Interim Results

RNS Number : 8855P

CMC Markets Plc

23 November 2016

 

23 November 2016

CMC MARKETS PLC

Interim results for the six months ended 30 September 2016

Further strategic progress despite subdued trading

For the six months ended £ million (unless otherwise stated)	30 September 2016	30 September 2015	Change
Net operating income	75.5	78.9	(4%)
Profit before tax	18.8	26.5	(29%)
Earnings per share (pence)	5.1	7.2	(29%)
Number of trades (million)	30.4	33.5	(9%)
Value of trades (£ billion)	911	1,112	(18%)
Active clients (numbers)	47,623	44,017	8%
Client assets	283.3	214.5	32%
Revenue per active client (£)	1,488	1,707	(13%)

Notes:

-       Net operating income represents total revenue after rebates payable to clients and introducing partners, and betting levies

-       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 six month period

-       Client assets represent total amounts due to segregated clients at the period end

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

Highlights

·      Net operating income down 4% to £75.5 million (H1 FY16: £78.9 million) with revenue per active client down 13% to £1,488

·      Continued growth in active clients, up 8% to 47,623 during H1 FY17

·      Client assets up 32% to £283.3 million (H1 FY16: £214.5 million)

·      Underlying operating costs up 9% to £53.6 million (H1 FY16: £49.1 million), reflecting investment in headcount and marketing to support strategic growth initiatives

·      Underlying profit before tax down 28% to £18.8 million (H1 FY16: £26.2 million)

·      Regulatory total capital ratio of 30% with own funds of £165.9 million

·      Interim dividend of 2.98 pence (33% of FY16 full year ordinary dividend)

Strategic progress

·      Established markets: Growing market share with active clients up 3% although value of client trades down 15%

·      Geographic expansion: New Poland office opened in October 2015 performing in line with expectations, building a platform for future growth across Eastern Europe. France office, value of client trades up 37%

·      Digital initiatives: New opened accounts up 15% driven by improvement in online advertising, websites and application forms which are optimised for mobile devices

·      New products: Binaries released in April 2016 and Knockouts launched in Germany in October 2016 - all designed, built and delivered in-house. Binaries and Countdown revenue £4.1 million, 26% higher than H2 FY16

·      Institutional offering: New API connectivity delivered, along with Next Generation white and grey label, resulting in an increase the value of client trades of 34%

Peter Cruddas, Chief Executive Officer, commented:

"Our first half net operating income reduced due to lower client trading activity, as experienced by the wider market and highlighted at our AGM trading update on 7 September 2016. However, we continue to make significant strategic progress, delivering against our five pillars of growth. We are growing our active client base through retail and institutional channels, rolling out new products and platform enhancements and looking at opportunities to develop our international footprint."
 

Analyst and Investor Presentation

A presentation will be held for equity analysts and investors today at 11:00 a.m. (GMT).

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

https://www.cmcmarkets.com/results/2017/h1 

Alternatively, you can dial into the presentation:

United Kingdom: 020 3059 8125

All other locations: + 44 20 3059 8125

Please quote "CMC Markets plc H1 2017 Results conference" when prompted.

Forthcoming announcement dates

26 January 2017	Q3 2017 interim management statement
30 March 2017	FY 2017 pre-close update

Media enquiries

Camarco

Geoffrey Pelham-Lane/Ed Gascoigne-Pees/Jennifer Renwick Tel: [phone]

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/
 

CHIEF EXECUTIVE'S REVIEW

These are the Group's first half year results since the Group's successful listing on the London Stock Exchange in February 2016. During the period, the Group experienced a lower level of market activity than the same period last year. This was despite a brief pick up immediately after the UK's EU referendum that proved short-lived. This led to more limited trading opportunities for our clients, particularly in Indices, resulting in the value of client trades being 18% lower than H1 FY16. As a consequence, net operating income of £75.5 million was 4% lower than the prior year (H1 FY16: £78.9 million).This is despite an encouraging rise in active clients of 8% and a 32% increase in client assets, both of which are positive leading indicators of propensity to trade. The generation of additional revenue from our new binary products partially offset the lower revenue generated from our core CFD and Spread bet product.

The reduction in net operating income, combined with rising operating costs from investment in personnel, marketing initiatives and share based payments have resulted in a statutory profit before tax of £18.8 million, down 29% on prior year (H1 FY16: £26.5 million). Profit after tax was £14.7 million, down 27% against prior year (H1 FY16: £20.0 million) and earnings per share were 5.1 pence (H1 FY16: 7.2 pence).

The quiet markets impacted all three regional segments and as a result net revenue¹ was down in each of them. The UK reduction of 1% was a smaller decrease than experienced in other regions due to the success and resulting growth in the institutional channel. Europe net revenue was down 11%. This region is dominated by Germany, where revenue was down by 12% and was only partially offset by the growth of our smaller offices. Asia Pacific (APAC) and Canada net revenue was down by 6%. Client acquisition remained strong across all regions, except Germany, and encouragingly our business continues to receive favourable reviews from independent market studies².

Costs continue to be well controlled, however, as a result of the reduced net operating income and continuing investment in strategic initiatives, staff costs and marketing expenses have increased to 33% and 14% of net operating income respectively. Costs in H2 FY17 are expected to be broadly in line with H1 FY17.

The Group has a continual focus on risk management and balance sheet strength. The success of this has been demonstrated through a number of unprecedented events in the last 6 months, including the UK's EU Referendum and October's Sterling 'Flash Crash', as well as the US presidential election, which is testament to the team's planning and delivery of risk mitigating actions.

Strategic initiatives

We continue to pursue net operating income growth through our clear five strategic pillars, assisted through leveraging our brand, client service, technology innovation, product offering and financial strength. In summary, while revenue growth has been impacted by trading headwinds, our long term strategic initiatives continue to deliver encouraging results.

Growth in established markets

Active clients in our established markets of UK, Australia and Germany have continued to grow with a 3% increase against prior year. In the UK and Australia overall primary market share has increased to 8% and 20% respectively, and we have continued to hold the leading market share in Germany at 16%. However, due to the previously-mentioned subdued markets, revenue per active client has reduced by 7% in these markets.

Geographic expansion

The Poland office, which opened in October 2015, continues to grow and active accounts were 124% higher in the first half than the final half of the prior year. The establishment of this office gives a potential springboard for future growth throughout Eastern Europe, a region where the Group has historically had little presence. The France office has delivered a 37% increase in the value of client trades, despite the quieter markets.

