to be posted
at brokers to support the risk management strategy. The facility consists of
a one-year term facility of £27.5 million (2022: £27.5 million) and a
three-year term facility of £27.5 million (2022: £27.5 million). 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. There was no
drawdown on the facility as at 31 March 2023 (2022: £nil).
The Group's use of total available liquidity resources consists of:
· Blocked cash: Amounts held for operational purposes to meet the
requirements of local regulators and exchanges, in addition to liquidity in
subsidiaries in excess of local segregated client requirements to meet
potential future client requirements. Cash committed to the purchase of shares
within a buyback programme is also classified as blocked cash. This was £nil
at 31 March 2023 (2022: £28.0 million).
· Initial margin requirement at broker: The total GBP equivalent
initial margin required by prime brokers to cover the Group's hedge derivative
and cryptocurrency positions.
Own funds have decreased by £60.2 million to £309.7 million (2022: £369.9 million).
£m 2023 2022
Own funds 309.7 369.9
Title transfer funds 49.4 44.1
Available committed facility 55.0 55.0
Total available liquidity 414.1 469.0
Less: blocked cash (68.8) (103.1)
Less: initial margin requirement at broker (106.1) (120.0)
Net available liquidity 239.2 245.9
Of which: held as liquid asset requirement 30.6 27.9
Client money
Total segregated client money held by the Group for trading clients was
£549.4 million at 31 March 2023 (2022: £546.6 million).
Client money represents the capacity for our clients to trade and offers an
underlying indication of the health of our client base.
Client money governance
The Group segregates all money and assets held by it on behalf of clients
excluding a small number of large clients which have entered a TTCA with the
firm. This is in accordance with or exceeding applicable client money
regulations in countries in which it operates. The majority of client money
requirements fall under the Client Assets Sourcebook ("CASS") rules of the FCA
in the UK, BaFin in Germany and ASIC in Australia. All segregated client funds
are held in dedicated client money bank accounts with major banks that meet
strict internal criteria and are held separately from the Group's own money.
The Group has comprehensive client money processes and procedures in place to
ensure client money is identified and protected at the earliest possible point
after receipt as well as governance structures which ensure such activities
are effective in protecting client money. The Group's governance structure is
explained further on pages 79 to 86 of the 2023 Annual Report and Financial
Statements.
Viability statement
The Directors of the Company have considered the Group's current financial
position and future prospects and have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall
due over the period of the assessment. In reaching this conclusion, both the
prospects and viability considerations have been assessed.
Long-term prospects
During the year the Group's risk management has continued to be optimised and
strategic initiatives have progressed well, with the launch of the Invest UK
platform to retail clients during the year, Invest Singapore remaining on
track for delivery in early 2024 and improvements to the Group's institutional
product offering being rolled out throughout the year. This diversification
into new geographies and products is anticipated to help the Group achieve its
target of 30% revenue growth over the next three years. On this basis, the
Group maintains its belief that it will continue to demonstrate delivery of
sufficient cash generation to support operations.
Conservative expectations of future business prospects through delivery of the
Group strategy (see pages 24 and 25 of the 2023 Annual Report and Financial
Statements) are presented to the Board through the budget process. The annual
budget process consists of a detailed bottom-up process with a 12-month
outlook which involves input from all relevant functional and regional heads.
This includes a collection of resource assumptions required to deliver the
Group strategy and associated revenue impacts with consideration of key risks.
This is used in conjunction with external assumptions such as a
region-by-region review of the regulatory environment and incorporation of any
anticipated regulatory changes, revenue modelling, market volatility, interest
rates and industry growth that could materially impact the business. The
process also covers liquidity and capital planning and, in addition to the
granular budget, a three-year outlook is prepared using assumptions on
industry growth, the effects of regulatory change, revenue growth from
strategic initiatives and cost growth required to support initiatives. The
budget was reviewed and approved by the Board at the March 2023 Board meeting.
The process for ongoing review and monitoring of risks is outlined in the Risk
Management section of the 2023 Annual Report and Financial Statements (pages
67 to 73). The Board approved budget is then used to set targets across the
Group.
The Directors concluded that three years is an appropriate period over which
to provide a viability statement as this is the longest period over which the
Board reviews the success of Group strategic projections and this timeline is
also aligned with the period over which internal stress testing occurs.
Viability
The Group performs regular stress testing scenarios. Available liquidity and
capital adequacy are central to understanding the Group's viability and stress
scenarios, such as adverse market conditions and adverse regulatory change,
and are considered in the Group's Internal Capital Adequacy and Risk
Assessment ("ICARA") document, which is shared with the FCA on request. The
results of the stress testing showed that, due to the robustness of the
business, the Group would be able to withstand scenarios, including combined
scenarios across multiple principal risks, over the financial planning period
by taking management actions that have been identified within the scenario
stress tests.
The Group's revenue, which is driven by client transaction fees and interest
income on both own and client funds, has seen increases resulting from client
trading activity and increases in global interest rates during the year,
despite lower overall active client numbers. Projections of the Group's
revenue have included revenue benefits from new product releases over the
three-year period, which will serve to reduce risks to the Group's viability
as a result of increased revenue diversity. In addition, conservative
estimates of market volatility were assumed for the current businesses over
the three-year period. Projections also include assumptions on interest rates
that are derived from central bank rate forecasts, where available. No
significant changes to regulatory capital and liquidity requirements have been
assumed over the forecasting period.
In addition to considering the above, the Group also monitors performance
against pre-defined budget expectations and risk indicators, along with
strategic progress updates, which provide early warning to the Board, allowing
management action to be taken where required including the assessment of new
opportunities.
The Directors have no reason to believe that the Group will not be viable over
a longer period, given existing and known future changes to relevant
regulations.
Going concern
The Group satisfies its ongoing working capital requirements through its
available liquid assets. The Group's liquid assets exclude any funds held in
segregated client money accounts. In assessing whether it is appropriate to
adopt the going concern basis in preparing the Financial Statements, the
Directors considered the resilience of the Group, taking account of its
liquidity position and cash generation, the adequacy of capital resources, the
availability of external credit facilities and the associated financial
covenants, stress testing of liquidity and capital adequacy that take into
account the principal risks faced by the business. Further details of these
principal risks and how they are mitigated and managed are documented in the
Risk Management section on page 67 of the 2023 Annual Report and Financial
Statements.
