Annual Report and Financial Statements
For the year ended 31 March 2017
Company registration number: 05145017
Annual Report 2017
1
CMC Markets plc
Annual Report and Financial Statements
For the year ended 31 March 2017
2
Annual Report 2017
CMC Markets plc
Table of contents
3
Table of contents
Our purpose, goal, objectives and enablers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6
Chairman’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9
CEO report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Strategic report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Business review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14
Corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30
KPIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 38
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 40
Governance report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Chairman’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 56
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 58
Group Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Group Risk Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 72
Nomination Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Remuneration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Directors’ remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Regulated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Statement of Directors’ Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
(cid:38)onsolidated statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
(cid:51)arent company statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Consolidated and parent company statements of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
(cid:38)onsolidated and parent company statements of cas(cid:75) (cid:263)o(cid:90)s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
(cid:49)otes to t(cid:75)e consolidated and parent company financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Shareholder information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Our purpose, goal, objectives and enablers
Annual Report 2017
CMC Markets plc
Our purpose, goal, objectives and enablers
4
5
Our purpose, goal, objectives
and enablers
Our purpose
To make the financial markets truly accessible for investors
Our strategic goal
To increase shareholder value by delivering sustainable and profitable revenue growth
Our strategic objectives
Increase the client
base in established
markets
Expand into new
markets and grow
developing regions
Maintain a strong
product offering
Implement digital
solutions to improve
efficiencies across the
client journey
Establish the
business as a key
player in the
institutional sector
Business enablers
Client service
Competitive
product offering
Technology
and operational
excellence
Trading risk
management
Financial strength
Our people
Shareholder return
Earnings per share
Dividends
Highlights
Annual Report 2017
CMC Markets plc
6
Highlights
Revenue growth and operating effectiveness
Net operating income
PBT and underlying PBT
Highlights
7
“Our first full year as a listed company has been one of progress as we have worked hard to position
the Group for future growth. It is disappointing that reduced client activity impacted revenue
performance for much of the year, but I am pleased that the strength of our platform, team and service
proposition has continued to attract new, high quality clients and our existing clients are putting more
money to work with us. We have continued to make excellent headway with our five strategic initiatives
in 2017 and signed the biggest institutional transaction in our history, our partnership with ANZ Bank.
Clearly regulatory change is likely to have some impact on the business, but we believe we are well
positioned to benefit from market share gains in the medium to long term, with our ability to adapt
our leading proprietary technology and focus on client service and regulatory compliance supported
by our financial strength.”
Peter Cruddas
Chief Executive Officer
• Net operating income down £8.6 million (5%) to £160.8 million
• Profit before tax down £4.9 million (9%) and underlying profit before tax down £13.9 million (22%) to £48.5 million
• Profit before tax margin down 1.4% and underlying profit before tax margin down 6.7% to 30.1%
• Active clients up 2,753 (5%) to 60,082 and revenue per active client down £311 (11%) to £2,517
• Value of client trades down 3%, to £2,016 billion
• Earnings per share and underlying earnings per share down 9% and 24% respectively to 13.7 pence
Summary income statement and earnings per share
36.2%
30.3%
36.8%
31.5%
30.1%
143.6
169.4
160.8
62.4
51.9
43.5
53.4
48.5
48.5
2015
2016
2017
2015
2016
2017
Net operating income1 (£m)
Client value generation and client quality
Underlying PBT2 (£m)
Underlying PBT margin
PBT (£m)
PBT margin
Active clients and revenue per active client
Value of trades and number of trades
2,716
2,828
2,517
66.8
62.7
44.6
1,626
2,071
2,016
£m
Net operating income
Other income
Operating expenses
EBITDA
Analysed as:
Underlying EBITDA
Net exceptional items1
EBITDA
Depreciation and amortisation
Finance costs
Profit before tax
Analysed as:
Underlying profit before tax
Net exceptional items1
Profit before tax
Underlying PBT margin
PBT margin
Profit after tax
Underlying profit after tax2
Pence
Basic EPS
Underlying Basic EPS
1 Consists of £3.1 million exceptional income and £12.1 million exceptional costs
2 Based on implied tax payable excluding exceptional items
2017
160.8
–
(105.8)
55.0
55.0
–
55.0
(5.8)
(0.7)
48.5
48.5
–
48.5
30.1%
30.1%
39.2
39.2
2017
13.7
13.7
2016
169.4
3.1
(112.3)
60.2
69.2
(9.0)
60.2
(6.0)
(0.8)
53.4
62.4
(9.0)
53.4
36.8%
31.5%
42.5
50.7
2016
15.1
18.0
Variance
Variance %
50,303
57,329
60,082
(8.6)
(3.1)
6.5
(5.2)
(14.2)
9.0
(5.2)
0.2
0.1
(4.9)
(13.9)
9.0
(4.9)
(6.7)%
(1.4)%
(3.3)
(11.5)
(5)%
–
6%
(9)%
(20%)
–
(9)%
4%
5%
(9)%
(22)%
–
(9)%
–
–
(8)%
(23)%
2015
2016
2017
2015
2016
2017
Active clients3
Revenue per active client4 (£)
Value of trades5 (£bn)
Number of trades (m)
Delivery of shareholder value and returns
Profit after tax
Dividend per share and earnings per share (pence)
34.7
42.5
39.2
15.1
1.8
13.7
8.9
8.9
12.4
5.7
2015
2016
2017
2015
2016
2017
(cid:51)rofit after tax (cid:11)(cid:101)m(cid:12)
Special dividend per share
Basic EPS
Dividend6 per share
Variance
Variance %
(1.4)
(4.3)
(9)%
(24)%
(cid:123) Net operating income represents total revenue net of introducing partners commissions and spread betting levies
(cid:116) Underlying figures represent PBT before exceptional items
(cid:117) Active clients represent those individual clients who have traded with or held CFD or spread bet positions with CMC Markets on at least one occasion during the
financial year
4 Net revenue generated from CFD and spread bet active clients
5 Value of client trades represents the notional value of trades
6 Ordinary dividends paid/proposed relating to the financial year
8
CMC Markets plc
Chairman’s statement
Chairman’s statement
9
Whilst I am pleased to present the Group’s results in our first
full year since listing on the London Stock Exchange, there
is no doubt that the past year has been challenging and
disappointing with net operating income down 5% and
underlying profit before tax down 22%. The year-on-year fall
in net operating income was primarily driven by more
challenging market conditions with sustained periods of
significantly lower market volatility, providing fewer trading
opportunities for our clients.
The more significant fall in underlying profit before tax of
22% was a function of the lower level of net operating income
combined with our continued investment in the strategic
growth initiatives, which will drive the medium to long-term
growth of the Group. We have made strong progress on each of
the strategic initiatives, greater detail of which is included later
in the annual report.
Although the financial performance is disappointing, the
underlying fundamentals within the business have continued to
improve with a 5% increase in active clients and client money at
record levels.
The results for the year have been somewhat overshadowed by
the proposals from the UK’s Financial Conduct Authority (FCA)
and other European regulators as they reform the way that
contracts for difference (CFDs) and spread betting products are
offered. The Group welcomes strong regulation and is working
with regulators throughout the consultation periods, to achieve
their objectives. It is likely that once finalised, these changes will
impact the profitability of the Group in the short term, although
in the medium to long term we believe that the Group will
benefit from these changes as smaller operators leave the
industry and we grow market share.
Governance and the Board
Prior to the listing in February 2016, we made a number of
changes to the Board, strengthening it in a number of key areas.
This is the first full year that the Board has been in place and
following a formal evaluation process the Board has agreed
that it has operated effectively throughout the year. More detail
is included in the Nomination Committee report.
Manjit Wolstenholme will be stepping down from the Board
at our Annual General Meeting on 27 July 2017. I would like
to thank Manjit for her valuable contribution as we prepared
for our listing and during our first year as a public company,
and wish her every success for the future. We have commenced
a thorough search for a successor.
Our people
On behalf of the Board I would like to thank all of our staff for
their hard work once again. Their effort and commitment has
helped to ensure that we successfully managed the market
volatility around the EU referendum as well as other significant
market events during the year. The quality of our staff gives me
the confidence to know that we will successfully deal with the
regulatory changes, Brexit and other events that will impact the
operations of the Group in the coming years. We have a
considerable talent base in our London head office and intend
to maintain the UK as our global headquarters. Continuing
investment in our key talent will be an absolute priority for the
Board in the coming year.
Dividends
CMC Markets continues to be a highly cash generative
business. Whilst the Group’s policy is to pay dividends of 50%
of underlying profit after tax, given the Group’s strong cash
position, the Board has decided to maintain the full year total
ordinary dividend in line with the prior year.
The Board is recommending a final dividend of 5.95 pence per
share, which represents a total ordinary dividend of 8.93 pence
per share.
Outlook
2018 will be an important year for the Group as the regulatory
changes are finalised and the way the Group will best serve the
needs of our clients within that environment becomes clear.
With our award winning technology, focus on client service and
strong balance sheet, we believe that as the industry adjusts to
these changes we will be in a position to emerge as a stronger
business, delivering future growth and shareholder value.
Simon Waugh
Chairman
7 June 2017
CEO report
Annual Report 2017
CMC Markets plc
CEO report
CEO report
10
11
2017 has been a busy and eventful year for CMC Markets, as
we completed our first full year as a public company. We have
made strong progress on our five strategic initiatives outlined
for our investors during the listing process, including signing
of a partnership with ANZ, launching new products (binaries
and Knock-Outs) and continuing to develop our award winning
Next Generation platform.
Our financial performance has been lower than last year driven
by lower client activity resulting from an unusual lack of market
volatility for large parts of the year. However, active client
numbers and client assets have continued to increase. I am
therefore confident that we have the right foundations in place
for the business moving forwards.
The big industry event of the year, which was outside our
control, was the decision of a number of European regulators
to announce changes or commence consultations around client
appropriateness, minimum retail margins, risk warning
amendments, client incentive schemes and marketing of
leveraged products.
Our primary focus has been on the consultations within our
core markets, in particular the UK and Germany where the
consultation period took place from December 2016 through
to March 2017, and we have made thorough and detailed
responses. These consultations were initiated as a result of
low-quality providers applying low levels of regulatory
compliance, questionable sales practices and irresponsible
behaviour, primarily from overseas jurisdictions. CMC Markets
has always had a strong focus on compliance and service and
I am confident that by working with regulators, in the long term
the Group and the industry will emerge in a stronger position.
The recent German regulatory consultation has resulted in the
regulator maintaining its initial position which requires the
implementation of negative balance protection for retail clients
by 10 August 2017, whereby clients cannot lose more than
their account balance. The flexibility of our Next Generation
platform means that we are able to quickly adapt the platform’s
functionality to meet these new requirements. We await
communication of the outcome of the UK consultation.
The other significant event for CMC Markets during the year,
which was specific to the Group, was being chosen by the
Australia and New Zealand Bank (“ANZ Bank”) to service their
stockbroking business, where our technology was one of the
main catalysts for winning the transaction. The agreement
means we will transfer and service over 250,000 ANZ Bank
annual active stockbroking clients from September 2018. CMC
Markets is already the largest non-bank retail stockbroker in
Australia and this transaction will propel us to the number two
position in Australia overall with a 23% market share based on
ASX trading statistics.
This transaction is expected to be highly profitable for both
CMC Markets and ANZ Bank once we have fully integrated the
software and migrated their clients onto our platform which is
expected to commence in September 2018. Combined with our
existing business we will have in excess of 300,000 annually
active stockbroking retail clients, a number of intermediaries
and total client assets in excess of A$53 billion. Naturally for a
deal of this magnitude, although revenue streams will not begin
for over a year, a project is underway to ensure that the
transaction is a success. We are developing additional
stockbroking platform functionality, and increasing the property
and hardware capacity needed to support the anticipated rise in
trading activity and staffing required to service the client base.
CMC Markets targets experienced clients through a more
feature rich trading platform and excellent client service.
Our award-winning, proprietary Next Generation platform
was specifically built to attract more experienced clients and,
more importantly, to retain them. We aim to have a long
relationship with our clients and this has been achieved as
illustrated through the fact that approximately 32% of our
active clients have been with us for over three years which
is significantly higher than the industry average.
In addition to our Next Generation platform, we employ
experienced sales trading teams that are available to speak
to clients any time and keep them updated on market
movements. We also target experienced stockbroking clients
through our Pro platform in Australia. Overall globally we
won 34 awards for service, platform and technology during
the year.
I founded CMC Markets in 1989 and over the intervening years
the business has grown and has dealt with many periods of
significant change; in many cases we have pioneered the change.
This has included embracing the internet and new technologies
including mobile and adapting to regulatory change. I love being
at the helm of the business and I plan to steer us through any
proposed regulatory changes ahead. That is what I have done
successfully for 27 years and I will continue to do going forward.
Financial performance and KPIs
Over the year, global markets were less volatile than historically,
particularly in our major asset class, indices, and despite
short-term volatility around the EU referendum and US
presidential election, this ultimately led to fewer trading
opportunities for our clients. Against this backdrop of low levels
of market volatility, particularly in the first half, clients traded
less than the prior year with net operating income being 5%
lower than the prior year at £160.8 million. Operating expenses
before exceptional costs increased by 6% to £105.8 million, due
to increased investment in marketing and higher staff costs.
Profit before tax was £48.5 million, a 9% decrease on the prior
year, driven by the reduced net operating income and the low
level of variable cost within the business. However, with this
operational leverage we anticipate that when revenues increase
there will be a low incremental increase in cost, and therefore
believe that our strong client metrics are a good foundation for
future earnings growth. Own funds generated from operating
activities were £47.0 million for the year ended 31 March 2017
and the Group continues to have a strong regulatory total
capital ratio of 31.5% as at 31 March 2017.
Peter Cruddas collaborates on product development plans.
Although the Group’s policy is to pay 50% of profit after tax
as dividends, given the Group’s strong cash generation and
liquidity position, the Board has recommended to maintain
last year’s total ordinary dividend and pay a final dividend
of 5.95 pence per share despite the lower earnings.
Active clients have increased by 5% for the Group to 60,082;
however a 6% reduction in the number of trades and a 3%
decrease in the value of those trades contributed to a fall in
overall revenue per active client (RPC) of 11% to £2,517.
Although lower than the prior year, RPC remains amongst the
highest in the industry and is a reflection of the quality of our
client base. RPC is presented net of retail and Institutional client
rebates, which were £9.9 million for the year, a decrease of 6%
from the prior year.
2017 has generally been a good year for overall client
acquisition for the CFD and spread betting businesses, with
new clients increasing by 13% compared to the prior year.
Our stockbroking business has seen client acquisition
increase by 20%.
Regional review
The UK continues to be Group’s largest market; net revenue1
fell by 3% although the value of trades increased by 6%. The
value of trades saw an increase in lower margin institutional
business offset by a large decrease in indices business.
In Europe net revenue fell by 7% marginally higher than the
reduction in the value of trades, whilst in APAC & Canada net
revenue decreased by 11%, again slightly higher than the
value of trades.
1 Net revenue generated from CFD and spread bet active clients
CEO report
Annual Report 2017
CMC Markets plc
CEO report
We are pleased to have increased our primary market share
in the UK, maintained our number one market position in
Germany and continue to be the number one CFD provider
to high value clients in Australia according to independent
Investment Trends research.
12
Strategic progress
Despite the regulatory uncertainty, we continue to focus on our
clear strategy to grow the business in the future around five
strategic initiatives, and underpinning each of these is our
continuing focus on client service, innovation and technology.
When looking solely at financial performance, it has been a
mixed year for the initiatives, but we are continuing to make
progress across each of them, and will continue to refine them
as the regulatory outlook becomes clear.
In our established markets, the lacklustre market activity has
been the main driver of lower revenue by reducing the number
of trading opportunities for existing and returning business. In
addition, our increasing marketing spend has also not had the
expected impact on new accounts, with cost per acquisition flat
on the prior year.
Regarding new markets and developing regions, our Poland
office has shown good growth since its launch in October 2015,
but in size it remains immaterial to the Group at present with
a contribution of 1% of net revenue. Despite regulatory change
in France, another year of growth has been achieved. We have
also incorporated an education entity in China in readiness to
open an office in Shanghai in the first few months of the new
financial year.
From a digital perspective we have focussed on our mobile
marketing capabilities, whilst also continuing to improve
websites and the client journey.
Our institutional business, where we offer white and grey label
and API1 connectivity to banks and brokers worldwide,
continues to grow and CMC Markets had 154 active
institutional relationships during the year, an increase of 43%
against the prior year. This growth in clients contributed to a
38% increase in net revenue to £22.7 million.
Throughout the year we have continued to make improvements
and enhance our award winning Next Generation technology.
Innovation is core to the Group and during the year we
successfully launched our full binary offering, the ‘Knock-Out’
product in Germany and continued to improve our API1 offering
to institutional clients. In the coming months the platform will
be upgraded to HTML5 which will help to provide additional
flexibility in the future, as well as maintain our leading position
in technology against our peers.
Having returned as the Group’s full time CEO in 2013, the hard
work in developing our technology, platform and premium client
strategy is giving us a clear advantage. Our technology
innovation is hugely valuable and important to our clients and
our business. It is key to our future growth and scalability and
we continue to invest in technology as a platform for our
success. Owning and developing the key components of our
platform software means we are able to innovate rapidly, driving
our business forward and responding to the needs of our clients
and our regulators.
In the last year or so I have visited our offices in Australia,
New Zealand, Singapore, Germany, Austria, Dubai (major
partner) and there continue to be many opportunities around
the world for us as a business.
I would like to thank our staff for their continued hard work and
dedication throughout the year. We have very talented people
across all areas of the Group and their commitment is key to our
future success.
I would also like to thank our clients for their continued support.
We strive to provide the best levels of service and a great
trading experience to our clients, and during the year I have met
many of our clients from across the globe. The feedback we get
is invaluable and vital to our ongoing success, ensuring we meet
or exceed our clients’ needs.
I believe that becoming a public company in 2016 was the right
decision for the business, as there is no doubt that being listed
provides us with additional opportunities. Some of the
institutions and clients we are speaking to would only work with
us if we were a public company.
It has been a transitional year and I am looking forward to our
future. Over the coming year the regulatory uncertainty will
reduce and we can continue to move forward. These are
exciting times for the Group as we progress our diversification
across different continents, products and technology. For now
the sector is shrouded in uncertainty around regulatory change,
but for CMC Markets development and innovation continue as
they have done for 27 years and I firmly believe that the Group
will be a long term beneficiary of the expected improvements in
the industry in the future.
Peter Cruddas
(cid:38)(cid:75)ief Executive (cid:50)fficer
7 June 2017
1 Electronic connectivity to the CMC Markets trading platform
Customer satisfaction drivers
UK financial spread betting
Top three providers against satisfaction
13
Key selection driver criteria
First
Second
Third
Overall satisfaction
Platform features
Value for money
Customer service
Quality of trade execution
Trading ideas and strategies
Charting
Spreads
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
Ease of platform navigation
CMC Markets
Reporting of positions and transactions
CMC Markets
Platform reliability
Risk management
Education materials/programmes
Research tools
Mobile phone/tablet platform/app
Range of tradable products/markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
Ranked in order of importance from Contribution and effectiveness modelling (CEM) analysis
Source: Investment Trends UK Leveraged Derivative Trading Report 2016
Net promoter score in established markets
CMC (2016)
CMC (2015)
2016 Sector Average
24%
21%
19%
20%
14%
16%
13%
8%
6%
UK(NPS)
Australia (NPS)
Germany (NPS)
Source: Investment Trends 2015 & 2016
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
15
Strategic report
Business review
14
Our business
CMC Markets is a leading global provider of online and mobile
trading, servicing both retail and institutional clients. The
company enables clients to trade over 10,000 financial
instruments including indices, commodities, FX and equities
through its multi award-winning Next Generation trading
platform, supported by sophisticated charting, competitive
pricing and automated execution.
Clients can trade the markets via contracts for difference
(CFDs), financial spread bets (UK and Ireland only) and binaries.
The Group also offers a stockbroking service in Australia.
Revenues are generated through a combination of transactional
spreads, financing income, commissions and trading income
arising from clients’ trading activities. Our risk management
strategy is based on highly-automated flow management,
dynamically hedging net client exposures and risk. The level of
revenue is predominantly influenced by the number of clients
actively trading and the value of those trades.
Trade over 10,000 financial instruments
339
(cid:41)orex products
93
Indices
9369
Shares & ETFs
129
Commodities
87
Treasuries
Strategic report
Our products
16
CFD
A CFD is a cash-settled investment based on currencies,
commodities, treasuries, indices and shares, providing economic
benefits similar to an investment in an underlying asset without
certain costs and limitations associated with physical ownership.
A CFD is a leveraged product which has the potential to magnify
profits as well as losses. In the UK, CFD trades currently do not
incur stamp duty tax charges, in contrast to trades in traditional
financial investments, such as equity securities. Our clients can
trade in fractions of units per CFD, and we charge commission
on CFD trades for equity shares while there is a spread charge
for all other asset classes. Our CFD instruments allow a client to
take long or short positions. As a CFD is a leveraged product, the
Group requires varying levels of margin to be posted in respect
of the full value of a client’s position. Margins vary depending
on a client’s position and the type of instrument in which the
client invests.
Example
If a client believes that the price of a particular instrument
is likely to fall, they could place a sell trade or ‘go short’.
Conversely, if they think the price will rise, they could place a buy
trade or ’go long’. If the market moved in the direction they
predicted, they would make a profit. If the market moved in the
opposite direction, they would make a loss. When you trade
CFDs, you buy or sell a number of units. For every point the
price of the instrument moves in your favour, you gain based on
the number of units you have bought or sold. For every point the
price moves against you, you make a loss.
Annual Report 2017
CMC Markets plc
Strategic report
Spread bet
The Group’s spread betting product is offered exclusively in the
UK and Ireland as profits from spread betting are currently free
from capital gains tax and stamp duty in these jurisdictions.
Spread betting provides similar economic benefits to those
experienced when investing in an underlying asset, but without
the costs and limitations associated with physical ownership.
With a spread bet a client bets a specific stake size per point
movement of an instrument, rather than trading a specific
number of shares or units. Our spread betting instruments
allow a client to take long or short positions. As spread betting
is a leveraged product, losses can exceed deposits.
17
Example
If a client feels that the price of a particular instrument is likely
to fall, they can place a sell bet or ‘go short’. Conversely, if they
believed that the price will go up, they can place a buy bet, or ‘go
long’. If the market moved in the direction they predicted, they
make a profit. If the market moves in the opposite direction to
what they predicted, they make a loss.
When you spread bet, you buy or sell an amount per point
movement, such as £5 per point, which is known as your ‘stake’.
For every point the instrument’s price moves in your favour, you
gain a multiple of your stake. For every point the price moves
against you, you lose a multiple of your stake.
Losing trade
20 June
182 / 183
SELL
BUY
Assuming the market
went down, you sell
2500 CFDs at the price
of 182 to exit the trade
Close commission (0.1%)
2500 x 182 x 0.1%
= -£4.55
Breakdown
Trade:
182 - 201 = -19p
x 2500= -£475
Commission (open + close)
£5.03 + £4.55 = -£9.58
Holding costs for 5 days at
41.3p per day = -£2.07**
Total loss of -£486.65
The CFD trade
ABC corporation
15 June
Spread = 1
200 / 201
SELL
BUY
You think the price will rise so
you buy 2500 CFDs
Margin
5% of trade value.
2500 x 200.5* x 0.05 = £250.63
Open commission
0.1% to enter trade.
2500 x 201 x 0.1% = -£5.03
You hold the position
open for 5 days
Winning trade
20 June
220 / 221
SELL
BUY
Assuming the market
went up, you sell 2500
CFDs at the price of 220
to exit the trade
Close commission (0.1%)
2500 x 220 x 0.1%
= -£5.50
Breakdown
Trade:
220 - 201 = 19p
x 2500= £475
Commission (open + close)
£5.03 + £5.50 = -£10.53
Holding costs for 5 days at
41.3p per day = -£2.07**
Total profit of £462.40***
The spread bet
ABC corporation
15 June
Underlying market price
( 200 / 201 )
Spread bet spread*
199.5 / 201.5
SELL
BUY
You think the price will rise so you
place a buy trade for £10 per point
Margin
5% of trade value.
10 x 200.50** x 0.05 = £100.25
You hold the position
open for 5 days
Winning trade
20 June
Underlying market price
( 220 / 221)
Spread bet spread*
219.5 / 221.5
SELL
BUY
Assuming the market
went up, you sell £10 per
point at 219.5
to exit the trade
Breakdown
Trade:
219.5 - 201.5 = 18pts
x £10 per point = £180
Holding costs for 5 days:
16.5p per day = -£0.82^
Total profit = £179.18
Losing trade
20 June
Underlying market price
( 182 / 183 )
Spread bet spread*
181.5 / 183.5
SELL
BUY
Assuming the market
went down, you sell £10
per point at 181.5
to exit the trade
Breakdown
Trade:
181.5 - 201.5 = -20pts
x £10 per point = -£200
Holding costs for 5 days:
16.5p per day = -£0.82^
Total loss = -£200.82
* Mid-price
The mid-price is 200.5, the mid-point between the buy and sell price
** Holding cost calculation
No. of units x opening trade price x buy holding rate / 365 (cid:95) (2,500 x £2.01 x 3) / 365 (cid:32) 41.3p per day (cid:95) 5 days (cid:32) £2.07
(cid:13)(cid:13)(cid:13) Total profit
Profit gross of potential capital gains tax
*There are no separate commissions to pay on spread bets on company shares. This cost is built into our slightly wider spread.
**Mid-price
The mid-price is 200.5, the mid-point between the buy and sell price.
^Holding cost calculation
Stake x opening trade price x buy financing rate / 365 (cid:95) (10 x 201.50 x 3) / 365 (cid:32) 16.5p per day (cid:95) 5 days (cid:32) £0.82
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
19
Winning trade
If a binary event occurs
the price settles at 100.
The settlement price at
11:40:00 is 1,240,
therefore the binary
finished above the strike
price and settles at 100
Profit = (100 – 27.4) x £5
= £363
Losing trade
If a binary event does
not occur the price
settles at 0.
The settlement price at
11:40:00 is 1,201,
therefore the binary
finished below the strike
price and settles at 0
Loss = (0 – 27.4) x £5
= -£137
The Binary ‘Ladder’ trade
Gold
Current settlement price
1,200
Will the settlement price be at or above
a specified strike price at the end of
the binary expiry
Strike price
1,209
Current binary price* for this strike
18.5^
SELL
27.4
BUY
You think the event will occur so you
place a buy trade for £5 at 27.4
Binary expiry**
11:40:00
Stockbroking (Australia only)
CMC Markets offers Australian clients the opportunity to trade Australian shares on the ASX and SSX. Clients can choose from a wide
variety of investment instruments, including shares, managed funds, warrants and ETFs. The Group offers two stockbroking platforms:
the Standard platform, which provides everyday self-directed investors with advanced tools and research; and the Pro platform, which
gives frequent traders integrated access to institutional-like trading tools and professional charting.
18
Binaries and Countdowns
Countdowns is a limited risk product that enables clients to
place trades over a range of short-term timeframes. The client
decides the timeframe starting from time of trade as opposed
to selecting a pre-determined expiry time. Countdowns has
been rolled out internationally to the majority of markets where
the Group has an office and has proven popular with both new
and existing clients.
binary trade prior to the time of expiry as the odds of the
instrument being above or below a pre-determined level
change when the price in the underlying market changes. The
Group offers four types of binaries: Ladder, One Touch, Up/
Down and Range across 22 instruments including certain
indices, commodities and FX pairs.
The Group also offers binaries in the majority of its
international markets. With binaries, the client’s risk and
potential profit are determined at the point of trade entry.
Clients are offered the opportunity to place a trade depending
on whether they believe a particular market’s price will be
above or below a certain level at a specific time in the future. If
their trade is “in the money” at the end of the specified
timeframe, they will be credited with the amount agreed at the
point of trade entry; if they are “out of the money” they will
forfeit their stake. Clients also have the opportunity to close a
Losing trade
Settlement price finishes
below the Countdown
price at the end
of the expiry
Loss = £20 stake
Winning trade
Settlement price finishes
above the Countdown
price at the end
of the expiry.
Payout = (£20 x 80%) +
£20 stake
Payout = £36
The Countdowns trade
Gold
Current settlement price
1,200
Will the settlement price be ‘Above’ or
‘Below’ the Countdown price at the end
of the Countdown expiry?*
Countdown price at 11:30:25
1,200
10 minute expiry
PAYOUT 80%
You think the settlement price will
finish higher than the Countdown price
so you place an ‘Above’^ trade
for £20 (your stake)
Countdown expiry
11:40:25
* If the Countdowns price finishes equal with the settlement price at the end of the expiry, the trade will end in a draw and a percentage of your stake is returned. The
percentage of your stake returned will differ depending on the product traded and expiry.
*
Binary prices are always quoted between 0 & 100. If the price is closer to 100 then we are pricing the event as more likely to occur, while if the price is closer to 0
then we are pricing the event as less likely to occur.
(cid:65) If you believe the binary event will not occur you can sell the binary. In the example above you would sell the binary at 18.5 and if the event does not happen your
(cid:65) If you believe the settlement price will finish below the Countdowns price at the end of the expiry then you can choose to place a ‘Below’ trade. If the price finished below at
profit is equal to (18.5 – 0) x £5 (cid:32) £92.50. If the event did occur then your loss is equal to (18.5 – 100) x £5 (cid:32) -£407.50.
expiry then you would receive a payout of £36 ((£20 x 80%) + £20 initial stake). If it finished above then your loss would be limited to your stake size of £20.
** Binary positions may be closed partially or fully prior to the binary expiry except for during the ‘Pre-Close’ period which may be different for each product and expiry.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Our geographical reach
20
CMC Markets has operations in 15 offices across many of the world’s
leading financial centres. The Group operates a hub and spoke model,
with London being the Group headquarters and the primary hub to
support European operations, and Sydney being a secondary hub to
support the Asia-Pacific and Canada regions. This approach enables the
Group to achieve the optimum balance between operational gearing
and efficiency.
21
21
London
Frankfurt
Paris
Shanghai
Madrid
Singapore
Milan
Oslo
Beijing
Sydney
Stockholm
Auckland
Warsaw
Toronto
Vienna
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Spread betting | CFDs | FX | Binaries
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Dedicated support
to help you navigate
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to help you navigate
the markets
the markets
the markets
Explore your trading potential
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with a range of resources to
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Access platform guides and trading videos, live webinars and
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whenever the markets are open.
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Spread betting | CFDs | FX | Binaries
Spread betting and CFD trading can
result in losses that exceed your
deposits. All trading involves risk.
Prisad
plattform
Wie überwinde
ich den Zertifikate-
Dschungel?
Framröstad till ”Bästa Handelsplattform”
vid 2016 års Shares Awards
“Vi är mycket hedrade över att Shares Magazines läsare
har röstat fram oss som vinnare.”