Digital initiatives

Our current digital initiatives can be split into three key areas:

·      Driving demand through search engine optimisation, affiliates, re-targeting and paid search;

·      An increased spend focus on mobile advertising, where we have been seeing continual quarterly increases in mobile app downloads; and

·      Improvements in the conversion funnel through website re-launch and new online application form rollout.

¹ Net revenue generated from CFD and Spread bet active clients, including Countdowns and Binaries, after the impact of rebates and levies. Geographic
 

   segmentation is according to location of office which on-boards client, rather than client place of residence.

² Investment Trends July 2016 UK Leveraged Trading Report (Spread bet primary market share); Investment Trends May 2016 Germany CFD & FX
 

   Report; Investment Trends May 2016 Australia CFD Report; Investment Trends August 2016 Singapore CFD & FX Report.

During the period the digital channel improvements have been complemented by an increase in marketing spend and product and event-focused offline advertising. New opened accounts were 15% higher than the prior year.

New products / developments

New product delivery has continued, with Binaries released in April 2016 and Knockouts launched in Germany in October 2016. These products have all been designed, built and delivered in-house. Binaries, along with Countdowns which were released mid-way through the first half of FY16 have delivered revenue of £4.1 million, which is an increase of 26% against the second half of the prior year. In addition to delivering new products, we continue to invest in both our Next Generation and Stockbroking platforms with regular, incremental improvements.

Institutional offering

Active sales of the institutional offering have driven a rise in net revenue through this channel of 41% to £10.4 million. During the period we have maintained strategic relationships in the traditional white and grey label market and started delivering API solutions for institutional clients to execute trades in Indices, Commodities, Treasuries and FX products. The pipeline of potential new clients remains encouraging and has been underpinned through our continuing focus on deploying new functionality requested by our clients, developing an institutional website and regularly participating at conferences and exhibitions. Our Institutional offering is a key growth driver enabling the Group to access markets where we would not normally have a physical presence and clients who might use CMC Markets' products.

Regulatory environment

During the last six months a number of events and developments have taken place that either will or could have an impact on the Group's activities. The result of the UK's EU Referendum in June has given rise to uncertainty regarding whether the UK will continue to have access the EU single market under the "passporting" regime and any implementation timelines should there be any changes to this regime. The Group has contingency plans in place which will be implemented should access to the single market change.

Within Europe there are a number of other new and potential changes to regulation which could affect the Group. The long running drafting of the Financial Transactions Tax is due to be completed by the end of 2016. However, at this stage we do not know whether the Group's products will be included within the legislation.

In addition, a number of countries within Europe are implementing or considering restrictions on the digital marketing of CFDs and other products. The restriction of digital marketing reduces the number of channels in which we can advertise our products. However, to date these changes have been discussed or implemented only in countries where the impact would be immaterial to the Group.

Finally, we are seeing a global focus on conduct within the industry, with growing adverse media coverage of unregulated foreign exchange and binary operators. We continue to be fully supportive of strong regulation and ensure we operate to the highest standards of regulatory compliance including working with local trade associations to drive standards and improve engagement with regulators.

Although the outlook for the regulatory environment is mixed, we are increasingly seeing the regulatory burden tighten on smaller firms. As a result of our scale and strong focus on Compliance, we see this as an opportunity. For example, Australia is proposing to force firms to segregate retail client money; as a Group we have been doing this globally for some time, but is likely to severely impact the business model of some of our smaller competitors.

Dividend

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. As a result, an interim dividend of 2.98p, representing 33% of the total FY16 ordinary dividend per share will be paid in December.

Outlook

Following subdued trading activity for the majority of H1 FY17, the Group has seen no further easing of client trading levels at the start of H2 FY17 and, in line with historic trends, believes that H2 FY17 performance will deliver an improvement on H1 FY17. However, if subdued conditions persist and client trading levels do not improve, net operating income for FY17 is likely to be moderately lower than FY16.

The Group's mid-term target is to deliver a net operating income of £220 million in the financial year ending 31 March 2020. Progress on the five strategic pillars, essential to underpin this target has been good and on track, whilst key underlying metrics such as client assets and new client acquisition have continued to show good growth.
 

OPERATING review

Summary

Net operating income fell by £3.4 million (4%) to £75.5 million. Despite higher active client numbers driven by continuing strong client retention and increasing new clients, trading activity was subdued due to the benign market environment. This was partially offset by the impact of binary products being available for the full period and improving Stockbroking performance. Underlying operating expenses increased by £4.5 million (9%) to £53.6 million. This was driven by the impact of investment in personnel during the last 18 months; higher share based payments and increased marketing activity, as well as the adverse impact of GBP depreciation. These have been offset by lower discretionary performance-based remuneration.

Underlying profit before tax decreased by £7.4 million (28%) to £18.8 million and our underlying profit before tax margin decreased by 8.3% from 33.2% to 24.9%. Exceptional items were £nil (H1 FY16: £0.3 million credit).

Statutory profit before tax decreased by £7.7 million (29%) to £18.8 million and profit before tax margin¹ decreased by 8.7% from 33.6% to 24.9%.

Net operating income overview

For the six months ended £ million	30 September 2016	30 September 2015
CFD and Spread bet (including binaries) net revenue	70.9	75.1
Stockbroking (exc interest income)	3.7	2.7
Interest income	0.9	0.9
Other operating income	-	0.2
Net operating income	75.5	78.9

Retail rebates, which are paid monthly to our clients based on the value of their trades, are included within net operating income.

Partner and institutional rebates have grown against the prior year to £10.9 million. This has been as a result of CMC beginning to actively sell the Next Generation institutional offering as well as existing Partner clients trading more as they have migrated to the Next Generation platform.

Regional performance overview: CFD and Spread bet 

	Six months ended 30 September 2016				Six months ended 30 September 2015				% Change
	Net revenue (£m)	Value of trades (£bn)	Active Clients	RPC (£)	Net revenue (£m)	Value of trades (£bn)	Active Clients	RPC (£)	Net revenue	Value of trades	Active Clients	RPC
UK & IE	29.1	365	13,345	2,180	29.5	409	12,749	2,314	(1%)	(11%)	5%	(6%)
Europe	19.6	269	18,159	1,080	22.1	363	16,954	1,302	(11%)	(26%)	7%	(17%)
APAC & Canada	22.2	277	16,119	1,376	23.5	340	14,314	1,646	(6%)	(19%)	13%	(16%)
	70.9	911	47,623	1,488	75.1	1,112	44,017	1,707	(6%)	(18%)	8%	(13%)

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

UK & IE

The value of client trades was 11% lower at £365 billion (H1 FY16: £409 billion) as lower levels of market volatility throughout the period provided fewer trading opportunities. The decision to increase margin requirements ahead of the EU referendum also supressed client activity. The reduction in the value of client trades was less severe than in other regions due to the growth of the institutional offering. The level of acquisition was a large driver of the increase in active client numbers which were up 5% to 13,345 (H1 FY16: 12,749). Client acquisition, measured as the number of new opened accounts, increased by 8% following further investment in both digital and above the line marketing activity. Revenue per active client was down 6% at £2,180 (H1 FY16: £2,314).