Having given due consideration to the nature of the Group's business, and
risks emerging or becoming more prominent, the Directors consider that the
Company and the Group are going concerns and the Financial Statements are
prepared on that basis.
Euan Marshall
Chief Financial Officer
13 June 2023
PRINCIPAL RISKS
The Group's business activities naturally expose it to strategic, financial
and operational risks which are inherent in the nature of the business it
undertakes and the financial, market and regulatory environments in which it
operates. The Group recognises the importance of understanding and managing
these risks and that it cannot place a cap or limit on all of the risks to
which it is exposed. However, effective risk management ensures that risks are
managed to an acceptable level.
To assist the Board in discharging its responsibilities, it has in place a
Risk Management Framework to support identification, mitigation and management
of risk exposures. The Group regularly reviews the risk framework, risk
capabilities and tools to maintain effective ongoing risk management to ensure
it remains commensurate with current operations alongside its aspirations and
diversification objectives.
During the period, an external review was commissioned of the Group's
Enterprise Risk Management ("ERM'') Framework and several recommendations for
improvement were made which are being taken forward by the business.
Heightened monitoring was in place during periods of market volatility and,
although the Group was not materially impacted, lessons learnt were identified
and will be actioned accordingly.
The Board, through its Group Risk Committee, is ultimately responsible for the
implementation of an appropriate risk strategy and the main areas which it
encompasses are:
· identifying, evaluating and monitoring the principal and emerging
risks to which the Group is exposed;
· implementing the risk appetite of the Board in order to achieve
its strategic objectives; and
· establishing and maintaining governance, policies, systems and
controls to ensure the Group is operating within the stated risk appetite.
Risk management is acknowledged to be a core responsibility of all colleagues
at CMC and the oversight of risk and controls management is provided by
Management and Board Committees as well as the Group risk and compliance
functions.
The Group's risk management and internal controls framework is designed to
manage rather than eliminate risk and follows the "three lines of defence"
model. Risk management and the implementation of controls is the
responsibility of the business teams which constitute the first line.
Oversight and guidance are provided primarily by the Group's risk and
compliance functions which constitute the second line, and third line
independent assurance is provided by the Group's internal audit function. This
construct ensures that the Group is effectively identifying, managing and
reporting its risks.
The Board has implemented a governance structure which is appropriate for the
operations of an online financial services group and is aligned to the
delivery of the Group's strategic objectives including its diversification
into investing businesses. The structure is regularly reviewed and monitored
and any changes are subject to Board approval. Furthermore, management
regularly considers updates to the processes and procedures to embed good
corporate governance throughout the Group.
The Board undertakes a robust assessment of the principal risks and emerging
risks facing the Group as well as a review of risk appetite on at least an
annual basis.
The Group's risk appetite is an articulation of the nature and type of risks
that the Group is willing to accept, or wants to avoid, in order to achieve
its business objectives and strategy. This process is assessed as part of the
Board's review of the Group's Risk Appetite Statement ("RAS") which is a
unified view of the Group's risk appetites and tolerances. It is important
that the integrated risk appetite remains in line with business strategy to
support the Group's strategic objectives. Risk appetite plays a key part in
the Group's risk, capital and liquidity management, with the setting of risk
appetites being an essential element in achieving effective risk control
across the Group and achieving positive client outcomes.
The Board has carried out an assessment of the emerging and principal risks
facing the Group, including those that would threaten its business model,
future performance, solvency, or liquidity. We have determined that climate
change will remain categorised as an emerging risk due to the result of the
current assessment which concluded that critical thresholds are not expected
to breach. More information is available within the TCFD report on pages 50 to
59 of the 2023 Annual Report and Financial Statements.
The principal risks reported here are those attracting the greatest focus, and
to which the Group has the largest exposure. The principal risks are linked to
risk appetite and key risk indicator ("KRI'') measures for reporting. In
assessing all risks, CMC considers the reputational impacts of risks
materialising and the impacts on its clients, of negative publicity, and risks
to the achievement of business objectives. The following top principal risks
were considered, their management is set out in note 30 to the Financial
Statements, and they are:
· Regulatory and compliance risk: there has been an increasing
conduct focus on the sector from various regulators globally. CMC must meet
regulatory expectations including delivering in line with the upcoming FCA
Consumer Duty regime to help ensure the right outcomes for clients and in that
regard the Group has established a project to deliver the regulation. The
Group's approach to regulatory horizon scanning continues to be strengthened
to ensure we keep abreast of key regulatory changes. Regulatory projects
within the Group remain prioritised to ensure compliance and ongoing process
improvement.
· Business change risk: as we continue to grow the business and
implement strategic change, project delivery risk naturally becomes
heightened. Some challenges have included project pipeline build-up and rapid
re-prioritisation; however, the establishment of delivery pillars with
ring-fenced resources has helped maintain dedicated resource pools and
allocations to strategic projects.
· People risk: our people are the key to delivering on our purpose
and strategy. Failure in our ability to attract and retain key talent puts at
risk our strategic delivery and slows our velocity and our ability to maintain
our high service standards. While a number of key people metrics are positive
(e.g. retention rates and number of open vacancies), we still face a number of
market headwinds and continue to monitor in this regard.
· Information and data security risk: cyber-criminal activity continues
to increase in sophistication, severity and frequency and attacks in the form
of ransomware and Distributed Denial of Service ("DDoS'') are particularly
relevant for the Group given the online nature of the business. Dedicated
specialist in-house IT security resource, strong partnerships with leading
security vendors and continued improvement to internal controls and governance
help to mitigate the risk to CMC.
Further information on the structure and workings of the Board and Management
Committees is included in the corporate governance report on pages 79 to 118
of the 2023 Annual Report and Financial Statements.
Principal Risk Risk Description Management and mitigation
Business and strategic risks Acquisitions and disposals risk The risk that mergers, acquisitions, disposals or other partnership · Robust corporate governance structure including strong challenge from
arrangements made by the Group do not achieve the stated strategic objectives independent Non-Executive Directors.
or that they give rise to ongoing or previously unidentified liabilities.
· Group Head of Corporate Development appointed ensuring alignment of
business and strategic risk.
· Vigorous and independent due diligence process.
· Align and manage the businesses to Group strategy as soon as possible after
acquisition.
