CMC Markets : H1 2021 results

19 November 2020

CMC MARKETS PLC

Interim results for the half year ended 30 September 2020

Record H1 trading performance, with significant investment in technology to drive further growth

	30 September	30 September
For the half year ended	2020	2019	Change
Net operating income (£ million)	230.9	102.3	126%
CFD and spread bet net trading revenue (£ million)	200.4	85.1	135%
Stockbroking net trading revenue (£ million)	26.3	14.5	82%
Other income (£ million)	4.2	2.7	53%
Profit before tax (£ million)	141.1	30.1	369%
Basic earnings per share (pence)	38.3	9.5	303%
Dividend per share (pence)	9.20	2.85	223%
CFD gross client income (£ million)	173.6	103.5	68%
CFD client income retention	115%	82%	33%
CFD active clients (numbers)	59,082	41,603	42%
CFD revenue per active client (£)	3,392	2,047	66%

Notes:

• Net operating income represents total revenue net of introducing partner commissions and levies
• CFD net trading revenue represents CFD and spread bet gross client income net of rebates, levies and risk management gains or losses
• CFD gross client income represents spreads, financing and commissions charged to clients (client transaction costs)
• CFD active clients represent those individual clients who have traded with or held a CFD or spread bet position with CMC Markets on at least one occasion during the six-month period
• CFD revenue per active client represents total trading revenue from CFD and spread bet active clients after deducting rebates and levies

Key highlights

• Record H1 trading performance, with net operating income up £128.6 million (126%) to £230.9 million (H1 2020: £102.3 million)
• CFD gross client income up 68%, representing increased client trading and demand from new and existing clients
• CFD revenue per active client up 66% to £3,392, with an unwavering strategic focus on high quality clients
• CFD active clients increased by 17,479 to 59,082 (42%), demonstrating the continuing attractiveness of the platform to existing and new clients, with encouraging early signs around new client quality and longevity
• Stockbroking net trading revenue up 82% driven by significantly increased client trading as a result of higher market volatility and increases in the client base
• Operating expenses excluding variable remuneration up 22% to £79.1 million (H1 2020: £64.8 million) due to higher marketing costs to attract high-value new clients, increases in client trading-related variable costs, and investments in technology and platforms resulting in increased staff costs
• Operating expenses including variable remuneration up 25% to £88.9 million (H1 2020: £71.2 million)
• Profit before tax up 369%, demonstrating strong operating leverage
• Regulatory total capital ratio of 27.3% and net available liquidity of £247.9 million
• Interim dividend of 9.20 pence (H1 2020: 2.85 pence) with a total dividend for the year expected to be in line with policy at 50% of profit after tax

1

Significant investment in technology

• The Group continues to win business in a highly competitive field through its investment in proprietary technology platforms, thereby diversifying its offering, enhancing its retail and institutional relationships, and enabling new revenue opportunities
• The expertise and experience of the technology function has been further strengthened with Brendan Foxen, Chief Technology Officer, joining the Group during the period
• In addition, the Group has significantly scaled up the breadth and capability of the technology function, hiring 68 additional staff (a 35% increase) since H1 2020, to increase the speed of delivery and volume of new platform and technology innovations and to capture new revenue opportunities

Peter Cruddas, Chief Executive Officer, commented:

"I am delighted with our record first half performance, which vindicates our strategy of continuing focus on high value clients. I am tremendously proud of the resilience, flexibility and capability displayed by all of my colleagues at CMC, and would like to personally thank them all for their commitment and passion with which they deliver the continued quality service to our clients.

At CMC our goal is to constantly provide a superior and unrivalled online trading experience for our clients and through this period of market uncertainty we have provided a CFD platform with 99.97% uptime. We look to lead with quality and in the period have been able to on-board a record number of high quality clients and deliver significant growth across all of our key businesses.

The significant increase in net trading revenue across all areas of the business in H1 2021 is a result of the Group's unwavering focus on our strategic initiatives. This has delivered increased diversification of Group revenues, improved CFD client income and an increased number of active clients.

During the period we continued to recruit new staff, we did not request to participate in any Government financial support schemes and all staff were paid in full through the normal payroll. Our new Chief Technology Officer, Brendan Foxen, has settled in well and is already making a valuable contribution.

Looking ahead, while it is still too early to know the full extent of the changes in client trading demand, we have had the ability to demonstrate the strength of our offering and are confident in retaining the high-quality clients we target. I believe that CMC is in an excellent position. We have many opportunities to leverage our technological innovation, quality client service and platform strength, and these will allow us to expand our product portfolio and deliver further profitable growth for the Group. I believe that, based on these competitive advantages, we will be able to provide highly attractive returns for our shareholders over the coming years."

2

Analyst and Investor Presentation

A presentation will be held for equity analysts and investors today, 19 November 2020, at 10:30 a.m. (GMT).

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

https://webcasts.cmcmarkets.com/results/2021halfyear

Should you wish to ask a question, please dial into the presentation on [phone], and quote "CMC Markets plc H1 2021 Results Conference" when prompted.

