Final results for the year ended 31 March 2016

8 June 2016

CMC MARKETS PLC

Final results for the year ended 31 March 2016

 

CMC reports strong profit growth in its first results since listing

 

Year ended 31 March  £ million (unless otherwise stated)	2016	2015	Change
Net operating income	169.4	143.6	+18%
Underlying profit before tax	62.4	51.9	+20%
Net exceptional items	(9.0)	(8.4)	+6%
Profit before tax	53.4	43.5	+23%
Underlying  earnings per share (pence)	18.0	14.6	+23%
Ordinary dividend per share (pence)	8.9	5.7	+56%
Number of trades (million)	66.8	44.6	+50%
Value of trades (£ billion)	2,071	1,626	+27%
Active clients (numbers)	57,329	50,303	+14%
Revenue per active client (£)	2,828	2,716	+4%

Notes:

Net operating income represents total revenue after rebates payable to introducing partners who are not themselves trading counterparties and betting levies

Underlying profit before tax is before net exceptional items

Active clients represents those individual clients who have traded with or held a CFD or spread bet positions with CMC Markets on at least one occasion during the financial year

Revenue per active client represents total trading revenue from CFD and spreadbet active clients after deducting rebates and levies

Dividend per share paid or proposed relating to the financial year

 

Strong growth across all key metrics

·      Net operating income up 18% to £169.4 million (2015: £143.6 million)

·      Underlying profit before tax up 20% to £62.4 million (2015: £51.9 million)

·      Active clients up 14% to 57,329

·      Revenue per active client continues to increase and amongst highest in the industry, up 4% to £2,828

·      Proposed final dividend of 5.36 pence

Continued focus on cost control

·      Net staff costs as a percentage of net operating income improves to 27.1% (2015: 28.3%)

·      Investment in marketing increases slightly to 11% of net operating income (2015:10%) in line with guidance of 10% to 12% over next three years

Strong balance sheet

·      Regulatory total capital ratio of 31%

·      Own funds of £176.4 million

Delivering on strategic initiatives

·      48% of the value of Next Generation client trades completed on mobile devices

·      21 awards won globally for our Next Generation IT platform and client service

·      New binary products successfully launched globally

·      Institutional offering launched

·      Good progress on digital and mobile initiatives

 

Peter Cruddas, Chief Executive Officer of CMC Markets said:

"I am very pleased to report a strong first set of results since we successfully listed on the London Stock Exchange in February 2016.  Our clear strategy to provide our clients with the best trading platform, superior service and competitive pricing, with a strong focus on innovation, has delivered another strong performance, with profit before tax up by over 20%.  But we're not standing still.  We continue to add new products, open new offices and offer new features and tools through our award-winning Next Generation trading platform. Despite a recent easing of trading activity, with these developments and our excellent team, I am confident that CMC will continue to deliver further strong growth."

 

 

Analyst and Investor Presentation

 

A presentation will be held for equity analysts and investors today at 9.00 a.m. (BST).

 

A live webcast of the presentation will be available via the following link:

 

http://webcasts.cmcmarkets.com/results/2016fullyear 

 

Alternatively, you can dial into the presentation:

 

United Kingdom: 020 3059 8125

All other locations: + 44 20 3059 8125

Please quote "CMC Markets plc Full Year Results 2016 conference" when prompted.

 

Annual Report and Financial Statements

 

A copy of the CMC Markets plc (the "Company") Annual Report and Financial Statements for the year ending 31 March 2016 (the "2016 Annual Report") is available within the Investor Relations section of the Company website http://www.cmcmarkets.com/group/results/annual-reports

 

Pursuant to Listing Rule 9.6.1 the "Company" has submitted the 2016 Annual Report to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do

 

In compliance with The Disclosure and Transparency Rules (DTR) 6.3.5, the information in the Appendix below is extracted from the Company's 2016 Annual Report and Financial Statements.  This material is not a substitute for reading the 2016 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 2016 Annual Report and Financial Statements.

 

Forthcoming announcement dates

 

Thursday 29 September	Q2 2017 pre-close trading update
Wednesday 23 November	H1 2017 results

 

 

Media enquiries

 

Camarco

 

Geoffrey Pelham-Lane/Ed Gascoigne-Pees/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, 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 14 countries, with a significant presence in the UK, Australia, Germany and Singapore. CMC Markets offers an award-winning, online and mobile trading platform, enabling clients to trade over 10,000 financial instruments across shares, indices, foreign currencies, commodities and treasuries through contracts for difference ("CFDs") and financial spread bets (in the UK and Ireland only).  Clients can also place financial binary bets through Countdowns and, in Australia, access stockbroking services.  More information is available at http://www.cmcmarkets.com/group/
 

STRATEGIC AND OPERATIONAL REVIEW

 

Strong financial performance

 

Our first set of results as a publicly listed company are strong, reflecting continued successful delivery of our strategy.  Net operating income was up 18%, underlying profit before tax, which excludes exceptional items, was up 20% and basic earnings per share were up 22%.