Strategic / business model risk The risk of an adverse impact resulting from the Group's strategic decision · Strong governance framework established including five independent
making as well as failure to exploit strengths or take opportunities. It is a Non-Executive Directors including the Chairman sitting on the Board.
risk which may cause damage or loss, financial or otherwise, to the Group as a
whole · Robust governance, challenge and oversight from independent Non-Executive
Directors.
· Managing the Group in line with the agreed strategy, policies and risk
appetite.
Preparedness for regulatory change risk The risk that changes to the regulatory framework the Group operates in impact · Active dialogue with regulators, auditor, consultants and industry bodies.
the Group's performance.
· Monitoring of market and regulator sentiment towards the product offering
Such changes could result in the Group's product offering becoming less by way of ongoing horizon scanning (utilised via an automatic screening tool
profitable, more difficult to offer to clients, or an outright ban on the as well as monthly key stakeholder meetings).
product offering in one or more of the countries where the Group operates.
· Monitoring by, and advice from, compliance department on impact of actual
and possible regulatory change.
· A business model and proprietary technology that are responsive to changes
in regulatory requirements.
Reputational risk The risk of damage to the Group's brand or standing with shareholders, · The Group is conservative in its approach to reputational risk and operates
regulators, existing and potential clients, the industry and the public at robust controls to ensure significant risks to its brand and standing are
large. appropriately mitigated.
· Proactive engagement with the Group's regulators and active participation
with trade and industry bodies as well as positive development of media
relations with strictly controlled media contact.
· Systems and controls (including brand tracking) to ensure we continue to
offer a good service to clients and quick and effective response to address
any potential issues.
Financial risks Credit and counterparty risk The risk of losses arising from a counterparty failing to meet its obligations Client counterparty risk
as they fall due.
· The Group's management of client counterparty risk is significantly aided
by automated liquidation functionality. This is where the client positions are
reduced should the total equity of the account fall below a pre-defined
percentage of the required margin for the portfolio held.
· Tiered margin requires clients to hold more collateral against bigger or
higher risk positions.
· Mobile phone access allowing clients to manage their portfolios on the
move.
· Guaranteed stop loss orders allow clients to remove their chance of debt
from their position(s).
· Position limits which can be implemented on an instrument and client level.
The instrument level enables the Group to control the total exposure the Group
takes on in a single instrument. At a client level this ensures that the
client can only reach a pre-defined size in any one instrument.
· Monitoring and reporting counterparty exposures against policy limits
· Monitoring the creditworthiness of counterparties by observing and
reporting key quantitative metrics (including, where available: share price;
relative performance against index; CDS spreads; volatility skew; and credit
ratings), as well as qualitatively, by reviewing industry commentary.
Insurance risk The risk that an insurance claim by the Group is declined (in full or in part) · Use of a reputable insurance broker who ensures cover is placed with
or there is insufficient insurance coverage. financially secure insurers.
· Annual review of all policies to ensure comprehensive levels of cover are
maintained.
· Rigorous claim management procedures are in place with the broker.
· Full engagement with relevant business areas regarding risk and coverage
requirements and related disclosure to brokers and insurers
Tax and financial reporting risk The risk that financial, statutory or regulatory reports including VAT and · Robust process of checking and oversight in place to ensure accuracy.
similar taxes are submitted late, are incomplete or are inaccurate.
· Knowledgeable and experienced staff undertake and overview the relevant
processes.
Liquidity risk The risk that there is insufficient available liquidity to meet the · Risk management is carried out by a central LRM team under policies
liabilities of the Group as they fall due. approved by the Board and in line with the FCA's Investment Firms Prudential
Regime ("IFPR"). The Group utilises a combination of liquidity forecasting and
stress testing to identify any potential liquidity risks under both normal and
stressed conditions.
· The provision of timely daily, weekly and monthly liquidity reporting and
real-time broker margin requirements to enable strong management and control
of liquidity resources.
· Maintaining regulatory and Board approved buffers and managing liquidity
to a series of Board approved metrics and key risk indicators.
· A committed bank facility of up to £55 million is in place (access to
the facility is tested regularly) and provides a means to meet its
liabilities, including funding broker margin, if CMC's own on balance sheet
liquidity resources are insufficient at a point in time.
· A formal Contingency Funding Plan ("CFP") is in place that is designed to
aid senior management to assess and prioritise actions in a liquidity stress
scenario.
For further information see note 30 to the 2023 Annual Report and Financial
Statements.
Market risk The risk that the value of our residual portfolio will decrease due to changes · Trading risk management monitors and manages the exposures it inherits from
in market risk factors. The three standard market risk factors are price clients on a real-time basis and in accordance with Board-approved appetite.
moves, interest rates and foreign exchange rates.
· The Group predominantly acts as a market maker in linear, highly liquid
financial instruments in which it can easily reduce market risk exposure
through its prime broker arrangements. This significantly reduces the Group's
revenue sensitivity to individual asset classes and instruments.
· Financial risk management runs stress scenarios on the residual
portfolio, comprising a number of single and combined company-specific and
market-wide events in order to assess potential financial and capital adequacy
impacts to ensure the Group can withstand severe moves in the risk drivers to
which it is exposed.
For further information see note 30 to the 2023 Annual Report and Financial
Statements.
Operational risks Business change risk The risk that business change projects are ineffective, fail to deliver stated · Governance process in place for all business change programmes with
objectives, or result in resources being stretched to the detriment of Executive and Board oversight and scrutiny.
business-as-usual activities.
· Key users engaged in development and testing of all key change
programmes.
· Significant post-implementation support, monitoring and review procedures
in place for all change programmes.
· Strategic benefits and delivery of change agenda communicated to
employees.
Business continuity and disaster recovery risk The risk that a business continuity event or system failure results in a · Multiple data centres and systems to ensure core business activities and
reduced ability or inability to perform core business activities or processes. processes are resilient to individual failures.
· Remote access systems to enable staff to work from home or other
locations. in the event of a disaster recovery or business continuity
requirement.
· Periodic testing of business continuity processes and disaster recovery.
· Robust incident management processes and policies to ensure prompt
response to significant systems failures or interruptions.
Financial crime risk The risk that the Group is not committed to combatting financial crime and · Establishing and maintaining a risk-based approach towards assessing and
ensuring that our platform and products are not used for the purpose of money managing the money laundering, terrorism financing, anti-bribery and
laundering, terrorism financing, antibribery and corruption, market abuse, corruption, market abuse, fraud or sanctions evasion risks to the Group.
fraud or sanctions evasion.