Our continuing focus on client service has been evidenced through our number one client satisfaction rating and superior net promoter score relative to the sector average in a recent independent industry survey¹, as well as being voted the Best Financial Services Provider for the fourth year in a row by Shares magazine readers.

Europe

Europe comprises the German, Austrian, French, Italian, Spanish, Norwegian and Swedish offices, as well as a new Polish office which was opened in October 2015. The value of client trades was 26% lower across Europe at £269 billion (H1 FY16: £363 billion). Active clients were 7% higher at 18,159 (H1 FY16: 16,954) with increasing client acquisition driving the rise. In Germany, CMC's core European market, the value of client trades was down 25% with increases in marketing expenditure delivering less new clients than anticipated. However, CMC maintained a market leading position in this region with a 16% market share of primary CFD active clients², and the gap further widening between CMC and the second largest competitor. French growth continued with the value of client trades 37% ahead of the prior year and active clients 26% higher. The regulatory outlook in France remains challenging with a proposed ban on the advertising of forex, binary and some CFD products by electronic means. The Polish office continues to deliver results in line with expectations.

APAC and Canada

Our APAC and Canada business services clients from our Sydney, Auckland, Singapore and Toronto offices along with other regions where we have no physical presence. The value of client trades were 19% lower at £277 billion (H1 FY16: £340 billion). Active client numbers were up 13% at 16,119 (H1 FY16: 14,314), and strong client acquisition resulted in new opened accounts increasing by 21%.

Our continuing success in client metrics has been externally recognised by Investment Trends³ with CMC maintaining the number one ranking in terms of market share for CFD high value clients in Australia, while also growing primary market share, and retained 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, demonstrating that CMC's brand profile is continuing to build strength in the region.

Stockbroking

The Australian stockbroking business has significantly improved on prior year performance, with revenue up 40% at £3.7 million (H1 FY16: £2.7 million), aided by a low central bank rate and supportive market conditions. Positive performance was also evidenced through both strong client acquisition (19% increase in new clients⁴), and improved cross-sell, delivered from fundamental improvements in on-boarding and digital marketing. In particular, the latest release of our award winning⁵ HTML 5 'Pro Platform' helped contribute to a 37% improvement in volumes. Further, the business executed numerous intermediary partnerships with both the Self-Managed Super Funds sector and the broader wholesale trading community. Costs remained stable through the deployment of numerous technological advancements and automation of processes; improving the overall scalability and efficiency of the operation.

¹ Investment Trends July 2016 UK Leveraged Trading Report

² Investment Trends May 2016 Germany CFD & FX Report

³ Investment Trends May 2016 Australia CFD Report; Investment Trends August 2016 Singapore CFD & FX Report.

⁴ Increase in new opened accounts over the period.

⁵ The Pro platform was recognised as an ABA100 Winner in The Australian Business Awards 2016 for Business Innovation.

 

PRINCIPAL RISKS

The Group's business activities naturally expose it to strategic, financial and operational risks 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 the Group is exposed. However, effective risk management ensures that risks are managed to an acceptable level.

The Board, through its Group Risk Committee, is ultimately responsible for the implementation of an appropriate risk strategy, which has been achieved by the establishment of an integrated Risk Management Framework. The main areas covered by the Risk Management Framework are:

·      Identification, evaluation and monitoring of the principal risks to which the Group is exposed.

·      Setting the Risk Appetite of the Board in order to achieve its strategic objectives.

·      Establishment and maintenance of governance, policies, systems and controls to ensure the Group is operating within the stated Risk Appetite.

The Board has put in place a governance structure which is appropriate for the operations of an online retail financial services group and is aligned to the delivery of the Groups' strategic objectives. 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 CMC Markets. 

As part of the Group Risk Management Framework, the business is subject to independent assurance by external and internal audit (third line of defence). The use of independent compliance monitoring, risk reviews (second line of defence) and risk and control self-assessments (first line of defence) provide additional support to the integrated assurance programme and ensure that the Group is effectively identifying, managing and reporting its risks.

The Group continues to enhance and embed its Risk Framework and governance to providing a structured approach to identifying and managing the risks to which it is exposed.

The Board has undertaken a robust assessment of the Principal Risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity and how they are managed or mitigated (Code C.2.1). These are outlined below and details of financial risks and their management are set out in note 4 to the financial statements in the 2016 Group Annual Report and Financial Statements.

Further information on the structure and workings of Board and Management committees is included in the Corporate Governance report on page 64 of the 2016 Group Annual Report and Financial Statements.

 