 

During the year active client numbers grew by 14% to 57,329 and revenue per active client improved by 4% to £2,828, reflecting the quality of the client base.  Revenue per active client is presented net of client rebates, which were a record £10.5 million, an increase of 50% on prior year. Our retail rebate programme continues to support the retention and acquisition of our high value client base, supporting growth in revenue per client.

 

The value of client trades increased by 27% to £2,071 billion, while operating costs (excluding exceptional items) increased by 19%, including the planned investments in staff and marketing, illustrating the scalability that we have in the business and technology infrastructure to service increasing client activity.  

 

Our continued investment in in-house, fully expensed IT development allows us to respond to client demands. 48% of the value of Next Generation client trades in the year were completed on mobile devices.

 

Net revenue¹ growth has been generated across all developed regions where the business operates.  The UK, the Group's largest market, contributed a 30% rise in net revenue, demonstrating the success of our strategy, focusing on attracting and retaining high value clients.

 

Our European business grew net revenue by 7%, driven by our focus on developing our smaller offices and maintaining our market leading position in Germany².

 

Net revenue in Asia Pacific (APAC) & Canada increased by 19%, as we continue to grow market share in the region.  In Australia we are now the number one provider to the active high value client share of the market at 31%, up 9% from the year before³.

 

We maintained a good level of operating efficiency with net staff costs as a percentage of net operating income at 27.1%, compared with 28.3% for the previous year.

 

Own funds increased by £33.4 million to £176.4 million and the Group continues to have a strong regulatory total capital ratio, which was 31.2% as at 31 March 2016.

 

Innovating in technology, products and client service

 

Innovation has been the foundation for our growth over the last three years and we continue to drive the business forward through innovation in technology, products and client service.

 

Our proprietary in-house developed, "Next Generation" technology provides a clear differentiated advantage over many of our competitors.  We constantly enhance and improve the platform, responding to client demands and new product development.  The benefit of developing Next Generation technology in-house rather than being outsourced is that it gives the business control and flexibility over all aspects of our core technology.

 

New products have been a feature of this year and will continue to be going forward.  At the end of July 2015, we launched "Countdowns", a short term binary product providing our clients with a dynamic way to make short term trades on the financial markets.  In April 2016 we launched our full binaries product offering, again designed to provide our clients with an exciting and simple way to trade the financial markets. 

 

In the past year we have completed our Next Generation partners and institutional offering, with full white label (branded), grey label (unbranded) and electronic connectivity (API).  Historically, this has been a strong area for the Group and we are excited about the incremental growth opportunity in this sector.

 

¹ Net revenue represents total trading revenue generated from CFD and Spreadbet clients after the impact of rebates and levies

² Investment Trends April 2015 Germany CFD & FX Report

³ Investment Trends June 2015 Australia CFD Report 

 

In our Australian stockbroking business we also launched the Pro Platform using HTML5 to complement the business's successful frequent trader strategy.

 

 

We have made good progress in the digital area; launching a new device responsive website template that is live across all our established markets which has markedly improved our natural search rankings and now being rolled out to all other regions, a new device responsive application form and a greater focus on mobile channel marketing.  The switch of investment into mobile has proved highly effective in generating app downloads and account applications.

 

At CMC we have a strong emphasis on exceeding the needs of our clients through our product offer and quality of service.  We measure how well we are doing though client satisfaction studies and our net promoter score.  In the UK we have achieved number 1 position for 11 out of the top 15 drivers of client satisfaction.  Across our established markets, our net promoter score is ahead of the category average.

 

Sustaining growth

 

Our focus on superior client service, supported by our continued investments in technology, new offices and new products, underpin our future growth potential.

 

We continue to identify growth opportunities in the UK, building on this year's further increases in active clients, as well as overseas, where we have consolidated our market leadership position in Germany and achieved leadership in the high value client market in Australia.  We also see potential growth from our newly opened offices in Poland and Austria and in our existing office in France, where the value of client trades have increased by 70%.

 

Further products are in development, which we expect to release in the coming financial year.  These will be supported by the global rollout of the improvements that we have made in digital marketing, together with an even greater focus on mobile, which we anticipate will lead to improved conversion, retention and reactivation rates.