· Establishing and maintaining risk- based Know Your Customer ("KYC")
procedures, including Enhanced Due Diligence ("EDD") for those customers
presenting higher risk, such as Politically Exposed Persons ("PEPs").
· Establishing and maintaining risk-based systems for surveillance and
procedures to monitor ongoing customer activity.
· Procedures for reporting suspicious activity internally and to the
relevant law enforcement authorities or regulators as appropriate.
· Establishing and maintaining procedures relating to mitigation of risk
derived from clients that are repeat offenders of market abuse.
· Maintenance of appropriate records for the minimum prescribed record
keeping periods
· Training and awareness for all employees.
· Provision of appropriate MI and reporting to senior management of the
Group's compliance with the requirements
· Oversight of Group entities for financial crime in line with the Group
Anti Money Laundering / CTF oversight framework.
Information and data security risk The risk of unauthorised access to or external disclosure of client or Company · Dedicated information security and data protection expertise within the
information, including those caused by cyber attacks. Group
· Technical and procedural controls implemented to minimise the occurrence
or impact of information security and data protection breaches.
· Access to information and systems only provided on a "need-to-know" and
"least privilege" basis consistent with the user's role and also requires the
appropriate authorisation.
· Regular system access reviews implemented across the business.
Information technology and infrastructure risk The risk of loss of technology services due to loss of data, system or data · Continuous investment in increased functionality, capacity and
centre or failure of a third party to restore services in a timely manner. responsiveness of systems and infrastructure, including investment in software
that monitors and assists in the detection and prevention of cyber attacks.
· Software design methodologies, project management and testing regimes to
minimise implementation and operational risks
· Constant monitoring of systems performance and, in the event of any
operational issues, changes to processes are implemented to mitigate future
concerns.
· Operation of resilient data centres to support each platform.
· Systems and data centres designed for high availability and data
integrity enabling continuous service to clients in the event of individual
component failure or larger system failures.
· Dedicated Support and Infrastructure teams to manage key production
systems. Segregation of duties between development and production support
teams where possible to limit development access to production systems.
Legal (commercial / litigation) risks The risk that disputes lead to litigation proceedings. · Compliance with legal and regulatory requirements including relevant
codes of practice.
· Early engagement with legal advisers and other risk managers, and where
appropriate external counsel.
· Appropriately managed complaints which have a legal/litigious aspect.
· An early assessment of the impact and implementation of changes in the
law.
Operations (processing) risk The risk that the design or execution of business processes is inadequate or · Investment in system development and upgrades to improve process
fails to deliver an expected level of service and protection to client or automation.
Company assets
· Implementation of robust, preventative controls and processes as
required.
· Enhanced staff training and oversight in key business processing areas.
· Monitoring and robust analysis of errors and losses and underlying
causes.
Procurement and outsourcing risk The risk of third-party organisations inadequately performing, or failing to · Responsibility for procurement, vendor management and general outsourcing
provide or perform the outsourced activities or contractual obligations to the owned by the Chief Financial Officer under the Senior Managers and
standards required by the Group. Certification Regime, with the accountability to ensure compliance to the
Group procurement process and completion of key activities, based on the risk
profile of the service required by the organisation.
· Outsourcing only employed where there is a strategic gain in resource or
experience, which is not available in house.
· Outsourcing arrangements require assessment as to their materiality to
the business. Material outsourcing arrangements need to be reported to the
FCA.
· Due diligence performed on service supplier ahead of outsourcing being
agreed.
· Service level agreements in place and regular monitoring of performance
undertaken.
People risk The risk of loss of key staff, having insufficient skilled and motivated · The Board has directed that the Group maintains active People, Succession
resources available or failing to operate people related processes to an and Resource Plans for the Group and all key individuals and teams, which will
appropriate standard. mitigate some of the risk of loss of key persons. It will adopt policies and
strategies commensurate with its objectives of:
- attracting and nurturing the best staff;
- retaining and motivating key individuals;
- managing employee related risks;
- achieving a high level of employee engagement;
- developing personnel capabilities;
- optimising continuous professional development; and
- achieving a reputation as a good employer with an equitable
remuneration policy.
Regulatory and compliance risk The risk of regulatory sanction or legal proceedings as a result of failure to · Internal audit outsourced to an independent third-party professional
comply with regulatory, statutory or fiduciary requirements or as a result services firm.
of a defective transaction.
· Effective compliance oversight and advisory/technical guidance provided
to the business.
· Comprehensive monitoring and surveillance programmes, policies and
procedures designed by compliance.
· Strong regulatory relations and regulatory horizon scanning, planning and
implementation.
· Controls for appointment and approval of staff holding a senior
management or certified function and annual declarations to establish ongoing
fitness and propriety.
· Governance and reporting of regulatory risks through Group and local
Boards, the Group Audit Committee and the Group Risk Committee.
· Robust anti-money laundering controls, client due diligence and sanctions
checking.
Conduct risk The risk that through our culture, behaviours or practices we fail to meet the · Treating Customers Fairly ("TCF") and Conduct Committees are in place
reasonable expectations of our customers, shareholders or regulators. across the Group.
· Robust Management Information focusing on good client outcomes.
· Effective conduct policy ensuring conduct-related matters, including any
serious concerns, breaches of the Group or local Codes of Conduct, serious
complaints specific to an employee or any concerns with a senior management or
certified function are addressed
Client money segregation risk The risk that the Group fails to implement adequate controls and processes to · The Client Money and Asset Protection Committee ("CMAPC") is a
ensure that client money and assets are segregated in accordance with fundamental part of the Group's client money and assets governance framework.
applicable regulations.
· Robust Client Money and Asset Protection policy.
· Comprehensive Client Money resolution pack.
DIRECTORS' STATEMENT PURSUANT TO THE FCA'S DISCLOSURE GUIDANCE AND
TRANSPARENCY RULES
The directors are required by the Disclosure Guidance and Transparency Rules
to include a management report containing a fair review of the business and a
description of the principal risks and uncertainties facing the Group.
Each of the directors, whose names and functions are listed below, confirm to
the best of their knowledge that:
· the Group Financial Statements contained in the 2023 Annual
Report and Financial Statements, which have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union,
give a true and fair view of the assets, liabilities, financial position and
results of the Group;
· the Strategic Report contained in the 2023 Annual Report and
Financial Statements includes a fair review of the development and performance
of the business and the position of the Company and the Group, together with a
description of the principal risks and uncertainties that they face; and
· the 2023 Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance, business model
and strategy.
