Earnings Call: Q3 2024

Oct 31, 2024

Earnings release

Summary

Q3 revenue rose 67% YoY to PLN 470m and net profit increased 68% to PLN 204m, alongside strong customer growth. Product launches and international expansion remain priorities, with market volatility, marketing constraints and licensing shaping the outlook.

Good morning, ladies and gentlemen. On behalf of the Management Board of XTB, I would like to welcome you cordially to our conference dedicated to discussion of the preliminary financial results for Q3 2024. My name is Paweł Szejko. During today's conference, I will talk about our financial data. In part, our CEO, Omar Arnaout, will talk about our business activity in this period. That will be followed by Filip Kaczmarzyk, who will talk about his observations in terms of the market context. After the presentation, we have a Q&A session planned. Those of you who are participating in today's conference through the webinar can pose your questions through the chat function. Other persons who are watching today's conference through our broadcast, our webcast on the investor relations tab can pose your questions through email, and this was possible prior to the conference. Now we can go on to a discussion of the results. We have completed Q3. We have a profit of PLN 204 million against revenue of PLN 470 million. We had costs of PLN 208 million. This gives an increase of net profit of 68% year-on-year, and it is up by 27% quarter-on-quarter. We can consider this quarter to have been a successful quarter. What is worth of being highlighted, Q3 was another period in which we saw rapid growth in our profit. We also had expansion of our customer base. A lot has been happening in terms of products, customer acquisition, and of course, the CEO will speak to this issue in greater length. We can say this is one of the reasons for our results, and we have control, of course, over the cost. The second factor that was driving our results, which is outside of our control, is market volatility, and so how the investments of our customers are proceeding and the volumes that are generated by these customers. Of course, this drives the revenue over the course of a quarter. As we look at the market characterization of Q3, we can say this was a standard quarter in terms of market volatility. We had long and clear trends. More was happening in Q3 than in Q2, but this was not a quarter where we had volatility as high as we did in Q1. If we look at the individual months of the year, we can say that much more was happening on the markets in the vacation period, so in July and August, while September was more of a calm month. More will be said about the market by Filip Kaczmarzyk in the further portion of our presentation. If we think about the market description in Q3, we have revenue of PLN 470 million, which gives us an increase of 67% year-on-year and 23% quarter-on-quarter. As we look at the revenue mix, the trading volume in lots was 1.9 million, so slightly less than in Q2, while the profitability per lot was higher at PLN 246. Now, as we look at revenue by class of instrument, in Q3, the most profitable were index CFDs. They accounted for 45% of the revenue mix on financial instruments in this period, and this is a result of their profitability on index CFD in terms of the US 100 index, the German DAX index, or also the US500 index. The second most profitable asset class were commodity CFDs. They accounted for 38% of the revenue structure or mix, and the most profitable instruments were commodity CFDs based on the prices of gold, natural gas, as well as oil. If we look at the revenue on CFD instruments based on foreign currencies, they represented 15% of the revenue. If we look at profitability, the most dynamic were Bitcoin cryptocurrency, as well as the euro-dollar pair, as well as the Ethereum cryptocurrency. If we look at the operating costs in Q3, they were roughly PLN 208 million, and they were at a comparable level to the level we saw in Q2 and Q1. If we look at the full year, we assume that in full year 2024, total OPEX as well as marketing expenses would be around one fifth higher than what we saw in 2023. If we look at financial liquidity, the situation is very good. At the end of Q3, we had PLN 1.7 billion in own funds, and then we also had bonds as well as instruments backed by the State Treasury in banks. As the management team, we uphold our dividend policy. To simplify, we want to distribute 50%-100% of the standalone profit, having in mind a variety of factors. For example, the regulations or guidelines given by the Polish FSA for brokerages. Now, I would like to go ahead and give the floor to the CEO, who will talk about our operating data. Good day, ladies and gentlemen. We can go ahead and kick off with the next slide. In terms of operations, Q3 was a very good quarter. We exceeded 100,000 new customers, which is the best vacation period result in