– Joakim Sandblom, chef för CMC Markets Sverige.
Under de senaste dagarna har vi tilldelats en mängd fina utmärkelser
där Financial Times läsare har röstat fram oss till ”Bästa CFD-aktör”
och analysföretaget Investment Trends resultat visar att vi har ”Högst
kundnöjdhet*” och den bästa finans-appen.
Välkommen att testa själv på cmcmarkets.se
Investera i aktier, index, råvaror och valutor via CFD-kontrakt.
*En rapport från oberoende Investment Trends 2016
UK 2016 om hävstångsprodukter. Det finns en risk att
förluster överstiger insättningar.
Treffen Sie bessere Entscheidungen
mit Knock-Out-CFDs.
Im Bereich der Zertifikate und Hebelprodukte
gibt es weltweit Millionen Produkte. Bei uns
können Sie sich Ihr gewünschtes Knock-Out
einfach selbst erstellen. Mit flexiblem Hebel
und das zu weltweit wettbewerbsfähigen
Preisen. Entdecken Sie die neue Generation
von Knock-Outs!
Wechseln Sie zu cmcmarkets.de
Die von CMC angebotenen Knock-Outs sind eine Form von CFDs. Diese ermöglichen Ihnen eine
überproportionale Partizipation an der Kursentwicklung bei einem geringeren Kapitaleinsatz, abhängig von dem
von Ihnen gewählten Strike-Kurs. Sie riskieren den mit uns investierten Betrag zu verlieren. CFD Knock-Outs
eignen sich nicht für alle Investoren. Stellen Sie daher bitte sicher, dass Sie die damit verbundenen Risiken
verstehen und investieren Sie nur Kapital, dessen Verlust Sie sich leisten können.
Die
bessere
Entscheidung
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Our strategic objectives
T(cid:75)e (cid:42)roup (cid:75)as five strategic ob(cid:77)ectives underpinning medium term revenue gro(cid:90)t(cid:75) for t(cid:75)e business.
24
Increase the client base in established markets
(cid:50)pportunity
Progress
Priorities for 2017/18
The established markets of the UK,
Australia and Germany generate a
significant part of the Group’s
revenue, and given the size of the
markets, they also offer the greatest
absolute growth opportunities. This
means that we continue to focus on
developing brand and product
awareness with the aim of becoming
the choice provider to new clients in
these regions and offer the premium
proposition required to attract
clients from competitors.
• Although marketing
• Develop platform further to
maintain regulatory compliance
in the UK and Germany
• Continue to focus on excellent
client service
• Continue to attract high value
business
expenditure increased for the
year, the impact of the higher
spend was lower than
anticipated with active and new
client numbers broadly flat
in established markets
• Increase in primary market share
in the UK
• Maintained number one market
position in Germany
• Number one provider to high
value clients in Australia
Expand into new markets and grow developing regions
(cid:50)pportunity
Progress
Priorities for 2017/18
New regions and developing regions
offer an opportunity for revenue
growth with marginal additional cost
given the scalability of the business.
Markets where CMC currently
operate but have a small market
share have received a focus on
expansion opportunities, and new
regions where CMC has no presence
but the potential client base exists
are regularly reviewed and offices are
being considered where appropriate.
• Strong performance from our
Polish office in its first full year
• Open Shanghai office during
the first half of 2017/18
• Continuing improvements
in the performance of the
French office
• China education entity
incorporated
• Continue to invest in Polish
office
• Continue to investigate
opportunities in new regions
Maintain a strong product offering
25
(cid:50)pportunity
Progress
Priorities for 2017/18
Diversifying the product offering
to attract existing clients to trade
more with the Group and broaden
the appeal to a wider potential
client base.
Ensuring that the product offering
is at all times compliant with
regulatory change.
• Full binary offering released
in April 2016
• Knock-Outs launched in October
• Release HTML5 platform
to enable better flexibility
in the future
2016 in Germany
• Deliver platform changes
• New account type launched
in France in response to
regulatory change
to facilitate ongoing regulatory
compliance in our regions
of operation
Implement digital solutions to improve efficiencies across the client journey
(cid:50)pportunity
Progress
Priorities for 2017/18
It is recognised that digital and mobile
channels present opportunities for
the Group to attract new clients and
retain existing clients more efficiently
by adopting a highly digital approach
to the client journey.
• Strong focus on mobile
marketing efforts
• Focus on acquisition of
experienced clients
• Continuing improvements to
websites and client journey
• Initiatives have yet to feed
through to improving cost
per acquisition
• Improve the Group’s marketing
capabilities through enhanced
data analytics
• Develop and refine the client
journey, including accommodating
regulatory change
Establish the business as a key player in the institutional sector
(cid:50)pportunity
Progress
Priorities for 2017/18
Strong opportunity to offer our award
winning platform to other institutions,
through white label (branded) and grey
label (unbranded) propositions as well as
the API offering (electronic connectivity
to the CMC Markets platform for
institutions).
• First full year of the institutional team
• Release FX Direct Market
• 82% growth in the value of client
trades derived from institutional
business and 38% growth in net
revenue
• Continued development
of API offering
• Signed stockbroking agreement
with ANZ Bank
Access
• Develop the Australian
stockbroking offering
in readiness to migrate
ANZ Bank clients
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Business enablers
T(cid:75)e (cid:42)roup (cid:75)as six business enablers supporting t(cid:75)e delivery of its ob(cid:77)ectives
26
27
Client service
Technology and operational excellence
Our ambition is to deliver an unparalleled experience to all of our clients, offering competitive pricing, products and trading
capabilities that they expect.
Technology and operations have always been key to the success of CMC Markets and this has won the business recognition
as the leader in our industry for innovation and service. Our aim is to provide our clients with the ability to take ownership
of their personal financial investments. Our platform has been built to provide complete control and flexibility.
CMC Markets continues to place the utmost importance on client service and the continuous delivery of fair outcomes
to our clients through our behaviour, image, product innovation and internal culture.
Progress
Progress
We have continued to develop the Next Generation trading platform to respond to our clients’ needs as well as changing
regulatory requirements.
Winning 34 awards globally last year including Highest Overall Client Satisfaction from UK Investment Trends and Best
Online Trading Platform for the Shares Awards provides reassurance that we are delivering a service that offers clients
exactly what they want.
We have continued to invest in infrastructure and technology to ensure the platform has the capacity to cope with increased
demand as the business grows, including capital expenditure of £3.5m on new data storage hardware and software.
Protection from cyber-attacks continues to be a key area for the Group with a continual focus on protection for the business, our
clients and platform.
Our investment in technology and operational processes allows us to expand with ease in the future, providing scalability,
combined with exceptional dependability and speed, while driving down marginal costs as active clients and trading volumes grow.
Competitive product offering
Trading risk management
CMC Markets continually invests significant resources in developing the Next Generation trading platform to ensure we stay
at the forefront of the industry by constantly delivering the latest innovations. We monitor industry trends and engage
extensively with our clients through numerous feedback mechanisms to ensure we regularly add new trading tools, additional
products and new ways to trade.
Progress
A number of platform upgrades have been released throughout the year along with the release of a full binaries offering,
Knock-Outs in Germany and a new account type in France.
Part of CMC Markets’ success is our global trading risk management capability, dealing with high volumes of sophisticated
multi-asset retail flow benefiting from a significant proportion of natural aggregation. Our strong capital and liquidity
balances allow us to retain an element of net client portfolio risk, transferring the remaining risk through hedging to our
external counterparties. This delivers a highly automated transactional based risk management strategy, allowing the
business to deliver consistent and sustainable returns irrespective of underlying client performance and driving long term
client engagement.
Risk appetite is controlled via strong governance and real time controls and oversight, within tightly defined risk parameters
approved by the Board.
This continual investment into enhancing our Next Generation technology on both web and mobile to deliver a competitive
product offering is a driver on our continuing industry recognition.
Progress
-Best Online Trading Platform, Shares Awards 2016
-Best Forex Trading Platform, UK Forex Awards 2016
-Best Mobile/Tablet Application, Online Personal Wealth Awards 2016
-Best Trading Platform Features, Investment Trends 2016 UK Leveraged Trading Report
Continuing enhancements to our trading tools during the year have further improved our highly automated transactional
based risk management strategy. The annual trends of lower revenue variability and a lower percentage of loss days have
continued.
The risk management framework ensures net exposures are managed within asset class level notional based limits. The risk
limits along with our regulatory requirement, broker margins and FX net open position levels are all computed and displayed
real-time in the dealer dashboards.
Strategic report
Annual Report 2017
CMC Markets plc
CMC Markets plc
Strategic report
Strategic report
28
Financial strength
29
We aim to maintain our secure capital and liquidity structure, ensuring that it is appropriate for the future growth and
success of the business. This includes a long-term level of capital to withstand the demands of financial fluctuations in the
markets and access to a healthy level of surplus liquid resources in line with the size of our business and the growth
opportunities which exist.
Progress
The Group monitors its capital position on a real time basis. The Group’s capital position has increased compared with the
prior year. (See Financial Review, page 45). The Group’s total available liquidity position has improved again during the year
(see Financial Review, page 47) and the available credit facility demonstrates the robust liquidity profile of the Group. The
facility provides additional capacity to support the Group’s strategy of maintaining excess liquidity to fund both growth and
client trading peaks.
Our people
CMC Markets is committed to recruiting, developing, retaining and motivating exceptional people who are talented,
innovative and focussed on delivering excellence.
The Group operates and encourages a collaborative environment, through knowledge sharing and ideas generation with
a focus on quality and delivery.
Progress
Our people are central to our business and we aim to ensure that we attract and retain the best talent available; through
competitive remuneration and a challenging and rewarding work environment. Our commitment to our people is
described in more depth in Corporate Social Responsibility (page 30).
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Corporate social responsibility
30
31
CMC Markets has a responsibility to maximise shareholder returns, and this is
aligned with striving to provide clients with the best service and platform,
safety of deposits and best execution. Whilst doing this the Group also takes
account of the needs of key stakeholder groups, including our employees, our
suppliers and our local communities. This is achieved not only through the
company having financial strength but also through investing in our employees
and wider social practices.
Our people
5721 (2016: 576) people work for the Group globally and the Group is
committed to providing a safe, challenging, progressive and innovative place
to work. The quality of our staff is essential to the success of the Group.
We offer competitive employment packages, including a flexible benefit
scheme to enable the Group to attract and retain the best available talent.
In addition to the senior management and critical talent equity incentives,
since listing, all UK employees are now offered the on-going opportunity
to contribute to an HMRC eligible Share Incentive Plan and during the
latest financial year, similar equity or cash-equivalent schemes have been
rolled out globally.
There is regular communication to staff at all levels through multiple channels
including town halls, global e-mails and publications on the intranet. These
communications raise awareness of the latest developments and factors
affecting the Group. In addition, senior management encourage dialogue with
employees through an open door policy.
Diversity
As a Group, we are committed to having a diverse workforce, and believe that
diversity brings valuable experience and skills to the business, boosting the
productivity of our employees. The Group provides a number of
apprenticeship and graduate positions that offer individuals the opportunity
to obtain new skills, as well as develop existing skillsets. The Group also
provides learning and development opportunities for all employees, both
on-the-job and through more formal training methods, including the senior
management team, in order to build critical capabilities across the Group
by specifically developing our high-potential talent and driving business
performance. We acknowledge that the diversity of the Group can be
improved, particularly with respect to female representation at leadership
level, and the Board monitors this on an on-going basis.
Another example of CMC Markets championing diversity is our partnership
with Leonard Cheshire Disability (LCD) and their Change 100 programme.
A graduate student with a disability will be matched with opportunities within
the business and they will be given a London living wage for three months
work experience. This commitment clearly demonstrates the value CMC
Markets place in young talent and especially those young people who have to
overcome difficulties each and every day. The LCD Change 100 team provide
support to CMC Markets and the candidate throughout the three months.
1 Employees of the Group including contractors as at 31 March 2017
2 Direct reports to CEO and subsidiary Directors excluding Board Directors as at 31 March 2017
Team
Members1
Male 424
Female 148
Board
Male 6
Female 1
Senior
Management2
Male 17
Female 0
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Collaboration
We actively encourage our employees to suggest and contribute to pioneering and innovative ideas, which are fostered through
our flat organisational structure. The Group strongly believes that the contribution of a diverse, talented and passionate team
is vital for the continuing success of the company.
32
Equal opportunities
The Group highly values the differences and creativity that a diverse workforce brings and is committed to recruiting,
developing and retaining a world-class team irrespective of ethnicities, nationalities, sexual orientation, gender identity, beliefs,
religions, cultures, and physical abilities. CMC Markets seeks to establish a culture that values meritocracy, openness, fairness
and transparency.
CMC Markets affirms that it will not tolerate any form of unlawful and unfair discrimination. In searching for talent the commitment
is always to recruit the best from the broadest applicant pool. All candidates have the right to expect that they will be respected and
valued for the contribution that they bring to the Group.
We are committed to giving full consideration to applications for employment from disabled persons as well as providing continuing
employment to existing employees who become disabled during their employment where practicable. Where existing employees
become disabled, whether temporarily or permanently, we adapt the working environment and where possible offer flexible
working, training and graduated back-to-work plans in conjunction with occupational health to ensure the retention of employees.
Human rights
CMC Markets conducts business in an ethical manner and adheres to policies which support recognised human rights principles.
The Group slavery and human trafficking statement can be found on the Group website (www.cmcmarkets.com/group).
Health and safety
The health and safety of the Group’s employees and visitors is of primary importance. The Group is committed to creating and
maintaining a safe and healthy working environment. Health and safety audits and risk assessments are carried out regularly.
Clients
Clients are critical to the success of the business and we strive to deliver a high quality and efficient service to all of them. Client
service is central to our strategy and is described in more depth in the Business Review on page 14.
The Group fully segregates all retail client funds whether required by regulation or not. All funds are held separately in designated
accounts to ensure that in the event of company default, client funds are safe and can be quickly returned to clients.
CFD’s and spread bets are leveraged products and losses can exceed initial deposits. In order to help protect clients from suffering
excessive losses, most client positions are automatically liquidated once margin has been reduced to agreed levels. Within the
platform there are also a range of tools and functionality available to clients, such as stop losses, guaranteed stop losses and shield
mode, allowing clients to effectively manage their risk.
We also offer our clients a range of education opportunities through weekly and monthly webinars and seminars, as well as our
Trader Development programme which offers a wide range of in-platform, on-demand education and tailored market commentary.
We acknowledge that our products are not suitable for everyone so we follow strict guidelines when marketing our products,
ensuring that our marketing material is fair, clear and not misleading. When clients open accounts we assess whether the
product is appropriate for them by asking a number of key questions, covering trading experience, income and savings.
33
Custom-built trading app supporting multiple languages.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
35
Charities and the community
During the year ended 31 March 2017 CMC Markets developed a CSR Committee which directly engages with charities and the
community in both London and Australia. Highlights include:
34
• Nomination of The Princes Trust 40th Anniversary Appeal as the CMC Markets inaugural London Charity of the Year. Various
staff fundraising initiatives were undertaken and this together with a donation from CMC Markets resulted in a total donation
of £100,000;
• CMC Markets London held a ‘Dragons’ Den’ where 30 charities were nominated by staff to be considered for a donation;
• CMC Markets is committed to supporting local talent and together with the Peter Cruddas Foundation, sponsored ‘Making
The Leap’ for the first time to deliver their highly successful Social Mobility Careers Fair. 15 employers attended and offered
positions, while over 200 students attended on the day from across 24 London boroughs; and
• The Sydney office selected its first charity of the year from an extensive review of local, grassroots charities that focused on
youth, education, illness and environment. The Sydney CSR Committee then undertook a rigorous process of due diligence and
assessment to decide on Learning Links as the charity of the year. In addition to a donation of £40,000 to Learning Links, the
Sydney office will be organising a variety of fundraising events through the year ahead to support Learning Links
In addition to contributing to specific charities, CMC Markets staff are encouraged to support charities through a company
matching scheme, with CMC Markets matching every pound raised through employee sponsorship.
Our environmental impact
CMC Markets is committed to managing our environmental impact and are fully aware that by considering the environment in our
decision making, particularly around technology adoption, we can have a beneficial impact on the Group’s performance. Our key
environmental impacts are from running our global offices and business travel. For the purpose of this report we are disclosing our
Scope 1 and 2 global emissions in accordance with the Environmental Reporting Guidelines as issued by the Department for
Environment, Food & Rural Affairs (Defra).
The running of our two UK data centres accounts for the majority of the Group’s electricity usage, and we continue to look for
opportunities to improve their efficiency and performance and the infrastructure within them. Building on the work done in prior
years, including moving the primary site to a new state-of-the-art facility outside of London during 2015 and installing cold aisle
containment in our secondary data centre, we have continued to make considerable investment in our IT infrastructure over the
past year. The purchase of new storage infrastructure for £3.5 million has reduced the footprint of this hardware by more than 75%
and the expected power usage by half. All decommissioned equipment is recycled or disposed of in a secure and environmentally
sound manner.
We are also mindful of and have consideration for the environmental impact of each of our global offices and have a clear
preference for energy efficient rated office buildings. In this respect our UK head office is situated in a BREEAM (Building
Research Establishments Environmental Assessment Method) rated building whose management team continually strives
to increase sustainability.
We have well-established waste management initiatives in place to effectively manage and reduce waste, which have been
implemented across the organisation. We recycle all paper, cardboard waste, aluminium cans and plastics and also operate
a managed print solution to help control paper usage. We use a registered waste disposal contractor for their strict compliance
with relevant waste legislation.
Basis of preparation
Greenhouse gas emissions are calculated in alignment with records used for the production of the consolidated financial
statements for the relevant accounting period. We have used emission factors from Defra’s Greenhouse Gas conversion factors
for Company Reporting 2016 and have determined the Scope 2 electricity impacts for non-UK electricity from the International
Energy Agency (IEA). All emissions required under the Companies Act 2006 are included except where stated and include
Scope 1 (direct emissions from gas consumption) and Scope 2 (indirect emissions from purchased electricity) emissions, but
exclude Scope 3 (other emissions from business travel and waste) emissions. Global diesel usage for backup generators at one
office location has been excluded from the report given that it is not material to our carbon emissions. The figures include
emissions from all global offices.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Year ended
Year ended
31 March 2015
Unit
31 March 2017
31 March 2016
(Base year)
Year ended
tCO2e
104.8
105.9
108.4
37
Mandatory Greenhouse Gas emissions report by scope
36
GROUP
Scope 1
Natural Gas consumption
Scope 2
Electricity consumption
Total global emissions
Net operating income
Intensity ratio (total global emissions / net operating income)
£m
tCO2e / £m
tCO2e
tCO2e
2,052.0
2,156.8
160.8
13.4
2,518.8
2,624.7
169.4
15.5
3,452.0
3,560.4
143.6
24.8
The majority of the reduction in electricity consumption is mainly due to efficiencies achieved in our UK data centres during the year
as well as reduced office floor space usage in the UK.
Total emissions (tCO2e)
Year ended 31 March 2017
Total emissions (tCO2e)
Year ended 31 March 2016
Gas 5%
Electricity 95%
Gas 4%
Electricity 96%
Annual Report 2017
CMC Markets plc
Strategic report
Strategic report
KPIs
38
Revenue growth and operating effectiveness
Net operating income1
down £8.6 million (5%) to £160.8 million
2016
2017
169.4M
160.8M
Underlying profit before tax2
down £13.9 million (22%) to £48.5 million
2016
2017
Statutory profit before tax
down £4.9 million (9%) to £48.5 million
2016
2017
Client value generation and client quality
Revenue per active client3
down £311 (11%) to £2,517
2016
2017
Active clients4
up 2,753 (5%) to 60,082
2016
2017
£62.4M
£48.5M
£53.4M
£48.5M
£2,828
£2,517
57,329
60,082
▼5%
▼22%
▼9%
▼11%
▲5%
Delivery of shareholder value and returns
Profit after tax
down £3.3 million (8%) to £39.2 million
39
▼8%
2016
2017
Basic earnings per share
down 1.4 pence (9%) to 13.7 pence
2016
2017
Ordinary dividend6 per share relating to the financial year
8.9 pence (same as prior year)
2016
2017
Client value generation and client quality
Value of client trades5
down £55 billion (3%) to £2,016 billion
2016
2017
Number of trades
down 4.1 million (6%) to 62.7 million
2016
2017
£42.5M
£39.2M
15.1p
13.7p
8.9p
8.9p
£2,071Bn
£2,016Bn
66.8M
62.7M
▼9%
►0%
▼3%
▼6%
(cid:123) Net operating income represents total revenue net of introducing partner commissions and spread betting levies
(cid:116) Underlying figures represent PBT before exceptional items
3 Net revenue generated from CFD and spread bet active clients
4 Active clients represent those individual clients who have traded with or held CFD or spread bet positions with CMC Markets on at least one occasion during the
financial year
5 Value of client trades represents the notional value of trades
6 Dividends paid/proposed relating to the financial year
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Financial review
Summary income statement
40
£m
Net operating income
Other income
Operating expenses
EBITDA
Analysed as:
Underlying EBITDA
Net exceptional items1
EBITDA
Depreciation and amortisation
Finance costs
Profit before tax
Analysed as:
Underlying profit before tax
Net exceptional items1
Profit before tax
Underlying PBT margin
PBT margin
Profit after tax
Underlying profit after tax2
Pence
Basic EPS
Underlying Basic EPS
2017
160.8
–
(105.8)
55.0
55.0
–
55.0
(5.8)
(0.7)
48.5
48.5
–
48.5
30.1%
30.1%
39.2
39.2
2017
13.7
13.7
2016
169.4
3.1
(112.3)
60.2
69.2
(9.0)
60.2
(6.0)
(0.8)
53.4
62.4
(9.0)
53.4
36.8%
31.5%
42.5
50.7
2016
15.1
18.0
Variance
Variance %
(8.6)
(3.1)
6.5
(5.2)
(14.2)
9.0
(5.2)
0.2
0.1
(4.9)
(13.9)
9.0
(4.9)
(6.7)%
(1.4)%
(3.3)
(11.5)
(5)%
–
6%
(9)%
(20)%
–
(9)%
4%
5%
(9)%
(22)%
–
(9)%
–
–
(8)%
(23)%
Variance
Variance %
(1.4)
(4.3)
(9)%
(24)%
Summary
Net operating income for the year reduced by £8.6 million (5%) to £160.8 million, primarily driven by subdued markets during the
year presenting fewer trading opportunities for our clients. Second half performance was higher than in the first half, assisted by
growing active client numbers and improved trading opportunities for our clients, including the November US presidential election
and January’s inauguration.
41
Active client numbers have risen by 2,753 (5%) to 60,082, mainly as a result of higher marketing spend during the year driving
retail client acquisition, as well as the expansion of the institutional offering. However, revenue per active client fell by £311 (11%)
to £2,517 due to a fall in the value of client trades, which was £55 billion (3%) lower than prior year at £2,016 billion. Our major
asset class indices, was the driver of this decrease with the value of client trades down £244 billion (18%) to £1,124 billion. Equity
indices were generally trading within narrow bands during the period, resulting in clients having more limited trading opportunities.
The value of client trades in other asset classes grew during the period, offsetting much of the decrease.
Total costs(cid:116) decreased by £6.8 million (6%) to £112.3 million. Excluding exceptional costs of £12.1 million in the prior year, total
costs increased by £5.3 million (5%). The underlying increase was driven by higher personnel costs, caused by the annualised cost
increase associated with investment in personnel during the prior year, increased marketing activity, and higher share based
payments. These increases were partially mitigated by lower performance related pay.
EBITDA and underlying EBITDA decreased by £5.2 million (9%) and £14.2 million (20%) respectively to £55.0 million.
Underlying profit before tax decreased by £13.9 million (22%) to £48.5 million, as a result of the £8.6 million decrease in net
operating income and £5.3 million increase in underlying total costs explained above, and as a result our underlying profit before
tax margin decreased by 6.7% to 30.1%.
Statutory profit before tax decreased by £4.9 million (9%) to £48.5 million and profit before tax margin1 decreased by 1.4% from
31.5% to 30.1%.
It is anticipated that regulatory change is likely to take place in two of our three established markets during the next financial year,
although this has had no impact on client activity in the current period.
Net operating income overview
£m
CFD and spread bet (including binaries) net revenue
Stockbroking
Interest income
Other operating income
Net operating income
2017
151.3
7.8
1.7
–
2016
162.2
5.2
1.8
0.2
160.8
169.4
Retail client rebates, included within net operating income, decreased by £0.7 million (6%) to £9.9 million.
Partner and institutional commissions have grown against the prior year, as the Next Generation institutional offering continued to
expand.
1 Consists of £3.1m exceptional income and £12.1m exceptional costs in 2016
2 Based on implied tax payable should exceptional items not have been incurred
1 Statutory profit before tax as a percentage of net operating income
2 Total costs are the sum of operating expenses, depreciation, amortisation and finance costs
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Regional performance overview: CFD and spread bet
42
Net revenue (£m)
Value of trades (£bn)
Active Clients
2017
UK
Europe
APAC & Canada
Total
UK
Europe
APAC & Canada
Total
UK
Europe
APAC & Canada
Total
61.0
45.3
45.0
151.3
17,142
22,503
20,437
60,082
793
632
591
2,016
2016
Net revenue (£m)
Value of trades (£bn)
Active Clients
63.1
48.5
50.6
162.2
17,268
21,714
18,347
57,329
746
672
653
2,071
% change
Net revenue (£m)
Value of trades
Active Clients
(3)%
(7)%
(11)%
(7)%
6%
(6)%
(10)%
(3)%
(1)%
4%
11%
5%
RPC (£)
3,558
2,012
2,201
2,517
RPC (£)
3,652
2,234
2,760
2,828
RPC
(3)%
(10)%
(20)%
(11)%
UK
The value of client trades in the UK was 6% ahead of the prior year at £793 billion (2016: £746 billion), driven by the institutional
business which rose by 76% to £224 billion (2016: £127 billion) following strong growth across all delivery channels, most
noticeably API. However the value of client trades in the retail business was down 8% at £569 billion (2016: £619 billion) through
reduced trading opportunities. The annual Investment Trends study1 highlighted an increase in primary market share for CMC
Markets to 8%, although active clients were broadly flat for the year at 17,142 (2016: 17,268). Revenue per active client was 3%
lower than the prior year at £3,558 (2016: £3,652).
Europe
Europe comprises offices in Austria, France, Germany, Italy, Norway, Poland, Spain and Sweden. The value of client trades in Europe
was 6% lower than the prior year at £632 billion (2016: £672 billion). While active clients were 4% higher at 22,503 (2016:
21,714), revenue per active client was 10% lower than the prior year at £2,012 (2016: £2,234) due to lower client trading and an
increase in active clients in the latter part of the year. A market leading position was maintained in Germany with a 16% share of
primary accounts according to the Investment Trends survey2 published in June 2016. There was also a strong performance from
France with the value of client trades up 26% from the prior year and active clients up 10% over the same period. The Poland office
continues to grow with results ahead of expectation.
APAC & Canada
Our APAC & 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 was 10% lower at £591 billion (2016: £653 billion). Despite the
decrease in overall trading activity, active client numbers were up 11% at 20,437 (2016: 18,347).
CMC increased its primary market share and doubled its net promoter score to remain the number two FX provider in Australia as
well as maintaining the position of number one CFD provider for high value clients3. In addition, the Group retained the number
one position as CFD provider to high value clients in Singapore3. This demonstrates success in the Group’s strategy
goal to acquire and support a high value client base. These independent reports also showed that CMC Markets had the
highest prompted brand awareness in the Australian market, demonstrating that the brand profile is continuing to build strength in
the region.
Stockbroking
The Australian stockbroking business has again significantly improved on the prior year’s performance, with revenue up
49% at £7.8 million (2016: £5.2 million), aided by a lower central bank rate, continued supportive market conditions and the
benefit of a strengthening Australian dollar. Positive performance was also evidenced through both strong client acquisition
(20% increase in new clients1 year-on-year) and improved cross-sell delivered from fundamental improvements in on-boarding
and digital marketing. In particular, the latest release of our award winning2 HTML 5 ‘Pro Platform’ helped contribute to a 43%
improvement in volumes.
43
In addition to the numerous intermediary and broader wholesale deals executed in the year, the business signed a major
stockbroking partnership with ANZ Bank to service the entire ANZ Share Investing (“ANZSI”) client base. CMC will provide
these clients with leading technology, customer service and execution via an ANZ-branded stockbroking platform with revenue
being shared between CMC and ANZ Bank from September 2018 onwards when clients are migrated. CMC are developing
additional stockbroking platform functionality and will be investing in property and IT infrastructure in order to support the
rise in trading activity.
Interest income
The low interest rate environment remained largely the same as the prior year and interest income remained stable at £1.7 million
(2016: £1.8 million). The majority of the Group’s interest income is mainly earned through our segregated client deposits in our
Australia, New Zealand and stockbroking subsidiaries.
Other income
All other income in the prior year of £3.1 million relates to a litigation settlement and given its one-off nature, the Group classed the
income as exceptional.
Expenses
Total operating costs before exceptional items increased £5.6 million (6%) to £105.8 million, driven by higher salary costs, share
based payment charges, sales and marketing expenditure and IT costs, offset by lower performance related pay.
Exceptional costs of £12.1 million in the prior year relate to the London Stock Exchange listing in February 2016.
£m
Staff costs
IT costs
Sales and marketing costs
Premises costs
Legal and professional fees
Regulatory fees3
Other
Total operating expenses before exceptional items
Exceptional costs
Total operating expenses
Depreciation and amortisation
Interest
Total costs
2017
49.4
15.4
21.8
5.2
3.5
2.6
7.9
105.8
–
105.8
5.8
0.7
112.3
2016
46.1
12.7
18.3
4.8
3.1
3.2
12.0
100.2
12.1
112.3
6.0
0.8
119.1
1 Investment Trends October 2016 UK Leveraged Trading Report
2 Investment Trends June 2016 Germany CFD & FX Report
3 Investment Trends 2016 Australia CFD Report; Investment Trends 2016 Singapore Report
1 New stockbroking accounts net of one-off migrations
2 Canstar 2017 Broker of the Year
3 Includes regulatory transaction fees
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Staff costs
Staff costs increased £3.3 million (7%) to £49.4 million, largely caused by a rise in wages and salaries of £5.4 million (15%)
due to the annualised impact of investment in personnel in the prior year, and higher share based payments which increased
by £3.3 million. These increases were offset by a decrease of £5.3 million (60%) in performance related pay and decrease of
£0.1 million in contract staff costs.
44
£m
Wages and salaries
Performance related pay
Share-based payments (note 30)
Total employee costs
Contract staff costs
Staff costs
2017
39.9
3.4
4.4
47.7
1.7
49.4
2016
34.5
8.7
1.1
44.3
1.8
46.1
Sales and marketing costs
Sales and marketing costs increased £3.5 million (19%) to £21.8 million during the year as the Group continued to invest in its
brand profile and growing the client base through higher expenditure across digital channels. Brand activity included the continuing
sponsorship of both the Land Rover BAR America’s Cup sailing team and the New South Wales Waratahs rugby team in Australia.