Category	Risk	Description	Management and Mitigation
Business and strategic risks	Acquisitions and disposals	The risk that mergers, acquisitions or disposals made by the Group do not achieve the stated strategic objectives or that they give rise to on-going or previously unidentified liabilities.	·  Robust Corporate Governance structure including strong challenge from independent Non-Executive Directors. ·  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-making as well as failure to exploit strengths or to take opportunities. It is a risk which may cause damage or loss, financial or otherwise to the Group as a whole.	·  Strong governance framework established including three independent Non-Executive Directors and the Chairman sitting on the Board. ·  Robust governance, challenge and oversight from independent Non-Executive Directors ·  Managing the Group in line with the agreed strategy, policies and risk appetite. ·  Group Risk is involved in the annual budgeting process.
	Regulatory change	The risk that changes to the regulatory framework the Group operates in impacts the Group performance. Such changes could result in the Group's product offering becoming less profitable, more difficult to offer to clients or an outright ban on the product offering in one or more of the countries where the Group operates.	·  Monitoring of market and regulator sentiment towards product offering. ·  Compliance department monitor and advise on impact of actual and possible regulatory change. ·  Active dialogue with regulators and industry bodies. ·  Flexible business model that is responsive to changes in regulatory requirements.
	Reputational risk	The risk of damage to the Group's brand or standing with shareholders, regulators, existing and potential clients, the industry and the public at large.	·  The Group is conservative in its approach to reputational risk and operates robust controls to ensure significant risks to its brand and standing are appropriately mitigated. Examples include:- ─    Proactive engagement with the Group's regulators and active participation with trade and industry bodies. ─    Positive development of media relations with strictly controlled media contact.
Financial risks Financial risks	Credit and counterparty risk	The risk of a client, custodian or counterparty failing to fulfil contractual obligations, including settlement, resulting in financial loss for the Group. Specifically: Client credit risk: Financial losses may be incurred in cases where the adverse price move exceeds the margin that a client holds to maintain their position, followed by the client defaulting against their contractual obligations to pay the deficit. Counterparty credit risk: A Financial Institution failing to meet or defaulting on their obligations in accordance with agreed terms.	·  Client credit risk: The Group's management of client credit risk is significantly aided by automatic liquidation functionality where margin levels are continuously reviewed. If they fall below pre agreed levels, the positions held on the account will automatically be closed out. Other platform functionality mitigates risk further: ·      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 allowing a client to remove their chance of debt from their position(s). However, after mitigations, there is a residual risk that the Group could incur losses relating to clients moving into debit balances if there is a market gap. ·  Counterparty credit risk: Risk management is carried out by a central Liquidity Risk Management (LRM) team under the Counterparty Concentration Risk Policy, approved by the Board of Directors. Mitigation is achieved by: ·      Monitoring concentration levels to counterparties and reporting these internally/externally on a monthly/quarterly basis. ·      Monitoring the credit ratings and Credit Default Swap (CDS) spreads of counterparties and reporting internally on a weekly basis. ·  Further information is available in note 4 to the 2016 Group Annual Report and Financial Statements.
	Financial reporting risk	The risk that financial, statutory or regulatory reports are submitted late, incomplete or are inaccurate.	·  Robust process of checking and oversight in place to ensure accuracy. ·  Knowledgeable and experienced staff undertake and overview the relevant processes.
	Insurance risk	The risk that an insurance claim by the Group is declined (in full or in part) or there is insufficient insurance coverage.	·  Reputable broker deals with the insurance and ensures cover is placed with financially secure insurers. ·  Comprehensive levels of cover maintained. ·  Rigorous claim management procedures are in place with the broker. ·  The Board's appetite for uninsured risk is low and as a result the Group has put in place established comprehensive levels of Insurance cover.
	Liquidity risk	The risk that there is insufficient available liquidity to meet the liabilities of the Group as they fall due.	·  Risk management is carried out by a central Liquidity Risk Management (LRM) team under policies approved by the Board and in-line with the FCA's ILAS regime. The Group utilises a combination of liquidity forecasting and stress testing to identify any potential liquidity risk both during normal and stressed conditions. The forecasting and stress testing fully incorporates the impact of all liquidity regulations in force in each jurisdiction and other impediments to the free movement of liquidity around the Group. ·  Risk is mitigated by: ·      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. ·      A £40 million committed bank facility to meet short-term liquidity obligations to broker counterparties in the event that the Group does not have sufficient access to its own cash. ·      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 more information see note 4 to the 2016 Group Annual Report and Financial Statements.
	Market risk	Market risk is defined as the risk that the value of our residual portfolio will decrease due to changes in market risk factors. The three standard market risk factors are price moves, interest rates and foreign exchange rates.	·  Trading risk management monitors and manages the exposures it inherits from clients on a real time basis and in accordance with Board approved appetite. ·  CMC Markets predominantly acts as a market maker in linear, highly liquid financial instruments in which it can easily neutralise all market risk exposure through its prime broker (PB) 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 it is exposed to. ·  For further information see note 4 to the 2016 Group Annual Report and Financial Statements.
Operational risks	Business change risk	The risk that business change projects are ineffective, fail to deliver stated objectives, or result in resources being stretched to the detriment of business as usual activities.	·  Governance process in place for all business change programmes with Executive and Board oversight and scrutiny. ·  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 & disaster recovery risk	The risk that a physical business continuity event or system failure results in a reduced ability or inability to perform core business activities or processes.	·  Dedicated business continuity functional support within Operational Risk Function. ·  Use of external specialist premises to enhance resilience in the event of a disaster recovery or business continuity requirement. ·  Periodic testing of business continuity processes and disaster recovery. ·  Prompt response to significant systems failures or interruptions.
	Financial crime risk	Financial Crime covers a number of unlawful activities including fraud (first and third party), theft, scams, confidence tricks, tax evasion, bribery, embezzlement, identity theft, money laundering, forgery, counterfeiting and acts of terrorism.	·  Adoption of the risk based approach to financial crime, including undertaking formal and regular risk assessments across global operations. ·  Global reporting procedures and surveillance processes in place using local compliance and legal expertise. ·  Regular and on-going training and awareness programme in place for staff at all levels and in all jurisdictions. ·  Group Whistleblowing policy provides a clear framework for escalation of issues.
	Information and data security risk	The risk of unauthorised access to or external disclosure of client or company information.	·  Dedicated Information Security & Data Protection resource/expertise within the Group. ·  Technical and procedural controls implemented to minimise the occurrence of information security and data protection breaches. ·  Access to information only provided on a "need to know" and "least privilege" basis consistent with the user's role and requires appropriate authorisation. ·  Key data loss prevention initiatives and regular system access reviews implemented across the business.
Operational risks	Information technology and infrastructure risk	The risk of loss of technology services due to loss of data, system or data centre or failure of a third party to restore services in a timely manner.	·  Continuous investment in increased functionality, capacity and responsiveness of systems and infrastructure. ·  Rigorous 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 two data centres in the UK. ·  Systems and data centres designed for high availability and data integrity. ·  Continuous service available to clients in the event of individual equipment failures or major disaster recovery events.
	Legal (Commercial / Litigation) risks	The risk that disputes deteriorate into litigation.	·  Compliance with legal and regulatory requirements including relevant codes of practice. ·  Early engagement with legal advisors and other risk managers. ·  Appropriately managed complaints which have a legal/litigious aspect. ·  An early assessment of the impact and implementation of changes in the law.
	Operations (Processing) risks	The risk that the design or execution of business processes is inadequate or fails to deliver an expected level of service and protection to client or company assets.	·  Investment in system development and upgrade to improve process automation. ·  Enhanced staff training and oversight in key business processing areas. ·  Monitoring and robust analysis of errors and losses and underlying causes.
	Outsourcing and procurement risks	This is the risk of third party organisations inadequately or failing to provide or perform the outsourced activities or contractual obligations to the standards required by the Group.	·  Outsourcing only employed where there is a tactical gain in resource or experience. ·  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, or having insufficient skilled resources available.	·  The Board has directed that the Group maintain an active succession and resource plan for all key individuals and groups/teams, which will 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 key individuals; -  developing personnel capabilities; -  optimising continuous professional development; -  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 comply with regulatory, statutory or fiduciary requirements or as a result of a defective transaction.	·  Effective compliance function. ·  Internal audit outsourced to an independent third party professional services firm. ·  Effective compliance oversight, planning and implementation. ·  Comprehensive monitoring programmes by compliance and internal audit. ·  Controls for appointment and approval of staff holding a controlled function and annual declarations to establish ongoing fitness and propriety. ·  Governance and reporting of regulatory risks through the Risk Management Committee, Group Audit Committee and Group Risk Committee. ·  Anti-money laundering controls for client due diligence and sanctions checking.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·      the interim management report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the consolidated interim financial statements, together with a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related party transactions in the first six months of the financial year and any material changes in the related-party transactions described in the last annual report.