 

Finally, we see good growth opportunities for our partners and institutional offering, which has developed a strong pipeline since its recent launch.

 

Operating to the highest standards of regulatory compliance

 

This year has seen regulators in a number of jurisdictions look at the regulation of the contracts for difference ("CFD") and spread betting industry.

 

We welcome strong regulation and have always ensured that we operate to the highest standards of regulatory compliance.  We hope that increased regulatory oversight will help to ensure that all operators in the industry move towards higher regulatory standards.

 

Dividends

 

CMC Markets is a highly cash generative business, and as the Group's client activity grows, an increasing amount of liquidity is required in the Group to hedge client trades. In order to fully meet our growth aspirations our dividend policy is to pay 50% of underlying profit after tax. The Board's view is that this allows the Group to retain sufficient cash to meet its growth aspirations. In addition, the Board regularly reviews the balance sheet and the growth plans of the business and will return excess capital to investors when appropriate.

 

Outlook

 

Based on our results and continued focus on innovation, products and client service, counter balanced by some recent easing of trading activity, our expectations for future growth that we communicated at the time of our listing remain unchanged.  We look forward to making further progress in the current financial year and remain on track to achieve our target of £250 million of total revenue (before rebates), equivalent to £220 million net operating income in the financial year ending 31 March 2020.

 

 

Financial review

 

Summary income statement 

 

£m	2016	2015		Variance		Variance %
Net operating income	169.4	143.6		25.8		18%
Other income	3.1	-		3.1		-
Operating expenses	(112.3)	(92.3)		(20.0)		(22)%
EBITDA	60.2	51.3		8.9		17%
Analysed as:
EBITDA before exceptional items	69.2	59.7		9.5		16%
Net exceptional items1	(9.0)	(8.4)		(0.6)		(6)%
EBITDA	60.2	51.3		8.9		17%
Depreciation and amortisation	(6.0)	(6.9)		0.9		13%
Finance costs	(0.8)	(0.9)		0.1		14%
Profit before tax	53.4	43.5		9.9		23%
Analysed as:
Underlying profit before tax	62.4	51.9		10.5		20%
Net exceptional items1	(9.0)	(8.4)		(0.6)		(6)%
Profit before tax1	53.4	43.5		9.9		23%
Underlying PBT margin	36.8%	36.2%		0.6%		-
PBT margin	31.5%	30.3%		1.2%		-
Profit after tax	42.5	34.7		7.8		22%
Underlying profit after tax2	50.7	40.9		9.8		24%
Pence	2016	2015		Variance		Variance %
Basic EPS	15.1	12.4		2.7		22%
Underlying Basic EPS	18.0	14.6		3.4		23%

¹Consists of £3.1 million exceptional income and £12.1 million exceptional costs

²Based on implied tax payable should exceptional items not have been incurred

 

Summary

Net operating income grew £25.8 million (18%) to £169.4 million, driven by the continuing focus on the Group's strategic initiatives, all of which have made a contribution to delivering improvements in both active client numbers and trading activity.

The UK continued to grow at an encouraging pace in what is the largest mature market in the sector; our increased digital marketing efforts are starting to deliver positive results; opening of our new Poland office and change of management in France are starting to show improving performance; regarding new products, Countdowns were released in the UK, Australia and New Zealand in July 2015 and the remainder of Europe in November 2015 and contributed gross trading revenue of £4.3 million over the period since launch; and our institutional Partners team has begun actively selling our Partners Next Generation offering.

Average market volatility was higher than the previous year and this was also a contributory factor to the rise in trading activity. The higher levels of trading activity were illustrated through a £445 billion (27%) increase in the value of client trades to £2,071 billion, including a record month in August 2015. Against this backdrop the continual refinement of the risk management strategy has demonstrated its value through improved consistency of the Group's daily revenue flow as well as a reduction in the amount of loss days.

Active client numbers and revenue per active client (RPC) increased by 7,026 (14%) to 57,329 and £112 (4%) to £2,828 respectively. RPC growth was moderate but demonstrates the growth in active clients has not come at the detriment of the overall quality of the client base. At £2,828 our RPC is amongst one of the highest in the industry and importantly is shown after we returned a record £10.5 million to clients through our global rebate programme.

Total costs increased by £19.0 million (19%) to £119.1 million. Excluding exceptional costs, the year-on-year increase was £15.3 million (17%). This increase was driven by investment in personnel and increased marketing activity, partly offset by lower amortisation costs.

Underlying profit before tax increased by £10.5 million (20%) to £62.4 million, and our underlying profit before tax margin increased by 0.6% to 36.8%. As we have continued to invest in the business for the future we have been able to improve our margin.