Aside from the brand spend, the main increases in expenditure were seen in our established markets of the UK, Germany
and Australia.
Other expenses
IT costs increased £2.7 million (21%) to £15.4 million, due to additional expenditure in new services, including the cyber security
area, increased market data costs and inflationary pressures caused mainly by Sterling depreciation.
Other costs decreased by £4.1 million (34%) to £7.9 million, with the main contributors being lower bad debt expenses due to more
benign market conditions, lower irrecoverable sales tax and the effect of favourable balance sheet revaluation.
Taxation
The effective tax rate for the year was 19% (2016: 20%). The majority of the Group’s profits are taxed in the UK, which had a
corporation tax rate of 20% (2016: 20%). The Group benefited from higher utilisation of Australian corporation tax credits in the
year, and in the prior year the effective tax rate was impacted by disallowable exceptional costs associated with the listing.
Profit after tax for the year
Group statement of financial position
£m
Intangible assets
Property, plant and equipment
Deferred tax assets
Total non–current assets
Trade and other receivables
Derivative Financial instruments
Financial investments
Amount due from brokers
Cash and cash equivalents
Total current assets
Total assets
Trade and other payables
Derivative Financial instruments
Borrowings
Current tax payable
Short term Provisions
Total current liabilities
Trade and other payables
Borrowings
Deferred Tax liabilities
Long term Provisions
Total non–current liabilities
Total liabilities
Total equity
Total equity and liabilities
Non-current assets
2017
2.1
18.2
8.1
28.4
31.6
1.9
20.3
119.4
53.2
226.4
254.8
36.3
3.3
5.8
5.5
0.4
51.3
3.1
3.0
0.0
1.6
7.7
59.0
195.8
254.8
45
2016
2.6
16.4
7.7
26.7
20.9
0.8
20.4
84.2
78.3
204.6
231.3
34.6
5.0
1.4
7.8
0.2
49.0
3.5
1.1
0.0
1.4
6.0
55.0
176.3
231.3
The Group is committed to maintaining its Next Generation trading platform and these costs are expensed as incurred. The
majority of intangible assets relate to the net book value of software licences rather than net capitalised internal development
costs. Expenditure on the trading platform goes hand-in-hand with the hardware required to support trading activity and this has
been the main driver of the increase in property, plant and equipment over the period.
The decrease in profit after tax for the year of £3.3 million (8%) to £39.2 million (2016: £42.5 million) was due to both lower net
operating income and higher underlying operating costs, explained earlier in the financial review.
Current assets
Dividend
Dividends of £23.9 million were paid during the year (2016: £24.9 million), £15.4 million relating to a final dividend for the prior
year paid in September 2016, with a £8.5 million interim dividend paid in December 2016 in relation to the current year
performance. The Group remains committed to a dividend policy of paying 50% of underlying post-tax profit as dividends, however
has proposed maintaining the year ended 31 March 2016 ordinary dividend for the year ended 31 March 2017.
Trade and other receivables relate mainly to client receivables from stockbroking positions yet to settle, prepayments, amounts
due from our segregated client accounts on the next working day and other client debtors. The year-on-year rise is as a result of
higher stockbroking positions yet to settle. Amount due from brokers relates to cash held at brokers either for initial margin or to
reduce interest payable on the Group’s overall hedge position. Cash and cash equivalents have decreased during the course of the
year with a proportion being deposited with brokers to fund growing margin requirements. Financial investments relate to the
FCA BIPRU12 requirement to hold eligible assets against potential liquidity stress.
Current liabilities
Trade and other payables consist mainly of accruals and deferred income, amounts due on stockbroking trades yet to settle, and
amounts due to clients in relation to title transfer funds.
Non-current liabilities
Trade and other payables relate mainly to the deferred unwinding of lease incentives on our London property and the increase in
borrowings is due to a new lease agreement associated with IT equipment purchases.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Own funds have increased to £183.4 million (2016: £176.4 million). Own funds include short-term financial investments,
amounts due from brokers and amounts receivable/payable on the Group’s derivative financial instruments. For more details
refer to note 29 of the financial statements.
£m
Own funds
Title transfer funds
Available committed facility
Total available liquidity
Less: Blocked cash
Less: Initial margin requirement at broker
Net available liquidity
Of which: held as liquid assets buffer
Client money
2017
183.4
3.8
40.0
227.2
(19.8)
(93.0)
114.4
20.0
47
2016
176.4
2.2
25.5
204.1
(14.9)
(54.7)
134.5
20.0
Total client money held by the Group on behalf of its retail clients including regulatory buffers held in client money bank accounts
was £317.5 million at 31 March 2017 (2016: £230.7 million). Client money is held by the Group in trust for its retail clients and is
not included in total available liquidity.
Client funds represent the capacity for our clients to trade and offer an underlying indication to the health of our client base.
Client money governance
The Group segregates all money held by it on behalf of retail clients in accordance with applicable client money regulations in
countries in which it operates. The majority of client money requirements fall under the CASS rules of the FCA. All segregated
client funds are held in dedicated client money bank accounts with major banks that meet strict internal criteria and are held
separately from the Group’s own money.
The Group has comprehensive client money processes and procedures in place to ensure client money is identified and protected
at the earliest possible point after receipt as well as governance structures which ensure such activities are effective in protecting
client money. The Group’s governance structure is explained further on pages 56 to 66.
Regulatory capital resources
For the year under review, CMC Markets was supervised on a consolidated basis by the FCA. The Group maintained a significant
capital surplus over the regulatory requirement at all times.
46
The Group’s total capital resources increased due to the rise in retained earnings relating to audited 2017 profits and lower
intangible assets on the balance sheet.
At 31 March 2017 the Group had a total capital ratio of 30.2% (31 March 2016 31.2%). The following table summarises the
Group’s capital adequacy position at the year end. The Group’s approach to capital management is described in note 29 to the
financial statements.
Regulatory Capital
Core Equity Tier 1 Capital 1
Less: intangibles and deferred tax assets
Total capital resources (£m)
Pillar 1 requirement 2
Total risk exposure (£m) 3
Total capital ratio (%)
2017
178.6
(6.7)
171.9
45.6
569.4
30.2%
2016
160.9
(6.6)
154.3
39.6
494.9
31.2%
(cid:123) Core Equity Tier 1 capital – total audited capital resources as at the end of the financial period, less proposed dividends.
(cid:116) Pillar 1 requirement – the minimum capital requirement required to adhere to CRD IV.
(cid:117) Total risk exposure – calculated in accordance with article 92(3) of the CRR.
Liquidity
The Group has access to the following sources of liquidity that make up total available liquidity:
• Own funds. The primary source of liquidity for the Group. It represents the funds that the business has generated historically,
including any unrealised gains / losses on open hedging positions. All cash held on behalf of segregated clients is excluded. Own
funds consists mainly of cash and cash equivalents and also includes investments in UK government securities which are held
to meet the Group’s liquid asset buffer (LAB – as set by the FCA). These UK government securities 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 £40.0 million
(2016: £40.0 million) in order to fund any potential fluctuations in margins required to be posted at brokers to support the
risk management strategy. The maximum amount of the facility available at any one time is dependent upon the initial margin
requirements at brokers and margin received from clients. The facility consists of a one-year term facility of £20.0 million and
a three-year term facility of £20.0 million, both of which will be renewed during June 2017. There was no drawdown on the
facility at 31 March 2017 (2016: £nil).
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.
• Initial margin requirement at broker. The total GBP equivalent initial margin required by prime brokers to cover the Group’s
hedge derivative positions.
At 31 March 2017, the Group held cash balances of £49.0 million (2016: £78.3 million). In addition, £310.0 million (2016: £226.1
million) was held in segregated client money accounts for clients. The movement in Group cash and cash equivalents is set out in
the Consolidated Cash Flow Statement.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
Principal risks and uncertainties
48
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 using 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; and
• 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 Group’s
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 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 make enhancements to its Risk
Framework and governance to provide a more 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. Top and emerging risks are considered
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 29 to
the financial statements.
Top and emerging risks during the year, which form either
a subset of one or multiple principal risks, and continue
to be at the forefront of the Group discussions are:
• UK and Germany regulatory change: there have been
significant developments in this area during the financial
year which could materially affect the Group’s profitability,
in particular consultation papers issued by the UK’s FCA
and Germany’s BaFin, with the outcome of the latter
recently communicated. The change in regulatory
sentiment has been regularly discussed at Board, Board
Committee and Executive Committees throughout the
year and is actively monitored.
• UK’s exit from the European Union ((cid:37)rexit): the potential
impact of Brexit is being closely monitored and
contingencies discussed and planned which would mitigate
regulatory change and strategic/business model risk of
operating in the European Union.
Further information on the structure and workings of Board
and Management committees is included in the Corporate
Governance report on page 58.
49
dit
al Au
w via Intern
vie
nt re
e
d
n
e
p
e
d
In
Board
Executive Committees
Execution of Board’s risk strategy including Risk Appetite
Risk & Control Functions
Finance, Risk Management, Legal, Compliance, Financial Crime.
Integrate risk management into daily business activities,
providing guidance tools and support
Business Functions
Identify, own, assess and manage risks.
Design, implement and monitor suitable controls,
Issue Management, KRI and Risk Appetite reporting
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CMC Markets plc
Strategic report
50
Category
Risk
Description
Management and mitigation
Category
Risk
Description
Management and mitigation
51
Business and
strategic risks
Regulatory
change
Acquisitions
and disposals
Strategic /
business
model risk
Reputational
risk
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.
The risk that mergers,
acquisitions, disposals
or other partnership
arrangements made by the
Group do not achieve the
stated strategic objectives
or that they give rise to on-
going or previously
unidentified liabilities.
The risk of an adverse
impact resulting from the
Group’s strategic decision-
making as well as failure to
exploit strengths or take
opportunities. It is a risk
which may cause damage
or loss, financial or
otherwise to the Group as
a whole.
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.
• Active dialogue with regulators and industry bodies.
• Monitoring of market and regulator sentiment towards
the product offering.
• Monitoring by and advice from Compliance department
on impact of actual and possible regulatory change.
• A business model and proprietary technology that
is responsive to changes in regulatory requirements.
• 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.
• 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.
• 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
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.
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 allow clients 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:
Counterparty credit risk:
A financial institution
failing to meet or
defaulting on their
obligations in accordance
with agreed terms.
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:
Financial
reporting risk
Insurance risk
The risk that financial,
statutory or regulatory
reports are submitted late,
incomplete or are
inaccurate.
The risk that an insurance
claim by the Group is
declined (in full or in part)
or there is insufficient
insurance coverage.
• 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 29 to the
financial statements.
• Robust process of checking and oversight in place
to ensure accuracy.
• Knowledgeable and experienced staff undertake
and overview the relevant processes.
• Reputable broker deals with 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.
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CMC Markets plc
Strategic report
52
Category
Risk
Description
Management and mitigation
Category
Risk
Description
Management and mitigation
53
Financial risks
(continued)
Liquidity risk
The risk that there is
insufficient available
liquidity to meet the
liabilities of the Group
as they fall due.
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.
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 committed bank facility of up to £40 million
(page 46) 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 29 to the financial statements.
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 29 to the financial
statements
Operational
risks
Business
change risk
Business
continuity &
disaster
recovery risk
Financial
crime 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. Notable
business change risks for
the Group are platform
upgrades and the
implementation of the
ANZ Bank stockbroking
partnership.
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.
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.
Information
and data
security risk
The risk of unauthorised
access to or external
disclosure of client or
company information,
including those caused
by “cyber attacks”.
• 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 oversight provided by 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.
• 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.
• 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.
Strategic report
Annual Report 2017
CMC Markets plc
Strategic report
54
Category
Risk
Description
Management and mitigation
Category
Risk
Description
Management and mitigation
55
Operational
risks
(continued)
Information
technology
and infrastruc-
ture 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, including investment in software that
monitors and assists in the detection and prevention of
cyber attacks.
• 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
Operations
(processing)
risks
Outsourcing
and procure-
ment risks
The risk that disputes
deteriorate into litigation.
• Compliance with legal and regulatory requirements
including relevant codes of practice.
• Early engagement with legal advisers 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.
• Investment in system development and upgrades
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 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.
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.
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.
People risk
Operational
risks
(continued)
The risk of loss of key staff,
or having insufficient
skilled resources available.
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.
• 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.
• 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.
Grant Foley
Chief Operating and Financial Officer
7 June 2017
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Governance report
Chairman’s letter
56
Manjit Wolstenholme will be stepping down at the Group’s
Annual General Meeting on 27 July 2017 (“2017 AGM”),
and a thorough search has begun for a successor.
Board effectiveness
The balance of skills, experience and independence of the Board
and individual Directors was reviewed as part of the annual
effectiveness process. All Directors received computer based
training in 2016 on relevant financial service matters with
emphasis on the Company’s responsibilities with regard to
regulation and compliance, as well as attending a seminar on the
Approved Persons regime.
A formal evaluation of the effectiveness and structure of
the Board and Board Committees was conducted in the
autumn of 2016 in accordance with principle B6 of the Code.
As Chairman of the Board and of the Nomination Committee
I will oversee that the actions arising from the evaluation
process are completed. It is intended that an independent,
externally facilitated evaluation of the Board will be
conducted in 2017.
Shareholder engagement
As Chairman, I am responsible for the effective communication
between shareholders and the Company and for ensuring the
Board understand the views of major shareholders.
I look forward to listening to the views of our shareholders at
the Company’s 2017 AGM. Board Directors regularly meet
with a cross section of the Company’s shareholders to ensure
an ongoing dialogue is maintained and report to the Board on
the feedback received from shareholders. I will also always
make myself available to meet any of our shareholders who wish
to discuss matters regarding the Company.
A monthly investor relations report is distributed to the Board
and considered at each Board meeting. The Group is also
assessing the appointment of an independent shareholder
engagement company to ensure the views of shareholders
are clearly and effectively communicated to the Board.
Simon Waugh
Chairman
7 June 2017
Dear Shareholders,
On behalf of the Board, I am pleased to present your 2017
Group Corporate Governance report. The Board continues
to recognise that an effective governance framework is
fundamental in ensuring that the Group remains profitable
and all Directors are committed to achieving high standards
of corporate governance.
As the Group enters its second year as a listed company it
has applied the principles and is compliant with all provisions
of the UK Corporate Governance Code (the “Code”).
Board composition
The knowledge, skills and experience of the Board Directors has
been key to the management of the Company as it grows as a
listed business. A short biography of all Directors can be found
on pages 59 to 61.
After completing a formal performance evaluation of the
individual Board Directors, and in adherence to section B
of the Code, I can confirm that the Board is deemed to be
effective. During the evaluation, and on an ongoing basis,
the training needs of the Directors are considered and each
Director continues to develop their understanding and
knowledge of the industry and regulatory developments.
Following a review of my performance as Chairman (led by
Manjit Wolstenholme, as Senior Independent Non-Executive
Director, and involving Malcolm McCaig and James Richards
in their capacity as Independent Non-Executive Directors)
the Board has asked me to remain as Group Chairman
notwithstanding my service since December 2007, in order
to maintain continuity throughout this period of regulatory
uncertainty. However, succession planning for the role of
Chair of the Board is and will continue to be a priority in the
coming year.
57
The Next Generation trading platform.
Governance
Governance report
The Board
58
The role of the Board
Annual Report 2017
CMC Markets plc
Governance report
59
In promoting the long-term success of the Company, the Board provides entrepreneurial leadership and oversight within the
Governance structure detailed later in this section. The Board is responsible for the development of the Group strategy and for
monitoring performance against a set of clear objectives ensuring that the necessary financial and human resources are in place to
achieve this strategy.
The Board has ultimate responsibility to prepare the annual report and financial statements and to ensure that appropriate internal
controls and risk management systems are in place in order to manage and mitigate risk. The Board delegates the in depth review
and monitoring of internal controls and risk management to the Group Audit Committee and Group Risk Committee respectively.
The terms of reference of these Board Committees are available on the CMC Markets plc Group website (https://www.
cmcmarkets.com/group/committees).
Simon Waugh
(Chairman)
Peter Cruddas
(cid:11)(cid:38)(cid:75)ief Executive (cid:50)fficer(cid:12)
Appointed to the Board: 1 December 2007
Appointed to the Board: 3 June 2004
Committee membership:
Committee membership:
• Nomination Committee (Chair)
• Group Risk Committee
• Remuneration Committee
Simon joined the Group as a Non-Executive Director in
December 2007 and became the Non-Executive Chairman
in March 2013. He was Chairman of the Audit and Risk
Committee until listing. Prior to joining the Group, Simon was
Group Director of Sales, Marketing and Customer service at
Centrica. He retained these responsibilities for the seven years
he was with the Group, and also held the roles of Deputy CEO
of British Gas and CEO of the Centrica Financial Services
Company. On leaving Centrica, Simon became CEO of AWD
Financial Services Group, a leading Independent Financial
Advisor and consumer financial services business. Simon’s final
senior executive position was in the role of Chairman and CEO
of the National Apprenticeship Service, leading the
government’s flagship skills programme, reporting to the
Secretaries of State for both Education and Business. Simon is
also a life fellow of both the Marketing Society and the Institute
of Direct Marketing.
• Executive Committee (Chair)
• Risk Management Committee
Peter founded the Group and became its Chief Executive
Officer in 1989. Peter held this role until October 2007, and
again between July 2009 and June 2010. Between 2003 and
March 2013, he also served as the Group’s Executive Chairman.
In March 2013, he once again became the Group’s CEO, and is
responsible for running the Group on a day-to-day basis. Prior
to founding the Group, Peter was Chief Dealer and Global
Group Treasury Advisor at S.C.F. Equity Services where he was
responsible for all the activities of a dealing room whose
principal activities were trading in futures and options in
currencies, precious metals, commodities and spot forwards on
foreign exchange and bullion.
Current external appointments:
The Peter Cruddas Foundation
Finada Limited
Crudd Investments Limited
Current external appointments:
The Consulting Consortium Limited
Record Sure Limited
Swaines Limited
BMLL Technologies Limited
Ingenuity Holdings Limited
Gallagher Risk & Reward Limited
Gallagher Benefit Services (Holdings) Limited
Utilitywise PLC
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Manjit Wolstenholme
(Senior Independent Director)
Appointed to the Board: 9 December 2015
Committee membership:
60
• Group Audit Committee (Chair)
• Group Risk Committee
• Nomination Committee
• Remuneration Committee
Manjit joined the Group as a Non-Executive Director in December 2015 and acts as the Group’s
Senior Independent Director. Manjit qualified as a chartered accountant with Coopers & Lybrand.
Her background includes roles as Director and Co-Head of Investment Banking at Dresdner
Kleinwort Wasserstein, and Partner at Gleacher Shacklock. She is Chair of Provident Financial plc
and Senior Independent Director and Chair of the Remuneration Committee of Future plc as well
as Chair of Audit and Non-Executive Director of Unite Group plc and Chair of CALA Group
(Holdings) Limited.
Current external appointments:
CALA Group (Holdings) Limited
The Unite Group Plc
Future plc
Provident Financial Plc
Malcolm McCaig
(cid:11)Independent (cid:49)on(cid:16)Executive Director(cid:12)
Appointed to the Board: 9 December 2015
Committee membership:
• Group Risk Committee (Chair)
• Group Audit Committee
• Nomination Committee
• Remuneration Committee
Malcolm joined the Group as a Non-Executive Director in December 2015. Malcolm is a Certified
Management Consultant. He was a partner and practice leader, initially at Deloitte, and
subsequently at Ernst & Young. He has held senior executive positions in Prudential, Cigna and
National Australia Bank. He was formerly the Chairman of Kent Reliance Building Society and
Barbon Insurance Group. Malcolm is the Senior Independent Director at Unum Ltd. He also holds
Board positions at Tradition UK and QBE Europe.
Current external appointments:
QBE Insurance (Europe) Limited
QBE Underwriting Limited
QBE RE (Europe) Limited
TFS Derivatives Limited
Trad-X (UK) Limited
Tradition Financial Services Ltd
Tradition (UK) Limited
Unum European Holdings Company Limited
Unum Limited
City of Glasgow College Foundation
Ageas (UK) Limited
4most Group (Holdings) Ltd
James Richards
(cid:11)Independent (cid:49)on(cid:16)Executive Director(cid:12)
Appointed to the Board: 1 April 2015
Committee membership:
• Remuneration Committee (Chair)
• Group Audit Committee
• Group Risk Committee
• Nomination Committee
61
James joined the Group as a Non-Executive Director in April 2015 and is the Chairman of the
Remuneration Committee and was, until listing, Chairman of the Nomination Committee.
He is also a member of the Group Audit Committee and Group Risk Committee. He was admitted
to the roll of solicitors in England and Wales in 1984 and in the Republic of Ireland in 2012.
James was a partner at Dillon Eustace, a law firm specialising in financial services in Ireland,
where he was a partner from 2012 to 2016. Prior to this he was a banking and finance partner
at Travers Smith LLP for fourteen years. Having occupied various senior positions within leading
law firms, James has extensive experience in debt capital markets, derivatives and structured
finance working with major corporates, central banks and governmental organisations.
No current external appointments
Grant Foley
(cid:11)(cid:38)(cid:75)ief (cid:50)perating and (cid:41)inancial (cid:50)fficer(cid:12)
Appointed to the Board: 1 August 2013
Committee membership:
• Executive Committee
• Risk Management Committee (Chair)
Grant joined the Group in April 2013 as Group Head of Finance and was made Group Director
of Finance, Risk and Compliance in August 2013 when he was appointed to the main Board.
In January 2016, he became the Chief Financial Officer & Head of Risk. In June 2017 he was
appointed Chief Operating and Financial Officer. Grant is a Fellow of the Institute of Chartered
Accountants in England and Wales (FCA) and has almost 20 years of financial services experience,
having held senior finance, operational and board positions in a number of businesses. These have
included Coutts & Co, Prudential Bache, Nomura and Arbuthnot Securities.
No current external appointments
David Fineberg
(Group Commercial Director)
Appointed to the Board: 1 January 2014
Committee membership:
• Executive Committee
• Risk Management Committee
David joined the Group in November 1997 working on the trading desk and developed
the Group’s multi asset CFD and spread bet dealing desk. As a senior dealer he was
responsible for managing the UK and US equity books. Between April 2007 and
September 2012 he was the Group’s Western Head of Trading, covering all asset classes
for the Western region. In September 2012 he was appointed to the role of Group Head
of Trading and in January 2014 was appointed as the Group Director of Trading with
overall responsibility for the trading and pricing strategies and activities across the Group.
In June 2017 his role further expanded when he became Group Commercial Director.
No current external appointments
Governance report
Leadership
Matters reserved for the Board
62
It is recognised that certain matters cannot, or should not, be delegated and the Board has adopted a schedule of matters reserved
for Board consideration and approval. The matters reserved for the Board fall into the following areas:
• strategy and management
• structure and capital
• financial reporting and controls
•
internal controls and risk management
• contracts
• communications
• Board membership and other appointments
• remuneration
• delegation of authority
• corporate governance matters
The schedule of matters reserved for the Board is available on the CMC Markets plc Group website (https://www.cmcmarkets.
com/group/committees).
Board and Board Committee attendance
Corporate governance: meeting attendance
DIRECTOR
Peter Cruddas
David Fineberg
Grant Foley
Malcolm McCaig
James Richards
Simon Waugh
Manjit Wolstenholme
BOARD
10 (10)
10 (10)
10 (10)
10 (10)
10 (10)
10 (10)
10 (10)
GROUP AUDIT
COMMITTEE
GROUP RISK
REMUNERATION
NOMINATION
COMMITTEE
COMMITTEE
COMMITTEE
3 (3)
3 (3)
3 (3)
6 (6)
6 (6)
5 (6)
6 (6)
6 (6)
6 (6)
6 (6)
6 (6)
3 (3)
3 (3)
3 (3)
3 (3)
Format: Meeting attended (Meetings eligible to attend as members)
Excluding the Chairman, the Board consists of three Executive Directors and three Non-Executive Directors and therefore
complies with Provision B.1.2 of the Code. All Non-Executive Directors are considered to be independent.
Annual Report 2017
CMC Markets plc
Governance report
63
Division of responsibilities
The roles of the Chairman and Chief Executive Officer are separate, clearly defined in
writing and agreed by the Board.
Responsibilities of the Chairman include:
•
leadership of the Board and ensuring open and effective communication between
the Executive and Non-Executive Directors;
• ensuring Board meetings are effective by setting appropriate and relevant agenda
items, creating an atmosphere whereby all Directors are engaged and free to
enter healthy and constructive debate;
• ensuring effective communication between major shareholders and the Board;
• oversight of each Director’s induction and ongoing training; and
•
leadership of the Board effectiveness process through his role as Chairman of the
Nomination Committee
Responsibilities of the Chief Executive Officer include:
• day-to-day management of the Group’s business and implementation of the Board
approved strategy;
• acting as chairman of the Executive Committee and leading the senior
management team in devising and reviewing Group development for
consideration by the Board;
• responsibility for the operations and results of the Group; and
• promotion of the Group’s culture and standards.
Responsibilities of the Senior Independent Director (“SID”) include:
• acting as a sounding board for the Chairman and serving as an intermediary for
the other Directors as necessary;
• acting as lead independent Non-Executive Director;
•
leading the Non-Executive Directors in the performance evaluation of the
Chairman, with input from the Executive Directors; and
• being available to shareholders in the event the Chairman, Chief Executive Officer
or other Executive Directors are unavailable.
Responsibilities of the Non-Executive Directors include:
• constructive challenge of management proposals and provision of advice in line
with their respective skills and experience;
• helping develop proposals on strategy;
• having a prime role in appointing and, where necessary, removing Executive
Directors; and
• having an integral role in succession planning
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Governance Structure as on 31 March 2017
Accountability
64
65
INDEPENDENT
ASSURANCE
GROUP BOARD
GOVERNANCE
NOMINATION
COMMITTEE
GROUP AUDIT
COMMITTEE
GROUP RISK
COMMITTEE
REMUNERATION
COMMITTEE
EXECUTIVE
COMMITTEE
INTERNAL
ASSURANCE
RISK MANAGEMENT
COMMITTEE
MANAGEMENT
OVERSIGHT
EXTERNAL
AUDITOR
GROUP INTERNAL
AUDIT
CLIENT MONEY REVIEW
TREATING CUSTOMERS
PROJECT MANAGEMENT
GROUP
FAIRLY GROUP
COMMITTEE
Board/Board Committee
Management Committee
Direct reporting line
Senior Management Committee
Internal Assurance
Reporting line for certain matters
Independent Assurance
Activities of the Board
The Board has a comprehensive meeting planner for the next 12 months that ensures all matters for Board consideration are
presented and considered in a timely manner. Key areas of focus during this financial period were:
• proposed regulatory change and potential business impact;
• strategic opportunities, annual budget, strategic review and three year plan;
• the development and launch of new products;
• risk management and risk appetite;
• partnership with Australia and New Zealand Bank; and
• challenge and approval of ICAAP and ILAA
Meetings of the Non-Executive Directors
The Chairman has held a number of meetings with the independent Non-Executive Directors without the Executive Directors
present in accordance with provision A.4.2 of the Code. The Senior Independent Director and other independent Non-Executive
Directors met to appraise the Chairman’s performance since listing and sought input from the Executive Directors prior to doing so.
A formal effectiveness review was conducted during the period
and, as stated previously, an externally hosted Board evaluation
is planned in 2017 where the performance of the Board and
each Director, including the Chairman, will be evaluated.
Board evaluation
Each Director and Board Committee member completed
questionnaires tailored to the role and responsibilities of
the Board and its Board committees. The responses to the
questionnaires and associated comments were collated
and reported on an anonymous basis to a meeting of the
Nomination Committee in which the Executive Directors
were in attendance.
Following discussion and debate by the Nomination Committee
and Board, appropriate actions to address the areas which
could be improved upon to increase Board effectiveness
were agreed.
Election of Directors
The 2017 AGM will be held on 27 July 2017, at 133
Houndsditch, London EC3A 7BX.
Following recommendations from the Nomination Committee
and review by the Chairman, the Board considers that all
Directors continue to be effective, remain committed to their
roles and have sufficient time available to perform their duties.
In accordance with the Company’s Articles of Association,
and provision B.7.1 of the Code, all Directors will be subject
to annual re-election. Accordingly, all Directors with the
exception of Manjit Wolstenholme will seek re-election at the
Company’s 2017 AGM which will be set out in the Notice of
AGM along with a short biography for each Director subject
to re-election.
Independence of Non-Executive Directors and time
commitment
Each of the Non-Executive Directors is considered to be
independent. Each Director is aware of the need to allocate
sufficient time to the Company in order to fulfil their
responsibilities and is notified of all scheduled Board and Board
Committee meetings.
Directors’ induction
A formal procedure for Director Induction and ongoing training
is in place. As part of a new Director’s application for approval
from the FCA, a skills gap analysis and ‘learning and
development plan’ must be submitted to the FCA. The skills
assessment is used by the Company to tailor induction meetings
and training requirements for all new Directors. One-on-one
meetings are organised between the Director and the
management team in relevant areas of the business to allow an
incoming Director to familiarise themselves with the
management team, their respective roles and responsibilities
and gain an understanding and awareness of the industry
in which the firm operates. These meetings also allow a forum
for new Directors to discuss the business strategy and model,
risk management, governance and controls and the
requirements of the regulatory framework. These meetings
and training arrangements form a key part of the learning
and development plan.
Conflicts of interest
The Board has a formal process for the Directors to disclose any
conflicts of interest. The Board members are asked to disclose
any conflicts of interest at each scheduled Board meeting and
is required to attest to any changes in their conflicts register
annually. Each Director is aware of their responsibility to avoid
conflicts of interest and to disclose any conflict or potential
conflict of interest to the Board.
Board support
Each Director has access to the Company Secretary for his
advice and services. The Company Secretary ensures that
meeting papers are delivered to Directors in a timely manner
to allow for conducive and effective Board and Board
Committee meetings.
As stated in each of the Board Committees’ Terms of
Reference and the Company’s Articles of Association the
Directors may take independent professional advice at
the Company’s expense.
The Board has ultimate responsibility for reviewing and
approving the Annual Report and Financial Statements (Code
C.1.1) and it has considered and endorsed the arrangements
enabling it to confirm that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and
understandable and that it provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy. With the assistance
of the Group Audit Committee, the Board ensured that
sufficient time and resources were available to encompass the
disclosure requirements that the Group is subject to and that
the Annual Report and Financial Statements met all relevant
disclosure requirements.
The Board believes in the governance principles of being open,
transparent and compliant with the principles and provisions of
the Code. Following review by the Group Audit Committee, the
Board considered and agreed that the Annual Report contained
the necessary information for shareholders to assess the
Company’s performance, strategy and overall business model.