the company's history. At the end of Q3, the number of new customers is higher than we had in the whole previous year. Also, in comparison to last year, the number of active customers has grown by nearly 200,000 customers, and right now it is 550,000 or nearly 550,000. From the point of time, we can say as we look at net deposits this year, they exceed PLN 6 billion, which compared to last year, when we had deposits of PLN 2.6 billion, is a major amount of growth. After commencing our cooperation with the new brand ambassador, which you have heard about, I hope you have seen that. We are talking about Zlatan Ibrahimović. We are now doing a lot of marketing campaign in all of our branches. We also have an offline campaign underway. If we look at the traditional markets, we have Poland, Czech Republic, Portugal, and Romania. We have also added the German market here, where we have very ambitious plans for the upcoming year, and we can say that we have started longer campaigns, which I hope will always be continued, but not only continued, but we are going to be able to add even more activity to them. As you probably know, October has also been a very good month in terms of customer acquisition, and I hope that we will be able to uphold that to the end of this year with, of course, the exception of the holiday period. Now, as I move on, if we look at the growth in the number of customers, I already talked about that previously, where we can say that this is certainly a result of our marketing activity, but not only our marketing activity. It's also the outcome of a better and better offering, the fact that we have a broader product portfolio. This is also something we consider to be crucial. On top of the products, we've had the opportunity to discuss multiple times. Recently, we added to our offering our IKE, the Polish IRA, and we hope that we're going to be able to introduce the ISA account in the U.K. in Q4. On top of that, two weeks ago, we launched in two markets in Portugal and in Czech Republic. We added the digital wallet with a multi-currency card, and over the next few months, we want to proliferate this product across the bulk of our branches. Of course, it'll be improved. This was just the first version that entered the marketplace in the two markets that I mentioned. I've mentioned multiple times that our product plans are ambitious for next year, and they will continue to be ambitious. Shortly, we'll enter the budgeting phase for next year and planning next year. I hope over time, we'll be able to share our plans with you in terms of our expectations, in terms of the number of new customers, and these will be ambitious targets, but also in terms of our product plans. That will be it from my side. Of course, during the last portion of our session, I would invite you to pose as many questions as possible. Then I'll ask Filip Kaczmarzyk to tell us a little bit about what's happening in the market context in Q3. Thank you very much, Paweł. Good day, ladies and gentlemen. In terms of the market environment, I think Paweł has said already a lot. If we look at the instruments themselves, the top 10, we can say there are no surprises. In previous quarters, I was always able to withdraw or extract a surprise, the Polish index or the U.S. index or DAX, euro-dollar, and natural gas. There were no surprises here. What we should consider noteworthy, this was not as pronounced a quarter as Q1. This was a result of the fact of the activity not being as pronounced in the German DAX index. We can say that it was in a relatively small trend, whereas in Q1, those trends were much more pronounced, much larger. In August, we had a major correction in the markets, but after that, the markets over the next 10, 15 days, they reversed to the original level prior to that correction. We had some positive revenue. Finally, we can say that those positions were reversed. We can say that the revenue was not as large as on the DAX instrument itself. We could look at gold. Gold in Q3 gave you a perfect example of the market we're looking for. We can always say that the market will never be exactly in line with our ideals, and that's why we're trying to basically have a broad range of instruments. But gold showed a very clear growth trend, upward trend, and it reached record-breaking levels in terms of prices, and this converted into a very high percentage of the result. It basically accounted for a large percentage of the revenue in mix. If we look at the trading volume of CFD instruments on a nominal basis, this is something we should look at, $695 billion. What we should also draw your attention to, we see it's another quarter when there was a record-breaking level of volume trading of equity. October was also a very good month in terms of equity trading. We can say this is growing. We're optimizing the costs and the execution. What I said previously, we can see that CFD is very