Neither the Group nor the directors accept any liability to any person in relation to the half-yearly financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A and Schedule 10A of the Financial Services and Markets Act 2000.

By order of the board of directors

The names and functions of the directors of CMC Markets plc are as listed in the 2016 Group Annual Report and Financial Statements (available on the Group's website www.cmcmarkets.com/group/).

Peter Cruddas                                                                          Grant Foley

Chief Executive Officer                                                            Chief Financial Officer and Head of Risk

 

Consolidated interim income statement

For the six months ended 30 September 2016 (unaudited)

£ '000	Note	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Revenue		87,256	88,220
Interest income		928	928
Total revenue		88,184	89,148
Rebates and levies		(12,699)	(10,269)
Net operating income	2	75,485	78,879
Other income	3	-	1,627
Operating expenses	4	(53,580)	(50,421)
EBITDA1		21,905	30,085
Analysed as:
EBITDA before exceptional items²		21,905	29,803
Exceptional income	3	-	1,627
Exceptional costs	4	-	(1,345)
EBITDA1		21,905	30,085
Depreciation and amortisation		(2,783)	(3,164)
Operating profit		19,122	26,921
Finance costs		(327)	(421)
Profit before taxation		18,795	26,500
Analysed as:
Profit before taxation and exceptional items		18,795	26,218
Exceptional income	3	-	1,627
Exceptional costs	4	-	(1,345)
Profit before taxation		18,795	26,500
Taxation	5	(4,130)	(6,468)
Profit for the period attributable to owners of the parent		14,665	20,032
Earnings per share
Basic earnings per share (p)	6	5.1p	7.2p
Diluted earnings per share (p)	6	5.1p	7.2p

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 interim statement of comprehensive income

For the six months ended 30 September 2016 (unaudited)

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Profit for the period	14,665	20,032
Other comprehensive income / (expense):
Items that may be subsequently reclassified to income statement
(Loss) / Profit on net investment hedges net of tax	(2,392)	1,436
Amounts recycled from equity to the income statement net of tax	159	-
Currency translation differences	3,647	(1,839)
Change in value of available-for-sale financial assets	(11)	-
Other comprehensive income / (expense) for the period	1,403	(403)
Total comprehensive income for the period attributable to owners of the parent	16,068	19,629

Consolidated interim statement of financial position

At 30 September 2016 (unaudited)

£ '000	Note	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March  2016
ASSETS
Non-current assets
Intangible assets	8	2,651	2,689	2,649
Property, plant and equipment	9	16,898	16,308	16,350
Deferred tax assets		8,063	6,342	7,701
Total non-current assets		27,612	25,339	26,700
Current assets
Trade and other receivables	10	27,000	24,449	20,931
Derivative financial instruments		1,711	2,568	795
Financial investments	11	20,473	-	20,374
Amounts due from brokers		109,866	113,295	84,230
Cash and cash equivalents	12	41,678	37,525	78,280
Total current assets		200,728	177,837	204,610
TOTAL ASSETS		228,340	203,176	231,310
LIABILITIES
Current liabilities
Trade and other payables	13	32,865	35,707	34,738
Derivative financial instruments		4,203	578	4,996
Borrowings		1,220	1,356	1,355
Current tax payable		6,143	5,876	7,758
Short term provisions		160	177	160
Total current liabilities		44,591	43,694	49,007
Non-current liabilities
Trade and other payables	13	3,253	3,702	3,479
Borrowings		525	1,771	1,085
Deferred tax liabilities		8	72	5
Long term provisions		1,558	1,406	1,407
Total non-current liabilities		5,344	6,951	5,976
TOTAL LIABILITIES		49,935	50,645	54,983
EQUITY
Share capital		72,600	70,694	72,600
Share premium		46,243	33,362	46,243
Own shares held in trust		(1,445)	(1,983)	(984)
Other reserves		(48,110)	(50,372)	(49,513)
Retained earnings		109,117	100,830	107,981
Total equity		178,405	152,531	176,327
TOTAL EQUITY AND LIABILITIES		228,340	203,176	231,310

 

Consolidated interim statement of changes in equity

For the six months ended 30 September 2016 (unaudited)

£ '000	Share  capital	Share premium	Own shares held in trust	Other reserves	Retained earnings	Total Equity
At 1 April 2015	70,694	33,362	(1,983)	(49,969)	90,219	142,323
Total comprehensive income for the period	-	-	-	(403)	20,032	19,629
Share-based payments	-	-	-	-	547	547
Dividends	-	-	-	-	(9,968)	(9,968)
At 30 September 2015	70,694	33,362	(1,983)	(50,372)	100,830	152,531
At 1 April 2016	72,600	46,243	(984)	(49,513)	107,981	176,327
Total comprehensive income for the period	-	-	-	1,403	14,665	16,068
Acquisition of own shares held in trust	-	-	(461)	-	-	(461)
Share-based payments	-	-	-	-	1,768	1,768
Tax on share-based payments	-	-	-	-	95	95
Dividends	-	-	-	-	(15,392)	(15,392)
At 30 September 2016	72,600	46,243	(1,445)	(48,110)	109,117	178,405

Consolidated interim statement of cash flows

For the six months ended 30 September 2016 (unaudited)