Annual Report 2017
CMC Markets plc
Governance report
67
Governance report
Group Audit Committee
The Group Audit Committee has been delegated responsibility for the monitoring and oversight
of the external and internal audit of internal controls. The Committee’s responsibilities, main
activities and priorities for the next reporting cycle are set out on pages 68 to 71.
66
Group Risk Committee
The Group Risk Committee has been delegated responsibility for the monitoring and oversight of
risk management, mitigation and approval of risk appetite. The Committee’s responsibilities, main
activities and priorities for the coming year are set out on pages 72 to 75.
Shareholder engagement
The Board recognises the importance of good communication with shareholders. The Board
maintains regular contact with a cross section of the Company’s shareholders to ensure that the
Group strategy takes due consideration of our shareholders’ views.
During the year there were a number of meetings with significant shareholders and potential
investors to ensure the Board were regularly appraised of shareholder sentiment. Monthly
investor relations reports are distributed to the Board and considered at each Board meeting.
CMC Markets Head Office.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Group Audit Committee
Group Audit Committee responsibilities
The main role and responsibilities of the Committee are:
• monitoring the integrity of the Financial Statements of the Group;
68
• to review and report to the Board on significant financial reporting issues and judgements;
69
Dear Shareholders,
As Chair of the Group Audit Committee (the “Committee”) I am pleased to present the Group
Audit Committee Report.
The Committee is the independent Board Committee that assesses and has independent
oversight of financial reporting and the effectiveness of internal control systems. This report
summarises the activities, key responsibilities and future focus of the Committee.
I will be stepping down from the Board at the Annual General Meeting on 27 July 2017; I have
enjoyed my time with CMC Markets and have been impressed with the business. Whilst there
continues to be regulatory uncertainty, I believe the Group is well placed to deal with it.
Manjit Wolstenholme
Senior Independent Director and
Chair of Group Audit Committee
7 June 2017
Membership and attendance
The Committee is chaired by Manjit Wolstenholme with Malcolm McCaig and James Richards as members. The Committee is
considered independent to management and the members are all independent Non-Executive Directors.
The Committee held three scheduled meetings during the financial year. The key activities and discussion points are outlined in the
relevant section of this Committee report. The CFO & Head of Risk, the Global Head of Compliance, Lead External Audit Partner
and the Internal Audit Manager attended Committee meetings by invitation.
• the assessment of the adequacy and effectiveness of the Group’s internal control systems and report to the Board on any key
findings;
• the review and approval of the internal audit charter and internal audit annual plan;
• to review the findings of all internal audit reports, make recommendations as appropriate and monitor resolution plans;
• to review the performance of the internal audit function;
• to review and make recommendations to the Board on the effectiveness and independence of the Company’s external auditor
including appointment, re-appointment and removal of the external auditor;
• to review the findings of the external auditors; and
• to ensure that the external audit contract is put out to tender at least once every 10 years.
The Committee’s full Terms of Reference can be found on the Group’s website (http://www.cmcmarkets.com/group/committees).
Statement of internal controls and internal audit
The Group’s Internal Audit function is externally facilitated by Grant Thornton LLP. The Internal Audit function has a reporting line
to the Committee and has direct access to the Committee Chairman and each Committee member. The Committee regularly
reviews Internal Audit reports, follow up verification reports on any findings identified by Internal Audit, and annually approves the
Internal Audit Plan & Charter.
Areas reported on by Internal Audit to the Committee during the period included:
• Group’s Australian business;
• change control and project & programme management;
• conduct and culture;
•
information security;
• cyber security;
• Australia on-boarding processes;
• UK on-boarding processes*; and
• Marketing review.
Group Audit Committee attendance
The Committee approved the Internal Audit Plan for the year ending 31 March 2018 which includes reviews on:
NAME
POSITION
ATTENDED (ELIGIBLE)
Manjit Wolstenholme (Chair)
Senior Independent Director
Malcolm McCaig
James Richards
Independent Non–Executive Director
Independent Non–Executive Director
3 (3)
3 (3)
3 (3)
• business continuity planning, disaster recovery and crisis management;
• corporate governance framework, including strategic planning;
• dealing desk review;
• Gambling Commission Security review;
*As at 31 March 2017 all Internal Audit fieldwork relating to the UK on-boarding process audit had been completed and management responses and action plans were
due to be completed imminently.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
• General Data Protection Regulation Regime (“GDPR”);
• Internal Capital Adequacy Assessment Process (“ICAAP”) ;
• reviewed the Annual Report and Financial Statements for the year ended 31 March 2016 including the Going Concern
statement, Viability statement and risk management and internal controls reporting. Following due consideration the
Committee recommended the 2016 Annual Report to the Board for approval;
• Markets in Financial Instruments Derivative (“MiFID II”) preparedness (Internal Audit on MiFID II execution and embedding to
• reviewed the annual report from the Money Laundering Reporting Officer (“MLRO”) prior to the MLRO report being
70
follow); and
considered by the Board;
71
• Senior Manager Certification Regime (“SMCR”)
• received a presentation from the Group’s Controlled Function 10a (“CF10a”), who is responsible for Client Assets Sourcebook
External auditor
The Committee considers the reappointment of the external auditor annually and such consideration includes review of the
independence of the external auditor and assessment of the auditor’s performance. As part of this review, the Committee agreed to
recommend to the Board the reappointment of PricewaterhouseCoopers LLP as the Group’s external auditor and a resolution to
this effect will be put before the shareholders at the 2017 AGM. The current auditor has been in place for eight years and a tender
process is envisaged for 2019. This would comply with the current Code provision and with the CMA Order in the event that the
Order applies to the Company at that time.
The Committee, in line with Financial Reporting Council (“FRC”) guidance, continues to review the qualification, expertise,
resources, effectiveness and independence of the external auditor. Also in line with FRC guidance, the Committee reviews the
appointment of staff from the external auditor to positions within the Group and meets with the External Audit Partner at least
annually without executive management present.
Audit fees
The Group’s audit and other services fees are disclosed in note 9 of the financial statements. Other services fees include the
controls opinion relating to the Group’s processes and controls over client money segregation and compliance with The Capital
Requirements (country-by-country reporting) Regulations 2015.
Non-audit fees
The Group has a number of relationships with independent advisory and assurance firms which provide alternatives to using
PricewaterhouseCoopers. However, the Group has engaged with PricewaterhouseCoopers LLP for a number of non-audit
services during the year. For each engagement the auditor’s independence has been considered by both the Group and
PricewaterhouseCoopers LLP to ensure auditor independence would not be compromised. Non-audit related fees provided
by PricewaterhouseCoopers LLP are disclosed in note 9 of the financial statements.
During the financial year, having considered the new Ethical Standard issued by the FRC regarding the requirement for
safeguarding independence of the external auditor, two main actions were taken. Firstly, a revised policy for the appointment
of external auditors to provide non-audit services was reviewed and approved by the Audit Committee. As a result non-audit
services supplied by the external auditor must be approved on a case-by-case basis by the Audit Committee; those with a de
minimis fee level are pre-approved by the Committee and authority to approve this expenditure is delegated to management.
Secondly, tax services were tendered to other professional services firms and from February 2017 Deloitte LLP became the
Group’s lead tax advisor.
Main activities during the financial year
Agendas for scheduled Committee meetings are based on a pre-agreed annual meeting planner to ensure that the Committee
fulfils its responsibilities in line with its Terms of Reference and regulatory obligations.
At each meeting the Committee:
• receives a report from the CFO & Head of Risk on the year to date financial performance of the Group;
• receives an update on current and planned internal audits and any internal audit issues arising; and
• receives an update on significant accounting judgements, including the recoverability of Deferred tax assets.
June 2016
• reviewed the year-end audit report presented by the Group’s auditor and discussed the audit with the lead audit partner. In
line with the Committee terms of reference the Committee met with the Group Auditor without management or the Executive
Directors present;
(“CASS”) operational oversight.
November 2016
• reviewed the Interim Results for the period to 30 September 2016 providing independent oversight and ensuring that the
report was produced in accordance with the requirements of a listed company. The Committee recommended the Interim
Results to the Board for formal approval;
• reviewed the completed internal audit reports on the Group’s Australian business, Conduct & Culture, Change Control and
Project & Programme Management, and Marketing review. In line with the Committee terms of reference the Committee met
with the Internal Auditor without management or the Executive Directors present;
• as part of the Board Committee evaluation process, the Committee completed an annual evaluation of its performance and the
results of this evaluation were considered at the November Nomination Committee meeting and December Board meeting;
• the Committee reviewed its terms of reference to ensure its role, responsibilities and delegated authority were still relevant
and appropriate to meet its regulatory and statutory obligations;
• reviewed the Audit plan from the Group auditor.
March 2017
• the Committee reviewed the draft Annual Report and Financial Statements to 31 March 2017 (the “2017 Annual Report”)
commenting and advising on areas to be included in the 2017 Annual Report;
• reviewed the completed internal audit reports on Information Security and on-boarding processes in Australia and received an
update on the audit fieldwork on the UK on-boarding process and Human resources audits;
• received an update from the Group’s auditor on the year-end audit process including Client Assets Sourcebook (“CASS”)
requirements, summary of non-audit service fees and IT controls.
Priorities for financial year 2017/18
During the year, the Committee conducted a review of its effectiveness and it was agreed that the Committee was highly effective
and that the quality of information and auditor review provided was of a high standard. The Committee’s focus will continue to be
to ensure that all relevant accounting practices and disclosures are adhered to and that controls around these obligations are
successfully embedded with a strong culture of disclosure and transparency.
There will be continued focus on internal systems of control and particular focus will be paid to the results of upcoming internal
audits on MiFID II, Corporate Governance Framework, ICAAP, and the dealing desk.
The impact and implementation of any required process changes and controls associated with the introduction of IFRS9 ‘Financial
Instruments: classification and measurement’ and IFRS15 ‘Revenue from contracts with customers’ will be reviewed.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Group Risk Committee
72
Membership and attendance
The Committee is chaired by Malcolm McCaig with James Richards, Simon Waugh and Manjit Wolstenholme as members.
The Committee is considered independent to management and the members are the Group Chairman and the independent
Non-Executive Directors.
The Committee held four scheduled meetings and two ad-hoc meetings during the financial year. The key activities and discussion
points are outlined in the relevant section of this Committee report. The CEO, CFO & Head of Risk and the Global Head of
Compliance attend Committee meetings by invitation.
73
Group Risk Committee attendance
NAME
POSITION
ATTENDED (ELIGIBLE)
Malcolm McCaig (Chair)
Independent Non–Executive Director
James Richards
Simon Waugh
Independent Non–Executive Director
Group Chairman
Manjit Wolstenholme
Senior Independent Director
6 (6)
6 (6)
5* (6)
6 (6)
Dear Shareholders,
*Missed the April 2016 Risk committee due to an engagement which could not be rescheduled.
As Chairman of the Group Risk Committee (the “Committee”), I am pleased to present the Group Risk Committee Report.
Group Risk Committee responsibilities
The Committee assists the Board by providing oversight of the risk appetite and risk management framework of the Group.
The Committee reviews, challenges and recommends, if it sees fit, the Group’s key processes and procedures such as its Internal
Capital Adequacy Assessment Process (“ICAAP”) and Individual Liquidity Adequacy Assessment (“ILAA”) and takes an active role in
advising the Board on the Group’s risk strategy. A key priority for the Committee is to ensure that a robust risk culture continues to
be embedded across the business.
The Committee received two “deep dive” presentations in the year on the Group’s financial and liquidity risk management
procedures including discussions of the ICAAP and ILAA process and on Cyber Risk. Both sessions provided valuable insights into
key areas of risk and the Committee will commission further “deep dives” in 2017/18.
The Committee actively monitors and discusses the latest risk and regulatory developments affecting the Group. The Committee
regularly considers reports from management on the Group’s preparations for the Brexit. In December 2016, the Committee held
an ad-hoc meeting dedicated to discussing the implications of the FCA’s consultation paper on “Enhancing conduct of business rules
for firms providing contracts for difference products to clients” (“FCA CP 16/40”) and the Federal Financial Supervisory Authority in
Germany (“BaFin”)’s consultation on “General Administrative Act pursuant to section 4b (1) of the German Securities Trading Act
(Wertpapierhandelsgesetz – WpHG) regarding contracts for difference”, the outcome of which was reported to the Board.
Further information on the activities of the Committee and its priorities for the year ahead is provided in the following report.
Malcolm McCaig
(cid:49)on(cid:16)Executive Director and (cid:38)(cid:75)airman of t(cid:75)e (cid:42)roup (cid:53)is(cid:78) (cid:38)ommittee
7 June 2017
The main role and responsibilities of the Committee are:
• oversight of the Group’s risk appetite and tolerance;
• review and recommendation of the Risk Appetite Statement and Risk Management Framework;
• provision of advice and recommendations to the Board to assist in Board decision making in relation to risk appetite and
risk management;
• oversight of financial and liquidity risks including the responsibilities of the risk management function;
• review, challenge and recommendation to the Board with regard to Internal Capital Adequacy Assessment Process (“ICAAP”),
Individual Liquidity Adequacy Assessment (“ILAA”) and the Group Contingency Funding Plan;
• oversight and recommendations to the Board on current risk exposures and future risk strategy;
• review the risks associated with proposed strategic transactions;
• review of the effectiveness of the Group’s risk systems;
• approval of the annual Risk Plan;
• approval of the annual Compliance Plan; and
• review risk taking by directors and senior management as it impacts their remuneration incentives.
The Committee’s full Terms of Reference can be found on the Group’s website (http://www.cmcmarkets.com/group/committees).
The Committee has oversight of the Group’s risk management as detailed on page 48. The Group’s top and emerging risks are
actively reviewed and discussed on a monthly basis by the Risk Management Committee (“RMC”), the Group’s risk focused
management committee before being presented to the Committee. At each meeting, the Committee reviews the risk reports,
providing independent oversight and challenge. The Chairman of the RMC is a regular attendee at Committee meetings.
Main activities during the financial year
Agendas for scheduled Committee meetings are based on pre-agreed forward meeting planners to ensure that the Committee
fulfils its responsibilities in line with its Terms of Reference and regulatory obligations.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
At each meeting the Committee:
December 2016
• reviewed the Group’s top risks, emerging risks and key risk indicators (“KRIs”) in relation to the Board approved risk appetite;
• discussed the FCA CP 16/40 and the Federal Financial Supervisory Authority in Germany (“BaFin”) consultation on “General
Administrative Act pursuant to section 4b (1) of the German Securities Trading Act” regarding CFDs.
January 2017
• reviewed and approved the Group’s annual Risk plan.
Priorities for financial year 2017/2018
75
During the year, the Committee conducted a review of its effectiveness and it was agreed that the Committee was highly effective
with the quality of information provided being of a high standard. Areas for improvement included length of meetings and
scheduling of certain agenda items in the year to ensure adequate time for challenge and debate, which has been enacted. This has
been taken into consideration while planning meetings for the coming year and the Committee will continue to improve on its
performance.
Key priorities for the year ahead remain focussed on continued development and embedding of risk culture and framework across
the business. The Committee will continue to take an active role in advising the Board on risk matters, particularly in relation to the
current regulatory environment. The deep dive programme will continue to ensure the Committee has an in-depth understanding
of the key risks affecting the Group.
Statement of risk management and internal controls
The Group has continued to invest in risk management and internal controls following its listing in February 2016 and much
progress has been made in improving and embedding the risk management framework.
Following an annual review undertaken in September 2016, the Committee was satisfied that the Group’s risk management and
internal control systems were effective in 2016 and work continues to improve risk management and internal controls.
• received an update on key issues and discussion points from the RMC;
74
• received and discussed management reports from the Group’s financial risk management, liquidity risk management,
operational risk management, compliance, treating customers fairly (“TCF”), complaints handling, financial crime and legal
teams.
April 2016
• discussed the Group’s preparations for the Brexit vote;
• reviewed the Group’s planning for the annual review of the ICAAP and ILAA documentation;
• reviewed and approved the Group’s annual Compliance Plan and approach to Conduct Risk;
• discussed further embedding risk management in remuneration.
June 2016
• reviewed and discussed the emerging risks for the Group;
• discussed the Group’s preparations for Brexit vote;
• reviewed and recommended the annual review document for ICAAP, ILAA and Contingency Funding Plan for Board approval;
• reviewed and recommended the Group’s Risk Management Framework and Risk Appetite Statement for Board approval;
• reviewed and approved the risk sections of the annual report.
September 2016
• received a “deep dive” presentation on financial and liquidity risk management;
• discussed risks related to subdued client activity;
• received an update on regulatory issues, including updates from the FCA’s appropriateness review;
• reviewed and discussed the Group’s reputational risks;
• received and reviewed a report on the Group’s risk management and internal controls.
November 2016
• Received a “deep dive” presentation on Cyber risk;
• Considered the results of the annual Committee evaluation;
• Considered and recommended amendments to the Committee’s Terms of Reference for Board approval;
• Reviewed risk related reports on potential strategic projects.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Nomination Committee
76
Dear Shareholders,
As Chairman of the Nomination Committee (the “Committee”), I am pleased to present the Nomination Committee Report.
Succession planning and talent development was a particular focus for the Committee this year to ensure a strong talent pool is
identified and developed, ensuring that the business can continue to deliver its strategy as it adapts to the changing regulatory
environment as it becomes clearer. Succession planning will continue to be a key priority in the coming year.
The Committee also oversaw the first Board and Board Committee evaluation process that the Company had undertaken since the
listing in February 2016. The evaluation process is detailed in pages 65 and 78 and the Committee will ensure progress is made on
the actions in the coming year.
There were no changes to Board or Board Committee appointments in the year.
Nomination committee
NAME
Simon Waugh (Chair)
Manjit Wolstenholme
Malcolm McCaig
James Richards
POSITION
Group Chairman
Senior Independent Director
Independent Non-Executive Director
Independent Non-Executive Director
ATTENDED (ELIGIBLE)
3 (3)
3 (3)
3 (3)
3 (3)
77
Nomination committee responsibilities
The Nomination Committee assists the Board by regularly reviewing the composition of the Board and Board Committees and
follows a rigorous and transparent process when identifying potential candidates for appointment to the Board. The Committee
oversees the annual Board and Board Committees performance evaluations and plays an active role in ensuring appropriate
succession plans are in place for Board, senior management and other key roles across the business.
The main role and responsibilities of the Committee are:
• to evaluate and review the structure, size and composition of the Board including the balance of skills, knowledge, experience
and diversity of the Board while factoring in the Company’s strategy, risk appetite and future development;
• to oversee the Board evaluation process and, in analysing the results of the evaluation, identify whether there are any skill gaps
or opportunities to strengthen the Board;
• to identify and nominate suitable candidates for appointment to the Board, including chairmanship of the Board and its
committees, and appointment of the Senior Independent Director, against a specific role description and skill set required for
the respective positions as identified under the regular reviews of the structure and composition of the Board;
• to assess the Board Directors’ conflict of interest;
• to assess the independence, time commitment and engagement of each of the Non-Executive Directors;
Further information on the activities of the Committee and its priorities for the year ahead is provided in the following report.
• to monitor the external interests of Non-Executive Directors, as part of the review of Non-Executive Directors’ independence;
Simon Waugh
Group Chairman and Chairman of the Nomination Committee
7 June 2017
• to have oversight of succession plans for the appointment of Executive Directors and Non-Executive Directors; and
• to approve the report on the Committee’s activities for inclusion in the Annual Report and Financial Statements of the
Company.
The Committee’s full Terms of Reference are available on the Company’s website
(http://www.cmcmarkets.com/group/committees).
Main activities during the financial year
Agendas for scheduled Committee meetings are based on a pre-agreed annual meeting planner to ensure that the Committee
fulfils its responsibilities in line with its Terms of Reference and regulatory obligations.
Membership and attendance
The Committee is chaired by Simon Waugh with Malcolm McCaig, James Richards and Manjit Wolstenholme as members.
The Committee is considered independent to management and the members are the Group Chairman and the independent
Non-Executive Directors.
The Committee held three scheduled meetings during the financial year. The key activities and discussion points are outlined in the
relevant section of this Committee report. The Executive Directors and the Group Head of Reward attend Committee meetings by
invitation.
September 2016
• discussion of employee gender diversity
• succession planning for Executive Directors
• succession planning for senior management
• succession planning for other key talents
Governance report
November 2016
• review and discussion of Board and Board Committee evaluation results and actions
• review of structure, size and composition of Board and Board Committees
78
March 2017
Annual Report 2017
CMC Markets plc
Governance report
Each of the Board Committees were evaluated and it was concluded that both the Group Audit and Risk Committees were highly
effective with excellent Executive support and very robust and high quality information provided in a timely manner for each
Committee, which enabled constructive and open debate. Whilst deemed “fit for purpose”, it was concluded that both the
Nomination and Remuneration Committees could be more effective with a number of areas of improvement identified, including
clarity on the requirements of both Committees in the premium listed environment, the quality and timeliness of information
provided to the Committee and ensuring robust processes which enable all the requirements of the Committees to be fulfilled
through the annual cycle.
79
• review of Non-Executive Director time commitment
Succession planning
• review of Non-Executive Director independence and re-election to the Board
• annual review of Committee Terms of Reference
•
succession and development of Directors and senior management
Following ongoing discussions between the Chairman of the Board (and therefore also the Nomination Committee) and the CEO it
was agreed that the structure of the Senior Executive Team and more specifically the roles of the two Executive Directors should
be reviewed, the objective being to provide better support to the CEO in the day-to-day operational management of the Company,
to provide greater space for the CEO to focus on the core strategic growth initiatives and provide greater support for the APAC
region, which is anticipated to grow significantly in the coming years with the implementation of the important and material partner
agreement with ANZ Bank to manage their Stockbroking operation and the growth potential in Asia and more specifically China.
It was agreed by the Committee, and subsequently approved by the Board, that Grant Foley would in addition to his existing
responsibilities, be appointed to the newly created Chief Operating and Financial Officer role, responsible for all financial, risk,
legal, compliance, operations and IT production functions across the Group.
It was further agreed that David Fineberg would become responsible for the “demand side” of the business in addition to his
current role of Director of Trading. This newly created role of Group Commercial Director incorporates the sales, marketing
and distribution activities across the Group and brings together the key activities and capabilities which drive the revenue side
of the business.
These are significant changes in terms of roles and responsibilities for both of the Executive Directors, which the Board fully
endorses and believes will give greater support to the CEO and strengthen the management process across the Company.
Board and Board Committee evaluation
The Committee oversaw a formal Board and Board Committee evaluation and discussed the results and the action plan for
the coming year with the full Board present. It was agreed that good progress continued to be made on the foundations laid
in preparation for the Group’s listing in February 2016 and that the Board as a whole operated effectively with open debate
and constructive challenge. Areas for improvement for the Board included the need to further evolve and mature, particularly
in the context of being a company with a premium listing on the London Stock Exchange; in particular, further embedding the
processes required of a listed company, Board ownership and involvement in setting strategy (following the development of the
five-year strategic plan prior to listing), and building the interaction and relationships of Board members following the creation
of a relatively newly-formed Board prior to the Group’s listing.
The Committee takes an active role in the succession planning of Board members. During the year, succession plans for the
Executive Directors and senior management were reviewed. The Committee received and considered internal reports prepared by
the Group Head of Reward and the CEO alongside external analysis conducted by Kiddy & Partners LLP. The Committee also
extended succession planning to potential candidates to senior management and other key roles to ensure that the talent pipeline
was adequately maintained.
The Committee regularly considers diversity, including those of gender, in its succession planning and works closely with the
Remuneration Committee with regard to issues such as gender pay gap. It has been acknowledged that the number of women
in senior roles is an area the Company can improve upon.
Diversity statement
The Board is committed to a Board and senior management team comprising individuals from different backgrounds with diverse
and relevant skills, knowledge, experience and perspectives. The Committee carefully considers the benefits of diversity, including
gender diversity, whilst ensuring that our obligation to shareholders to recruit the best individual for the role based on merit is
fulfilled. The Board’s Diversity Policy can be found on the CMC Markets plc Group website and gender diversity statistics are
presented on page 30.
Priorities for the financial year 2017/18
The Committee will continue to focus on key themes such as diversity and succession planning and is committed to ensuring
that further improvements to Board and Board Committee effectiveness are made following the evaluation carried out
this year. An externally facilitated board evaluation will be conducted in the coming year in accordance with provision B 6.1
of the UK Corporate Governance Code (the “Code”). In addition, the Board will compete a thorough search for a successor
to Manjit Wolstenhome.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Remuneration Committee
80
Dear Shareholders,
As Chairman of the Remuneration Committee (the “Committee”) I am pleased to present the Remuneration Committee Report. The
Committee is the independent Board Committee that (i) assesses and sets Executive Director remuneration, incentives and
retention arrangements, (ii) reviews and, if appropriate, endorses senior management remuneration; and (iii) reviews other Group
remuneration matters as required. This report summarises the activities, key responsibilities and future focus of the Committee.
James Richards
(cid:49)on(cid:16)Executive Director and (cid:38)(cid:75)airman of
Remuneration Committee
7 June 2017
Membership and attendance
The Committee is chaired by James Richards with Malcolm McCaig, Simon Waugh and Manjit Wolstenholme as members.
The Committee is considered independent to management and the members are the Group Chairman and the independent
Non-Executive Directors.
The Committee held six meetings during the financial year. The key activities and discussion points are outlined in the relevant
section of this Committee report. The CFO & Head of Risk, Group Head of Reward and remuneration consultants attended
Committee meetings by invitation.
Remuneration committee responsibilities
The Committee reviews and sets the remuneration of the Executive Directors within the parameters of the Remuneration
Policy as approved by shareholders at the 2016 Annual General Meeting. The Committee is presented with and asked to endorse
the remuneration of executives and senior management, ensuring it is consistent with the Remuneration Policy. As part of the
remuneration review process, independent advisors were used to ensure remuneration was appropriately benchmarked with
the Group’s peer companies.
81
The main role and responsibilities of the Remuneration Committee are:
• to review and agree an appropriate Remuneration Policy which complies with all relevant regulations;
• to review and set the remuneration of the Executive Directors and endorse the remuneration of senior management;
• to review and ensure that bonus payments to Executive Directors are linked to the achievement of agreed objectives;
• to ensure that remuneration incentivises and retains key employees including the Executive Directors and senior management;
• to ensure that executive remuneration is linked to the delivery of the long-term success of the Company;
• to review any major changes to employee benefit structures, including new share schemes, and ensure that shareholders are
consulted and the required approval processes followed;
• to review the appropriateness of remuneration against the risk management strategy following advice from the Group
Risk Committee; and
• to ensure all relevant regulations relating to Executive Director remuneration are adhered to.
Main activities during the financial year
Agendas for scheduled Committee meetings are based on a pre-agreed annual meeting planners to ensure that the Committee
fulfils its responsibilities in line with its Terms of Reference and regulatory obligations.
April 2016
• reviewed the draft Committee Report to be included in the Annual Report and Financial Statements to 31 March 2016;
• considered an independent review on the remuneration of the Executive Directors;
• reviewed the draft Remuneration Policy;
• approved the policy for authorising Directors’ expense claims;
• received an update on changes to the Group employee benefit structure;
• discussed engagement with principal shareholders on remuneration matters.
June 2016
Remuneration Committee
• reviewed and recommended the Remuneration Report and Remuneration Policy included in the Annual Report and Financial
NAME
POSITION
ATTENDED (ELIGIBLE)
James Richards (Chair)
Independent Non–Executive Director
Malcolm McCaig
Simon Waugh
Independent Non–Executive Director
Group Chairman
Manjit Wolstenholme
Senior Independent Director
6 (6)
6 (6)
6 (6)
6 (6)
Statements to 31 March 2016;
• reviewed year-end 31 March 2016 bonus payments and long-term incentive plan (“LTIP”) targets;
• approval of annual incentive awards under the Committee’s remit;
• considered and approved the FCA required Remuneration Policy Statement.
Governance report
July 2016
• reviewed and approved the objectives of the Executive Directors;
• discussed the principles behind the personal objectives of the senior management.
82
October 2016
• reviewed the performance of the Group’s remuneration consultants;
• reviewed a report on Group gender pay data;
• received an update on feedback from investors and investor advisory groups;
Annual Report 2017
CMC Markets plc
Governance report
Directors’ remuneration report
Compliance statement
This Remuneration Report has been prepared on behalf of the Board by the Remuneration Committee (the ‘Committee’) in
accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
The Committee adopts the principles of good governance as set out in the UK Corporate Governance Code and complies
with the UKLA Listing Code.
83
The following parts of the Annual Report on Remuneration are audited: the single total figure of remuneration for Directors,
including annual incentive outcomes for the financial year ending 31 March 2017, scheme interests awarded during the year,
and total pension entitlements; payments to past Directors and payments for loss of office; and, Directors’ shareholdings and
share interests.
• as part of the Board Committee evaluation process, the Committee completed an annual evaluation of its performance
and the results of this evaluation were considered at the November Nomination Committee meeting and December
Board meeting.
January 2017
• discussed regulatory developments and their effects on retention, incentives and shareholder value;
• received an update on Executive Director objectives and mid-year performance reviews;
• following a Group employee engagement survey, reviewed a report on the engagement of women employees;
• the Committee discussed its terms of reference, specifically the clarity in which its role and responsibilities were stated
and to ensure that the terms of reference were appropriate to meet its regulatory and statutory obligations.
March 2017
• received an update on considerations of Executive Director and Senior Management’s remuneration in light of regulatory
developments;
• received a report on the Company’s remuneration strategy and Group employee retention.
Remuneration consultant
The Committee reviewed the performance of the remuneration consultant during the period and appointed Willis Towers Watson
& Co as the Group’s new remuneration consultant. It was confirmed that none of the Committee members had any conflicts of
interest in regard to this appointment.
Remuneration policy
The Directors’ remuneration policy was approved by shareholders at the 2016 AGM and is next due to be reviewed and presented
to shareholders at the 2019 AGM. For further details on the Remuneration policy please refer to pages 96 to 106.
Priorities for the financial year 2017/18
The Remuneration Committee will continue to monitor the appropriateness of the Executive Director and senior management
remuneration. Shareholder feedback on the Directors’ Remuneration report will be considered as part of the ongoing role of the
Committee along with performance related pay and relevant remuneration policies that fall under the remit of the Committee.
It is also planned for an employee salary benchmarking exercise to be conducted in 2018 and the results of this exercise will be
presented to the Committee.
CMC Markets are proud to support the NSW Waratahs – one of Australia’s most iconic rugby teams.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Annual statement by the Chairman of the
Remuneration Committee
84
Dear Shareholders,
On behalf of the Board, I am pleased to present shareholders with our remuneration report
which, in accordance with legislation comprises two separate parts: the Annual Report on
Remuneration setting out the implementation of remuneration policy and the Directors’
Remuneration Policy.
The Annual Report on Remuneration sets out payments made to Directors during the last year
and how the Committee intends the Directors’ Remuneration Policy to apply in the year ending
31 March 2018. This report is subject to an advisory vote at the Company’s 2017 AGM on 27
July 2017.