active and this is something that's growing, and this is something that's quite important to us. The last thing I wanted to say about crypto, we can see the trading volume on crypto was the lowest in this quarter, in this year, but we can say that it didn't differ much from around EUR 8 million in revenue that we use the STP model, slightly modified. We don't take on any exposures for our trading book. Such a major revenue with the smaller trading volume, this is because of different market conditions. The costs have fallen and so they're much bigger in terms of the volatility. The strategy that we've followed, we've had basically a lower cost, and that's more or less it from my side. I'm going to turn the floor back over to Paweł. Thank you very much, Filip. We've completed the official portion of our presentation. I will go on to the Q&A session. The first question, this is to you, Omar. We now have the information. Whether or not the tax changes on CFD in Germany will increase substantially the ability to acquire customers in this market. Who's the leader? What position does XTB have, and what is the size of this market compared to Poland? If we look at tax issues have diminished the interest in Germany, we haven't noted that. After the changes, we don't have the feeling that the interest has grown substantially in terms of CFD instruments in Germany. The interest was always large. It always depended on how much our marketing spend was, but it was also linked to the products that we rolled out on this market. I don't see a lot of change here. Who's the leader? In terms of that question, we can respond to that with a variety of research. If we look at the competition that's focusing on CFD, then we can say that we're gradually becoming one of the leaders. If we're talking about all of the possible investments, then we should emphasize that Trade Republic is the clear leader. To some extent, what we should emphasize that Trade Republic is offering cards and a portion of the business is focused on investments. We can say this is offering to the mass customer. That's something we're not doing. This doesn't alter the fact that as we endeavor to compete with the biggest competitors in this market, we are aspiring to the top five and having in mind that we have a sufficiently good product and a sufficiently good offer. In Q4, we've started a large-scale marketing campaign. It's very large compared to our standards. Does that mean that it's a large campaign, having in mind what Trade Republic has done? So one of our biggest targets for the upcoming year is to come closer in terms of our budget, in terms of big markets like France and Germany, and we want to come closer to the larger companies on these markets. I do not want to get into the details about Poland because we do not share that information. I would like to emphasize once again that generally speaking, amongst the investment firms, we are not even in the top five, but I believe that we have a lot of potential, much more upside potential than other companies because our offering is much better and we have basically extended quite extensively. So we have enlarged the product offering. So now the question is, what does new customer acquisition look like in Spain today as opposed to prior to the marketing limitations? We are not sharing specific data about each market. This does not alter the fact that the number of new customers in Spain has not fallen significantly. We know that in terms of marketing, we are not running any marketing efforts, and that is why costs have diminished or fallen quite substantially. So we cannot fool ourselves that this trend will be continued for the next year or two, because it is obvious that if we are not going to spend any money on marketing over time, then we are going to attract fewer and fewer customers. That does not change the fact that we have a plan for this market, and that is why our branch is the same, even though we are not doing any marketing efforts. It has remained intact, and so we believe that 2025 is the year when we are going to be able to do more and we are going to be able to replace CFD in Spain. But I do not want to promise anything right now, especially since we are in a course of preparations. [Foreign language] Mam nadzieję, że Państwo się z każdym nowym produktem inwestycyjnym. Więc może opcje będą. Jak wygląda wdrożenie konta ISA w Wielkiej Brytanii? To o tym już wspominałem. Mam nadzieję, że pod koniec obecnego roku konta ISA zostaną wprowadzone w Wielkiej Brytanii. Zresztą obecnie już planujemy kampanię marketingową na ten produkt sam początek roku. Planujemy naprawdę największą kampanię marketingową w historii tego działu i zakładam, że plan nasz się jest. Czego wynika obniżenie prognozy uzyskanych kosztów marketingu na 2024? Wynika to z tego, że były oczywiście tutaj Paweł właśnie tego pomóc, ale wpływy m.in. marketingu na dwa rynki, które mogą