Forthcoming announcement dates

20 January 2021	Q3 2021 trading update
8 April 2021	FY 2021 pre-close update

Forward looking statements

This trading update may include statements that are forward looking in nature. Forward looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause the actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Except as required by the Listing Rules and applicable law, the Group undertakes no obligation to update, revise or change any forward-looking statements to reflect events or developments occurring after the date such statements are published.

Enquiries
CMC Markets Plc
Euan Marshall, Chief Financial Officer	[e-mail]
Camarco	[phone]
Geoffrey Pelham-Lane
Ed Gascoigne-Pees
Jennifer Renwick
Notes to Editors

CMC Markets Plc ("CMC"), whose shares are listed on the London Stock Exchange under the ticker CMCX (LEI: 213800VB75KAZBFH5U07), was established in 1989 and is now one of the world's leading online financial trading businesses. The company serves retail and institutional clients through regulated offices and branches in 12 countries, with a significant presence in the UK, Australia, Germany and Singapore. CMC Markets offers an award- winning, online and mobile trading platform, enabling clients to trade over 10,000 financial instruments across shares, indices, foreign currencies, commodities and treasuries through contracts for difference ("CFDs"), financial spread bets (in the UK and Ireland only) and, in Australia, access stockbroking services. More information is available at http://www.cmcmarketsplc.com

3

CHIEF EXECUTIVE'S REVIEW

In the first half of 2021, we have continued to build on the momentum that we reported in 2020. We have delivered a record performance while continuing to invest in technology that will provide a strong platform for our future growth.

Exceptional performance delivered

Net operating income of £230.9 million (H1 2020: £102.3 million) was a record for the Group, with exceptional performance seen across our B2C and institutional B2B businesses as well as in our stockbroking business. The CFD business has seen significant revenue growth as a result of our ongoing focus on our high value, sophisticated global client base and continuous improvements to our risk management strategy and customer proposition.

Gross CFD client income increased 68% to £173.6 million, with client trading activity across the business improving significantly due to market conditions. Client income retention also improved to 115% (H1 2020: 82%) which we would expect to reduce in more normalised conditions. As a result CFD net trading revenue increased by 135% to £200.4 million.

As well as the significant improvement in profitability, the underlying fundamentals of the business remain strong. CFD active clients for the period were up 42% to 59,082; and we continue to target and retain higher value, sophisticated clients in order to grow client income. The cohort of clients acquired during the COVID-19 period, since March 2020, has been significantly larger than prior periods. Early indications regarding their quality and longevity is encouraging. Levels of client money, which are an indicator of future trading potential and client confidence in the stability of the Group, increased by £84.5 million (25%) from March 2020.

The stockbroking business also continued to grow with net trading revenue up 82% to £26.3m. The benefits of the ANZ Bank stockbroking white label partnership continue to contribute to the Group's growth, with stockbroking active clients increasing 42% to 168,270. Of this increase, stockbroking B2C clients increased 58% to 32,225, with B2B increasing by 39% to 136,045.

The Group has invested significantly in technology during the period from H1 2020, predominantly through the recruitment of an additional 68 staff in technology (a 35% increase) and 16 staff in quantitative analysis (a 41% increase). Technology and quantitative analysis now account for 39% of our global staff headcount. In addition, marketing spend increased to attract new high value clients and capitalise on the market opportunity, with other variable costs also increasing, driven by elevated client trading volumes.

The operational gearing in the business resulted in a statutory profit before tax of £141.1 million, up 369% on prior year (H1 2020: £30.1 million). Profit after tax was £110.8 million, up 303% against prior year (H1 2020: £27.5 million) and basic earnings per share was 38.3 pence (H1 2020: 9.5 pence).

The balance sheet continues to reflect the strong financial position of the Group. At the end of the period, the Group's net available liquidity was £247.9 million and the regulatory capital ratio was 27.3%. It is important for the Group to retain a healthy level of available cash to support the continued investment in technology and people, giving shareholders confidence that high returns can be sustained in future, while also receiving a dividend in line with our policy of distributing 50% of profit after tax.

Optimising our risk management

The ongoing market conditions and continued optimisation of our risk management strategy has resulted in improving client income retention during H1 2021. Improvements have included the ongoing optimisation of our hedging decisions using our quantitative and data science analytics such as decay mark-out curves and static position and risk concentration detection of the flows we inherit. The majority of the risk management gain seen in H1 2021 was derived from positive hedging revenue from our static hedges. CMC's exposure to our clients' significant positive equity market returns in H1 was matched with largely complete hedging of the static risk during the period. The profitable net hedge position resulted from the internalisation of a proportion of certain highly liquid instruments during periods of high volatility, within board approved limits. It remains our medium term expectation that client income retention will be in excess of 80% but not above 100% as achieved in H1 2021.

Regulatory uncertainty lifted

On 23 October 2020, the Australian Securities and Investments Commission ("ASIC"), issued the outcome of the August 2019 consultation paper regarding the application of product intervention powers on the issuance and distribution of binary options and CFDs to retail clients, which will be implemented from 29 March 2021.

In summary, the product intervention order will restrict CFD leverage offered to retail clients to the same maximum ratio as those implemented by the European Securities and Markets Authority ("ESMA"). Other measures such as margin close out protection and negative balance protection for retail clients will also be implemented.

4