The Directors’ Remuneration Policy describes our forward-looking policy and remains the
same as that which was approved by a binding vote at the Company 7 September 2016 Annual
General Meeting.
As I said in my Annual Statement last year, remuneration practice is very different in the listed
company’s environment. As part of the transition from being privately owned to a listed company,
the Group has adapted its remuneration arrangements to a more structured framework and
longer-term reward horizon for our Directors and employees. At the same time, so as to retain
them, our remuneration policy needs to continue to retain and motivate the key personnel who
are critical in helping drive and grow the business, and align their interests with the longer-term
interests of all our shareholders.
Group performance in the year ended 31 March 2017
The financial and operating performance for the year ended 31 March 2017 is set out in the
Strategic Report. During the year, strong progress has been made on growth initiatives, focusing
on client service, innovation and technology. We have also signed the largest partnership deal
in the Group’s history, namely the ANZ Bank stockbroking deal in Australia. However, the full
financial benefit of these achievements will lie in future accounting periods and, largely due
to reduced client activity, the Group has had a lower financial performance than last year.
The financial and operating performance for the year ended 31 March 2017 is set out on pages
38 to 47 in the Strategic Report. Decisions on remuneration outcomes have been made in this
performance context.
The regulatory context in the year ended (cid:22)(cid:20) March (cid:21)(cid:19)(cid:20)(cid:26)
The lower than expected financial performance has been compounded by the consequences on
the Group’s share price of the regulatory backdrop which the CEO refers to in his report. It is
against this uncertainty and the consequential short to medium-term challenges this presents,
that we have to strike the right balance between retaining key personnel and continuing to align
them with the longer-term interests of shareholders.
Implementation of Remuneration Policy for 2016/17
Details of the remuneration policy and the amount paid during the year ended 31 March 2017
are respectively given in the Directors’ Remuneration Policy and the Annual Report on
Remuneration.
Annual incentive awards for the year were predominantly based on pre-incentive underlying
Group profit before tax as well as the Committee’s assessment of individual performance (based
on the achievement of non-financial/strategic objectives), behaviour and compliance with the
85
Company’s risk appetite. The targets and the level of achievement against them are described
on page 87. The profit target was not achieved. However, the Group has made significant
progress in its first year as a listed company, with a number of significant milestones being
delivered to which the CFO & Head of Risk (CFO) and Director of Trading have made major
contributions (further details of these and the two individuals’ specific contributions are
described on page 88). After careful consideration, the Committee has therefore decided that,
based on these exceptional individual strategic achievements, bonuses of 10% of salary should
be paid to the CFO and Director of Trading respectively. No bonus will be paid to the CEO in
respect of the year ended 31 March 2017.
Implementation of Remuneration Policy for 2017/18
Changes in role and base salary adjustments of the two Executive Directors
The CEO, in conjunction with the Nomination Committee, has taken the opportunity to
review the executive management structure of the business and, in particular, the roles and
responsibilities of both the CFO and Director of Trading to ensure greater cohesion, synergies
and productivity between the global teams. These individuals will be taking on significant
additional responsibilities, which are described on page 92. To reflect the new roles, job titles
will be changed to Chief Operating and Financial Officer and Group Commercial Director,
respectively. One-off base salary adjustments have also been made as described later in
this report.
LTIP Awards in 2017/18
The CMC Markets Management Equity Plan 2015 provides for the award of shares and/or
options of up to 125% of salary in normal circumstances and 200% in exceptional circumstances.
Given the limited retentive value of the current in-flight awards to the two Executive Directors
and to assist with aligning their longer terms interests with those of shareholders, the
Remuneration Committee has determined that it would be appropriate to make an exceptional
one off award of 200% salary to both the CFO and Director of Trading in 2017.
For 2017, the Committee will use the same three metrics as for awards in 2016: earnings per
share (EPS) growth will account for 60%, relative total shareholder return (TSR) 30% and Net
Promoter Score (NPS) 10% of the award.
In relation to the EPS target, the Committee will ensure once the final FCA proposals are known
that a sufficiently stretching range has been set by taking account of a number of internal and
external reference points. The target range will be disclosed in next year’s annual report.
I hope you find the reports helpful in understanding the challenges facing the Group in
endeavouring to strike the right balance with remuneration in an uncertain regulatory
environment and one of likely changing remuneration practices.
James Richards
Remuneration Committee Chairman
7 June 2017
Governance report
Annual Report 2017
CMC Markets plc
Governance report
86
The following section sets out the remuneration arrangements and outcomes for the year ended 31 March 2017, and how the
Committee intends the Remuneration Policy to apply during the year ending 31 March 2018.
Single figure of Executive Director remuneration
The table below sets out the single figure of the total remuneration received by each Executive Director who served during the
year ended 31 March 2017 and 31 March 2016.
87
£‘000
Name
Peter Cruddas
Grant Foley
David Fineberg
Year ended
Annual
Long term
Share
31 March
Salary
(cid:37)enefits1
Incentive2
Incentives3
Incentive plan4
Pension5
2017
2016
2017
2016
2017
2016
410.0
337.5
276.8
228.3
246.0
206.7
2.8
2.4
1.3
1.1
1.4
1.1
–
400.0
27.7
270.0
24.6
240.0
–
–
–
906.9
–
1,282.7
–
–
2.1
3.6
2.2
3.6
–
–
27.7
22.8
24.6
20.7
Total
412.8
739.9
335.6
1,432.7
298.8
1,754.8
1 Benefits: taxable value of benefits received in the year by Executive Directors comprise private health insurance and, in addition for the CEO, dental insurance.
2 Annual incentives: for the year ending 31 March 2017: exceptional incentive award: the total earned in respect of performance during the relevant financial year.
3 Long term incentives: for the year ended 31 March 2016, based on the market value of the Pre-IPO Retention Award calculated with reference to the share price
at Listing of £2.40 and has been restated to now include the final dividend on unvested awards calculated by reference to the share price at listing. 50% of this
Award vested in February 2017; the remainder will vest in February 2018 subject to continued employment and malus and clawback provisions. The first LTIP
awards made in November 2016 will not vest until 2019 so there is no LTI figure to show for the year ending 31 March 2017.
4 Share Incentive Plan: employees, including the Executive Directors, are entitled to participate in the SIP throughout the year; it allows employees and Directors
to receive one matching share for every partnership share purchased under the SIP up to the limits defined by HMRC. In 2016/17, 1,748 matching shares were
allocated to Grant Foley and 1,813 matching shares to David Fineberg, and calculated by reference to the share price on 31 March 2017. In 2015/16,
a one-off award of free shares was granted to employees (including Grant Foley and David Fineberg) with a market value of £3,600. The free and matching
shares will be forfeited if within three years from the date of grant, the individual leaves employment in certain circumstances. Peter Cruddas does not currently
participate in the plan.
5 Pension: during the year ended 31 March 2017, Grant Foley and David Fineberg received a Company pension contribution of 10% of salary. Peter Cruddas opted out
of the plan and no compensation was provided. None of the Executive Directors have a prospective right to a final salary pension by reference to years of service.
Annual incentive plan for the year ended 31 March 2017
During the year ended 31 March 2017, Executive Directors participated in the annual incentive plan with a maximum opportunity
of up to 120% of salary for the CEO and up to 100% of salary for the CFO and the Director of Trading.
Annual incentive awards were predominantly based on pre-incentive underlying Group profit before tax, subject to the
Committee’s assessment that the outcome is achieved within the risk appetite of the Company. Final determination of actual
awards was also subject to the Committee’s assessment of individual performance (based on the achievement of non-financial/
strategic objectives), and behaviour and compliance with the Company’s risk appetite.
For the year ended 31 March 2017, threshold performance for pre-incentive underlying Group profit before tax was £70.4 million,
target performance was £75.7 million and the stretch requirement was £81.8 million. Actual performance was £52.4 million.
Whilst 2016/17 has been a challenging year in pure financial performance terms, in many other respects the Group has made
significant progress in its first year as a listed company, with a number of significant milestones being delivered.
During the year, the Group has:
• Signed the largest partnership deal in CMC’s history, allowing CMC after a transition time to service over 250,000 ANZ Bank
retail stockbroking clients under the ANZSI brand, making CMC the second largest stockbroker in Australia;
• Successfully introduced a number of new products;
• Introduced new API connectivity to facilitate the development of the CFD institutional model.
The CFO and Director of Trading have made major contributions to the above strategic achievements and the Committee has
judged that these achievements, in addition to performance against stretching individual non-financial objectives set at the start
of the financial year described below, represent exceptional individual performance.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
The individual strategic objectives set at the start of the year for Grant Foley included ensuring a successful transition to
listed company status, including constructive shareholder engagement, management of Group costs, ensuring effective risk
and compliance functions, ongoing refinement of the Group’s strategy, and fostering a client-focused culture throughout
the organisation.
88
Objectives for David Fineberg included implementing Knock-outs into the risk framework, trading revenue against budget,
effective operational management of direct reporting functions, ongoing refinement of the Group’s strategy, and fostering
a client-focused culture throughout the organisation.
The approved Remuneration Policy provides the Committee with the discretion that in the event of there being no annual incentive
payment as a result of the company’s financial performance not attaining the primary profit metric, a payment of up to 20% of base
salary can be made if there has been exceptional individual performance.
EPS growth
(60% weighting)
(30% weighting)
TSR relative to FTSE 250
constituents
Net Promoter Score (10%
weighting)
Above industry
average
89
Upper quartile
of industry
Threshold performance
(25% vesting)
Stretch performance
(full vesting)
6% p.a.
Median
18% p.a.
Upper quartile
There will be straight-line vesting between these performance points.
Awards are subject to malus and clawback provisions for a seven year period from award date.
In judging that the personal strategic performance for these two individuals was exceptional, the Committee also considered
the following:
External appointments
• In the case of Grant Foley: major contributions to 1) the delivery of the ANZ Bank stockbroking deal; and 2) the preparation
and response of the business following the FCA and other regulatory announcements
• In the case of David Fineberg: major contributions to 1) the continued expansion of the APAC hub with China joining the
framework; and, 2) adapting the risk engine to cater for new products
It is the Board’s policy to allow Executive Directors to take up external Non-Executive positions, subject to the prior approval of the
Board. Any fee earned in relation to outside appointments is retained by the Executive Director. No Executive Director held any
external appointments during the year ended 31 March 2017, with the exception of Peter Cruddas who held one Non–Executive
position during the year. He received no fee in respect of this appointment.
Single figure of Non-Executive Director remuneration
As a result, the Remuneration Committee has approved individual bonus payments of 10% of the annual salary to the CFO and
Director of Trading respectively.
The table below sets out the single figure of the total remuneration received by each Non-Executive Director who served during
the year ended 31 March 2017 and 31 March 2016.
No bonus will be paid to the CEO in respect of the year ended 31 March 2017.
Long term incentive plan (LTIP)
Initial LTIP awards to the CFO and Director of Trading were made in November 2016 and amounted to a face value of 125%
of salary.
Date of
Number of
% of
Performance
Performance
% vesting at
Director name
Award
Shares
Face Value*
salary
conditions
60% based
Period
Three
threshold
Grant Foley
24/11/2016
148,752
£287,091
125%
on EPS; 30%
consecutive
based on TSR;
financial years
25%
10% based on
ending 13 Sept
David Fineberg
24/11/2016
132,224
£255,192
125%
NPS score
2019
* Face value calculation is based on the share price of £1.925 on 23 November 2016. Actual value at vesting may be greater or lesser depending on actual share
price at vesting and as a result of any dividend equivalent payable on vested shares.
The number of shares contributed to the plan account was based on a three day average share price post AGM. Awards were
granted in the form of nil cost options and are subject to continued employment and satisfaction of the performance targets
described below.
Performance will be measured over three years based 60% on point-to-point EPS growth, 30% on TSR relative to FTSE 250
constituent companies (excluding investment trusts) and 10% on customer satisfaction, based on Net Promoter Score as assessed
by Investment Trends. Net Promoter Score is a measure of how likely clients are to recommend the Company to others. The table
below sets out the performance conditions applicable to these awards:
Remuneration comprises an annual fee for acting as a Chairman or Non-Executive Director of the Company. Additional fees are
paid to Non-Executive Directors in respect of service as Chairman of the Audit, Risk or Remuneration Committees.
£‘000
Name
Simon Waugh
James Richards
Malcolm McCaig
Manjit Wolstenholme
Year ended
31 March
2017
2016
2017
2016
2017
2016
2017
2016
Base fee
Committee fee
SID fee
(cid:37)enefits
160.0
130.4
60.0
52.5
60.0
19.6
60.0
19.6
–
–
10.0
2.5
10.0
2.5
10.0
2.5
–
–
–
–
–
–
5.0
0.8
2.9
2.1
–
–
–
–
3.4
0.8
Total
162.9
132.5
70.0
55.0
70.0
22.1
78.4
23.7
* Non-Executive Directors are not entitled to benefits. Reimbursed expenses which are subject to tax via PAYE are included in the table above in the Benefits column.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Share ownership and share interests
The Committee has adopted guidelines for Executive Directors and other senior executives to encourage substantial long-term
share ownership. Executive Directors are expected to build and hold shares of at least 200% of salary and to retain at least 50%
of shares vesting (net of tax) until the guideline is achieved.
90
The table below shows the interests of the Directors and connected persons in shares and the extent to which CMC Markets'
shareholding guidelines are achieved.
Name
Executive (cid:39)irectors
Peter Cruddas
(incl. shares held by spouse)
Grant Foley1
David Fineberg1
(incl. shares held by spouse)
Non(cid:229)Executive (cid:39)irectors
Simon Waugh
James Richards
Malcolm McCaig
Manjit Wolstenholme
Total share
interests at
Total share
Unvested
awards not
subject to
Unvested
awards
subject to
interests at
Requirement
performance
performance
31 March 2016
31 March 2017
met
conditions1
conditions2
179,929,906
179,929,906
–
104,474
21,688
168,794
Yes
No
No
–
–
196,885
148,752
277,259
132,224
25,000
–
12,500
12,500
25,000
Not applicable
–
Not applicable
13,139
Not applicable
12,500
Not applicable
–
–
–
–
–
–
–
–
1 Grant Foley and David Fineberg have interests in unvested awards, subject to deferral, granted under the Pre-IPO Retention Plan, of respectively 193,824 and
274,139 conditional rights to shares on vesting and of 3,061 and 3,120 shares under the Share Incentive Plan subject to forfeiture for three years.
2 Awards under the LTIP as described on page 88.
Total shareholder return (TSR) performance and CEO single figure
The below chart compares the total shareholder return (TSR) of the Company against the FTSE 250 Index based on £100 invested
at listing (5 February 2016). The FTSE 250 index was originally selected as a relevant comparator as it included companies of a
similar size and complexity to CMC Markets and the Company was a constituent of the Index. Although CMC Markets is no longer
a constituent of this index, it has been retained for comparison purposes for consistency with last year’s report.
CMC Markets
FTSE250
160
120
80
40
0
5-Feb-16
31-Mar-16
31-Mar-17
Source: DataStream
Name
Year ended 31 March 20161
Year ended 31 March 2017
CEO single figure of remuneration (£’000)
Annual incentive payout (as % of maximum)
Long term incentives (as % of maximum)
739.9
100%
Not applicable
410.0
0%
Not applicable
91
1 CMC Markets listed on the London Stock Exchange on 5 February 2016, however the full year single figure has been included here for the year ended 31 March 2016
Percentage change in CEO remuneration
The table below shows the percentage change in salary, taxable benefits and annual incentive for the CEO, and the average for all
employees within the Company.
CEO annual
Year ended 31 March 2017
Year ended 31 March 2016
Salary
Taxable benefits
Annual incentive
£‘000
410.0
2.8
–
£‘000
400.0
2.4
400.0
* The premium for the health care benefit increased by 30%.
Increase/
(decrease)
2.5%
13.0%
(100.0)%
Average increase/
(decrease) across all
employees
3.2%
30.0%*
(57.9)%
Relative importance of spend on pay
The chart below illustrates the Group’s actual expenditure on shareholder distributions (including dividends and share buybacks)
and total employee pay expenditure for the financial years ended 31 March 2016 and 31 March 2017.
£m
60
50
40
30
20
10
0
+7%
46.1
48.4
-15%
30.4
25.7
2016
2017
Employee remuneration
Distributions to shareholders
Dilution
The Company’s share schemes are funded through a combination of shares purchased in the market and new-issue shares, as
appropriate. The Company monitors the number of shares issued under these schemes, compared to the relevant dilution limits set
by the Investment Association in respect of all share plans (10% in any rolling 10-year period) and executive share plans (5% in any
rolling 10-year period). No shares have been issued since Listing except for awards under the HMRC approved Share Incentive Plan.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Payments to past directors and for loss of office
There were no payments to past directors or for loss of office during the year.
Implementation of remuneration policy for year ending 31 March 2018
92
Salary
In light of the regulatory consultations, lower levels of market volatility and the large white label partners deal in Australia with ANZ
Bank, the CEO, in conjunction with the Board, has taken the opportunity to review the executive management structure of the
business and, in particular, the roles and responsibilities of both the CFO and Director of Trading to ensure greater cohesion,
synergies and productivity between the global teams.
The result of this review is that, with effect from 1 June 2017, in addition to current responsibilities, the CFO, will assume the role of
Chief Operating and Financial Officer, leading all the corporate functions at Group level including Finance, Operations, IT
Production, Legal, Compliance, Facilities and HR – as well as leading and managing key projects.
In a similar vein, the Director of Trading, with effect from 1 June 2017, will assume the role of Group Commercial Director with
responsibility for sales and revenue functions globally beyond Trading, including Marketing and Business Intelligence, Distribution as
well as the Stockbroking business. This role will have full accountability over all revenue generation at Group level, and will allow the
drive for automation, customer acquisition, retention, reactivation, service and profitability to be under one leader.
As a result of these changes in responsibilities, the Remuneration Committee has reviewed the base salaries of the two incumbents
and has implemented the following adjustments with effect from 1 June 2017:
93
Name
Grant Foley
Chief Operating and
Financial Officer
David Fineberg
Group Commercial Director
New Role
Previous salary
Adjusted salary
Percentage change
£276,000
£246,000
£310,000
£295,000
12.3%
19.9%
The Committee intends that these increases will be a one-off adjustment to reflect the changes in responsibilities of these
individuals and that any future increases will generally be in line with those awarded to the wider employee population.
The salary of the CEO will increase by 3% in line with the annual salary increase budget with effect from 1 June 2017.
Name
Peter Cruddas
Role
CEO
Previous salary
Adjusted salary
Percentage change
£410,000
£422,300
3.0%
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary, or cash in lieu of pension (net of employer
costs), with the exception of the CEO who does not currently participate in the scheme.
Annual incentive
The annual incentive for the year ending 31 March 2018 will operate in line with the Remuneration Policy. The Company operates
an incentive pool approach. The incentive pool is based on Group profit and is subject to the Committee’s assessment that the
profit outcome has been achieved within the agreed risk appetite of the Company. Allocations are based on an assessment of
individual performance, with due regard to the achievement of non-financial objectives, the individual’s contribution and behaviour,
and compliance with the Company’s risk appetite. Annual incentives for the year ending 31 March 2018 will be up to 120% of
salary for the CEO and up to 100% of salary for other Executive Directors.
Shareholders will recognise that the Company operates in a very competitive market and the Board considers specific incentive
performance objectives and targets to be commercially sensitive on a forward-looking basis. In next year’s Directors’ Remuneration
Report, we will provide a full retrospective rationale of why bonuses were paid to ensure that shareholders can clearly identify the
close link between pay and performance.
Long term incentive plan (LTIP)
The CMC Markets Management Equity Plan 2009 provides for the award of shares and/or options of up to 125% of salary in
normal circumstances and 200% in exceptional circumstances.
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Annual Report 2017
CMC Markets plc
Governance report
Given the limited retentive value of the current in-flight awards to the two Executive Directors and to assist with aligning their
longer terms interests with those of shareholders, the Remuneration Committee has determined that it would be appropriate to
make an exceptional one-off award of up to 200% salary to both the Chief Operating and Financial Officer and Group Commercial
Director during the year ended 31 March 2018.
94
For 2017, the Committee will use the same three metrics as for awards in 2016: absolute EPS growth will account for 60%, relative
TSR 30% and NPS 10% of the award.
In relation to the absolute EPS target, Threshold and Stretch performance levels had not been determined at the date of this
report. The Committee will calibrate the range to be appropriately stretching based on available information at the date of grant,
taking account of a number of internal and external reference points. However, as highlighted earlier in this report, the outcome
of the FCA review and its impact of our future performance expectations will not be known until later this year. The Committee
therefore intends to review the target calibration once the impact of the FCA review is known and, if required, will adjust the range
so that the condition will reflect on a commensurate basis a position which is neither materially more nor materially
less challenging than the original performance targets when set. The original and adjusted target ranges will be disclosed in next
year’s annual report.
The table below sets out the performance conditions applicable to these awards:
Threshold performance
(25% vesting)
Stretch performance
(full vesting)
EPS growth
(60% weighting)
TSR relative to FTSE 250
constituents less
investment trusts
(30% weighting)
% growth pa*
Median
% growth pa*
Upper quartile
Net Promoter Score
(10% weighting)
Above industry
average
Upper quartile
of industry
*Threshold and Stretch EPS levels to be determined.
There will be straight-line vesting between these performance points.
Awards will be subject to malus and clawback provisions for a seven year period from award date.
Non(cid:16)Executive (cid:39)irector remuneration
Remuneration for the year ending 31 March 2018 is unchanged and is as follows:
Role
Chairman fee
Non–Executive Director fee
Committee Chairman additional fee
Senior Independent Director additional fee
£000
160.0
60.0
10.0
5.0
The Remuneration Committee
The Committee met six times during the year under review. Attendance by individual Committee members at meetings is detailed
below.
Name
James Richards
Simon Waugh
Manjit Wolstenholme
Malcolm McCaig
Member throughout 2016/17
Attended (Eligible)
Yes
Yes
Yes
Yes
95
6(6)
6(6)
6(6)
6(6)
During the year, the Committee sought internal support from the CEO and the CFO & Head of Risk, who attended Committee
meetings by invitation from the Chairman. Advice was sought on specific questions raised by the Committee and on matters
relating to the performance and remuneration of senior managers. No Director was present for any discussions that related
directly to their own remuneration. The Company Secretary, Jonathan Bradshaw or his deputy attends each meeting as Secretary
to the Committee.
Advisers to the Remuneration Committee
In undertaking its responsibilities, the Committee seeks independent external advice as necessary. Following a competitive tender
process during 2015, the Committee appointed Mercer LLC (‘Mercer’) as the advisors to the Committee. Following a further
review in January 2017, Willis Towers Watson were appointed as advisors to the Committee. Both Mercer and Willis Towers
Watson are voluntary signatories to the Code of Conduct for Remuneration Consultants, which assures clients of independence
and objectivity. Details of the Code can be found at www.remunerationconsultantsgroup.com. During the year, Mercer provided
independent advice on various matters including the Directors’ Remuneration Report, the 2016 LTIP award and the 2016 AGM.
Willis Towers Watson provided independent advice on a range of remuneration matters including current market practice,
benchmarking of executive pay and incentive design. They provide no other services to the Company. The fees paid to Mercer in
respect of work carried out for the Committee for the year under review totalled £45,660. The fees paid to Willis Towers Watson
in respect of work carried out for the Committee for the year under review totalled £12,519. The Committee is comfortable that
the advice it has received has been objective and independent.
Voting outcome at AGM
The Company listed on the London Stock Exchange in February 2016. The first AGM since listing was held on 7 September 2016.
Our Remuneration Policy and Remuneration Report both received strong support from shareholders. The result of the vote on
these resolutions is set out below.
Remuneration Policy
Remuneration Report
% of votes
% of votes
(excluding withheld)
Number of votes
(excluding withheld)
Number of votes
92.78%
7.22%
231,912,237
18,038,191
249,950,428
424,564
99.99%
0.01%
249,500,137
36,526
249,536,663
For
Against
Total votes cast
Withheld1
¹ A vote withheld is not a vote in law and so is not counted for the purposes of the calculation of the proportion of votes 'for' and 'against' a resolution
Annual Report 2017
CMC Markets plc
Governance report
Governance report
Policy report
96
This section of the report sets out our Remuneration Policy for Executive and Non-Executive Directors, approved by shareholders
at our September 2016 AGM and applying from that date. Note that there have been no changes of substance to the Policy that
was approved last year. However, we have made minor adjustments to the text below for reading clarity (e.g. to remove references
to implementation in specific financial years). A copy of the originally approved text is available in the 2016 annual report on our
website (www.cmcmarkets.com).
Our Remuneration Policy is designed to ensure remuneration supports achievement of the Group’s goals, and provides effective
incentives for exceptional Company and individual performance. The Committee regularly reviews the remuneration structure
in place to ensure it remains aligned with our business strategy, reinforces our success, and aligns reward with the creation of
shareholder value ensuring that there is an appropriate balance between fixed and performance-related pay. A high proportion of
executive remuneration is linked to performance targets including the Group’s performance and the executives’ personal
contribution. A considerable part of the reward package is linked to share price performance and is to be delivered in shares that
have to be partially retained until minimum shareholding requirements have been met in accordance with shareholding guidelines.
The Remuneration Policy also complies with relevant financial services regulation, with all incentives subject to remaining within
the risk appetite of the Company.
Group’s remuneration policy for Executive Directors
The below Policy Table summarises the key components of remuneration for the Executive Directors:
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
97
Base salary
To reflect the market value of
the role and individual’s
experience, responsibility and
contribution
The policy is for base salary to be
competitive. In making this
assessment the Committee looks
particularly at sector peers and
other FTSE 250 (excluding
Investment Trusts) companies.
Salaries are reviewed on an annual
basis, with any increase normally
taking effect from 1 April.
The Committee reviews base
salaries with reference to:
-
the individual’s role,
responsibilities, and
experience;
- business performance and the
external economic
environment;
-
-
salary levels for similar roles at
relevant comparators;
salary increases across the
Group payable in cash
Pension
To provide competitive
retirement benefits
Executive Directors participate in a
defined contribution pension
scheme or may receive a cash
allowance in lieu.
Share Incentive Plan (‘SIP’)
To encourage broad employee
share ownership
In line with HMRC rules. Executive
Directors are entitled to
participate in the SIP on the same
terms as other employees.
(cid:37)enefits
To provide market
competitive benefits.
Benefits include life insurance,
permanent health insurance,
private medical insurance, dental
insurance, health screening /
assessment , critical Illness,
interest free season ticket loans,
gym membership, eye tests, cycle
to work, childcare vouchers, dining
card, travel insurance, club
membership, and car allowance.
Where appropriate, other benefits
may be offered including, but not
limited to, allowances for
relocation and other expatriate
benefits to perform his or her role.
Base salary will not
exceed the highest in
the comparator group.
Business performance is
considered in any
adjustment to base salary.
Base salary increases
are applied in line with the
outcome of the review.
It is anticipated that salary
increases will generally be
in line with those awarded
to the wider employee
population.
Increases may be above
this level if there is an
increase in scale, scope,
market comparability
or responsibilities of
the role.
Where increases are
awarded in excess of the
wider employee
population, the
Committee will provide
an explanation in the
relevant year’s
Remuneration Report.
Up to 15% of salary.
Not applicable.
In line with HMRC
permitted limits.
Not applicable.
Not applicable
Benefits may vary by role
and individual
circumstances and are
reviewed periodically
to ensure they remain
competitive.
The maximum value of
the benefits is unlikely
to exceed 10% of salary.
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Annual Report 2017
CMC Markets plc
Governance report
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
98
Annual Incentive
To reinforce and reward
delivery of annual strategic
business priorities.
Performance is measured on an
annual basis for each financial year.
Awards may be up to
120% of salary.
Payout for threshold
performance is up to
25% of maximum;
payment for
performance ‘in line with
expectations’ is up to
70% of maximum.
In the event that there is
no annual incentive as a
result of Group financial
performance, the
Committee has
discretion to award a
bonus of up to 20% of
salary for exceptional
individual performance.
Performance conditions and
targets are reviewed prior to the
start of the year to ensure they are
appropriate, stretching and
reinforce the business strategy.
At the end of the year the
Committee determines the extent
to which these were achieved.
Incentive awards are discretionary.
Awards are paid in cash. The
Committee may defer up to 50% of
any incentive in shares for up to
three years, or longer if regulations
require.
Dividend equivalents may accrue
on deferred share awards and be
paid on those shares which vest.
Awards under the annual incentive
are non-pensionable. Unpaid/
unvested awards are subject to
malus and paid/vested awards are
subject to clawback for a three year
period from award in the event of a
material financial misstatement,
gross misconduct, calculation error,
failure of risk management, or in
any other circumstance the
Committee considers appropriate.
Performance is assessed
against Group and
individual performance.
A pool is determined by
reference to the actual
level of profit achievement
compared to performance
targets and is capped.
Once the pool is defined, it
is allocated to individuals
based on their individual
objectives and behaviour.
Measures selected and
their respective weightings
may vary from year to year
depending on strategic
priorities.
The Committee may adjust
the incentive outcome to
ensure alignment of pay
with the underlying
performance of the
business over the financial
year. Factors the
Committee considers
include whether outcomes
were achieved within the
Company’s risk appetite.
2015 Management Equity
Plan (‘LTIP’)
To reinforce delivery of
sustained long-term success,
and align the interests of
participants with those of
shareholders.
Award which is a mix of
shares and options that
will have an economic
value no higher than an
award of 125% of salary
in performance shares in
normal circumstances
and up to 200% of salary
in exceptional
circumstances.
Vesting for threshold
performance is up to
25% of maximum.
99
Awards vest subject to
Company performance and
continued employment.
The Committee has
flexibility to adjust the
performance measures and
weightings in advance of
each future cycle to ensure
they continue to support
delivery of the Company
strategy. Over the term of
this policy, performance
will be predominantly
dependent on financial,
and/or share price-related
measures.
The Committee has
flexibility to adjust
downwards the formulaic
outcome based on its
assessment of underlying
performance, and results
being achieved within the
Company’s risk appetite,
over the performance
period.
LTIP awards may be granted
annually by the Remuneration
Committee to Executive Directors.
Awards may consist of
performance shares (nil cost
options or conditional rights to
receive shares) or market value
options or a combination of the
two.
LTIP awards normally vest after
three years. The Committee may
extend the LTIP time horizon by
introducing a holding period of up
to two years, or by extending the
vesting period e.g. if regulations
require.
The number of performance shares
and / or options vesting is
dependent on the degree to which
performance conditions attached
to the LTIP award have been met
over the performance period.
Dividend equivalents may accrue
on performance shares and be paid
on those shares which vest.
The award levels and performance
conditions are reviewed in advance
of grant to ensure they are
appropriate.
Awards under the LTIP are
non-pensionable and are subject to
malus and clawback provisions for
a seven year period from grant in
the event of a material financial
misstatement, gross misconduct,
calculation error, failure of risk
management, or in any other
circumstance the Committee
considers appropriate.