£ '000	Note	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Cash flows from operating activities
Cash (used) / generated from operations	14	(12,654)	13,216
Net interest income		928	928
Tax paid		(6,009)	(2,586)
Net cash (used) / generated from operating activities		(17,735)	11,558
Cash flows from investing activities
Purchase of property, plant and equipment		(2,421)	(1,043)
Proceeds from disposal of property, plant and equipment		44	-
Investment in intangible assets		(665)	(179)
Purchase of financial investments		(10,260)	-
Proceeds from maturity of financial investments and coupon receipts		10,187	-
Net cash used in investment activities		(3,115)	(1,222)
Cash flows from financing activities
Repayment of borrowings		(695)	(725)
Acquisition of own shares		(461)	-
Dividends paid		(15,392)	(9,968)
Finance costs		(327)	(421)
Net cash used in financing activities		(16,875)	(11,114)
Net decrease in cash and cash equivalents		(37,725)	(778)
Cash and cash equivalents at the beginning of the period		78,280	38,611
Effect of foreign exchange rate changes		1,123	(308)
Cash and cash equivalents at the end of the period		41,678	37,525

 

Notes to the condensed consolidated interim financial statements

For the six months ended 30 September 2016 (unaudited)

1.         Basis of preparation and accounting policies

Basis of accounting

The condensed consolidated interim financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2016 and the condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union ("IFRS"), IFRS Interpretations Committee ("IFRS IC") interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The statutory financial statements for the year ended 31 March 2016 have been delivered to the Registrar of Companies. The auditors' opinion on those financial statements was unqualified and did not contain a statement made under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

The accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied in the Group's statutory financial statements for the year ended 31 March 2016. The Group did not implement the requirements of any Standards or Interpretations which were in issue and which were not required to be implemented at the half-year. The following Standards and Interpretations relevant to the Group have been issued but not yet endorsed by the EU or adopted by the Group in these condensed consolidated interim financial statements:

·      IFRS 9 - Financial instruments

·      IFRS 15 - Revenue from contracts with customers

·     IFRS 16 - Leases

No other Standards or Interpretations issued and not yet effective are expected to have an impact on the Group's condensed consolidated interim financial statements.

The condensed consolidated interim 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" and "Available for sale financial assets". The financial information is rounded to the nearest thousand, except where otherwise indicated.

Use of estimates

The preparation of condensed consolidated interim financial statements in conformity with IFRS requires the use of certain critical accounting estimates. 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 areas where assumptions and estimates are significant to the condensed consolidated interim financial statements are set out below:

Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred taxes

The carrying amounts of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered

Segment revenue

The group manages risk and hedges on a group-wide portfolio basis; as such the allocation of revenue to a segment involves the use of an allocation methodology. This methodology does not impact on the overall Group net operating income.

Seasonality of operations

The Directors consider that, given the impact of market volatility, and the growth in overseas business and the use of mobile platforms, there is no predictable seasonality to the Group's operations.

 

2.         Segmental reporting

The Group's principal business is online retail financial services and provides 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 UK and Ireland and the Group provides stockbroking services only in Australia. The Group's core business is generally managed on a geographical basis and for management purposes, the Group is organised into three segments:

·      UK and Ireland (UK & IE);

·      Europe;

·      Australia, New Zealand and Singapore (APAC) and Canada;

In line with the management information received by the Chief Operating Decision Maker (CODM), APAC and Canada represents the ANZ and Rest of World segments previously reported.

Revenues and costs are allocated to the segments that originated the transaction. Costs generated centrally are allocated to segments on an equitable basis, mainly based on revenue, headcount or active client levels.

Six months ended 30 September 2016 (unaudited) £ '000	UK & IE	Europe	APAC & Canada	Central	Total
Segment revenue net of rebates and levies	29,080	19,579	25,898	-	74,557
Interest income	145	-	783	-	928
Net operating income	29,225	19,579	26,681	-	75,485
Other income	-	-	-	-	-
Segment operating expenses	(6,395)	(6,181)	(5,683)	(35,321)	(53,580)
Segment EBITDA	22,830	13,398	20,998	(35,321)	21,905
Allocation of central operating expenses	(11,432)	(11,747)	(12,142)	35,321	-
Depreciation and amortisation	(455)	(111)	(260)	(1,957)	(2,783)
Allocation of central depreciation and amortisation	(579)	(719)	(659)	1,957	-
Operating profit / (loss)	10,364	821	7,937	-	19,122
Finance costs	(28)	-	-	(299)	(327)
Allocation of central finance costs	(125)	(86)	(88)	299	-
Profit before taxation	10,211	735	7,849	-	18,795
Six months ended 30 September 2015 (unaudited) £ '000	UK & IE	Europe	APAC & Canada	Central	Total
Segment revenue net of rebates and levies	29,577	22,148	26,226	-	77,951
Interest income	138	-	790	-	928
Net operating income	29,715	22,148	27,016	-	78,879
Other income	1,627	-	-	-	1,627
Segment operating expenses	(6,708)	(4,364)	(4,512)	(34,837)	(50,421)
Segment EBITDA	24,634	17,784	22,504	(34,837)	30,085
Allocation of central operating expenses	(12,886)	(11,415)	(10,536)	34,837	-
Depreciation and amortisation	(500)	(76)	(151)	(2,437)	(3,164)
Allocation of central depreciation and amortisation	(696)	(827)	(914)	2,437	-
Operating profit	10,552	5,466	10,903	-	26,921
Finance costs	(5)	-	-	(416)	(421)
Allocation of central finance costs	(157)	(132)	(127)	416	-
Profit before taxation	10,390	5,334	10,776	-	26,500

The measurement of net operating income for segmental analysis is consistent with that in the income statement.

The Group uses 'EBITDA' to assess the financial performance of each segment. EBITDA comprises operating profit for the period before interest expense, taxation, depreciation of property, plant and equipment and amortisation and impairment of intangibles.

3.         Other income

Exceptional income

As a result of their materiality the directors decided to disclose certain amounts separately in the prior half year period in order to present results which are not distorted by significant non-recurring events

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Litigation settlement	-	1,627
Total	-	1,627

In October 2015 the Group settled a dispute with a number of its former clients. The total settlement amount was £3,135,000 due to be paid to the Group over a two year period to 30 September 2017. This has been treated as exceptional income. As at 30 September 2016 £2,240,000 has been received.