być potencjalnie wcześniej otwarte, czyli rynek Indonezji oraz Brazylii. I dlatego tak naprawdę ten spadek, i oczywiście też warto wspomnieć o Hiszpanii, w której wcześniej prowadziliśmy bardzo duże kampanie marketingowe, a już nie prowadzimy. Więc to przede wszystkim wynika z tych trzech rynków. W związku ze zniesieniem ciężarów finansowych wynikających z Zjednoczonych Emiratach Arabskich na transfer i konwersję kryptowalut oraz innych wirtualnych assetów. Are you planning to launch a spot for cryptocurrencies in the Emirates? Moja odpowiedź dokładnie taka sama jak w przypadku opcji. Jeszcze planów na ten moment nie mamy. Bo jeszcze raz podkreślę możliwość prowadzonych dwóch produktów inwestycyjnych na świecie jest ograniczona, jeżeli chcemy dostarczać usługi z ofertacją, tak jak uważam, że wszystko z czasem jest potencjalnie możliwe do zrealizowania. Lepiej niż korzystać z IKE, lepiej niż korzystających z IKE spodziewać się Państwo na koniec obecnego roku. To udostępnimy Państwu możliwość przeniesienia. Na pierwsze dwa pytania odpowiadam, ponieważ w takim danym mieście nie żyje wielu klientów wcześniej przez zainteresowanie tym produktem. Wspomniałem, że obecnie mamy możliwość przeniesienia IKE do XTB. Jest dużo zainteresowania. Nie dzielimy się tego typu informacją. Nawet jeśli nie jest możliwe, żeby transferować IKE accounts to XTB i nawet jeśli są jakieś kampanie marketingowe, jest ogromna ilość zainteresowania, dużo większa niż nasze oczekiwania wcześniej. Ale odpowiadając na ostatnie pytanie, czyli kiedy spodziewamy się przeniesienia IKE, mam nadzieję, że już w odpowiedzi na poprzednie przeniesienia IKE. Co by oznaczało, że z czasem nie odpowiednio od razu w grudniu, w styczniu na pewno rozpoczniemy większą kampanię marketingową związana z IKE. I wtedy na pewno w terminie, nie wiem, czy to będzie początek grudnia, koniec grudnia, na pewno styczeń. Kiedy chcecie Państwo wprowadzić IKZE? Jeżeli mnie pamięć nie myli, zostanie wprowadzone w pierwszym kwartale następnego roku. Drugie pytanie, ale też już ostatnie. Mieliście Państwo jakieś kroki, aby powalczyć o social copy trading? Temat copy trading Państwo wcześniej zdecydowali się zrezygnować z social tradingu. Czego się jednak nie udało. Czy eToro robi to legalnie? Jeśli nie, podjęliście Państwo jakieś kroki, aby powalczyć? Social trading, a problem kopii obecnej niezdolności inwestowania pieniędzy znajomych lub osób publicznych. Czy eToro robi to legalnie? Jeśli nie, podjąłem jakieś kroki, aby to walczyć. Widzę dużo potencjału w copy tradingu. Nie jest, nie jest możliwe, aby inwestować pieniądze znajomych i innych osób. Jeśli chcesz to robić legalnie za kilka setek tysięcy lub kilka milionów. Więc rozważam współpracę z eToro, skoro nie macie tej usługi. Czy powinienem czekać? Tutaj pytanie było, więc zacznę od tego, że ofertę copy tradingu rozważaliśmy. Podkreślił, że copy tradingiem nie mamy socialem. Mam nadzieję, że jest blisko nadzieje rozmowy z Komisją Nadzoru Finansowego na temat sociala w obecnej formie. Ale nie zmienia to faktu, że my w tej chwili mówimy tylko i wyłącznie o czymś, co w Polsce zostało wprowadzone. Czyli tak naprawdę obecnie nie ma żadnych planów na wprowadzenie copy tradingu. Jeżeli niestety jest to rzecz, której pan oczekuje, to niestety tego nie będzie w ofercie. Myślę, że przez wiele najbliższych miesięcy można spodziewać się, że wprowadzimy taki oferty. Jeżeli byśmy mieli wrócić kiedykolwiek, to odpalam potencjalnie social trading. Więc na pewno ten projekt by dostał zielone światło. Bez względu na inne priorytety. Na razie skupialiśmy się na czymś innym. Jeszcze raz podkreślę, że przed chwilą miałem rozmowy z Komisją Nadzoru Finansowego na temat sociala, żeby móc potem ewentualnie przywrócić taką usługę na platformie. Nie chciałbym oczywiście odpowiadać na pytanie, czy eToro robi to legalnie. Muszą Państwo tutaj przejść. eToro is of course regulated by CySEC. This is the key element. And actually, here we must, of course, KNF is in contact with CySEC, but recently it will be CySEC's decision whether something like this is done and can be continued in Poland. And whether or not it can be continued or not be continued. Czy jesteście Państwo zadowoleni z tempa i obszaru wprowadzenia nowych produktów? Wydaje mi się, że wszystko się ciągnie, czy to w kwestiach finansowych oraz liczby, których bym oczekiwał już czegoś nowego. Wprowadzenie obligacji w tej skali i w tym czasie, myślę, że trzeba było przybrać troszkę inny marsz. Okej. Jeżeli tak naprawdę spojrzeli na nasz plan produktowy mniej dłuższy- Are you happy with the hit ratio in terms of introducing new products? It seems to me that everything's taking quite a bit of time. Having in mind the financial capabilities and the number of IT employees, I would expect a faster pace of growth. Introducing bonds doesn't seem to be a challenge of this magnitude that you have to push it back in time. If we were to take a look at our product