Statutory profit before tax increased by £9.9 million (23%) to £53.4 million and profit before tax margin¹ increased by 1.2% from 30.3% to 31.5%.

¹Statutory profit before tax as a percentage of net operating income

 

Net operating income overview

  

£m	2016	2015
CFD and Spreadbet (including binaries) net revenue	162.2	136.6
Stockbroking (exc interest income)	5.2	5.1
Interest income	1.8	2.1
Other operating income	0.2	(0.2)
Net operating income	169.4	143.6

 

Retail rebates, included within net operating income, increased by £3.5 million (50%) to £10.5 million.  We continue to be committed to our clients and our monthly rebate scheme, which is based on the notional value that they trade, is central to this commitment.

Partner and institutional rebates have also grown against the prior year, as the Next Generation institutional offering has been released. This has resulted in existing Partner clients trading more as they have migrated to the Next Generation platform as well as attracting new institutions.

 

 

Regional performance overview: CFD and spread bet 

	2016				2015				% change
	Net revenue (£m)	Value of trades (£bn)	Active Clients	RPC (£)	Net revenue (£m)	Value of trades (£bn)	Active Clients	RPC (£)	Net revenue (£m)	Value of trades (£bn)	Active Clients	RPC (£)
UK	63.1	746	17,268	3,652	48.6	548	15,417	3,152	30%	36%	12%	16%
Europe	48.5	672	21,714	2,234	45.4	553	20,019	2,269	7%	22%	8%	(2)%
APAC & Canada	50.6	653	18,347	2,760	42.6	525	14,867	2,864	19%	24%	23%	(4)%
Total	162.2	2,071	57,329	2,828	136.6	1,626	50,303	2,716	19%	27%	14%	4%

 

UK

The value of client trades in the UK was 36% ahead of the prior year at £746 billion (FY15: £548 billion), with active client numbers up by 12% during the year to 17,268 (FY15: 15,417). The annual Investment Trends study published in October 2015 highlighted an increase in market share for CMC, in a UK spread betting market that grew by 4% to 81,000 active clients. Continued improvements to product, platform and service were underpinned by Investment Trends data with CMC ranked in the top three in seventeen of eighteen categories relating to client satisfaction, with first place rankings in twelve categories including overall quality of service. Client acquisition has improved by 10% from the prior year following further investment in developing the digital marketing infrastructure. Client quality and retention again improved during the year with revenue per active client up 16% during the year to £3,652 (FY15: £3,152), with a continued focus on attracting and retaining high value clients, those that are both new to the market or switching to CMC from direct competitors.

Europe

Europe comprises the German, French, Italian, Spanish, Norwegian and Swedish offices, as well as our new Austrian and Polish offices which opened during the year. Our Polish office will serve the wider Central and Eastern Europe region. The value of client trades in Europe was 22% ahead of the prior year at £672 billion (FY15: £553 billion). Active client numbers were up 7% in the year at 21,714 (FY15: 20,019), whilst revenue per active client was down 2% to £2,269, primarily as a result of an increase in new accounts in the second half. A market leading position was maintained in Germany¹, CMC's core European market with a 17% market share of primary CFD active clients, and the launch of automatic client verification providing greater efficiency in the client on boarding process. There was a strong performance from France, with the value of trades 70% ahead of the prior year at £33 billion (FY15: £20 billion) following changes to the management team and further investment in marketing spend. The last remaining clients were migrated from CMC's legacy Market Maker platform to the Next Generation platform during the year. White and grey label Partners functionality was developed in local language for our European offices.

¹ Investment Trends April 2015 Germany CFD & FX Report

 

APAC and Canada

Our APAC and Canada business, which services clients from our Sydney, Auckland, Singapore and Toronto offices, continued to grow during the year with the value of client trades 24% ahead of the prior year at £653 billion (FY15: £525 billion), new accounts up 43% and active client numbers up 23%. Revenue per active client at £2,760 was down 4% due to an increase in active clients throughout the year. Our continuing success across all key financial metrics has been further recognised externally by Investment Trends¹ with CMC achieving the number one ranking in terms of market share for CFD high value clients in Australia, number one market share for frequent trading FX clients in Australia, and number one primary market share for CFD high value clients in Singapore. This demonstrates success in our continued goal to acquire and support our high value client base. These independent reports also showed that CMC had the highest prompted brand awareness in the Australian market, and therefore CMC's brand profile is continuing to build strength in the region.

¹Investment Trends June 2015 CFD Report, Investment Trends November 2015 Australia FX Report, Investment Trends August 2015 Singapore CFD & FX Report.