CMC Markets plc Board of Directors
James Richards (Chairman)
Lord Cruddas (Chief Executive Officer)
David Fineberg (Deputy Chief Executive Officer)
Euan Marshall (Chief Financial Officer)
Matthew Lewis (Head of Asia Pacific & Canada)
Paul Wainscott (Senior Independent Director)
Sarah Ing (Non-Executive Director)
Susanne Chishti (Non-Executive Director)
Clare Francis (Non-Executive Director)
Consolidated income statement
For the year ended 31 March 2023
Note Year ended Year ended
£'000 31 March 2023 31 March 2022
(Restated)
Revenue 311,210 325,809
Net interest income 13,927 834
Total revenue 3 325,137 326,643
Introducing partner commissions and betting levies (36,714) (44,693)
Net operating income 2 288,423 281,950
Operating expenses 4 (233,945) (188,291)
Operating profit 54,478 93,659
Finance costs (2,315) (2,164)
Profit before taxation 52,163 91,495
Taxation 5 (10,724) (20,016)
Profit for the year attributable to owners of the parent 41,439 71,479
Earnings per share
Basic earnings per share (p) 6 14.7 24.6
Diluted earnings per share (p) 6 14.6 24.5
Consolidated statement of comprehensive income
For the year ended 31 March 2023
Year ended Year ended
£'000 31 March 2023 31 March 2022
(Restated)
Profit for the year 41,439 71,479
Other comprehensive income / (expense):
Items that may be subsequently reclassified to income statement
Loss on net investment hedges, net of tax (86) (1,089)
Gains recycled from equity to the income statement 237 -
Currency translation differences (1,760) 1,761
Changes in the fair value of debt instruments at fair value through other (210) (54)
comprehensive income, net of tax
Other comprehensive (expense) / income for the year (1,819) 618
Total comprehensive income for the year attributable to owners of the parent 39,620 72,097
Consolidated statement of financial position Company registration number: 05145017
At 31 March 2023
£'000 Note 31 March 2023 31 March 2022
(Restated)
ASSETS
Non-current assets
Intangible assets 8 35,342 30,328
Property, plant and equipment 9 22,771 23,170
Deferred tax assets 4,768 6,022
Financial investments 34 13,448
Trade and other receivables 10 2,666 1,797
Total non-current assets 65,581 74,765
Current assets
Trade and other receivables 10 130,616 148,208
Derivative financial instruments 14,231 8,788
Current tax recoverable 9,066 1,649
Other assets 1,984 13,443
Financial investments 11 30,572 14,497
Amounts due from brokers 188,154 208,882
Cash and cash equivalents 12 146,218 176,578
Total current assets 520,841 572,045
TOTAL ASSETS 586,422 646,810
LIABILITIES
Current liabilities
Trade and other payables 13 182,284 212,626
Amounts due to brokers 8,927 12,394
Derivative financial instruments 2,033 3,679
Share buyback liability - 27,264
Borrowings - 194
Lease liabilities 14 5,590 4,949
Current tax payable 431 1,729
Provisions 815 369
Total current liabilities 200,080 263,204
Non-current liabilities
Lease liabilities 14 6,228 9,302
Deferred tax liabilities 4,012 3,309
Provisions 2,087 2,117
Total non-current liabilities 12,327 14,728
TOTAL LIABILITIES 212,407 277,932
EQUITY
Share capital 70,573 73,193
Share premium 46,236 46,236
Capital redemption reserve 2,901 281
Own shares held in trust (1,509) (1,094)
Other reserves (50,535) (75,980)
Retained earnings 306,349 326,242
Total equity 374,015 368,878
TOTAL EQUITY AND LIABILITIES 586,422 646,810
Consolidated statement of changes in equity
For the year ended 31 March 2023
£'000 Share capital Share premium Capital redemp-tion reserve Own shares held in trust Other reserves Retained earnings Total equity
At 31 March 2021 (As previously reported) 73,299 46,236 - (382) (49,334) 330,698 400,517
Correction of errors - - - - - (968) (968)
At 1 April 2021 (Restated) 73,299 46,236 - (382) (49,334) 329,730 399,549
Profit for the year - - - - - 71,479 71,479
Loss on net investment hedges, net of tax - - - - (1,089) - (1,089)
Currency translation differences - - - - 1,761 - 1,761
Changes in the fair value of debt instruments at fair value through other - - - - (54) - (54)
comprehensive income, net of tax
Total comprehensive income for the year - - - - 618 71,479 72,097
New shares issued 175 - - - - - 175
Acquisition of own shares held in trust - - - (1,006) - - (1,006)
Utilisation of own shares held in trust - - - 294 - - 294
Share buyback (281) - 281 - (27,264) (2,975) (30,239)
Share-based payments - - - - - 59 59
Tax on share-based payments - - - - - 553 553
Dividends - - - - - (72,604) (72,604)
At 31 March 2022 (Restated) 73,193 46,236 281 (1,094) (75,980) 326,242 368,878
Profit for the year - - - - - 41,439 41,439
Loss on net investment hedges, net of tax - - - - (86) - (86)
Gains recycled from equity to the income statement - - - - 237 - 237
Currency translation differences - - - - (1,760) - (1,760)
Changes in the fair value of debt instruments at fair value through other - - - - (210) - (210)
comprehensive income, net of tax
Total comprehensive income for the year - - - - (1,819) 41,439 39,620
Acquisition of own shares held in trust - - - (1,106) - - (1,106)
Utilisation of own shares held in trust - - - 691 - - 691
Share buyback (2,620) - 2,620 - 27,264 (27,264) -
Share-based payments - - - - - 972 972
Dividends - - - - - (35,040) (35,040)
At 31 March 2023 70,573 46,236 2,901 (1,509) (50,535) 306,349 374,015
Consolidated statement of cash flows
For the year ended 31 March 2023
£'000 Note Year ended Year ended
31 March 2023 31 March 2022
(Restated)
Cash flows from operating activities
Cash generated from operations 15 76,584 171,128
Interest income 13,950 1,742
Finance costs (2,315) (2,138)
Tax paid (17,060) (14,651)
Net cash generated from operating activities 71,159 156,081
Cash flows from investing activities
Purchase of property, plant and equipment (7,091) (3,500)
Investment in intangible assets (21,130) (12,313)
Purchase of financial investments (17,345) (28,337)
Proceeds from maturity of financial investments 14,415 27,511
Outflow on net investment hedges (8) (998)
Net cash used in investing activities (31,159) (17,637)
Cash flows from financing activities
Repayment of borrowings (1,194) (10,945)
Proceeds from borrowings 1,000 10,000
Principal elements of lease payments (5,454) (4,808)
Acquisition of own shares (1,106) (831)
Payments for share buyback (27,264) (2,975)
Dividends paid (35,040) (72,604)
Net cash used in financing activities (69,058) (82,163)
Net (decrease)/increase in cash and cash equivalents (29,058) 56,281
Cash and cash equivalents at the beginning of the year 12 176,578 118,921
Effect of foreign exchange rate changes (1,302) 1,376
Cash and cash equivalents at the end of the year 12 146,218 176,578
1. Basis of preparation
Basis of accounting
The financial information set out herein does not constitute the Group's
statutory accounts for the years ended 31 March 2022 and 2023 but is derived
from those financial statements. The Annual Report and Financial Statements
for the year ended 31 March 2022 have been delivered to the Registrar of
Companies and those for the year ended 31 March 2023 will be delivered
following the Company's Annual General Meeting to be held on 27 July 2023. The
external auditor has reported on those financial statements; its reports were
unqualified, did not draw attention to any matters by way of emphasis without
qualifying their report and did not contain statements under s498(2) or (3)
Companies Act 2006.