Notes to the policy table
In addition to the elements of remuneration detailed in the policy table, any historical awards or commitments described in this
report which were made prior to, but due to be fulfilled after the approval and implementation of the Remuneration Policy detailed
in this report will be honoured.
In particular, Pre-IPO Retention Awards were granted to Executive Directors, senior management and other key employees to
retain and motivate key talent through listing and beyond. Awards for Executive Directors vest 50% on the first and second
anniversaries of listing (5 February 2017 and 5 February 2018), subject to continued employment. Malus and clawback provisions
also apply.
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Annual Report 2017
CMC Markets plc
Governance report
Performance measurement selection
The Company's incentive plans are designed to incentivise the achievement of demanding financial and business-related objectives,
using a balance of absolute and relative performance measures selected to support the Group’s key strategic priorities.
•
in exceptional circumstances, amendment of any performance conditions applying to an award, provided the new performance
conditions are considered fair and reasonable, and are neither materially more nor materially less challenging than the original
performance targets when set;
100
The annual incentive uses a balance between Group and individual, and financial and non-financial performance targets. Group
profit targets relating to the annual incentive plan are set in relation to the Company’s annual budget, which is reviewed and
approved by the Board prior to the start of each financial year. In addition, individual performance will be assessed based on the
achievement of non-financial/strategic objectives, the individual’s contribution and behaviour, and compliance with the Company’s
risk appetite. Performance objectives and targets are reviewed annually to ensure ongoing alignment with the Company's strategy
for the year ahead and to ensure that they remain stretching yet achievable. The annual incentive is discretionary and the
Committee considers wider factors in its deliberations at the end of the year, for example the quality of earnings. In determining
individual awards, the Committee is not required to award the Group incentive pool (i.e. the sum of the incentive awards may be
less than the Group incentive pool).
The LTIP is designed to align the interests of our participants with the longer-term interests of the Company’s shareholders by
rewarding them for delivering sustained increases in shareholder value, within the Group’s risk appetite. LTIP performance
measures selected reinforce the Group’s strategy over the medium- to long-term, and provide a balance of internal and external
perspectives, and between absolute and relative performance. The Committee has selected EPS as the primary measure as this is a
well-accepted measure of bottom-line financial performance and is well-aligned with shareholder interests. Inclusion of TSR
provides direct alignment with shareholder interests, and achievement of strategic objectives reinforces delivery of the Company’s
strategy over the medium- to long-term. Performance measures and targets are reviewed by the Committee ahead of each grant to
ensure they are appropriately stretching and achievable over the performance period.
Remuneration policy for other employees
CMC Markets' approach to annual salary reviews is consistent across the Group. All employees are eligible to participate in the
annual incentive, with targets appropriate to their organisational level and business area. Key senior managers are also eligible for
LTIP awards to further support long term alignment with shareholder interests. LTIP performance conditions are consistent for
these employees, while award opportunities may vary by organisational level or business area.
Risk considerations
The Remuneration Policy is also designed to promote sound and effective risk management. The Remuneration Committee reviews
and approves the remuneration policy for all employees, including for Material Risk Takers and senior Risk and Compliance
employees, to help ensure pay arrangements encourage appropriate behaviour and compliance with the Company’s risk appetite.
For example, all employees receive a salary which reflects their market value, responsibilities and experience. An individual may
only receive an annual incentive award if he/she operates within the risk appetite of the Company, and has demonstrated
appropriate behaviour. Key senior managers are eligible for consideration of LTIP awards, with any vesting based on performance
over at least three years. The Committee has flexibility to adjust the formulaic outcome if the Company’s recorded performance is
not a genuine reflection of underlying business performance or if results were not achieved within the Company’s risk appetite.
Annual incentive awards are subject to malus and clawback for all LTIP participants in various circumstances, including a failure of
risk management. The CFO & Head of Risk is closely involved in the remuneration process to ensure that both remuneration policy
and outcomes reinforce compliance with the Company’s risk appetite, including reporting independently to the Committee at least
annually on compliance with the risk appetite, on any notable risk events, and on the behaviour of the Material Risk Takers.
Incentive plan discretions
The Committee will operate the Company's incentive plans according to their respective rules and the Policy set out above, and in
accordance with relevant financial services regulations, the Listing Rules and HMRC rules where relevant. The 2016 LTIP Rules
were approved by shareholders at our September 2016 AGM.
In line with common market practice, the Committee retains discretion as to the operation and administration of these incentive
plans, including:
• who participates;
• the timing of grant and/or payment;
• the size of an award and/or payment (within the plan limits approved by shareholders);
• the manner in which awards are settled;
• the choice of (and adjustment of) performance measures and targets in accordance with the Remuneration Policy set out
above and the rules of each plan;
• discretion relating to the measurement of performance in the event of a variation of share capital, change of control, special
dividend, distribution or any other corporate event which may affect the current or future value of an award;
101
• determination of a good leaver (in addition to any specified categories) for incentive plan purposes, based on the rules of each
plan and the appropriate treatment under the plan rules;
• adjustments required in certain circumstances (e.g. rights issues, share buybacks, special dividends, other corporate events,
etc.).
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration. As appropriate, it
might also be the subject of consultation with the Company’s major shareholders.
Minor changes
The Committee may make minor amendments to the Policy set out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without requiring prior shareholder approval for that amendment.
Group’s remuneration policy for Chairman and Non-Executive Directors
The Board determines the Remuneration policy and level of fees for the Non-Executive Directors, within the limits set out in the
Articles of Association. The Remuneration Committee recommends the Remuneration policy and level of fees for the Chairman of
the Board. The Group’s policy is:
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Not applicable.
Fee increases are applied in
line with the outcome of the
review.
Aggregate fees will not exceed
the limit approved by
shareholders in the Articles of
Association which is currently
£750,000.
Fees
Annual fee for the Chairman.
To attract suitable individuals
with a broad range of
experience and skills to
oversee shareholders’
interests and company
strategy. Fees are set to
reflect market value of the
role and the individual’s time
commitment, responsibility,
performance and contribution
Annual base fee for the
Non-Executive Directors.
Additional fees are paid to
Non-Executive Directors for
additional services such as
chairing a Board Committee,
performing the role of Senior
Independent Director, etc.
Fees are reviewed from time
to time taking into account
time commitment,
responsibilities, and fees paid
by companies of a similar size
and complexity. Fee increases
are applied in line with the
outcome of the review.
Payable in cash.
The Company may reimburse
NEDs for reasonable
expenses incurred in carrying
out their role.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Executive (cid:39)irectors’ remuneration scenarios
The charts below provide estimates of the potential future reward opportunity for each of the three Executive Directors, and the
implied split between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘In line with
Board expectations’ and ‘Maximum'.
102
Peter Cruddas
Grant Foley
David Fineberg
£ ‘000
1,000
900
800
700
600
500
400
300
200
100
0
55%
46%
100%
54%
45%
£ ‘000
1,000
900
800
700
600
500
400
300
200
100
0
37%
30%
15%
33%
100%
52%
33%
£ ‘000
1,000
900
800
700
600
500
400
300
200
100
0
37%
30%
15%
33%
100%
52%
33%
Minimum
In line with
Expectations
Maximum
Minimum
In line with
Expectations
Maximum
Minimum
In line with
Expectations
Maximum
Fixed
Annual incentive
LTIP
Assumptions underlying each element of remuneration are provided in the table below. The projected value of the long-term
incentives excludes the impact of share price growth and any potential dividend accrual. Actual remuneration delivered, however,
will be influenced by these factors.
Component
Fixed
Base salary
Minimum
Latest salary
In line with expectations
Maximum
Latest salary
Latest salary
Pension
Contribution applies to latest
Contribution applies to latest
Contribution applies to latest
salary
salary
salary
Other benefits
As presented as a single figure
As presented as a single figure
As presented as a single figure
on page 87
on page 87
on page 87
Annual incentive
LTIP
Up to 20% of salary for
exceptional individual
performance
No payment
70% of maximum
25% of maximum
100% of maximum
100% of maximum
The Company currently anticipates that Peter Cruddas will not participate in the LTIP or pension arrangements and so these
elements are not included for him in the above chart.
Approach to recruitment remuneration
In the case of hiring or appointing a new Executive Director, the Committee may make use of all the existing components of
remuneration.
The salaries of new appointees will be determined by reference to their role and responsibilities, experience and skills, relevant
market data, internal relativities and their current salaries. New appointees will be eligible to receive a pension contribution or
allowance and benefits and participate in the Company’s HMRC approved all-employee Share Incentive Plan, in line with the
remuneration policy detailed above.
The annual incentive described in the policy table will normally apply to new appointees with the relevant maximum being pro-
rated to reflect the period served. Individual objectives will be tailored to the individual’s role. New appointees are eligible for
awards under the LTIP, which will normally be on the same terms as other Executive Directors, as described in the policy table.
103
Our experienced global team of market analysts and strategists regularly appear in the media.
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Annual Report 2017
CMC Markets plc
Governance report
In determining appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant
factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that the
remuneration arrangements are appropriate and in the interests of the Company and its shareholders. The Committee may
consider it appropriate to grant an award under a structure not included in the policy, for example to ‘buy out’ incentive
arrangements forfeited on leaving a previous employer, and may exercise the discretion available under Listing Rule 9.4.2 R if
necessary to secure the right candidate. In doing so, the Committee will ensure the value of any buyout will not exceed the expected
value of awards forgone using a Black-Scholes or equivalent valuation method and, where applicable, take into account progress
against any performance conditions attached to those awards and an assessment of the likelihood of those conditions being met.
104
In cases of appointing a new Executive Director by way of internal promotion, the Remuneration Committee will be consistent with
the policy for external appointees detailed above. Where an individual has contractual commitments made prior to their promotion
to Executive Director level, the Company will continue to honour these arrangements.
In the case of hiring or appointing a new Non-Executive Director, the Committee will follow the policy as set out in the table on
page 101.
Service contracts
The Executive Directors are employed under contracts of employment with CMC Markets UK Plc. The principal terms of the
Executive Directors’ service contracts are as follows:
Executive (cid:39)irector
Position
Effective date of
contract
Notice period
from Company
Notice period
from Director
Peter Cruddas
Chief Executive Officer
1 February 2016
12 months
12 months
Grant Foley
(previously CFO & Head of Risk)
1 February 2016
6 months
6 months
Chief Operating and Financial Officer
David Fineberg
(previously Group Director of Trading)
1 February 2016
6 months
6 months
Group Commercial Director
The terms shown in the table above are in line with the Company policy of operating notice periods of up to nine months in the case
of Executive Directors, except for the CEO service contract which can have a notice period of up to 12 months. All employees
including Executive Directors are subject to a six-month probation period.
Executive Directors’ contracts are available to view at the Company’s registered office.
Letters of appointment are provided to the Chairman and Non-Executive Directors. Non-Executive Directors have letters of
appointment which means that they retire at each AGM and are put up for re-election at the AGM. Non-Executive Directors’
letters of appointment are available to view at the Company’s registered office.
Details of the effective date of Non-Executive Directors’ letters of appointment and notice periods are set out below:
105
Non(cid:16)Executive (cid:39)irector
Simon Waugh
James Richards
Date of letter
25 January 2016
25 January 2016
1 December 2007
1 April 2015
Manjit Wolstenholme
28 September 2015
9 December 2015
Malcolm McCaig
28 September 2015
9 December 2015
3 months
3 months
3 months
3 months
Date of appointment
Notice period
Exit payment policy
The Company considers termination payments on a case-by-case basis, taking into account relevant contractual terms, the
circumstances of the termination and any applicable duty to mitigate. In such an event, the remuneration commitments in respect
of Executive Directors’ contracts could amount to salary, benefits in kind and pension rights during the notice period, together with
payment in lieu of any accrued but untaken holiday leave, if applicable.
If such circumstances were to arise, the Executive Director concerned would have no claim against the Company for damages
or any other remedy in respect of the termination. The Committee would apply general principles of mitigation to any payment
made to a departing Executive Director and would honour previous commitments as appropriate, considering each case on
an individual basis.
CMC Markets is a proud sponsor of Land Rover BAR.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
The table below summarises how the awards under the annual incentive and LTIP are typically treated in different leaver scenarios
and on a change of control. The Committee retains discretion on determining ‘good leaver’ status, but it typically defines a ‘good
leaver’ in circumstances such as retirement with agreement of the Board, ill health, injury or disability, death, statutory redundancy,
or part of the business in which the individual is employed or engaged ceases to be a member of the Group. Final treatment is
subject to the Committee’s discretion.
106
Regulated entities
107
Event
Annual
incen-
tive
‘Good leaver’
Timing of vesting/award
Calculation of vesting/payment
Annual incentive awards due are
paid at the same time as to
continuing employees
Any unvested deferred share
awards vest on the normal vesting
date
Annual incentive is paid only to the extent that any
performance conditions have been satisfied and is
pro-rated for the proportion of the financial year worked
before cessation of employment.
‘Bad leaver’
Not applicable
Individuals lose the right to their annual incentive and
unvested deferred share awards.
Change of
control1
Annual incentive awards are paid
and unvested deferred share
awards vest on effective date of
change of control
Annual incentive is paid only to the extent that any
performance conditions have been satisfied and is
pro-rated for the proportion of the financial year worked to
the effective date of change of control.
LTIP
‘Good leaver’ On normal vesting date (or earlier
at the Committee’s discretion)
Unvested awards vest to the extent that any performance
conditions have been satisfied and are pro-rated to reflect
the proportion of the vesting period served.
‘Bad leaver’
Unvested awards lapse
Unvested awards lapse on cessation of employment.
Change of
control1
On the date of the event
Unvested awards vest to the extent that any performance
conditions have been satisfied and are pro-rated to reflect
the proportion of the vesting period served.
1 In certain circumstances, the Committee may determine that any deferred share awards under the annual incentive and both unvested and any deferred awards under
the LTIP will not vest on a change of control and instead be replaced by an equivalent grant of a new award, as determined by the Committee, in the new company.
Upon exit or change of control, SIP awards will be treated in line with the approved plan rules.
If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under statute or
otherwise) to additional amounts, which would need to be met. In addition, the Committee retains discretion to settle other
amounts reasonably due to the Executive Director, for example to meet the legal fees incurred by the Executive Director in
connection with the termination of employment, where the Company wishes to enter into a settlement agreement (as provided for
below) and, in which case, the individual is required to seek independent legal advice.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including
(but not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These will be used sparingly
and only entered into where the Committee believes that it is in the best interests of the Company and its shareholders to do so.
Consideration of conditions elsewhere in the Group
In making remuneration decisions, the Committee takes into account the pay and employment conditions of employees across the
Group. In particular, the Committee considers the range of base pay increases across the Company as a factor in determining the
base salary increases for Executive Directors. The Committee does not consult with employees on the Executive Director
remuneration policy nor does it use any remuneration comparison measurements.
Consideration of shareholder views
The Committee is committed to an on-going dialogue on Directors’ remuneration. It is the Remuneration Committee’s intention to
consult with major shareholders prior to any major changes to its remuneration policy
CMC Markets entity
CMC Markets UK plc
Financial services regulator(s)
Financial Conduct Authority (FCA), UK
CMC Markets UK plc – European branches
FCA, UK; and
Italy
CMC Markets UK plc Succursale di Milano
France
CMC Markets UK plc, France
Germany
Niederlassung Frankfurt am Main der CMC Markets UK plc
Norway
CMC Markets UK plc Filial Oslo
Spain
CMC Markets UK plc, Sucursal en España
Sweden
CMC Markets UK plc Filial Stockholm
Commissione Nazionale per le Societ(cid:162) e la Borsa (CONSOB), Italy
Autorit(cid:171) des March(cid:171)s Financiers (AMF); and
Autorit(cid:171) de Controle Prudential et de resolution (ACPR)
Bundesanstalt f(cid:0)r Finanzdienstleistungsaufsicht (BaFin), Germany
Finanstilsynet (The Financial Supervisory Authority of Norway)
Comisión Nacional del Mercado de Valores (CNMV), Spain
Finansinspektionen (Financial Supervisory Authority Sweden)
Poland
Komisja Nadzoru Finansowego (Polish Financial Supervision
CMC Markets UK Plc Oddział w Warszawie
Authority)
CMC Markets UK plc – Representative Office:
Beijing Representative Office of CMC Markets UK plc
China Banking and Regulatory Commission
CMC Spreadbet plc
FCA, UK
CMC Markets Asia Pacific Pty Ltd
Australian Securities and Investments Commission (ASIC)
CMC Markets Pty Ltd
CMC Markets Stockbroking Ltd
CMC Markets Canada Inc.
(Operating as Marches CMC Canada in Quebec)
CMC Markets NZ Ltd
ASIC
ASIC; and
Australia Stock Exchange (ASX)
Investment Industry Regulatory Organization of Canada (IIROC);
Autorit(cid:171) des March(cid:171)s Financiers (AMF)
Ontario Securities Commission; and
British Columbia Securities Commission
Financial Markets Authority (New Zealand)
CMC Markets Singapore Pte Ltd
Monetary Authority of Singapore (MAS)
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Directors’ report
The Corporate Governance Report can be found on pages 56 to 113 and, together with this report of which it forms part, fulfils the
requirements of the Corporate Governance Statement for the purpose of the Disclosure and Transparency Rules (“DTR”).
108
Going concern
Having given due consideration to the nature of the Group’s business, the Directors consider that the Company and the Group are
going concerns and the financial statements are prepared on that basis. This treatment reflects the reasonable expectation that the
Group has adequate resources to continue in business for the foreseeable future and the consideration of the various risks set out
on pages 48 to 55 and financial risks described in note 29 to the financial statements.
Viability statement
In accordance with provision C2.2 of the Financial Reporting Council’s UK Corporate Governance Code (the “Code”), the Directors
have considered the Group’s current financial position and future prospects and have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they fall due over the period of the assessment.
In reaching this conclusion, both the prospects and viability considerations have been assessed:
Prospects
• the Group’s current financial position as outlined in the Strategic report (pages 38 to 47).
• the Group’s business model: despite imminent regulatory change in a number of jurisdictions, the core of the current strategy
remains in place and continues to demonstrate delivery of sufficient cash generation to support operations.
• assessment of prospects and assumptions: conservative expectations of future business prospects through delivery of the
Group strategy (see pages 24 to 25) as presented to the Board through the budget process. The annual budget process
consists of a detailed bottom up process with a 12 month outlook which involves input from all relevant functional and regional
heads. The process includes collection of resource assumptions required to deliver the Group strategy and associated revenue
impacts with consideration of key risks. This is used in conjunction with external assumptions such as a region-by-region review
of the regulatory environment and incorporation of any anticipated regulatory changes into revenue modelling, market
volatility, interest rates and industry growth which materially impact the business. The budget is used to set targets across the
Group. The budgeting process also covers liquidity and capital planning and in addition to the granular budget a three year
outlook is prepared using assumptions on industry growth, the effects of regulatory change, revenue growth from strategic
initiatives and cost growth required to support initiatives. The budget was reviewed and approved by the Board in March
2017.
• ongoing review and monitoring of risks: these have been identified in the Group’s risk appetite statement, outlined in the
Group’s principal risks and uncertainties (pages 48 to 55) and monitored monthly at the Risk Management Committee, with
review and challenge from the Group Risk Committee.
Viability
• scenario stress testing: available liquidity and capital adequacy are central to understanding the Group’s viability and therefore
stress scenarios, such as adverse market conditions and adverse regulatory change are therefore considered in the Group’s
Individual Capital Adequacy Assessment Process and Individual Liquidity Adequacy Assessment documents, which are shared
with the FCA on request. The results of the stress testing showed that due to the robustness of the business, the Group would
be able to withstand scenarios, including combined scenarios, over the financial planning period by taking management actions
that have been identified within the scenario stress tests.
The Directors have considered that three years is an appropriate period over which to provide a viability statement as this is the
longest period over which the Board review the success of strategic opportunities and this timeline is also aligned with the period
over which internal stress testing occurs. The Directors have no reason to believe that the Group will not be viable over a longer
period. But given the uncertainty involved, in particular the outcome of regulatory consultation papers outstanding, they believe
this period presents the readers of the Annual Report with a reasonable degree of confidence.
In addition to considering the above, the Group also monitors performance against pre-defined budget expectations and risk
indicators, along with strategic progress updates, which provide early warning to the Board, allowing management action to be
taken where required including the assessment of new opportunities.
Directors
All Directors will seek election at the 2017 AGM on 27 July 2017 with the exception of Manjit Wolstenholme who will be stepping
down. Following recommendation by the Nomination Committee, a Director may be appointed to the Board by the Board of
Directors and will then be put forward at the following AGM for election by the shareholders. The Company’s Articles of
Association, available on the CMC Markets plc Group website, detail the appointment and removal process for Directors.
Directors interests can be found in the Directors’ Remuneration Report on page 90 and other directorships are disclosed on pages
59 to 61.
109
The Directors of the company who were in office during the year and up to the date of signing the financial statements were:
Simon Waugh
Chairman
Manjit Wolstenholme
Senior Independent Director
Peter Cruddas
David Fineberg
Grant Foley
Malcolm McCaig
James Richards
Chief Executive Officer
Group Commercial Director
(previously Group Director of Trading)
Chief Operating and Financial Officer
(previously Chief Financial Officer & Head
of Risk)
Non–Executive Director
Non–Executive Director
Directors’ indemnities
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party
indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial
year and is currently in force.
The Company also maintains appropriate insurance to cover Directors’ and Officers’ liability which is assessed annually and
approved by the Board. No amount was paid under the Directors’ and Officers’ liability insurance during the year.
Strategic report
The Companies Act 2006 requires the Group to prepare a Strategic report, which commences at the start of this Annual Report
and Financial Statements up to page 165. The Strategic report includes information on the Group’s operations and business model,
review of the business throughout the year, anticipated future developments, key performance indicators and principal risks and
uncertainties. The use of financial instruments is included in the report and further covered under note 18 to the consolidated
financial statements on page 145. The Group’s vision is to be the market leader in global online retail multi-asset trading. Its
strategic objective is to provide superior shareholder returns through the consistent and sustainable delivery of growth in revenue
and improvement to operating margins through operational excellence including product innovation, technology and service. The
strategic objectives to achieve this are also set out in the Strategic report.
Dividends
On 7 June 2017, the Board recommended a final dividend of 5.95 pence per Ordinary Share in respect of the full financial year
ended 31 March 2017, subject to shareholder approval at the 2017 AGM. Further information on dividends is shown in note 12
of the financial statements and is incorporated into this report by reference.
Share capital
The Company’s share capital comprises Ordinary Shares of 25 pence each and Deferred Shares of 25 pence each. At 31 March
2017 there were 288,103,959 Ordinary and 2,478,086 Deferred Shares in issue.
Further information about share capital can be found in note 24 of the financial statements.
Ordinary Shares
The holders of Ordinary Shares are entitled to one vote per share at meetings of the Company. All Ordinary Shares in issue in the
Company rank equally and carry the same voting rights and the same rights to receive dividends and other distributions declared
or paid by the Company.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Deferred Shares
The holders of Deferred Shares do not have the right to receive notice of any general meeting of the Company nor the right
to attend, speak or vote at any such general meeting. The Deferred Shares have no rights to dividends and, on a return of assets
in a winding up, entitles the holder only to the repayment of the amounts paid upon such shares. The Deferred Shares may be
purchased at nominal value at the option of the Company by notice in writing served on the holder of the Deferred Shares. No
application has been made or is currently intended to be made for the Deferred Shares to be admitted to the Official List or to trade
on the London Stock Exchange or any other investment exchange.
110
Share capital and Directors’ powers
The powers of the Directors, including in relation to the issue or buy back of the Company’s shares, are set out in the Companies
Act 2006 and the Company’s Constitution. The Directors were granted authority to issue and allot shares and to buy back shares
at the 2016 AGM.
Shareholders will be asked to renew these authorities in line with the latest institutional shareholder guidelines at the 2017 AGM.
The Company did not repurchase any of the issued Ordinary Shares during the year and up to the date of this report.
Controlling Shareholder Disclosure
The Company entered into a Relationship Agreement with Peter and Fiona Cruddas (“the Controlling Shareholders”) on 26
January 2016, the terms of which came into force on listing the Company to trade on the main market of the London Stock
Exchange. The principal purpose of the Relationship Agreement is to ensure that the Company is capable at all times of carrying on
its business independent of the Controlling Shareholders and their associates, that transactions and relationships with the
Controlling Shareholders and their associates are at arm’s length and on normal commercial terms (subject to the rules on related
party transactions in the Listing Rules) and to ensure the Controlling Shareholders do not take any action that would prevent the
Company from complying with, or circumvent, the Listing Rules. The Relationship Agreement will stay in effect until the earlier of:
(i) the Controlling Shareholders ceasing to own in aggregate an interest in at least 10% or more of the Shares in the Company (or an
interest which carries 10% or more of the aggregate voting rights in the Company from time to time) or (ii) the Shares ceasing to be
listed on the premium listing segment of the Official List and admitted to trading on the London Stock Exchange’s main market for
listed securities.
Significant contracts and change of control
The Company has a large number of contractual arrangements which it believes are essential to the business of the Company.
These can be split into three main categories, which are a committed bank facility, prime broker arrangements, and market data and
technology contracts. A change of control of the Company may cause the committed bank facility to terminate should the
controlling shareholders holding reduce to below 51%.
Statutory information contained elsewhere in the report
Information required to be part of this Directors’ report can be found elsewhere in the annual report as indicated below
Information
Greenhouse gas emissions
Location in annual report
Page 36
Employees (employment of disabled persons, employee engagement)
Page 30
Disclosure of overseas branches
Employee share schemes
Financial instruments
Likely future developments
Directors interests
Related party transactions
Page 107
Note 30, Page 161
Note 18, Page 145
Pages 24 to 25
Page 90
Page 164
Disclosure
None
None
111
Disclosure table pursuant to Listing rule LR9.8.4C
Listing Rule
Information to be included
Interest capitalised by Group
Unaudited financial information (LR 9.2.18)
9.8.4(1)
9.8.4(2)
9.8.4(4)
9.8.4(5)
9.8.4(6)
9.8.4(7)
9.8.4(8)
Long term incentive scheme information involving
Details can be found on pages 88 to 89 of the Directors remuneration
Board Directors (LR 9.4.3)
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre–emptive issues of equity for cash
Non pre–emptive issues of equity for cash in relation
to major subsidiary undertakings
report
None
None
None
None
9.8.4(9)
Listed company is a subsidiary of another company
Not applicable
9.8.4(10)
Contracts of significance involving a director or a
None
controlling shareholder
9.8.4(11)
Contracts for the provision of services by a
None
controlling shareholder
9.8.4(12)
Shareholder waiver of dividends
The trustees of the CMC Markets plc Employee Share Trust have a
dividend waiver in place in respect of Ordinary Shares which are its
beneficial property
9.8.4(13)
Shareholder waiver of future dividends
The trustees of the CMC Markets plc Employee Share Trust have a
dividend waiver in place in respect of Ordinary Shares which are its
beneficial property
9.8.4(14)
Agreement with controlling shareholder
See Controlling Shareholder disclosure on page 110 of the Directors’
report
Substantial shareholdings
Information provided to the Company by substantial shareholders pursuant to the DTRs is published via a Regulatory Information
Service. As at 31 March 2017, the Company has been notified under DTR Rule 5 of the interests as set out below in its issued share
capital. All such share capital has the right to vote at general meetings.
Shareholder
As at 31 March 2017
Peter Andrew Cruddas
Fiona Jane Cruddas
Legal & General Investment Management Limited
Fidelity Mgt Research (UK) Inc
Goldman Sachs Strategic Investment (UK) Limited
J O Hambro Capital Management
Schroder Investment Management
Ordinary Shares held
% of voting rights
165,115,374
57.32
14,774,532
15,340,545
13,245,563
12,630,531
12,346,111
11,283,788
5.13
5.32
4.60
4.38
4.29
3.92
In the period from 31 March 2017 to the date of this report, the Company has received notifications from Legal & General
Investment Management Limited and Norges Bank Investment Management. As at the date of this report, those notifications
indicate that a). Legal & General Investment Management Limited shareholding is 14,155,900 Ordinary shares representing 4.91%
of the total voting rights attached to the issued share capital and b). Norges Bank Investment Management shareholding being
11,649,087 Ordinary shares representing 4.04% of the total voting rights.
The shareholdings of CMC Markets plc Directors are listed within the Directors’ remuneration report.
Articles of association
Any amendments to the Company’s Articles of Association may only be made by passing a special resolution at a general meeting of
the shareholders of the Company.
Governance report
Annual Report 2017
CMC Markets plc
Governance report
Research and development
The Group continues to invest in the development of the CFD and spread bet Next Generation platform in addition to maintaining
existing infrastructure with considerable effort applied by the technical and software development teams. Little expenditure is
capitalised and is therefore expensed when it is incurred. £nil of development expenditure has been capitalised during the year
(2016: £nil).
112
Directors’ statement as to disclosure of information to Auditors
So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being
information needed by the auditors in connection with preparing their report, of which the auditors are unaware. Each Director has
taken all the steps that he or she is obliged to take as a Director in order to make himself / herself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information. This confirmation is given pursuant to Section
418 of the Companies Act 2006.
Independent auditor
PricewaterhouseCoopers LLP acted as auditors throughout the year. In accordance with 489 and s492 of the Companies Act
2006, resolutions proposing the re-appointment of PricewaterhouseCoopers LLP as the Company’s auditors and authorising the
Directors to determine the auditors’ remuneration will be put to the 2017 AGM.
Political donations
No political donations were made by the Company during the year.
Corporate jet
The Group did not maintain or has use of a corporate jet in the reporting period.
Annual General Meeting
The 2017 AGM is to be held at 133 Houndsditch, London EC3A 7BX at 10.00 am on Thursday 27 July 2017.
Due to the above Controlling Shareholder Disclosure, the independent shareholders’ voting results on the re-election of
independent Non-Executive Directors will be disclosed when the voting results are published. Should the required percentage of
the independent shareholders’ vote to approve re-election not be achieved, then a further vote will be held at a subsequent general
meeting within the prescribed time period.
Statement of Directors’ Responsibilities
113
The Directors are responsible for preparing the Strategic
report, Directors’ report and the Financial Statements in
accordance with applicable law and regulations. As a listed
company within the European Union, the Directors are required
to prepare the Group Financial Statements in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted
by the EU. The Directors have elected to prepare the Parent
Company Financial Statements in accordance with the
Companies Act 2006 and IFRSs as adopted by the EU.
Under company law the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.
In preparing the Financial Statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information on the Company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibilities statement
We confirm that to the best of our knowledge:
• the Financial Statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
results of the Company and the Group; and
• make judgements and estimates that are reasonable and
• the Strategic Report contained in this Annual Report
prudent;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
•
in respect of the Group Financial Statements, provide
additional disclosures when compliance with the specific
requirements of IFRS is insufficient to enable users to
understand the impact of particular transactions, other
events and conditions on the Group’s financial position and
performance;
• state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the
Financial Statements;
•
in respect of the Parent Company Financial Statements,
state whether applicable IFRSs as adopted by the EU have
been followed, subject to any material departures disclosed
and explained in the Financial Statements; and prepare the
Financial Statements on a going concern basis, unless they
consider that to be inappropriate
The Directors confirm that the Financial Statements comply
with the above requirements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the Financial Statements comply with the
includes a fair review of the development and performance
of the business and the position of the Company and the
Group, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy
The Annual Report was approved by the Board on 7 June 2017.