4.         Operating Expenses

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Net staff costs	24,589	21,868
IT costs	7,424	5,879
Sales and marketing	10,612	7,538
Premises	2,629	2,376
Legal and Professional fees	1,815	1,590
Regulatory fees	2,475	2,431
Other	4,036	7,394
Total operating expenses before exceptional costs	53,580	49,076
Exceptional Costs	-	1,345
Total operating expenses	53,580	50,421

Exceptional Costs

As a result of their materiality the directors decided to disclose certain amounts separately in the prior half year period in order to present results which are not distorted by significant non-recurring events

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Listing costs	-	1,345
Exceptional costs	-	1,345

On 13 January 2016 the Group announced its intention to proceed with an initial public offering (IPO) and to apply for admission of its ordinary shares to the premium segment of the Official List of UK Listing Authority and to trading on the main market of the London Stock exchange. For the six months ended 30 September 2015, the costs related to the IPO amounted to £1,345,000. On 5 February 2016 the Company's ordinary shares were listed on the London Stock Exchange.

5.         Taxation

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Analysis of charge for the period:
Current tax
Current tax on profit for the period	3,818	5,374
Adjustments in respect of previous periods	(2)	1
Total current tax	3,816	5,375
Deferred tax
Origination and reversal of temporary differences	119	1,106
Adjustments in respect of prior periods	3	(13)
Impact of change in tax rate	192	-
Total deferred tax	314	1,093
Tax charge	4,130	6,468

The standard rate of UK corporation tax changed from 21% to 20% with effect from 1 April 2015. Taxation outside the UK is calculated at the rates prevailing in the respective jurisdictions. The effective tax rate for six months ended 30 September 2016 of 21.97% (Six months ended 30 September 2015: 24.41%) differs from the standard rate of UK corporation tax rate of 20% (Six months ended 30 September 2015: 20%). The differences are explained below:

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Profit before taxation	18,795	26,500
Profit multiplied by the standard rate of corporation tax in the UK of 20% (30 September 2015: 20%)	3,759	5,300
Adjustment in respect of foreign tax rates	209	320
Adjustments in respect of prior periods	1	(8)
Impact of change in tax rate	192	-
Effect of research and development tax credits	(402)	(31)
Expenses not deductible for tax purposes	109	698
Income not subject to tax	(23)	17
Irrecoverable foreign tax	117	114
Share awards	160	-
Other differences	8	58
Tax charge	4,130	6,468

For the six months ended 30 September 2016, the tax effect of exceptional costs that were not recognised for tax purposes was £nil (Six months ended 30 September 2015: £269,000)

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Tax on items recognised directly in Equity
Tax on Share based payments	95	358

6.         Earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to the equity owners of the Company by the weighted average number of ordinary shares in issue during each period excluding those held in employee share trusts which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding those held in employee share trusts, is adjusted to assume conversion of all dilutive potential weighted average ordinary shares, which consists of share options granted to employees and shares issuable to client investors at IPO.

£ '000 Six months ended  30 September 2016 (unaudited) Six months ended  30 September 2015 (unaudited) Earnings attributable to ordinary shareholders (£ '000) 14,665 20,032 Weighted average number of shares used in the calculation of basic earnings per share ('000) 287,161 279,228 Dilutive effect of share options ('000) 1,956 814 Weighted average number of shares used in the calculation of diluted earnings per share ('000) 289,117 280,042 Basic earnings per share (p) 5.1 7.2 Diluted earnings per share (p) 5.1 7.2

For the six months ended 30 September 2016, 1,956,000 (Six months ended 30 September 2015: 814,000) potentially dilutive weighted average ordinary shares in respect of share options in issue were included in the calculation of diluted EPS.

7.         Dividends

	Six months ended  30 September 2016 (unaudited)		Six months ended  30 September 2015 (unaudited)
	£ '000	Pence per share	£ '000	Pence per share
Prior year final dividend paid	15,392	5.36p	9,968	3.57p

An interim dividend for 2017 of 2.98p per share, amounting to £8,557,000 was proposed by the board on 22 November 2016 and has not been included as a liability at 30 September 2016. The dividend will be paid on 23 December 2016 to those members on the register at the close of business on 2 December 2016.

8.         Intangible assets

During the six months ended 30 September 2016, additions to intangible assets amounted to £665,000 (six month ended 30 September 2015: £179,000; year ended 31 March 2016: £1,092,000). As at 30 September 2016, the net book value of intangible assets was £2,651,000 (30 September 2015: £2,689,000, 31 March 2016: £2,649,000).

9.         Property, plant and equipment

During the six months ended 30 September 2016, additions to property, plant and equipment amounted to £2,421,000 (six month ended 30 September 2015: £1,043,000; year ended 31 March 2016: £2,900,000). As at 30 September 2016, the net book value of property, plant and equipment was £16,898,000 (30 September 2015: £16,308,000, 31 March 2016: £16,350,000).

10.        Trade and other receivables

£ '000	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March 2016
Trade receivables	4,493	7,265	4,466
Less: provision for impairment of trade receivables	(4,076)	(5,967)	(3,990)
Trade receivables - net	417	1,298	476
Prepayments and accrued income	6,396	5,247	7,697
Stock broking debtors	8,496	13,961	7,151
Other debtors	11,691	3,943	5,607
Total	27,000	24,449	20,931

Stock broking 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).

11.        Financial investments

£ '000	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March 2016
At the beginning of the period / year	20,374	-	-
Purchase of securities	10,260	-	20,633
Maturity of securities and Coupon receipts	(10,187)	-	(287)
Accrued interest	37	-	24
Net (Losses) / gains transferred to equity	(11)	-	4
At the end of the period / year	20,473	-	20,374

12.        Cash and cash equivalents

£ '000	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March 2016
Gross cash and cash equivalents	324,958	252,063	304,364
Less: Client monies	(283,280)	(214,538)	(226,084)
Own cash and cash equivalents	41,678	37,525	78,280
Analysed as:
Cash at bank	38,718	35,110	75,577
Short-term deposits	2,960	2,415	2,703

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments, with maturities of three months or less. Cash at bank earns interest at floating rates, based on daily bank deposit rates.

13.     Trade and other payables

£ '000	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March 2016
Current
Trade payables	286,948	215,772	228,329
Less: Client monies	(283,280)	(214,538)	(226,084)
Trade payables - net	3,668	1,234	2,245
Tax and social security	42	1,817	1,035
Stock broking creditors	15,272	14,727	9,186
Accruals and deferred income	13,883	17,929	22,272
	32,865	35,707	34,738
Non-current
Accruals and deferred income	3,253	3,702	3,479
Total	36,118	39,409	38,217

14.        Cash generated from operations

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)
Cash flows from operating activities
Profit before taxation	18,795	26,500
Adjustments for:
Net interest income	(928)	(928)
Finance costs	327	421
Depreciation	2,096	2,037
Amortisation of intangible assets	687	1,127
Share-based payment	1,768	188
Changes in working capital:
Increase in trade and other receivables	(6,106)	(5,683)
Increase in amounts due from brokers	(25,636)	(3,501)
Decrease in trade and other payables	(2,099)	(3,240)
(Increase) / Decrease in net derivative financial instruments	(1,709)	480
Increase / (Decrease) in provisions	151	(4,185)
Cash (used) / generated from operations	(12,654)	13,216

The movement in trade and other payables for the six months ended 30 September 2015 also includes £871,000 of Exceptional IPO related accrued expenses.