Stockbroking

The Australian stockbroking business improved on prior year performance, with trading revenues of £5.2 million (2015: £5.1 million), driven by continued strong client acquisition.

During the year the stockbroking business launched their Pro Platform build using HTML5 to complement its successful frequent trader strategy, and also supported several on-market capital raisings through the ASX on-market bookbuild service. Further, the wholesale business grew through winning several mandates which included a white label partnership with Australia's fifth largest bank.

Interest income

The low interest rate environment has meant that interest income has reduced marginally from an already low base to £1.8 million (FY15: £2.1 million). This is mainly earned through our segregated client deposits in our Australia, New Zealand and stockbroking subsidiaries.

Other income

All other income of £3.1 million relates to a litigation settlement.  Given its one-off nature, the Group has classed the income as exceptional.

Asset class performance

Indices continue to generate the majority of the Group's revenue (excluding interest and other operating income) on an asset class basis.  FX has improved its revenue share due to more trading opportunities in this asset class during the financial year leading to an improvement in value of client trades.

Revenue by Asset	2016	2015
Indices	48%	49%
FX	25%	19%
Commodity	11%	15%
Shares	10%	12%
Stockbroking	3%	4%
Treasury	-	1%
Countdowns	3%	-

 

 

Expenses

The London Stock Exchange listing has been a major driver in the large increase in operating expenses during the year. Given the one-off nature of these costs, they have been classed as exceptional items. Total costs and exceptional items are separated below such that changes to the Group's underlying cost base can be more easily understood.

Exceptional items in the current year consist of £4.8 million professional fees relating to the listing, £6.2 million share based payment incentives awarded to staff at the listing, and other costs, including associated irrecoverable VAT, of £1.1 million. Exceptional costs in the prior year relate to the £4.6 million settlement of an Australian litigation case and the associated legal costs and £3.8 million relating to provisions and write-offs of client debt arising from the Swiss National Bank decision to release of the Swiss Franc peg.

The Group's underlying operating expenses increased by £16.3 million (19%) to £100.2 million with higher net staff costs (£5.4 million increase) due to investment in key areas of the business, continuing growth in digital and brand marketing spend (£4.6 million increase) and increases in other costs with higher irrecoverable sales tax and bad debts the main drivers of the rise. The increased investment in personnel and marketing spend has directly contributed to the 14% increase in active clients.

 

£m	2016	2015
Net staff costs	46.1	40.7
IT costs	12.7	11.4
Sales and marketing costs	18.3	13.7
Premises costs	4.8	5.6
Legal and professional fees	3.6	2.9
Regulatory fees	2.7	2.1
Other	12.0	7.5
Total operating expenses before exceptional items	100.2	83.9
Exceptional costs	12.1	8.4
Total operating expenses	112.3	92.3
Depreciation and amortisation	6.0	6.9
Interest	0.8	0.9
Total costs	119.1	100.1

 

Staff costs

Net staff costs increased £5.4 million (13%) to £46.1 million, with investment in headcount, particularly in client acquisition, marketing and IT development, leading to average headcount rising from 473 to 539 (14%). Performance related pay increased broadly in line with average headcount. In the coming year we expect staff costs to be broadly in line as percentage of net operating income with a further £6 million that will be incurred in relation to share based payments. Thereafter, we anticipate low growth, with salary increases in line with inflation.

 

£m	2016	2015
Wages and salaries	34.5	31.1
Performance related pay	8.7	6.9
Share-based payments	1.1	1.0
Total employee costs	44.3	39.0
Contract staff costs	1.8	1.7
Net staff costs	46.1	40.7

 

Sales and marketing costs

Sales and marketing costs increased £4.6 million (34%) to £18.3 million during the year as we continue to invest in our brand profile and growing our client base, with a particular focus on digital channels. Brand activity included the sponsorship of the Land Rover BAR America's Cup sailing team and the continuing support of the New South Wales Waratahs rugby team in Australia.

Aside from the brand spend, the main increases in expenditure were seen in our main hubs of the UK and Australia. The opening of the new Poland office also contributed towards the increase in expenditure.

The increase marketing spend equates to 11% of net operating income (2015: 10%).  As discussed at the time of the IPO, the Group is planning to maintain marketing spend at between 10% and 12% of net operating income for the next three years.

Other expenses

IT costs increased £1.3 million (11%) to £12.7 million, due to additional expenditure in the cyber security area and increased market data costs. We expect IT costs to be in the region of 7% to 8% of net operating income going forwards.