By order of the Board
Jonathan Bradshaw
Company Secretary
CMC Markets plc
Registered number: 05145017
CMC Markets plc
Financial statements
Financial statements
Contents
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Parent company statement of financial position
Consolidated and parent company statements of
changes in equity
Consolidated and parent company statements of
cash flows
Notes to the consolidated and parent company
financial statements
1. General information and basis of preparation
2. Summary of significant accounting policies
115
3. Segmental reporting
4. Total revenue
5. Other income
6. Operating expenses
7. Employee information
8. Finance costs
9. Profit before taxation
10. Taxation
11. Earnings per share (EPS)
12. Dividends
13. Intangible assets
14. Property, plant and equipment
15. Deferred tax
16. Investment in subsidiary undertakings
17. Trade and other receivables
18. Derivative financial instruments
19. Financial investments
20. Cash and cash equivalents
21. Trade and other payables
22. Borrowings
23. Provisions
24. Share capital and premium
25. Own shares held in trust
26. Other reserves
27. Cash generated from/(used in) operations
28. Financial instruments
29. Financial risk management
30. Share-based payment
31. Retirement benefit plans
32. Related party transactions
33. Operating lease commitments
34. Contingent liabilities
35. Ultimate controlling party
Head of Product Development Ryan O’Doherty introduces the new Australian stockbroking Pro Platform
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Independent auditors’ report to the members
of CMC Markets plc
Report on the financial statements
• the consolidated and parent company statements of
116
Our opinion
In our opinion:
• CMC Markets plc and its subsidiaries (collectively the
“Group”) financial statements and parent company
financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the parent
company’s affairs as at 31 March 2017 and of the Group’s
profit and the Group’s and the parent company’s cash
flows for the year then ended;
financial position as at 31 March 2017;
• the consolidated income statement and the consolidated
statement of comprehensive income for the year then
ended;
• the consolidated and parent company statements of
changes in equity for the year then ended;
• the consolidated and parent company statements of cash
flows for the year then ended; and
• the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European
Union;
• the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
• the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
Certain required disclosures have been presented elsewhere
in the Annual Report, rather than in the notes to the financial
statements. These are cross-referenced from the financial
statements and are identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by
the European Union, and applicable law and, as regards the
parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
What we have audited
The financial statements, included within the Annual Report
and Financial Statements (the “Annual Report”), comprise:
Our audit approach
Overview
Materiality
• Overall Group materiality: £2.4 million which represents 5% of profit before tax.
Scope
• The Group consists of a UK holding Company with a number of subsidiary entities and branches
containing the operating businesses of both the UK and overseas territories. The accounting records
for both the UK and the overseas businesses are primarily maintained and controlled by the UK
finance team in London.
• We determined the appropriate work to perform based on the consolidated balances of the Group.
As a result, the majority of the audit work was performed by the Group audit team in London, with
certain, specified audit procedures carried out by overseas PwC engagement teams where necessary.
• Accounts comprising 91% of consolidated net operating income, 85% of consolidated operating profit
and 86% of consolidated profit before tax fell within the scope of our audit procedures. Balances
within the scope of our audit contributed 86% of Group total assets.
Areas of focus
• Risk of fraud in revenue recognition, specifically in relation to super user access to systems.
• Recoverability of deferred tax assets.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and
assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the directors
made subjective judgements, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating
whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and
effort, are identified as “areas of focus” in the table below. We
have also set out how we tailored our audit to address these
specific areas in order to provide an opinion on the financial
statements as a whole. Any comments we make on the results
of our procedures should be read in this context. This is not a
complete list of all risks identified by our audit.
117
Area of focus
How our audit addressed the area of focus
Risk of fraud in revenue recognition, specifically in relation
to super user access to systems
The Group has continued to face profit pressures this year as market
volatility remained subdued, with a consequent negative impact
on trading performance. We have concluded that the greatest risk
of fraud in revenue recognition arises from super user access to
systems. Individuals with such access could have the opportunity
and incentive to commit fraud, including through inappropriate
To address the risk of inappropriate access to systems which
generate CMC Markets plc’s financial records we first identified the
key systems which contribute to the recognition of revenue in the
CMC Markets plc financial statements.
For each of these systems, we evaluated the design of, and tested the
operation of, the IT general controls in place.
manipulation of revenue recognition.
Where control exceptions were identified, we tested data integrity
reconciliations between downstream systems and upstream systems.
These reconciliations mitigate the risk that super user access to
systems could result in inappropriate or fraudulent recognition
of revenue.
No material exceptions were noted in our testing of data integrity
reconciliations.
Recoverability of deferred tax assets
To address the risk associated with the recoverability of deferred
The recognition of deferred tax assets is complex and often
tax assets we identified key assumptions made by management in
subjective. There are substantial tax losses in relation to the
relation to the future taxable profits to be earned in the Australia
Group’s Australia business carried forward and not yet utilised;
business and the period over which these profits could be
these give rise to a material deferred tax asset. The extent of
reasonably foreseen.
recognition of this asset depends on a judgement surrounding
forecast profitability. The judgement is subjective, particularly given
We evaluated these assumptions by:
the downturn in performance in the year and the planned changes
to the Australia business.
• assessing the growth rate used to forecast revenue and costs,
comparing it to historic growth rates and considering the impact
of the planned changes to the Australia business;
• considering the period over which profits are deemed to be
reasonably foreseeable and comparing this period to other
forecasting periods used by the Group;
• considering whether current Australian tax legislation could
impact the degree to which losses could be recognised in
the future.
We also agreed the tax rate used to calculate the deferred tax asset
to the substantively enacted rate, and checked the mathematical
accuracy of the deferred tax calculation.
As a result of these procedures, we concluded that the basis on
which the tax losses have been recognised is appropriate, although
conservative.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole. In scoping our audit work we took into
account the geographic structure of the Group, the location of
accounting processes and controls, and the industry in which
the Group operates.
118
CMC Markets plc is an online retail financial services business
that provides its clients with online and mobile financial spread
betting (UK and Ireland only) and contract for difference (CFD)
trading platforms. CMC Markets plc is a global company with
significant operations in the UK, Europe and Asia Pacific. The
Group also has a stockbroking offering in Australia.
The Group consists of a UK holding Company with a number of
subsidiary entities and branches containing the operating
businesses of both the UK and overseas territories. The
accounting records for both the UK and overseas businesses
are primarily maintained and controlled by the UK finance team
in London. We determined the appropriate work to perform
based on the consolidation schedules of the Group setting out
balances and accounts which aggregate to the Group totals ,
the areas of focus as noted above, known or historical
accounting issues and the need to include some unpredictability
in our audit procedures.
As a result of our scoping, we concluded that two UK legal
entities (CMC Markets plc and CMC Markets UK plc) were
material components and therefore we have performed a full
scope audit of these entities. In addition, the Group audit team in
London performed certain substantive testing that covered all
spread betting and CFD revenue accounts. As a result, the
majority of the audit work was performed by the Group audit
team in London. Certain specified audit procedures were carried
out by PwC Australia over deferred tax, trade receivable and
trade payable balances relating to the CMC Australian
subsidiaries.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and on the
financial statements as a whole.
Rationale for
benchmark
applied
Component
materiality
We have used profit before tax as the
materiality benchmark as it is an
important profit metric which takes
account of all aspects of trading
performance of the Group.
For each component in our audit scope,
we allocated a materiality that is less
than our overall Group materiality. The
range of materiality allocated across
components was between £2 million and
£2.3 million.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£121,000 (2016: 133,000) as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’
statement, set out on page 108, in relation to going concern. We
have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if
we have anything material to add or to draw attention to in
relation to the directors’ statement about whether they
considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing material
to add or to draw to your attention.
As noted in the directors’ statement, the directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the Group and parent company have
adequate resources to remain in operation, and that the
directors intend them to do so, for at least one year from the
date the financial statements were signed. As part of our audit
we have concluded that the directors’ use of the going
concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are
not a guarantee as to the Group’s and parent company’s ability
to continue as a going concern.
Other required reporting
Consistency of other information and compliance with
applicable requirements
Companies Act 2006 opinions
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
In our opinion, based on the work undertaken in the course of
the audit:
Overall group
materiality
How we
determined it
£2.4 million (2016: £2.7 million)
5% of profit before tax.
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the
Group, the parent company and their environment obtained in
the course of the audit, we are required to report if we have
identified any material misstatements in the Strategic Report and
the Directors’ Report. We have nothing to report in this respect.
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Corporate Governance
Statement set out on pages 56 to 113 with respect to the
company’s corporate governance code and practices and
about its administrative, management and supervisory
bodies complies with rules 7.2.2, 7.2.3 and 7.2.7 of the
Disclosure Guidance and Transparency Rules sourcebook
of the Financial Conduct Authority.
119
• the information given in the Corporate Governance
Statement set out on pages 48 to 55 with respect to
internal control and risk management systems and about
share capital structures is consistent with the financial
statements and has been prepared in accordance with
applicable legal requirements; and
ISAs (UK & Ireland) reporting
In addition, in light of the knowledge and understanding of the
Group, the parent company and their environment obtained in
the course of the audit, we are required to report if we have
identified any material misstatements in the information
referred to above in the Corporate Governance Statement.
We have nothing to report in this respect.
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
information in the Annual Report is:
•
– materially inconsistent with the information in the audited financial statements of the Group; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the
We have no exceptions
to report.
Group and parent company acquired in the course of performing our audit; or
– otherwise misleading.
• the statement given by the directors on page 65, in accordance with provision C.1.1 of the UK
Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a
whole to be fair, balanced and understandable and provides the information necessary for
members to assess the Group’s and parent company’s position and performance, business model
and strategy is materially inconsistent with our knowledge of the Group and parent company
acquired in the course of performing our audit.
We have no exceptions
to report.
• the section of the Annual Report on page 69, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions
to report.
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw
attention to in relation to:
• the directors’ confirmation on page 48 of the Annual Report, in accordance with provision C.2.1 of
the Code, that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity.
We have nothing
material to add or
to draw attention to.
• the disclosures in the Annual Report that describe those risks and explain how they are being
managed or mitigated.
• the directors’ explanation on page 108 of the Annual Report, in accordance with provision C.2.2
of the Code, as to how they have assessed the prospects of the Group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting
their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering
whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing
to report having performed our review.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
• we have not received all the information and explanations
120
we require for our audit; or
This report, including the opinions, has been prepared for
and only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not, in giving these
opinions, 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.
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
We have no exceptions to report arising from this
responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have
no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report
to you if, in our opinion, a corporate governance statement
has not been prepared by the parent company. We have
no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to ten further
provisions of the Code. We have nothing to report having
performed our review.
Responsibilities for the financial statements
and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
responsibilities set out on page 113, the directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on
the financial statements in accordance with applicable law and
ISAs (UK & Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
• whether the accounting policies are appropriate to the
Group’s and the parent company’s circumstances and
have been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates
made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We
obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements of the
Group and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report. With respect to the Strategic Report, Directors’
Report and Corporate Governance Statement, we consider
whether those reports include the disclosures required by
applicable legal requirements.
Gilly Lord (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 June 2017
Financial statements
Consolidated income statement
For the year ended 31 March 2017
GROUP
£‘000
Revenue
Interest income
Total revenue
Introducing partner commissions and betting levies
Net operating income
Other income
Operating expenses
EBITDA1
Analysed as:
EBITDA before exceptional items²
Exceptional income
Exceptional costs
EBITDA1
Depreciation and amortisation
Operating profit
Finance costs
Profit before taxation
Analysed as:
Profit before taxation and exceptional items
Exceptional income
Exceptional costs
Profit before taxation
Taxation
Profit for the year attributable to owners of the parent
Earnings per share
Basic earnings per share (p)
Diluted earnings per share (p)
121
Year ended
Year ended
31 March
31 March
Note
2017
2016
185,927
186,397
1,739
187,666
(26,876)
160,790
–
1,762
188,159
(18,812)
169,347
3,135
(105,756)
(112,277)
55,034
60,205
55,034
–
–
55,034
(5,835)
49,199
(734)
48,465
48,465
–
–
48,465
(9,309)
39,156
69,168
3,135
(12,098)
60,205
(6,057)
54,148
(772)
53,376
62,339
3,135
(12,098)
53,376
(10,915)
42,461
13.7p
13.6p
15.1p
15.0p
4
3
5
6
5
6
9
8
9
5
6
10
11
11
1 EBITDA represents earnings before interest, tax, depreciation and amortisation and impairment of intangible assets, but includes interest income classified as trading revenue.
2 EBITDA before exceptional items represents Underlying EBITDA.
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement or
statement of comprehensive income. The Company had no other comprehensive income.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 March 2017
122
GROUP
£‘000
Profit for the year
Other comprehensive income/(expense):
Items that may be subsequently reclassified to income statement
Loss on net investment hedges
Amounts recycled from equity to the income statement
Currency translation differences
Change in value of available-for-sale financial assets
Other comprehensive income for the year
Note
26
26
26
Year ended
Year ended
31 March
31 March
2017
39,156
2016
42,461
(2,950)
159
4,255
(7)
1,457
(1,172)
61
1,563
4
456
Total comprehensive income for the year attributable to owners of the parent
40,613
42,917
Consolidated statement of financial position
Company registration number: 05145017
At 31 March 2017
GROUP
£‘000
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Derivative financial instruments
Financial investments
Amounts due from brokers
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Current tax payable
Short term provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Long term provisions
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Equity attributable to owners of the Company
Share capital
Share premium
Own shares held in trust
Other reserves
Retained earnings
Total equity
TOTAL EQUITY AND LIABILITIES
31 March
31 March
Note
2017
2016
123
13
14
15
17
18
19
20
21
18
22
23
21
22
15
23
24
24
25
26
2,115
18,197
8,113
28,425
31,542
1,935
20,272
119,390
53,226
2,649
16,350
7,701
26,700
20,931
795
20,374
84,230
78,280
226,365
204,610
254,790
231,310
36,389
34,738
3,340
5,760
5,489
368
4,996
1,355
7,758
160
51,346
49,007
3,030
3,042
24
1,575
7,671
3,479
1,085
5
1,407
5,976
59,017
54,983
72,646
46,236
(466)
(48,056)
125,413
72,600
46,243
(984)
(49,513)
107,981
195,773
176,327
254,790
231,310
The financial statements on pages 121 to 165 were approved by the Board of Directors on 7 June 2017 and signed
on its behalf by:
Peter Cruddas, Chief Executive Officer
Grant Foley, Chief Operating and Financial Officer
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Parent company statement of financial position
Company registration number: 05145017
Consolidated and parent company statements of changes in equity
At 31 March 2017
COMPANY
£‘000
ASSETS
124
Non-current assets
Investment in subsidiary undertakings
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Total current liabilities
TOTAL LIABILITIES
EQUITY
Equity attributable to owners of the Company
Share capital
Share premium
Retained earnings
At 1 April
Profit for the year attributable to the owners
Other changes in retained earnings
Total equity
TOTAL EQUITY AND LIABILITIES
31 March
31 March
Note
2017
2016
16
168,906
167,036
168,906
167,036
17
20
21
24
24
196
149
345
–
15,000
15,000
169,251
182,036
21,363
21,363
21,363
72,646
46,236
26,223
23,618
36,970
36,970
36,970
72,600
46,243
39,947
7,708
(20,835)
(21,432)
29,006
26,223
147,888
145,066
169,251
182,036
The financial statements on pages 121 to 165 were approved by the Board of Directors on 7 June 2017 and
signed on its behalf by:
Peter Cruddas, Chief Executive Officer
Grant Foley, Chief Operating and Financial Officer
Other
reserves
(49,969)
Retained
earnings
Total
Equity
90,219
142,323
125
For the year ended 31 March 2017
GROUP
£‘000
At 1 April 2015
New shares issued
Total comprehensive income for the year
Disposal of own shares held in trust
Share-based payments
Tax on share-based payments
Dividends
At 31 March 2016
New shares issued
Total comprehensive income for the year
Acquisition of own shares held in trust
Utilisation of own shares held in trust
Share-based payments
Tax on share-based payments
Dividends
At 31 March 2017
Share
capital
70,694
1,906
–
–
–
–
–
Share
Own shares
premium
held in trust
33,362
12,881
–
–
–
–
–
(1,983)
–
–
999
–
–
–
–
456
–
–
–
–
72,600
46
46,243
(7)
–
–
–
–
–
–
–
–
–
–
–
–
(984)
(49,513)
–
–
(504)
1,022
–
–
–
–
1,457
–
–
–
–
–
72,646
46,236
(466)
(48,056)
Total equity is attributable to owners of the Company
COMPANY
£‘000
At 1 April 2015
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2016
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2017
Share
capital
70,694
1,906
–
–
–
Share
premium
33,362
12,881
–
–
–
72,600
46,243
46
–
–
–
(7)
–
–
–
72,646
46,236
–
42,461
–
205
31
(24,935)
107,981
–
39,156
–
–
2,253
(31)
(23,946)
125,413
Retained
earnings
39,947
–
7,708
3,503
(24,935)
26,223
–
23,618
3,114
(23,949)
29,006
14,787
42,917
999
205
31
(24,935)
176,327
39
40,613
(504)
1,022
2,253
(31)
(23,946)
195,773
Total
Equity
144,003
14,787
7,708
3,503
(24,935)
145,066
39
23,618
3,114
(23,949)
147,888
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Consolidated and parent company statements of cash flows
Notes to the consolidated and parent company financial statements
For the year ended 31 March 2017
126
£‘000
Cash flows from operating activities
Cash generated from / (used in) operations
Interest income
Tax paid
GROUP
COMPANY
Year ended
Year ended
Year ended
Year ended
31 March
31 March
31 March
31 March
Note
2017
2016
2017
2016
27
11,865
1,739
(11,372)
80,061
1,762
(6,872)
(16,235)
14,277
–
–
–
(3)
Net cash generated from / (used in) operating activities
2,232
74,951
(16,235)
14,274
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Investment in intangible assets
Proceeds from disposal of intangible assets
Purchase of financial investments
Proceeds from maturity of financial investments and coupon receipts
Outflow on Net investment hedges
Investment in subsidiaries
Dividends received
(3,069)
(2,900)
85
(811)
33
59
(1,092)
–
(20,562)
(20,633)
20,710
(4,792)
–
–
287
–
–
–
Net cash (used in) / generated from investing activities
(8,406)
(24,279)
–
–
–
–
–
–
–
1,244
24,050
25,294
–
–
39
–
–
–
–
–
–
–
–
–
(4,126)
15,000
10,874
–
–
14,787
–
–
(20,204)
19,247
–
–
(465)
(1,412)
–
14,787
999
–
(23,946)
(24,935)
(23,949)
(24,935)
(734)
(772)
–
–
(26,102)
(11,333)
(23,910)
(10,148)
(32,276)
78,280
2,948
48,952
39,339
38,611
330
78,280
(14,851)
15,000
–
149
15,000
–
–
15,000
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Proceeds from issue of ordinary shares
Disposal of own shares
Acquisition of own shares
Dividends paid
Finance costs
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
For the year ended 31 March 2017
1. General information
Corporate information
127
CMC Markets plc (the Company) is a company incorporated and domiciled in England and Wales under the Companies Act
2006. The nature of the operations and principal activities of the CMC Markets plc and its subsidiaries (collectively the “Group”)
are set out in note 3.
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The Group’s financial statements are presented in Sterling
(GBP) which is the Company’s functional and the Group’s presentation currency. Foreign operations are included in accordance
with the policies set out in note 2.
Basis of accounting
The 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 as adopted by the European Union and
the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared in accordance with the going concern basis, under the historical cost convention,
except in the case of “Financial instruments at fair value through profit or loss” and “Available for sale financial assets”. The
financial information is rounded to the nearest thousand, except where otherwise indicated.
The Group principal accounting policies adopted in the preparation of these financial statements are set out in note 2 below.
These policies have been consistently applied to all years presented. The financial statements presented are at and for the years
ending 31 March 2017 and 31 March 2016. Financial annual years are referred to as 2017, and 2016 in the financial statements.
Changes in accounting policy and disclosures
Application of new and revised accounting standards
The accounting policies adopted by the group are consistent with those of the previous financial year. There were no new or
amended standards or interpretations that resulted in a change in accounting policy.
New accounting standards in issue but not yet effective
At the date of authorisation of the financial statements, the following new Standards and Interpretations relevant to the Group
were in issue but not yet effective and have not been applied to the financial statements:
• IFRS 9, ‘Financial instruments: classification and measurement’, will replace IAS 39, ‘Financial instruments: Recognition and
measurement.’ IFRS 9 has three measurement categories: amortised cost, fair value through profit or loss and fair value
through other comprehensive income. All equity instruments are measured at fair value. A debt instrument is measured at
amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and
interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortised-cost accounting for
most financial liabilities, with bifurcation of embedded derivatives.
The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due
to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement. The full impact of
IFRS 9 is being assessed by the management, the group intends to adopt the standard no later than the accounting year
beginning 1 April 2018.
• IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting
useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good
or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces
IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The full impact of IFRS 15 is being assessed
by the management, the group intends to adopt the standard no later than the accounting year beginning 1 April 2018.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
• IFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for
reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key
change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard
replaces IAS 17 ‘Leases’, and related interpretations. The standard is effective for annual periods beginning on or after
1 January 2019 and earlier application is permitted subject to EU endorsement and the entity adopting IFRS 15 ‘Revenue
from contracts with customers’ at the same time. The Group is yet to assess the full impact of IFRS 16, but intends to adopt
the standard no later than the accounting year beginning 1 April 2019, subject to endorsement by the EU.
128
Basis of consolidation
The financial statements incorporate the financial information of the Company and its subsidiaries. Subsidiaries are all entities
over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of
the entity.
CMC Markets plc became the ultimate holding company of the Group under a Group reorganisation in 2006. The pooling of
interests method of accounting was applied to the Group reorganisation as it fell outside the scope of IFRS 3: Business
Combinations. The Directors adopted the pooling of interests as they believed it best reflected the true nature of the Group.
All other business combinations have been accounted for by the purchase method of accounting.
Under the purchase method of accounting, the identifiable assets, liabilities and contingent liabilities of a subsidiary are
measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The results of
subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date
of acquisition or up to the effective date of disposal, as appropriate. Acquisition related costs are expensed as incurred.
Interest Income
Total revenue also includes interest earned on the Group’s own funds, clients’ funds and broker trading deposits net of interest
payable to clients and brokers. Interest income is accrued on a time basis, by reference to the principal outstanding and at the
interest rate applicable.
Introducing partner commissions and betting levies
129
Commissions payable to introducing partners, and spread betting levies are charged to the income statement when the
associated revenue is recognised and is disclosed as a deduction from total revenue in deriving net operating income. Betting
levy is payable on net gains generated from clients on spread betting and the Countdowns product. This levy is payable on net
gains generated from clients on these products.
Other income
Items of income that are material by size and/or nature and are non-business related are classified as other income on the face
of the consolidated income statement.
Segmental reporting
The Group’s segmental information is disclosed in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker (CODM), who is responsible for allocating resources and assessing
the performance of the operating segments, has been identified as the CMC Markets plc Board. Operating segments that do not
meet the quantitative thresholds required by IFRS 8 are aggregated. The segments are subject to annual review and the
comparatives restated to reflect any reclassifications within the segmental reporting.
Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into
line with those adopted by the Group.
Share-based payment
All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.
Significant accounting judgements
The preparation of financial statements in conformity with IFRS requires the use of certain significant accounting judgements.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The only area
involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial
statements is:
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.
The Group issues equity-settled and cash-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at
date of grant. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. At each balance sheet date,
the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-
based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the income statement such
that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the retained earnings.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations.
Cash-settled share based payments are measured at expected value at vesting date at least once per year, along with the
likelihood of meeting non-market based vesting conditions and the number of shares that are expected to vest. The cost is
recognised in the income statement with a corresponding accrual.
2. Summary of significant accounting policies
Retirement benefit costs
Total Revenue
Revenue
Revenue comprises the fair value of the consideration received from the provision of online financial services in the ordinary
course of the Group’s activities, net of client rebates. Revenue is shown net of value added tax after eliminating sales within the
Group. Revenue is recognised when it is probable that economic benefits associated with the transaction will flow to the Group
and the revenue can be reliably measured.
The Group generates revenue principally from flow management, commissions, spreads and financing income associated with
acting as a market maker to its clients to trade contracts for difference (CFD) and financial spread betting.
Revenue represents profits and losses, including commissions, spreads and financing income, from client trading activity and the
transactions undertaken to hedge these revenue flows. Gains and losses arising on the valuation of open positions to fair market
value are recognised in revenue, as well as the gains and losses realised on positions which have closed. Revenue from the
provision of financial information and stockbroking services to third parties is recognised at the later of the rendering of the service
or the point at which the revenue can be reliably measured.
A defined contribution plan is a post-employment benefit plan into which the Group pays fixed contributions to a third party
pension provider and has no legal or constructive obligation to pay further amounts. Contributions are recognised as staff
expenses in profit or loss in the years during which related employee services are fulfilled.
The Group operates defined contribution pension schemes for its Directors and employees. The assets of the schemes are held
separately from those of the Group in independently administered funds.
Operating Leases
Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases.
The rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term.
Benefits received and receivable as an incentive to enter into an operating lease are included within deferred income and
amortised to the income statement so as to spread the benefit on a straight-line basis over the lease term.
Where a leasehold property becomes surplus to the Group’s foreseeable business requirements, provision is made for the
expected future net cost of the property taking account of the duration of the lease and any recovery of cost achievable
through subletting.
Annual Report 2017
CMC Markets plc
Financial statements
Financial statements
Exceptional items
Exceptional items are events or transactions that fall outside the ordinary activities of the Group and which by virtue of their
size or incidence have been disclosed in order to improve a reader’s understanding of the financial statements.
Taxation
130
The tax expense represents the sum of tax currently payable and movements in deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the
consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from
differences between the carrying amount of assets and liabilities in the financial information and the corresponding tax basis
used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences may be utilised. Deferred tax is calculated using tax rates and laws enacted or substantively enacted by
the balance sheet date.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s interest in the identifiable assets,
liabilities and contingent liabilities of a subsidiary, at the date of acquisition. Goodwill arising on the acquisition of subsidiaries is
included within ‘intangible assets’ at cost less accumulated impairment losses.
Goodwill is tested for impairment annually. Any impairment is recognised immediately in the consolidated income statement and is
not subsequently reversed. On disposal of a subsidiary, the attributed amount of goodwill, which has not been subject to
impairment, is included in the determination of the profit or loss on disposal.
131
Goodwill is allocated to cash-generating units for purposes of impairment testing. The allocation is made to those cash-
generating units or groups of cash generating units that are expected to benefit from the business combination, identified
according to business segment.
Computer software (purchased and developed)
Purchased software is recognised as an intangible asset at cost when acquired. Costs associated with maintaining computer
software are recognised as an expense as incurred. Costs directly attributable to internally developed software are recognised as
an intangible asset only if all of the following conditions are met:
Such assets and liabilities are not recognised if the temporary difference arises from the goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction, which affects neither the tax profit nor the
accounting profit.
• an asset is created that can be identified;
•
it is probable that the asset created will generate future economic benefits;
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
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.
Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or
credited in the consolidated income statement, except when it relates to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Foreign currencies
Transactions denominated in currencies, other than the functional currency, are recorded at the rates of exchange prevailing on
the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the
income statement for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in
fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the average exchange rates applicable to the relevant year.
Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve.
Such translation differences are recognised as income or expense in the year in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
• the development costs of the asset can be measured reliably;
• sufficient resources are available to complete the development; and
•
it is the Group’s intention to complete the asset and use or sell it.
Where the above conditions are not met, costs are expensed as incurred. Directly attributable costs that are capitalised include
software development employee costs and an appropriate portion of relevant overheads. Costs which have been recognised
as an asset are amortised on a straight line basis over the asset’s estimated useful life.
Trademarks and trading licences
Trademarks and trading licences that are separately acquired are capitalised at cost and those acquired from a business
combination are capitalised at the fair value at the date of acquisition. Amortisation is charged to the income statement
on a straight line basis over their estimated useful lives.
Client relationships
The fair value attributable to client relationships acquired through a business combination is included as an intangible asset
and amortised over the estimated useful life on a straight line basis. The fair value of client relationships is calculated at the date
of acquisition on the basis of the expected future cash flows to be generated from that asset. Separate values are not attributed
to internally generated client relationships.
Following initial recognition, Computer software, Trademarks and trading licences and Client relationships are carried at cost or
initial fair value less accumulated amortisation. Amortisation is provided on all intangible asset at rates calculated to write-off the
cost, less estimated residual value based on prices prevailing at the balance sheet date, of each asset on a straight-line basis over
its expected useful life as follows:
Item
Amortisation Policy
Computer software (purchased or developed)
3 years or life of licence
Trademarks and trading licences
Client relationships
10 – 20 years
14 years
Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Property, plant and equipment
Property, plant and equipment (PPE) is stated at cost less accumulated depreciation and any recognised impairment loss. Cost
includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its
intended use. Depreciation is provided on all PPE at rates calculated to write-off the cost, less estimated residual value based
on prices prevailing at the balance sheet date, of each asset on a straight-line basis over its expected useful life as follows:
132
Item
Furniture, fixtures and equipment
Computer hardware
Leasehold improvements
Depreciation Policy
5 years
5 years
15 years
The useful lives and residual values of the assets are assessed annually and may be adjusted depending on a number of factors.
In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken
into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and
projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in the consolidated income statement.
Impairment of assets
Assets subject to amortisation or depreciation are reviewed for impairment if events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less cost to sell and value-in-use. Net realisable value is the estimated amount
at which an asset can be disposed of, less any direct selling costs. Value-in-use is the estimated discounted future cash flows
generated from the asset’s continued use, including those from its ultimate disposal. For the purpose of assessing value in use,
assets are grouped at the lowest levels for which there are separately identifiable cash flows.
To the extent that the carrying amount exceeds the recoverable amount, the asset is written down to its recoverable amount.
For assets other than goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset is increased to
the lower of its original carrying amount and the revised estimate of its recoverable amount.
Financial assets
Regular purchases and sales of financial assets are recognised on a trade date basis where the purchase or sale of an asset is
under a contract whose terms require delivery of the asset within the timeframe established by the market concerned. Financial
assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and
the Group has transferred substantially all risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting
year. These are classified as non-current assets. Loans and receivables are recognised initially at cost, being the fair value of the
consideration together with any associated issue costs. After initial recognition, loans and receivables are subsequently measured
at amortised cost using the effective interest method, less provision for impairment.