While the financial information included in this announcement has been
prepared in accordance with the UK-adopted International Accounting Standards
in conformity with the requirements of the Companies Act 2006 and the
disclosure guidance and transparency rules sourcebook of the United Kingdom's
Financial Conduct Authority for the periods presented, this announcement does
not itself contain sufficient information to comply with IFRSs.
The Financial Statements have been prepared in accordance with the going
concern basis, 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.
The Group's principal accounting policies adopted in the preparation of these
financial statements are consistent with those of the previous financial year.
The financial statements presented are at and for the years ending 31 March
2023 and 31 March 2022. Financial annual years are referred to as 2023, and
2022 in the financial statements.
The financial information for the year ended 31 March 2022 has been restated.
See note 33 of the Group Financial Statements contained in the 2023 Annual
Report and Financial Statements for more detail.
Significant accounting judgements
The preparation of Financial Statements in conformity with IFRSs 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 Consolidated Financial
Statements are:
Contingent liabilities
Judgement has been applied in evaluating the accounting treatment of the
specific matters described in note 35 of the 2023 Annual Report and Financial
Statements (Contingent Liabilities), notably the probability of any obligation
or future payments arising.
Accounting for cryptocurrencies
The Group has recognised £1,984,000 (31 March 2022: £13,443,000) of
cryptocurrency assets and rights to cryptocurrency assets on its Statement of
Financial Position as at 31 March 2023. 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. Please
refer to Note 2 of the 2023 Annual Report and Financial Statements for other
assets accounting policy.
Intangible assets
The Group has recognised £13,550,000 (31 March 2022: £14,237,000) of
customer relationship intangible on its Statement of Financial Position as at
31 March 2023 relating to the transaction with Australia and New Zealand
Banking Group Limited ("ANZ'') to transition its portfolio of Share Investing
clients to CMC for AUD$25 million. A judgement has been made to apply the
recognition and measurement principles of IAS 38 "Intangibles" in accounting
for these assets.
Key financial estimates
The Group has recognised £11,316,000 (31 March 2022: £7,965,000) of
internally generated software in intangible assets on its Statement of
Financial Position as at 31 March 2023, of which £5,016,000 (31 March 2022:
£6,054,000) relates to the development of CMC Invest UK trading platform. In
performing the annual impairment assessment, which concluded that no
impairment was required, it was determined that the recoverable amount of the
asset is a source of estimation uncertainty which is sensitive to the
estimated future revenues from the CMC Invest UK business. We found the
recoverable amount of the intangible asset to have been based on reasonable,
supportable assumptions. B2B revenue, discount rates, useful economic life,
cost per trading customer acquisition, customer retention rates and average
portfolio sizes represent significant sources of estimation uncertainty.
Relevant disclosure is included in note 12 of the 2023 Annual Report and
Financial Statements.
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:
· Trading - CFD and spread bet - UK and Ireland ("UK & IE");
· Trading - CFD - Europe;
· Trading - CFD - Australia, New Zealand and Singapore ("APAC") and
Canada; and
· Investing - Stockbroking - Australia
These segments are in line with the management information received by the
chief operating decision maker ("CODM"). Revenues and segment operating
expenses are allocated to the segments that originated the transaction.
Operating expenses in the central segment relate to costs that are not
directly related to activities in one region or are not controlled by regional
management. These centrally generated costs 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. An
impairment of £432,000 relating to internally generated computer software
assets was recognised in trading segment in UK and Ireland during the period.
Trading Investing
Year ended 31 March 2023 UK & IE Europe APAC & Canada Trading total Australia Central Total
£ '000
Revenue 98,579 50,620 106,329 255,528 55,682 - 311,210
Net interest income 3,762 239 3,390 7,391 6,536 - 13,927
Total revenue 102,341 50,859 109,719 262,919 62,218 - 325,137
Introducing partner commissions and betting levies (7,398) (353) (11,209) (18,960) (17,754) - (36,714)
Net operating income 94,943 50,506 98,510 243,959 44,464 - 288,423
Segment operating expenses (28,147) (7,405) (26,459) (62,011) (14,282) (157,652) (233,945)
Segment contribution 66,796 43,101 72,051 181,948 30,182 (157,652) 54,478
Allocation of central operating expenses (48,075) (32,649) (45,861) (126,585) (31,067) 157,652 -
Operating profit 18,721 10,452 26,190 55,363 (885) - 54,478
Finance costs (566) (331) (199) (1,096) (179) (1,040) (2,315)
Allocation of central finance costs (513) (163) (364) (1,040) - 1,040 -
Profit before taxation 17,642 9,958 25,627 53,227 (1,064) - 52,163
Year ended 31 March 2022 Trading Investing
(Restated)
£ '000
UK & IE Europe APAC & Canada Trading total Australia Central Total
Revenue 87,168 45,312 118,911 251,391 74,418 - 325,809
Net interest income (413) - 335 (78) 912 - 834
Total revenue 86,755 45,312 119,246 251,313 75,330 - 326,643
Introducing partner commissions and betting levies (6,277) (1,517) (10,527) (18,321) (26,372) - (44,693)
Net operating income 80,478 43,795 108,719 232,992 48,958 - 281,950
Segment operating expenses (19,421) (6,480) (22,755) (48,656) (10,422) (129,213) (188,291)
Segment contribution 61,057 37,315 85,964 184,336 38,536 (129,213) 93,659
Allocation of central operating expenses (35,527) (30,597) (40,689) (106,813) (22,400) 129,213 -
Operating profit 25,530 6,718 45,275 77,523 16,136 - 93,659
Finance costs (419) (290) (195) (904) (168) (1,092) (2,164)
Allocation of central finance costs (474) (207) (411) (1,092) - 1,092 -
Profit before taxation 24,637 6,221 44,669 75,527 15,968 - 91,495
The measurement of net operating income for segmental analysis is consistent
with that in the income statement and is broken down by geographic location
and business line below.