Other costs increased by £4.5 million (59%) to £12.0 million, with the main contributors being a rise in irrecoverable sales tax, which has increased along with expenditure, and an increase in bad debts caused by market gaps through periods of high volatility.

Taxation

The effective tax rate for the year was 20% (2015: 20%).  The majority of the Group's profits are taxed in the UK and the reduction in the UK corporation tax rate from 21% to 20% had a positive effect. In addition, the Group benefited from higher utilisation of Australian corporation tax credits, which largely offset the impact of disallowable exceptional costs associated with the listing.

Profit after tax for the year

The increase in profit after tax for the year of £7.8 million (22%) to £42.5 million (2015: £34.7 million) illustrates the continuing success of the Group's strategy with a focus on client service, continuing innovation with enhancements of the award winning platform.

Dividend

Dividends of £24.9 million were paid during the year (FY15: £12.0 million), £10.0 million relating to a final dividend for the prior year paid in May 2015, with a £9.9 million interim dividend and a special dividend of £5.0million paid in November 2015 in relation to the current year performance. The Group remains committed to a dividend policy of paying 50% of underlying post-tax profit as dividends.

 

 

Group statement of financial position

£m	2016	2015
Intangible assets	2.6	3.7
Property, plant and equipment	16.4	17.4
Deferred tax assets	7.7	7.5
Total non-current assets	26.7	28.6
Trade and other receivables	20.9	18.8
Derivative Financial instruments	0.8	3.2
Financial investments	20.4	0.0
Amount due from brokers	84.2	109.8
Cash and cash equivalents	78.3	38.6
Total current assets	204.6	170.4
Total assets	231.3	199.0
Trade and other payables	34.6	38.8
Derivative Financial instruments	5.0	0.8
Borrowings	1.4	1.4
Current tax payable	7.8	3.5
Short term Provisions	0.2	4.3
Total current liabilities	49.0	48.8
Trade and other payables	3.5	3.9
Borrowings	1.1	2.5
Deferred Tax liabilities	0.0	0.1
Long term Provisions	1.4	1.4
Total non-current liabilities	6.0	7.9
Total liabilities	55.0	56.7
Total equity	176.3	142.3
Total equity and liabilities	231.3	199.0

Non-current assets

The Group is committed to investing in and developing its trading platform and these costs are expensed as incurred. The majority of intangible assets relate to the net book value of software licences rather than net capitalised internal development costs.

Current assets 

Trade and other receivables relate mainly to client receivables from Stockbroking positions yet to settle, prepayments, amounts due from our segregated client accounts on the next working day and other client debtors. Amount due from brokers relates to cash held at brokers either for initial margin or to reduce interest payable on the Group's overall hedge position. Cash and cash equivalents have increased significantly during the course of the year with cashflow generated from operations either being held as cash or financial investments. Cash generated from the listing was used to fund the exceptional costs associated with the event. Financial investments relate to the FCA BIPRU12 requirement to hold eligible assets against potential liquidity stress. This investment was made during November and December 2015.

Current liabilities 

Trade and other payables consist mainly of accruals and deferred income, amounts due on Stockbroking trades yet to settle, and amounts due to clients in relation to title transfer funds. Current tax payable has increased significantly to £7.8 million (FY14: £3.5 million) due to the increase in Group profits. The decrease in provisions relates to an Australian litigation settlement that was paid in April 2015.

Non-current liabilities 

Trade and other payables relate mainly to the deferred unwinding of lease incentives on our London property and the decrease in borrowings is due to the amortisation of lease agreements associated with IT equipment purchases.

Regulatory capital

For the year under review, CMC Markets was supervised on a consolidated basis by the UK's Financial Conduct Authority (FCA). The Group maintained a significant capital surplus over the regulatory requirement at all times.

The Group's Tier 1 capital increased due to the rise in retained earnings relating to audited 2016 profits, capital raising as a result of the listing and lower intangible assets on the balance sheet. Deduction for deferred tax assets has been taken from the Tier 1 capital through a phased approach in accordance with the EU Capital Requirements Directive IV (CRD IV).

At 31 March 2016 the capital resources represented 31.2% of the capital resources requirement (31 March 2015 27.9%). The following table summarises the Group's capital adequacy position at the year end.

 

	2016	2015
Total capital resources (£m)	154.3	135.9
Total risk exposure (£m)	494.9	487.5
Total capital ratio (%)	31.2%	27.9%

 

Note: capital resources includes audited reserves and any changes to deferred tax assets resulting from the audit process and proposed dividends.

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, excluding all cash held on behalf of segregated clients. Own funds includes investments in UK government bonds which are held to meet the Group's liquid asset buffer (LAB - as agree with FCA). These UK government bonds are BIPRU 12.7 eligible securities and are available to meet liabilities which fall due in periods of stress.