plan for the upcoming year, it has several components. One of them was to improve our Investment Plans, and the next component was social, and the next two products were IKE and ISA, and the final product outside of bonds was supposed to be this portfolio with a multi-currency card. Having in mind our plans, I would clearly tell you that this is not something that's being delayed, because everything outside of bonds, everything that we had promised you at the beginning of the year, will have been implemented, and we're clearly pleased with the pace of bringing these products online. It's not the case that we just want to add any type of product. We want to have a very good product before we roll it out. I don't think that this is something that's being artificially protracted or delayed. Since we have a large number of teams in our technology department, we're not only dealing with new products. This is a large organization, and there's a lot of additional responsibility in terms of bonds, even though this was not a major thing. If we were to focus on it, having in mind the current interest that we're offering, it seems to me that we have a much better offering than the bonds that we would have implemented. If had we believed that bonds would have been a very good product for our customers, then within a few weeks or month, we probably would have been able to continue that. But since we didn't think that it would be as good of a product, that's why we decided to temporarily abandon that product. We're very pleased with the course of the work, and bonds were the only product that we had planned that was not rolled out this year. [Foreign language] Dlaczego wprowadziliście Państwo do oferty tylko IKE, a nie także IKZE? Why have you added to your offering only the IKE product and not IKZE also? It's always a matter of setting priorities. Well, it's better to introduce one product as opposed to wait for both products. So, it was possible to do IKE right away. Well, we didn't see any benefits from waiting. Why haven't we introduced IKZE? We believe that at present it's better to introduce the ISA account in U.K. or perhaps in France or elsewhere. It's always a matter of setting priorities. [Foreign language] Czy mogą być jakieś informacje nad nowymi produktami? Okej. Can I ask you for some information about the products that you're working on, the new products you're working on? Powtórzę to, o czym mówiłem. My w tej chwili planujemy na następny rok i do niczego więcej powiedzieć- Well, this is a question about new products, as I see. I can reiterate what I've said. Right now, we're planning the next year. I can't say anything more because we're in the process of planning now. Unfortunately, I won't be able to say anything on that subject. Prowadzicie Państwo, jeśli ktoś myśli o większych inwestorach, kredyt na zakup akcji, pełne arkusze zleceń, pełna gama zleceń, futures, opcje. Are you going to introduce products into your offering, having in mind bigger investors, so loans to purchase equities, full order scope? Well, these are very large-scale products, and these are potentially for bigger investors. For example, the full range of orders. Well, some of those aren't related to whether or not you're a bigger or a smaller investor, like futures and options. Well, I can respond to this question from a couple of different vantage points. We're not going to be thinking about the full range of orders. So in other products, I think I've already talked about these other products in my past during this session. Kolejne pytanie. Well, the next question about- Zmiana guidance w zakresie kosztów, ona wynika w głównej mierze z poziomu kosztów naszych i jakie plany mamy również w tym roku. Artur Lipiński wspomniał w kontekście- Perhaps I will respond to this question about the change in guidance on costs. Well, this is because of the revision to the level of marketing spend that we had planned for this year. Omar also addressed that revision to marketing spend during his response to one of the previous questions. The next question is about when we plan to share with you the plans for the new products. In terms of our product plan for next year, we are going to want to share that information with you probably when we publish the preliminary results for 2024, just as we did with the product plan for this year. Jeżeli chodzi o to pytanie, z czego wynika spadek przychodów z akcji kwartał do kwartału? In terms of this question, why did revenue fall on equities quarter-on-quarter? Well, we earn money in terms of equities on two components. Sytuacja, w której nasz próg przekroczył EUR 100,000. Well, our customers exceed EUR 100,000 and the second element where we earn money, this is when there's currency swaps, when customers are buying equities in a different currency and the volume generated by a customer and whether or not that monthly threshold is exceeded or uses cross-currency