Year ended 31 March 2023 Year ended 31 March 2022
£ '000 £ '000
£ '000 Trading Investing Total Trading Investing Total
UK 94,943 - 94,943 80,478 - 80,478
Australia 46,850 44,464 91,314 49,020 48,958 97,978
Other countries 102,166 - 102,166 103,494 - 103,494
Total net operating income 243,959 44,464 288,423 232,992 48,958 281,950
The Group uses "segment contribution" to assess the financial performance of
each segment. Segment contribution comprises operating profit for the year
before finance costs and 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 of non-current assets other than deferred
tax assets, broken down by location and business line of the assets, is shown
below.
£ '000 Year ended Year ended
31 March 2023 31 March 2022
(Restated)
UK 30,996 39,397
Australia 25,348 26,254
Other countries 4,469 3,092
Total non-current assets 60,813 68,743
3. Total revenue
Revenue
£'000 Year ended Year ended
31 March 2023 31 March 2022
Trading 252,012 247,987
Investing 55,687 74,326
Other 3,511 3,496
Total 311,210 325,809
Net interest income
£'000 Year ended Year ended
31 March 2023 31 March 2022
Bank and broker interest 13,482 825
Interest on financial investments 440 9
Other interest income 5 -
Total 13,927 834
The Group earns interest income from its own corporate funds and from
segregated client funds.
4. Operating expenses
Year ended Year ended
£'000 31 March 2023 31 March 2022
(Restated)
Net staff costs 101,560 84,862
IT costs 33,723 28,721
Sales and marketing 38,304 27,363
Premises 5,706 4,510
Legal and professional fees 8,605 8,568
Regulatory fees 9,436 5,576
Depreciation and amortisation 15,637 12,388
Bank charges 7,362 7,642
Irrecoverable sales tax 2,972 2,789
Other 10,810 6,344
234,115 188,763
Capitalised internal software development costs (170) (472)
Operating expenses 233,945 188,291
The above presentation reflects the breakdown of operating expenses by nature
of expense.
5. Taxation
Year ended Year ended
£'000 31 March 2023 31 March 2022
(Restated)
Analysis of charge for the year:
Current tax:
Current tax on profit for the year 9,873 18,521
Adjustments in respect of previous years (991) (465)
Total current tax 8,882 18,056
Deferred tax:
Origination and reversal of temporary differences 1,180 1,698
Adjustments in respect of previous years 200 409
Impact of change in tax rate 462 (147)
Total deferred tax 1,842 1,960
Total tax 10,724 20,016
The standard rate of UK corporation tax charged 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 of 20.56% (year ended 31
March 2022: 21.86%) differs from the standard rate of UK corporation tax of
19% (year ended 31 March 2022: 19%). The differences are explained below:
Year ended Year ended
£'000 31 March 2023 31 March 2022
(Restated)
Profit before taxation 52,163 91,495
Profit multiplied by the standard rate of corp. tax in the UK of 19% (31 March 9,911 17,384
2022: 19%)
Adjustment in respect of foreign tax rates 1,205 2,500
Adjustments in respect of previous years (791) (56)
Impact of change in tax rate 462 (147)
Expenses not deductible for tax purposes 49 291
Income not subject to tax - (62)
Recognition of previously unrecognised tax losses (132) -
Tax losses for which no deferred tax asset recognised 173 (43)
Other differences (153) 149
Total tax 10,724 20,016
£'000 Year ended Year ended
31 March 2023 31 March 2022
Tax on items recognised directly in Equity
Tax credit on share-based payments - 553
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 year 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 vesting of all dilutive potential weighted average Ordinary Shares
and that vesting is satisfied by the issue of new Ordinary Shares.
£'000 Year ended Year ended
31 March 2023 31 March 2022
(Restated)
(Restated)
Earnings attributable to Ordinary Shareholders (£ '000) 41,439 71,479
Weighted average number of shares used in the calculation of basic EPS ('000) 282,295 290,815
Dilutive effect of share options ('000) 1,598 1,022
Weighted average number of shares used in the calculation of diluted EPS 283,893 291,837
('000)
Basic EPS (p) 14.7 24.6
Diluted EPS (p) 14.6 24.5
For the year ended 31 March 2023, 1,598,000 (year ended 31 March 2022:
1,022,000) potentially dilutive weighted average Ordinary Shares in respect of
share awards in issue were included in the calculation of diluted EPS.