·      Title Transfer Funds (TTFs). This represents funds received from professional clients and eligible counterparties (as defined in the FCA Handbook) that are held under a Title Transfer Collateral Agreement (TTCA); a means by which a professional client or eligible counterparty may agree that full ownership of such funds is unconditionally transferred to the Group. The Group considers these funds as an ancillary source of liquidity and places no reliance on its stability.

·      Available committed facility (off-balance sheet liquidity). The Group has access to a facility of up to £40.0m (March 2015: £40.0 million) in order to fund any potential fluctuations in margins required to be posted at brokers to support our risk management strategy. The maximum amount of the facility available at any one time is dependent upon the initial margin requirements at brokers and margin received from clients. The facility consists of a one year term facility of £20.0 million and a three year term facility of £20.0 million, both of which will be renewed during June 2016.

The Group's use of total available liquidity resources consist of:

·      Blocked cash. Amounts held to meet the requirements of local market regulators and amounts held at overseas subsidiaries in excess of local segregated client requirements to meet potential future client requirements.

·      Internal liquidity buffer. An amount that represents the Group's liquidity risk appetite.  This is based on the liquidity requirements of the Group under a number of stress tests (conducted according to the FCA's 'ILAS' regime) and other 'traditional' liquidity measures.  This internal buffer is set at £10.0 million in excess of the regulatory LAB requirement.

·      Initial margin requirement at broker. The total GBP equivalent initial margin required by prime brokers to cover the Group's hedge derivative positions.

At 31 March 2016, the Group held cash balances of £78.3 million (2015: £38.6 million). In addition, £226.1 million (2015: £232.3million) was held in segregated client money accounts for clients. The movement in Group cash and cash equivalents is set out in the Consolidated Cash Flow Statement.

Own funds have increased to £176.4 million (2015: £143.1 million). Own funds include short term financial investments, amounts due from brokers and amounts receivable/payable on the Group's derivative financial instruments.

 

£m	2016	2015
Own funds	176.4	143.1
Title transfer funds	2.2	7.8
Available committed facility	25.5	36.8
Total available liquidity	204.1	187.7
Less: Blocked cash	(14.9)	(14.9)
Less: Internal liquidity buffer	(30.0)	(30.0)
Less: Initial margin requirement at broker	(54.7)	(52.8)
Surplus total available liquidity1	104.5	90.0

 

 

¹ Surplus total available liquidity is defined as the liquidity in excess of the Group's liquidity risk appetite and is the Group's key liquidity measure.    

 

Client money

Total client money held by the Group on behalf of its retail clients including regulatory buffers held in client money bank accounts was £230.7 million at 31 March 2016 (2015: £233.4 million).  Client money is held by the Group in trust for its retail clients and is not included in available liquid assets.

Client funds represent the latent capacity for our clients to trade and offer an underlying indication to the health of our client base.

Client money governance

The Group segregates all money held by it on behalf of retail clients in accordance with applicable client money regulations in countries in which it operates and in particular the CASS rules of the UK Financial Conduct Authority (FCA). 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.

 

Consolidated income statement

For the year ended 31 March 2016

GROUP £ '000	Note	Year ended 31 March 2016	Year ended 31 March 2015
Revenue		186,397	155,755
Interest income		1,762	2,118
Total revenue		188,159	157,873
Rebates and levies		(18,812)	(14,221)
Net operating income	2	169,347	143,652
Other income	3	3,135	-
Operating expenses	4	(112,277)	(92,312)
EBITDA1		60,205	51,340
Analysed as:
EBITDA before exceptional items²		69,168	59,774
Exceptional income	3	3,135	-
Exceptional costs	4	(12,098)	(8,434)
EBITDA1		60,205	51,340
Depreciation and amortisation		(6,057)	(6,934)
Operating profit		54,148	44,406
Finance costs		(772)	(896)
Profit before taxation		53,376	43,510
Analysed as:
Profit  before taxation and exceptional items		62,339	51,944
Exceptional income	3	3,135	-
Exceptional costs	4	(12,098)	(8,434)
Profit  before taxation		53,376	43,510
Taxation	5	(10,915)	(8,770)
Profit for the year attributable to owners of the parent		42,461	34,740
Earnings per share
Basic earnings per share (p)	6	15.1p	12.4p
Diluted earnings per share (p)	6	15.0p	12.4p

¹EBITDA represents earnings before interest, tax, depreciation and amortisation and impairment of intangible assets, but includes interest income classified as trading revenue.