investments. These are decisions made by our customers, and this basically has an impact on the level of our revenue. The next question is about OPEX next year. We'll be able to share that information with you when we publish the report with the preliminary results for 2024. At that point in time, we would have completed the budgeting process, and it would be easier at that point in time for us to share with you our expectations regarding OPEX in 2025. The next question, maybe Omar, I would ask you to respond to this question. How many customers would you like to acquire next year? I can reiterate what Paweł said. The guidance we want to give you at probably the time when we publish the results for Q4 of this year. Right now, we're just not having started the budgeting process. When we want to reach that 100,000 figure, I'm not sure if it's going to be next year. So far, we have more than 40,000, so I hope as soon as possible. Personally, I believe that it's going to be quite difficult to achieve next year. What sort of expectations do you have of the new markets like Brazil and Indonesia, and what sort of potential do you see in these markets, and why do you want to develop your position in those markets? Perhaps I will start from the launch moment. From the moment of launch in Indonesia, we want to launch next year. We hope this will happen in Q1 of next year. In terms of Brazil, we're still waiting for the license. The license probably shouldn't be awarded until Q2 of next year. If we're talking about the upside potential or growth potential, we're talking about something in Brazil that's going to happen in many months down the road. We're not planning any major activities. We don't want to develop any type of expectations when we go to Indonesia. What we should emphasize here is that once we start our business in Indonesia, we're going to begin only with equities, ETFs, and Investment Plans. We won't offer CFDs because that would require securing additional permits, and so that permitting wouldn't be done until the latter half of the year. In terms of our expectations of Brazil, basically to be able to begin operations on that market. When we talk about Indonesia, our major goal is to attract as many customers as possible because monetization will be quite difficult. With the exception of Investment Plans, ETFs and equities, we wouldn't have the CFDs. We're always interested in markets that are developing, that are growing, but also are regulated. It's not the case that you can bring Asia on board with a license that would enable us to offer equities, ETFs and CFDs. This is possible only on two markets, Singapore and Indonesia. I think it was quite simple to make this choice. Indonesia was an obvious choice for us. Singapore, of course, is very competitive as a city-state. It's a very expensive country, while Indonesia is growing at a very fast pace. We see a lot of opportunities for ourselves there, and so there's some competitors, and so we believe it will be able to grow there. If we think about Brazil, the situation is similar. This is a huge country, not very much competition in terms of CFD instruments, and that's one of the reasons why we'd like to enter that marketplace. We should also emphasize that Indonesia and Brazil, if we look at the competition amongst companies, investment firms offering equities and ETFs or fintechs above all, the competition is very fierce, which doesn't allow you to have a position there. Is it possible that in Q4 you will come closer to bringing on board 150,000 customers? I think we've published the information that October we had pending 44,000 accounts, so everything is possible. Even if in November we were to add exactly the same number. Well, even if we multiply that number by three, it would be very difficult to reach the 150,000 watermark, and we have to remember that from the middle of December, the interest amongst our customers is always diminished because of the holiday period. Of course, I hope it is possible, but at the same time, I would not want to promise anything at this point in time. Here, the new products that you plan to introduce into your offering next year. Well, this is about the next year. Let me tell you, without drilling down into the details, I cannot betray the products that we want to implement or roll out. Well, we would like to add some additional products that will be safe for our customers, and we would like to add not only those products that would enable us to diversify our product offering, but we would also like to add products that would enable us to diversify the revenue stream. Basically, the revenue stream diversification is quite important to us. Thank you very much, Omar. Based on what I see at this point in time, we have responded to the final questions. We would like to thank you at this point in time for your participation in today's conference. If you have any follow-up que-