7. Dividends
£'000 Year ended Year ended
31 March 2023 31 March 2022
Declared and paid in each year
Final dividend for 2022 at 8.88 per share (2021: 21.43p) 25,250 62,410
Interim dividend for 2023 at 3.50p per share (2022: 3.50p) 9,790 10,194
Total 35,040 72,604
The final dividend for 2023 of 3.90 pence per share, amounting to £10,913,000
was proposed by the Board on 12 June 2023 and has not been included as a
liability at 31 March 2023. The dividend will be paid on 11 August 2023,
following approval at the Company's Annual General Meeting, to those members
on the register at the close of business on 14 July 2023. The dividends paid
or declared in relation to the financial year are set out below:
pence Year ended Year ended
31 March 2023 31 March 2022
Declared per share
Interim dividend 3.50 3.50
Final dividend 3.90 8.88
Total dividend 7.40 12.38
8. Intangible assets
£ '000 Goodwill Computer software Trademarks and trading licences Client relationships Assets under development Total
At 31 March 2022
Cost 11,500 132,187 1,052 3,095 23,608 171,442
Accumulated amortisation (11,500) (125,612) (907) (3,095) - (141,114)
Carrying amount at - 6,575 145 - 23,608 30,328
31 March 2022
Additions - 291 23 - 11,316 11,630
Transfers - 12,803 - 14,103 (26,906) -
Amortisation charge - (4,441) (34) (768) - (5,243)
Impairment - (432) - - - (432)
Foreign currency translation - (109) (2) (519) (311) (941)
Carrying amount at - 14,687 132 12,816 7,707 35,342
31 March 2023
At 31 March 2023
Cost 11,500 143,991 1,046 16,495 7,707 180,739
Accumulated amortisation (11,500) (129,304) (914) (3,679) - (145,397)
Carrying amount - 14,687 132 12,816 7,707 35,342
9. Property, plant and equipment
£ '000 Leasehold improvements Furniture, fixtures and equipment Computer hardware Right-of-use assets Construction in progress Total
At 31 March 2021 (As previously reported)
Cost 19,273 9,656 36,249 19,146 - 84.324
Accumulated amortisation (14,393) (8,795) (27,235) (7,796) - (58,219)
Correction of error - - - (1,134) - (1,134)
Carrying amount at 4,880 861 9,014 10,216 - 24,971
1 April 2021 (Restated)
Additions 106 198 3,196 4,213 - 7,713
Disposals 3 (6) (14) (94) - (111)
Depreciation charge (1,642) (414) (3,225) (4,287) - (9,568)
Foreign currency translation 15 3 44 103 - 165
Carrying amount at 3,362 642 9,015 10,151 - 23,170
31 March 2022 (Restated)
Additions 722 479 5,788 2,872 211 10,072
Disposals (48) (13) (239) (12) - (312)
Depreciation charge (1,585) (407) (3,749) (4,221) - (9,962)
Foreign currency translation (14) (4) (56) (118) (5) (197)
Carrying amount at 2,473 715 10,759 8,672 152 22,771
31 March 2023
At 31 March 2023
Cost 16,565 9,321 42,420 22,634 152 91,092
Accumulated amortisation (14,092) (8,606) (31,661) (13,962) - (68,321)
Carrying amount 2,473 715 10,759 8,672 152 22,771
10. Trade and other receivables
£'000 31 March 2023 31 March 2022
(Restated)
Current
Gross trade receivables 8,721 6,546
Less: loss allowance (4,247) (6,219)
Trade receivables 4,474 327
Prepayments 14,985 10,621
Accrued income 2,335 522
Stockbroking debtors 105,103 134,325
Other debtors 3,719 2,413
130,616 148,208
Non-current
Other debtors 2,666 1,797
Total 133,282 150,005
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 13).
At 31 March 2023 the Group has lease receivables amounting to £384,000 (31
March 2022: £nil). The Group is an intermediate lessor on these leases and
has recognised finance income of £5,000 during the year ended 31 March 2023
(year ended 31 March 2022: £nil).
11. Financial investments
£'000 31 March 2023 31 March 2022
UK Government securities:
At 1 April 27,875 28,037
Purchase of securities 17,345 28,337
Maturity of securities and coupon receipts (14,878) (28,428)
Net accrued interest 440 (17)
Changes in the fair value of debt instruments at fair value through other (210) (54)
comprehensive income
At 31 March 30,572 27,875
Equity securities
At 1 April 70 67
Impairment (34) -
Foreign currency translation (2) 3
At 31 March 34 70
Total 30,606 27,945
Split as:
Non-current 34 13,448
Current 30,572 14,497
Total 30,606 27,945
12. Cash and cash equivalents
£'000 31 March 2023 31 March 2022
Cash and cash equivalents 146,218 176,578
Analysed as:
Cash at bank 146,218 176,578
Cash and cash equivalents comprises of cash on hand and short-term deposits.
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. This includes money market funds.
While cash and cash equivalents are also subject to the impairment
requirements of IFRS 9, the ECL is immaterial for the year ended 31 March 2023
(year ended 31 March 2022: £nil).
13. Trade and other payables
£'000 31 March 2023 31 March 2022
(Restated)
Client payables 49,409 44,133
Tax and social security 1,272 2,242
Stockbroking creditors 98,428 123,875
Accruals and other creditors 33,175 42,376
Total 182,284 212,626
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).
14. Lease liabilities
The Group leases several assets including leasehold properties and computer
hardware to meet its operational business requirements. The average lease term
is 2.6 years.
The movements in lease liabilities during the year were as follows:
£'000 31 March 2023 31 March 2022
(Restated)
At 1 April (Restated) 14,251 15,386
Additions / modifications of new leases during the year 3,223 3,510
Interest expense 658 687
Lease payments made during the year (6,112) (5,495)
Foreign currency translation (202) 163
At 31 March 11,818 14,251
£'000 31 March 2023 31 March 2022
(Restated)
Analysis of lease liabilities
Non-current 6,228 9,302
Current 5,590 4,949
Total 11,818 14,251
The lease payments for the year ended 31 March 2023 relating to short-term
leases amounted to £402,000 (year ended 31 March 2022: £207,000)
As at 31 March 2023 the potential future undiscounted cash outflows that have
not been included in the lease liability due to lack of reasonable certainty
the lease extension options might be exercised amounted to £nil (31 March
2022: £nil).
Refer to note 29 of the 2023 Annual Report and Financial Statements for
maturity analysis of lease liabilities.
15. Cash generated from operations
£'000 Year ended Year ended
31 March 2023 31 March 2022
Cash flows from operating activities
Profit before taxation 52,163 91,495
Adjustments for:
Interest income (13,927) (834)
Finance costs 2,315 2,164
Depreciation 9,962 9,568
Amortisation of intangible assets 5,675 2,820
Research and development tax credit (651) (743)
(Profit)/Loss on disposal of property, plant and equipment (27) 86
Other non-cash movements including exchange rate movements 980 (681)
Share-based payment 1,651 356
Changes in working capital
Decrease/(Increase) in trade and other receivables and other assets 17,222 (18,492)
Decrease in amounts due from/due to brokers 17,261 57,523
Decrease/(Increase) in other assets 11,459 (13,443)
(Decrease)/Increase in trade and other payables (20,792) 44,828
Increase in net derivative financial instruments liabilities (7,167) (1,705)
Increase/(Decrease) in provisions 460 (1,814)
Cash generated from operations 76,584 171,128
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