The movement in trade and other receivables for the six months ended 30 September 2016 includes a decrease of £215,000 (Six months ended 30 September 2015: Increase of £1,627,000) of receivable Exceptional litigation income, of which the total outstanding amount is expected to be received by 30 September 2017.

15.        Liquidity

The Group has access to the following liquidity resources that make up total available liquidity:

·      Own funds. The primary source of liquidity for the Group. It represents the funds that the business has generated historically, 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 agreed 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 £40.0million (30 September 2015: £40.0 million; 31 March 2016: £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 were renewed in 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.

Own funds on 30 September 2016 were £165,857,000 (30 September 2015: £151,576,000; 31 March 2016: £176,438,000). Short term financial investments, amounts due from brokers and amounts receivable / (payable) on the derivative financial instruments have been included within 'own funds' in order to provide a clear presentation of the Group's potential cash resources.

£ '000	Six months ended  30 September 2016 (unaudited)	Six months ended  30 September 2015 (unaudited)	Year ended 31 March 2016
Cash and cash equivalents	41,678	37,525	78,280
Amount due from brokers	109,866	113,295	84,230
Financial investments	20,473	-	20,374
Derivative financial instruments (Current Assets)	1,711	2,568	795
	173,728	153,388	183,679
Less: Title transfer funds	(3,668)	(1,234)	(2,245)
Less: Derivative financial instruments (Current Liabilities)	(4,203)	(578)	(4,996)
Own Funds	165,857	151,576	176,438
Title transfer funds	3,668	1,234	2,245
Available committed facility	35,036	24,428	25,499
Total Available liquidity	204,561	177,238	204,182
Less: Blocked cash	(19,455)	(14,448)	(14,869)
Less: Internal liquidity buffer	(30,000)	(30,000)	(30,000)
Less: Initial margin requirement at broker	(89,048)	(44,034)	(54,745)
Surplus total available liquidity	66,058	88,756	104,568

The following Own Funds Flow Statement summarises the Group's generation of own funds during each period and excludes all cash flows in relation to monies held on behalf of clients.

£ '000	30 September  2016 (unaudited)	30 September  2015 (unaudited)	31 March 2016
Operating activities
Profit before tax	18,795	26,500	53,376
Adjustments for:
Finance costs	327	421	772
Depreciation and amortisation	2,783	3,164	6,057
Other non-cash adjustments	1,757	188	209
Tax paid	(6,009)	(2,586)	(6,872)
Own funds generated from operating activities	17,653	27,687	53,542
Movement in working capital	(9,440)	(6,539)	(5,240)
(Outflow) / Inflow from investing activities
Net Purchase of property, plant and equipment and intangible assets	(3,042)	(1,222)	(3,933)
Proceeds from issuance of ordinary shares	-	-	14,787
Outflow from financing activities
Interest paid	(327)	(421)	(772)
Dividends paid	(15,392)	(9,968)	(24,935)
Other outflow from financing activities	(1,156)	(725)	(413)
Total outflow from investing and financing activities	(19,917)	(12,336)	(15,266)
(Decrease) / increase in own funds	(11,704)	8,812	33,036
Own funds at the beginning of the period / year	176,438	143,072	143,072
Effect of foreign exchange rate changes	1,123	(308)	330
Own funds at the end of the period / year	165,857	151,576	176,438

16.        Fair value measurement disclosures

The Group's assets and liabilities that are measured at fair value are derivative financial instruments and financial investments. The table below categorises those financial instruments measured at fair value based on the following fair value measurement hierarchy:

·      Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); or

·      Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

30 September 2016 £ '000	Level 1	Level 2	Level 3	Total
Financial investments	20,473	-	-	20,473
Derivative financial instruments (Current Assets)	-	1,711	-	1,711
Derivative financial instruments (Current Liabilities)	-	(4,203)	-	(4,203)
	20,473	(2,492)	-	17,981

30 September 2015 £ '000	Level 1	Level 2	Level 3	Total
Derivative financial instruments (Current Assets)	-	2,568	-	2,568
Derivative financial instruments (Current Liabilities)	-	(578)	-	(578)
	-	1,990	-	1,990

31 March 2016 £ '000	Level 1	Level 2	Level 3	Total
Financial investments	20,374	-	-	20,374
Derivative financial instruments (Current Assets)	-	795	-	795
Derivative financial instruments (Current Liabilities)	-	(4,996)	-	(4,996)
	20,374	(4,201)	-	16,173

Fair value of financial assets and liabilities measured at amortised cost

The fair value of the following financial assets and liabilities not held at fair value approximates to their carrying value:

·      Cash and cash equivalents

·      Amounts due from brokers

·      Trade and other receivables

·      Trade and other payables

·      Borrowings

17.        Related party transactions

There have been no significant changes to the nature of related parties disclosed in the statutory financial statements for the group as at and for the year ended 31 March 2016.

Directors' transactions

During the six months ended 30 September 2016, the Group donated £nil to The Peter Cruddas Foundation (Six months ended 30 September 2015: £365,000), a charity at which Peter Cruddas holds a Trustee position.

During the six months ended 30 September 2016, £nil (Six months ended 30 September 2015: £34,648) was paid to Astre Associates Limited in respect of non-executive director fees payable to John Jackson.

 

Independent review report to CMC Markets Plc

Report on the consolidated interim financial statements

Our conclusion

We have reviewed the condensed consolidated interim financial statements (the "interim financial statements") in the interim results of CMC Markets plc for the six month period ended 30 September 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·      the consolidated interim statement of financial position as at 30 September 2016;

·      the consolidated interim income statement and consolidated statement of comprehensive income for the period then ended;

·      the consolidated interim statement of cash flows for the period then ended;

·      the consolidated interim statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

The interim financial statements included in the interim results for the six months ended 30 September 2016 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim results for the six months ended 30 September 2016, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results for the six months ended 30 September 2016 in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim results for the six months ended 30 September 2016 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim results for the six months ended 30 September 2016 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

22 November 2016

a)   The maintenance and integrity of the CMC Markets Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions

 

END

 

 

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