²EBITDA before exceptional items represents Underlying EBITDA.

 

 

Consolidated statement of comprehensive income

For the year ended 31 March 2016

GROUP £ '000		Year ended 31 March 2016	Year ended 31 March 2015
Profit for the year		42,461	34,740
Other comprehensive (expense) / income:
Items that may be subsequently reclassified to income statement
(Loss) / Profit on net investment hedges net of tax		(1,172)	1,063
Profit recycled from equity to the income statement net of tax		61	-
Currency translation differences		1,563	(1,485)
Change in value of available-for-sale financial assets		4	-
Other comprehensive income / (expense) for the year		456	(422)
Total comprehensive income for the year attributable to owners of the parent		42,917	34,318

 

 

 

Consolidated statement of financial position

At 31 March 2016

£ '000	Note
		31 March 2016	31 March 2015
ASSETS
Non-current assets
Intangible assets		2,649	3,658
Property, plant and equipment		16,350	17,376
Deferred tax assets		7,701	7,552
Total non-current assets		26,700	28,586
Current assets
Trade and other receivables	8	20,931	18,766
Derivative financial instruments		795	3,275
Financial investments		20,374	-
Amounts due from brokers		84,230	109,794
Cash and cash equivalents	9	78,280	38,611
Total current assets		204,610	170,446
TOTAL ASSETS		231,310	199,032
LIABILITIES
Current liabilities
Trade and other payables	10	34,738	38,723
Derivative financial instruments		4,996	805
Borrowings		1,355	1,399
Current tax payable		7,758	3,507
Short term provisions		160	4,345
Total current liabilities		49,007	48,779
Non-current liabilities
Trade and other payables	10	3,479	3,926
Borrowings		1,085	2,453
Deferred tax liabilities		5	128
Long term provisions		1,407	1,423
Total non-current liabilities		5,976	7,930
TOTAL LIABILITIES		54,983	56,709
EQUITY
Share capital		72,600	70,694
Share premium		46,243	33,362
Own shares held in trust		(984)	(1,983)
Other reserves		(49,513)	(49,969)
Retained earnings		107,981	90,219
Total equity		176,327	142,323
TOTAL EQUITY AND LIABILITIES		231,310	199,032

 

 

Consolidated statement of changes in equity

For the year ended 31 March 2016

£ '000	Share capital	Share premium	Own shares held in trust	Other reserves	Retained earnings	Total Equity
At 1 April 2014	70,694	33,362	(1,983)	(49,547)	67,055	119,581
Total comprehensive (expense) / income for the year	-	-	-	(422)	34,740	34,318
Share-based payments	-	-	-	-	374	374
Dividends	-	-	-	-	(11,950)	(11,950)
At 31 March 2015	70,694	33,362	(1,983)	(49,969)	90,219	142,323
New shares issued	1,906	12,881	-	-	-	14,787
Total comprehensive income for the year	-	-	-	456	42,461	42,917
Disposal of own shares held in trust	-	-	999	-	-	999
Share-based payments	-	-	-	-	205	205
Tax on share-based payments	-	-	-	-	31	31
Dividends	-	-	-	-	(24,935)	(24,935)
At 31 March 2016	72,600	46,243	(984)	(49,513)	107,981	176,327

 

 

 

Consolidated statement of cash flows

For the year ended 31 March 2016

£ '000	Note	Year ended 31 March 2016	Year ended 31 March 2015
Cash flows from operating activities
Cash generated from operations	11	80,061	6,362
Net interest income		1,762	2,118
Tax paid		(6,872)	(6,471)
Net cash generated from operating activities		74,951	2,009
Cash flows from investing activities
Purchase of property, plant and equipment		(2,900)	(8,584)
Proceeds from disposal of property, plant and equipment		59	136
Investment in intangible assets		(1,092)	(1,866)
Purchase of financial investments		(20,633)	-
Proceeds from maturity of financial investments and coupon receipts		287	-
Net cash used in investment activities		(24,279)	(10,314)
Cash flows from financing activities
Repayment of borrowings		(1,412)	(1,524)
Proceeds from borrowings		-	4,402
Proceeds from issue of ordinary shares		14,787	-
Disposal of own shares		999	-
Dividends paid		(24,935)	(11,950)
Finance costs		(772)	(896)
Net cash used in financing activities		(11,333)	(9,968)
Net  increase / (decrease) in cash and cash equivalents		39,339	(18,273)
Cash and cash equivalents at the beginning of the year		38,611	57,801
Effect of foreign exchange rate changes		330	(917)
Cash and cash equivalents at the end of the year		78,280	38,611