The Group’s loans and receivables comprise ‘trade and other receivables’ (note 18), ‘amounts due from brokers’ and ‘cash and
cash equivalents’ (note 20) in the statement of financial position.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of hedged items.
The Group designates certain derivatives as either:
Held for trading
133
Derivatives classified as held for trading are included in this category. The Group uses derivative financial instruments in order to
hedge derivative exposures arising from open client positions, which are classified as held for trading. All derivatives held for
trading are carried in the statement of financial position at fair value with gains or losses recognised in revenue in the income
statement.
Held as hedges of net investments in foreign operations
Where a foreign currency derivative financial instrument is a formally designated hedge of a net investment in a foreign operation,
foreign exchange differences arising on translation of the financial instrument are recognised in net investment hedging reserve via
other comprehensive income to the extent the hedge is effective. The Group assesses the effectiveness of its net investment
hedges based on fair value changes of its net assets and the fair value changes of the relevant financial instrument. The gain or loss
relating to the ineffective portion is recognised immediately in operating costs in the income statement. Accumulated gains and
losses recorded in net investment hedging reserve are recognised in operating costs in the income statement on disposal of the
foreign operation.
Economic hedges (Held as hedges of monetary assets and liabilities, financial commitments or forecast transactions)
These are derivatives held to mitigate the foreign exchange risk on monetary assets and liabilities, financial commitments or
forecast transactions. Where a derivative financial instrument is used as an economic hedge of the foreign exchange exposure
of a recognised monetary asset or liability, financial commitment or forecast transaction, but does not meet the criteria to qualify
for hedge accounting under IAS39, no hedge accounting is applied and any gain or loss resulting from changes in fair value of
the hedging instrument is recognised in operating costs in the income statement.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables. For trade receivables relating to financial information
and stockbroking services, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.
The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised
in the income statement within other operating costs. When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other
operating costs in the income statement.
Amounts due from brokers
All derivatives used as hedges held for trading are margin-traded. Amounts due from brokers represent funds placed with
hedging counterparties, a proportion of which is posted to meet broker margin requirements. Assets or liabilities resulting from
profits or losses on open positions are recognised separately as derivative financial instruments.
Derivative financial instruments
Cash and cash equivalents
Derivatives financial instruments, comprising Index, Commodities, Foreign Exchange and Treasury futures and forward foreign
exchange contracts are classified as ‘fair value through profit or loss’ under IAS39, unless designated as hedges. Derivatives not
designated as hedges are initially recognised at fair value. Subsequent to initial recognition, changes in fair value of such
derivatives and gains or losses on their settlement are recognised in the income statement.
Cash and cash equivalents comprise current account balances, bank deposits and other short-term highly liquid investments
with initial maturity dates of less than three months.
Financial statements
Client money
The Group holds money on behalf of clients in accordance with the Client Asset (CASS) rules of the FCA and other financial
markets regulators in the countries in which the Group operates. Client monies are classified as either client money or cash and
cash equivalents in accordance with the relevant regulatory agency’s requirements. The amounts held on behalf of clients at the
balance sheet date are stated in notes 20 and 21. Segregated client funds comprise individual client funds held in segregated
client money accounts. Segregated client money accounts hold statutory trust status restricting the Group’s ability to control the
monies and accordingly such amounts and are not recognised on the Group’s statement of financial position.
134
3. 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 betting 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:
135
Annual Report 2017
CMC Markets plc
Financial statements
Trade payables
Trade payables are not interest-bearing and are stated at fair value on initial recognition and subsequently at amortised cost.
• UK and Ireland (UK & IE);
• Europe;
Borrowings
• Australia, New Zealand and Singapore (APAC) and Canada;
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.
GROUP
Year ended 31 March 2017
£‘000
Segment revenue net of introducing
partner commissions and betting levies
Interest income
Net operating income
Other income
Segment operating expenses
Segment EBITDA
Allocation of central operating expenses
Depreciation and amortisation
Allocation of central depreciation
and amortisation
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
UK & IE
Europe
61,091
192
61,283
–
(12,689)
48,594
(21,844)
(914)
(1,206)
24,630
(71)
(271)
24,288
45,194
–
45,194
–
(11,679)
33,515
(21,865)
(237)
(1,490)
9,923
(4)
(202)
9,717
APAC &
Canada
52,766
1,547
54,313
–
(12,582)
41,731
(25,097)
(635)
(1,353)
14,646
(2)
(184)
14,460
Central
Total
–
–
–
–
(68,806)
(68,806)
68,806
(4,049)
4,049
–
(657)
657
–
159,051
1,739
160,790
–
(105,756)
55,034
–
(5,835)
–
49,199
(734)
–
48,465
The Group leases certain property, plant and equipment. The leases where the Group has substantially all the risks and rewards
of ownership are classified as finance leases. These leases are capitalised at the lease’s commencement at the lower of fair value
and present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges.
The corresponding rental obligations, net of finance charges, are included in Borrowings. The interest element is charged to the
income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of liability
for each period and is presented within finance costs. The property, plant and equipment acquired under finance leases are
depreciated over the shorter of the useful life of the asset and the lease term.
All loans and borrowings other than finance leases are initially recognised at cost, being the fair value of the consideration
received, net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement
when the liabilities are derecognised or impaired, as well as through the amortisation process.
Provisions
A provision is a liability of uncertain timing or amount that is recognised when the Group has a present obligation (legal or
constructive) as a result of a past event where it is probable that the Group will be required to settle that obligation. Provisions
are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and
are discounted to present value where the effect is material. The increase in the provision due to the unwind of the discount to
present value over time is recognised as an interest expense.
Share capital
Ordinary and deferred shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
Own shares held in trusts
Shares held in trust by the Company for the purposes of employee share schemes are classified as a deduction from
shareholders’ equity and are recognised at cost. No gain or loss is recognised in the income statement on the purchase, sale,
issue or cancellation of equity shares.
Employee benefit trusts
Assets held in employee benefit trusts are recognised as assets of the Group, until these vest unconditionally to identified
employees. A full provision is made in respect of assets held by the trust as there is an obligation to distribute these assets to
the beneficiaries of the employee benefit trust.
The employee benefit trusts own equity shares in the Company. These investments in the Company’s own shares (‘treasury
shares’) are held at cost and are included as a deduction from equity attributable to the Company’s equity owners until such
time as the shares are cancelled or transferred. Where such shares are subsequently transferred, any consideration received, net
of any directly attributable incremental transaction costs and the related income tax effects are included in equity attributable to
the Company’s equity owners.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
GROUP
Year ended 31 March 2016
£‘000
Segment revenue net of introducing
partner commissions and betting levies
136
Interest income
Net operating income
Other income
Segment operating expenses
Segment EBITDA
Allocation of central operating expenses
Depreciation and amortisation
Allocation of central depreciation
and amortisation
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
UK & IE
Europe
63,153
286
63,439
3,135
(12,879)
53,695
(26,430)
(953)
(1,309)
25,003
(44)
(268)
24,691
48,483
–
48,483
–
(11,424)
37,059
(26,727)
(164)
(1,625)
8,543
–
(231)
8,312
APAC &
Canada
55,949
1,476
57,425
–
(10,117)
47,308
(24,700)
(297)
(1,709)
20,602
–
(229)
20,373
Central
Total
–
–
–
–
(77,857)
(77,857)
77,857
(4,643)
4,643
–
(728)
728
–
167,585
1,762
169,347
3,135
(112,277)
60,205
–
(6,057)
–
54,148
(772)
–
53,376
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 year
before interest expense, taxation, depreciation of property, plant and equipment and amortisation and impairment of intangibles.
4. Total revenue
Revenue
GROUP
£‘000
CFD and spread bet
Stockbroking
Other
Total
Interest income
GROUP
£‘000
Bank and broker interest
Interest from clients
Interest on financial investments
Total
The Group earns interest income from its own corporate funds and from segregated client funds.
Year ended
Year ended
31 March
31 March
2017
175,842
10,104
(19)
2016
179,345
6,826
226
185,927
186,397
Year ended
Year ended
31 March
31 March
2017
1,622
64
53
1,739
2016
1,587
151
24
1,762
5. Other income
Exceptional income
As a result of their materiality the directors decided to disclose certain amounts separately in order to present results which are
not distorted by significant non-recurring events.
GROUP
£‘000
Litigation settlement
Total
137
Year ended
Year ended
31 March
31 March
2017
–
–
2016
3,135
3,135
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 was treated as exceptional income during the
year ended 31 March 2016. As at 31 March 2017 £2,515,000 (31 March 2016: £2,025,000) had been received.
6. Operating expenses
GROUP
£‘000
Staff costs (note 7)
IT costs
Sales and marketing
Premises
Legal and Professional fees
Regulatory fees1
Other
Operating expenses before exceptional costs
Exceptional Costs
Operating expenses
1 Includes regulatory transaction fees
Year ended
Year ended
31 March
2017
31 March
2016
49,380
15,352
21,791
5,211
3,520
2,550
7,952
105,756
–
105,756
46,113
12,698
18,298
4,795
3,111
3,192
11,972
100,179
12,098
112,277
The above presentation reflects the breakdown of Operating expenses by nature of expense.
Exceptional costs
As a result of their materiality the directors decided to disclose certain amounts separately in order to present results which are
not distorted by significant non-recurring events.
GROUP
£‘000
Listing costs
Share based payments (including social security) to directors and employees
Exceptional costs
Year ended
Year ended
31 March
31 March
2017
–
–
–
2016
5,884
6,214
12,098
On 5 February 2016 the Company’s ordinary shares were listed on the London Stock Exchange. Total listing costs during the
year ended 31 March 2016 amounted to £6,418,000. In the year ended 31 March 2016 a total of £534,000 of these costs
were recognised directly in equity as they are costs that relate to the issue of new shares; £5,884,000 were recognised as
exceptional costs.
In the year ended 31 March 2016, share based payments (including social security) to directors and employees related to the
listing event triggered both the settlement of existing share option schemes and the award of new shares to certain directors
and employees amounting to £6,214,000. The social security element amounts to £787,000.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
7. Employee information
The aggregate employment costs of staff and Directors were:
138
GROUP
£‘000
Wages and salaries
Social security costs
Other pension costs
Share based payments
Total director and employee costs
Contract staff costs
Staff costs
Compensation of key management personnel is disclosed in note 32.
The monthly average number of Directors and employees of the Group during the year is set out below:
GROUP
Number
By activity:
Key management
Client acquisition and maintenance
IT development and support
Global support functions
Total directors and employees
Contract staff
Total staff
Year ended
Year ended
31 March
31 March
2017
36,819
5,102
1,348
4,408
47,677
1,703
49,380
2016
36,855
5,291
1,145
1,059
44,350
1,763
46,113
Year ended
Year ended
31 March
31 March
2017
2016
7
266
120
167
560
18
578
6
245
123
147
521
18
539
9. Profit before taxation
GROUP
£‘000
Profit before tax is stated after charging / (crediting):
Depreciation
Amortisation of intangible assets
Net foreign exchange (gain) / loss
Operating lease rentals
Auditors’ remuneration for audit and other services (see below)
Fees payable to the Company’s auditors, PricewaterhouseCoopers LLP were as follows:
GROUP
£‘000
Audit services
Statutory audit of Parent and consolidation
Statutory audit of subsidiaries
Other services
Tax compliance services
Other assurance services
Total
Year ended
Year ended
31 March
31 March
2017
2016
139
4,498
1,337
(969)
2,538
985
3,951
2,106
477
2,065
2,665
Year ended
Year ended
31 March
31 March
2017
2016
324
289
613
228
144
372
985
348
269
617
349
1,699
2,048
2,665
The Company incurred expenses of £1,699,000 during the year ended 31 March 2016 payable to the Company’s auditors
relating to the Company’s listing on the London Stock Exchange. These costs were treated as Exceptional costs in the year ended
31 March 2016 as they related to listing costs and were considered to be one-off in nature.
The company had no employees other than the directors during the current year or prior year.
10. Taxation
8. Finance costs
GROUP
£‘000
Interest and fees on bank borrowings
Other finance costs
Year ended
Year ended
31 March
31 March
2017
549
185
734
2016
583
189
772
GROUP
£‘000
Analysis of charge for the year:
Current tax
Current tax on profit for the year
Adjustments in respect of previous years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of previous years
Impact of change in tax rate
Total deferred tax
Total tax
Year ended
Year ended
31 March
31 March
2017
2016
9,034
(41)
8,993
414
(187)
89
316
9,309
10,769
354
11,123
77
(436)
151
(208)
10,915
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
The standard rate of UK corporation tax charged was 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 of 19.21% (Year ended 31 March 2016: 20.45%) differs
from the standard rate of UK corporation tax rate of 20% (Year ended 31 March 2016: 20%). The differences are explained below:
140
GROUP
£‘000
Profit before taxation
Profit multiplied by the standard rate of corp. tax in the UK of 20% (31 March 2016: 20%)
Adjustment in respect of foreign tax rates
Adjustments in respect of previous years
Impact of change in tax rate
Effect of research and development tax credits
Expenses not deductible for tax purposes
Income not subject to tax
Irrecoverable foreign tax
Recognition of previously unrecognised tax losses
Other differences
Total tax
Year ended
Year ended
31 March
31 March
2017
48,465
9,693
465
(228)
89
–
366
(115)
292
(1,380)
127
9,309
2016
53,376
10,675
469
(82)
151
(41)
1,440
(47)
214
(1,816)
(48)
10,915
For the year ended 31 March 2017, the tax effect of exceptional costs that were not recognised for tax purposes was £nil (Year
ended 31 March 2016: £1,177,000).
GROUP
£‘000
Tax on items recognised directly in Equity
Tax (credit) / charge on Share based payments
11. Earnings per share (EPS)
Year ended
Year ended
31 March
31 March
2017
2016
(31)
31
Basic EPS is calculated by dividing the earnings attributable to the equity owners of the Company by the weighted average
number of ordinary shares in issue during each year excluding those held in employee share trusts which are treated as
cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding those held in employee share
trusts, is adjusted to assume conversion of all dilutive potential weighted average ordinary shares, which consists of share
options granted to employees during the year ended 31 March 2017.
GROUP
£‘000
Earnings attributable to ordinary shareholders (£ '000)
Weighted average number of shares used in the calculation of basic earnings per share ('000)
Dilutive effect of share options ('000)
Weighted average number of shares used in the calculation of diluted earnings per share (‘000)
Basic earnings per share (p)
Diluted earnings per share (p)
Year ended
Year ended
31 March
31 March
2017
39,156
286,693
2,072
288,765
13.7p
13.6p
2016
42,461
281,189
1,206
282,395
15.1p
15.0p
For the year ended 31 March 2017, 2,072,000 (Year ended 31 March 2016: 1,206,000) potentially dilutive weighted average
ordinary shares in respect of share options in issue were included in the calculation of diluted EPS.
12. Dividends
GROUP
£‘000
Declared and paid in each year
Final dividend for 2016 at 5.36p per share (2015: 3.57p)
Interim dividend for 2017 at 2.98p per share (2016: 3.57p)
Special dividend for 2017 at Nil p per share (2016: 1.79p)
Total
Year ended
Year ended
31 March
31 March
2017
2016
141
15,392
8,554
–
9,968
9,978
4,989
23,946
24,935
The final dividend for 2017 of 5.95p per share, amounting to £17,141,000 was proposed by the board on 7 June 2017 and has
not been included as a liability at 31 March 2017. The dividend will be paid on 25 August 2017, following approval at the
Company’s AGM, to those members on the register at the close of business on 4 August 2017.
The dividends paid or declared in relation to the financial year are set out below:
GROUP
pence
Declared per share
Interim dividend
Final dividend
Ordinary dividend
Special dividend
Total dividend
13. Intangible assets
GROUP
£‘000
Cost
At 1 April 2015
Additions
Foreign currency translation
At 31 March 2016
Additions
Disposals
Foreign currency translation
At 31 March 2017
Accumulated amortisation
At 1 April 2015
Charge for the year
Foreign currency translation
At 31 March 2016
Charge for the year
Disposals
Foreign currency translation
At 31 March 2017
Carrying amount
At 1 April 2015
At 31 March 2016
At 31 March 2017
Year ended
Year ended
31 March
31 March
2017
2016
2.98p
5.95p
8.93p
–
8.93p
3.57p
5.36p
8.93p
1.79p
10.72p
Trademarks
Computer
and trading
Client
Goodwill
software
licences
relationships
Total
11,500
114,751
1,302
–
–
1,092
739
–
50
11,500
116,582
1,352
–
–
–
811
(101)
2,736
11,500
120,028
(11,500)
(111,841)
–
–
(1,845)
(737)
(11,500)
(114,423)
–
–
–
(1,286)
68
(2,736)
–
–
103
1,455
(785)
(45)
(32)
(862)
(51)
–
(78)
2,789
–
109
2,898
–
–
405
3,303
130,342
1,092
898
132,332
811
(101)
3,244
136,286
(2,558)
(126,684)
(216)
(124)
(2,106)
(893)
(2,898)
(129,683)
–
–
(405)
(1,337)
68
(3,219)
(11,500)
(118,377)
(991)
(3,303)
(134,171)
–
–
–
2,910
2,159
1,651
517
490
464
231
–
–
3,658
2,649
2,115
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Computer software includes capitalised development costs of £26,487,000 relating to the Group’s Next Generation trading
platform with carrying amount of £nil at 31 March 2017. (Carrying amount at 31 March 2016: £nil).
Impairment
Intangibles are tested for impairment if events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. There was no impairment identified in the year ended 31 March 2017 (Year ended 31 March 2016: £nil).
142
As discussed in the Strategic Report, at 31 March 2017, as a result of the ANZ Bank agreement, the Group is committed to capital
expenditure relating to the capitalisation of internal software development costs and the purchase of property, plant and equipment.
It is estimated this will total up to £6.0 million over the period to September 2018 (At 31 March 2016: £nil).
14. Property, plant and equipment
GROUP
£‘000
Cost
At 1 April 2015
Additions
Disposals
Foreign currency translation
At 31 March 2016
Additions
Disposals
Foreign currency translation
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
Disposals
Foreign currency translation
At 31 March 2016
Charge for the year
Disposals
Foreign currency translation
At 31 March 2017
Carrying amount
At 1 April 2015
At 31 March 2016
At 31 March 2017
Furniture,
Leasehold
fixtures and
Computer
improvements
equipment
hardware
Total
14,341
147
(274)
28
14,242
1,982
(136)
372
16,460
(5,256)
(1,038)
215
(22)
(6,101)
(1,310)
34
(190)
(7,567)
9,085
8,141
8,893
8,441
760
–
199
9,400
555
(49)
301
10,207
(7,636)
(455)
–
(140)
(8,231)
(417)
149
(212)
26,577
1,993
(92)
122
28,600
3,577
(126)
382
32,433
(19,091)
(2,458)
92
(103)
(21,560)
(2,771)
43
(337)
49,359
2,900
(366)
349
52,242
6,114
(311)
1,055
59,100
(31,983)
(3,951)
307
(265)
(35,892)
(4,498)
226
(739)
(8,711)
(24,625)
(40,903)
805
1,169
1,496
7,486
7,040
7,808
17,376
16,350
18,197
At 31 March 2017, the Group had capital commitments in respect of property, plant and equipment which are discussed in Note
13 (31 March 2016: £nil).
The net book value amount of property, plant and equipment includes £4,684,000 (31 March 2016: £3,225,000) in respect of
computer hardware held under finance leases.
15. Deferred tax
GROUP
£‘000
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after 12 months
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after 12 months
31 March
31 March
2017
2,170
5,943
8,113
(5)
(19)
(24)
2016
3,303
4,398
7,701
(2)
(3)
(5)
143
Net deferred tax asset
8,089
7,696
Deferred income taxes are calculated on all temporary differences under the liability method at the tax rate expected to apply
when the deferred tax will crystallise. The gross movement on deferred tax is as follows:
GROUP
£‘000
At beginning of year
(Charge) / Credit to income for the year
(Charge) / Credit to equity for the year
Change in tax rate
Foreign currency translation
At end of year
31 March
31 March
2017
7,696
(227)
(31)
(89)
740
8,089
2016
7,424
359
31
(151)
33
7,696
The following table details the deferred tax assets and liabilities recognised by the Group and movements thereon during the year:
GROUP
£‘000
At 1 April 2015
(Charge) / credit to income for the year
Credit to equity for the year
Change in tax rate
Foreign currency translation
At 31 March 2016
Credit / (Charge) to income for the year
Debit to equity for the year
Change in tax rate
Foreign currency translation
At 31 March 2017
Accelerated
capital
Other timing
Tax losses
allowances
differences
2,808
1,112
–
–
48
3,968
128
–
(2)
560
4,654
2,795
(490)
–
(122)
–
2,183
(94)
–
(70)
48
2,067
1,821
(263)
31
(29)
(15)
1,545
(261)
(31)
(17)
132
1,368
Total
7,424
359
31
(151)
33
7,696
(227)
(31)
(89)
740
8,089
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits
will be available in the future against which the reversal of the temporary differences can be deducted. The recoverability of the
Group’s deferred tax asset in respect of carry forward losses is based on an assessment of the future levels of taxable profit
expected to arise that can be offset against these losses. The Group’s expectations as to the level of future taxable profits take
into account the Group’s long term financial and strategic plans and anticipated future tax adjusting items. In making this
assessment account is taken of business plans including the Board-approved Group budget. Key budget assumptions are
discussed in the Directors’ viability statement.
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit
through future taxable profits is probable. As on 31 March 2017 the Group did not recognise deferred tax assets of
£16,781,000 (Year ended 31 March 2016: £15,690,000) in respect of losses amounting to £56,454,000 (Year ended 31 March
2016: £52,301,000). In respect of these losses, £55,258,000 relates to the Group’s Australian subsidiaries and there are no time
limits on their utilisation. £1,196,000 of the losses relates to the Group’s Information Internet Limited subsidiary and there are
no time limits on their utilisation. There has been an increase in the unrecognised losses due to the impact of foreign exchange
on the balance of the unrecognised losses.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
The Group has recognised a deferred tax asset of £4,596,000 (Year ended 31 March 2016: £3,968,000) in respect of losses of
£15,319,000 (Year ended 31 March 2016: £13,229,000) in the Group’s Australian subsidiaries as at 31 March 2017. The Group
has recognised a deferred tax asset of £31,000 (Year ended 31 March 2016: £0) in respect of losses of £164,000 (Year ended
31 March 2016: £0) in the Group’s Information Internet Limited subsidiary as at 31 March 2017.
144
The change in the main rate of UK corporation tax from 20 per cent to 19 per cent, effective from 1 April 2017, passed into
legislation in July 2015 through the 2015 Finance Act. The change in the main rate of UK corporation tax from 19 per cent to
17 per cent, effective from 1 April 2020, also passed into legislation in July 2015 through the 2015 Finance Act. The Group has
assessed the impact of these changes in line with accounting policies and all deferred tax balances are recorded at the tax rate
expected to apply when the deferred tax will crystallise.
16. Investment in subsidiary undertakings
COMPANY
£‘000
At 1 April
Capital contribution relating to share based payments
Amounts contributed by subsidiaries in relation to share based payments
Investment
Impairment
At 31 March
31 March
31 March
2017
167,036
3,114
(1,244)
–
168,906
–
168,906
2016
162,576
1,732
–
4,126
168,434
(1,398)
167,036
The list below includes all of the Group’s employee benefit trusts as at 31 March 2017:
CMC Markets Plc Employee Share Trust
CMC Markets Plc UK Share Incentive Plan
CMC Markets Plc (Discretionary Schemes) Employee share trust
CMC Markets 2007 Employee Benefit Trust
CMC Employee Share Scheme Trust
17. Trade and other receivables
£‘000
Gross trade receivables
Less: provision for impairment of trade receivables
Trade receivables
Prepayments and accrued income
Stock broking debtors
Other debtors
Total
Country of incorporation
Jersey
England
England
Isle of Man
Isle of Man
145
GROUP
COMPANY
31 March
31 March
31 March
31 March
2017
5,089
(3,491)
1,598
7,494
19,292
3,158
31,542
2016
4,466
(3,990)
476
7,697
7,151
5,607
20,931
2017
2016
–
–
–
196
–
–
196
–
–
–
–
–
–
–
The list below includes all of the Group’s direct and indirect subsidiaries as at 31 March 2017:
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 21).
CMC Markets Holdings Ltd
CMC Markets UK Holdings Ltd
CMC Markets UK plc
Information Internet Ltd
CMC Spreadbet plc
CMC Markets Overseas Holdings Ltd
CMC Markets Asia Pacific Pty Ltd
CMC Markets Pty Ltd
CMC Markets Group Australia Pty Ltd
CMC Markets Stockbroking Ltd
CMC Markets Stockbroking Nominees Pty Ltd
CMC Markets Stockbroking Nominees (No. 2 Account) Ltd
CMC Markets Canada Inc.
CMC Markets NZ Ltd
CMC Markets Singapore Pte Ltd
CMC Business Services (Shanghai) Limited
Country of
incorporation
Principal
activities
England
England
England
England
England
England
Australia
Australia
Australia
Australia
Australia
Australia
Canada
Holding company
Holding company
Online trading
IT development
Financial spread betting
Holding company
Online trading
Training and education
Holding company
Stock broking
Stock broking nominee
Dormant
Client introducing office
New Zealand
Online trading
Singapore
China
Online trading
Training and education
Held
Directly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Please refer to page 170 for the registered office addresses of the subsidiaries above.
All shareholdings are of ordinary shares. The issued share capital of all subsidiary undertakings is 100% owned, which also
represents the proportion of the voting rights in the subsidiary undertakings.
The list below includes all of the Group’s direct and indirect subsidiaries dissolved since 1 April 2016:
CMC Markets Digital Options GmbH
Redmonitor GmbH
Country of
incorporation
Austria
Austria
Date of dissolution
Direct parent
16 April 2016
28 April 2016
Information Internet Ltd
CMC Markets Overseas Holdings Ltd
18. Derivative financial instruments
GROUP
Assets
£‘000
Held for trading
Index, commodity, foreign exchange and treasury futures
Forward foreign exchange contracts
Held for hedging
Forward foreign exchange contracts – economic hedges
Forward foreign exchange contracts – net investment hedges
Total
GROUP
Liabilities
£‘000
Held for trading
Index, commodity, foreign exchange and treasury futures
Forward foreign exchange contracts
Held for hedging
Forward foreign exchange contracts – economic hedges
Forward foreign exchange contracts – net investment hedges
Total
31 March
31 March
2017
2016
480
979
184
292
1,935
588
–
207
–
795
31 March
31 March
2017
2016
(3,007)
(328)
(5)
–
(3,340)
(1,708)
(1,550)
(188)
(1,550)
(4,996)
The fair value of derivative contracts is based on the market price of comparable instruments at the balance sheet date. All
derivative financial instruments have a maturity date of less than one year.
Held for trading
As described in note 29, the Group enters derivative contracts in order to hedge its market price risk exposure arising from open
client positions.
Financial statements
Held for hedging
Annual Report 2017
CMC Markets plc
Financial statements
Cash and cash equivalents comprise of the following for the purpose of the statement of cash flows:
The Group’s forward foreign exchange contracts are designated as either economic or net investment hedges.
Economic hedges are held for the purpose of mitigating currency risk relating to transactional currency flows arising from
earnings in foreign currencies but do not meet the criteria for designation as hedges. During the year ended 31 March 2017,
£1,103,000 of gains net of revaluation gains or losses relating to economic hedges were recognised in the income statement
(Year ended 31 March 2016, losses: £267,000).
146
The Group has designated a number of foreign exchange derivative contracts as hedges of the net investment in the Group’s
foreign operations. At 31 March 2017, £8,639,000 (31 March 2016: £5,689,000) of fair value losses were recorded in net
investment hedging reserve within other reserves. At 31 March 2017, £8,386,000 (31 March 2016: £3,972,000) of fair value
gains were recorded in translation reserve within other reserves. All changes in the fair value were treated as being effective
under IAS 39 – Financial Instruments: Recognition and Measurement and Eligible Hedged Items.
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets at the balance sheet date.
The Group’s derivative positions are reported gross on the statement of financial position, as required by IAS32 where there are
no offset rights in place. There are no further netting arrangements or collateral posted which would impact the settlement of
these balances.
19. Financial investments
GROUP
£‘000
UK Government securities:
At 1 April
Purchase of securities
Maturity of securities and coupon receipts
Accrued interest
Net (losses) / gains transferred to equity
At 31 March
31 March
31 March
2017
2016
20,374
20,562
(20,710)
53
(7)
–
20,633
(287)
24
4
20,272
20,374
The UK Government securities are held by the Group in satisfaction of the FCA requirements to hold a ‘liquid assets buffer’
against potential liquidity stress under BIPRU12.
The effective interest rates of securities held at the year-end range from 0.02% to 0.14%.
Financial investments are shown as current assets when they have a maturity less than one year and are held as ‘available-for-
sale’. The fair value of securities held is based on closing market prices at the year-end as published by the UK Debt
Management Office.
20. Cash and cash equivalents
£‘000
Cash and cash equivalents
Less: Bank overdrafts (Note 22)
Cash and cash equivalents
21. Trade and other payables
£‘000
Current
Gross trade payables
Less: Client monies
Trade payables
Amount owing to Group companies
Tax and social security
Stock broking creditors
Accruals and deferred income
Non-current
Accruals and deferred income
Total
22. Borrowings
GROUP
£‘000
Current
Finance lease liabilities
Bank overdrafts
Other liabilities
Non-current
Finance lease liabilities
Other liabilities
GROUP
COMPANY
Total
£‘000
Gross cash and cash equivalents
Less: Client monies
Own cash and cash equivalents
Analysed as:
Cash at bank
Short-term deposits
31 March
31 March
31 March
31 March
2017
2016
2017
363,258
(310,032)
304,364
(226,084)
53,226
78,280
50,218
3,008
75,577
2,703
149
–
149
149
–
2016
15,000
–
15,000
15,000
–
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.
The fair value of financial liabilities is approximate to the book value shown above.
GROUP
£‘000
Finance lease liabilities
Amounts payable under finance lease:
Within one year
In the second to fifth years inclusive
After five years
Less: future finance charges
Present value of lease obligations
GROUP
COMPANY
31 March
31 March
31 March
31 March
2017
53,226
(4,274)
48,952
2016
78,280
–
78,280
2017
149
–
149
2016
15,000
–
15,000
147
GROUP
COMPANY
31 March
31 March
31 March
31 March
2017
2016
2017
2016
313,871
(310,032)
228,329
(226,084)
3,839
–
25
17,079
15,446
36,389
3,030
39,419
2,245
–
1,035
9,186
22,272
34,738
3,479
38,217
8
–
8
–
–
–
21,242
35,548
–
–
113
21,363
–
–
1,422
36,970
–
–
21,363
36,970
31 March
31 March
2017
2016
1,316
4,274
170
5,760
2,455
587
3,042
8,802
1,333
–
22
1,355
1,030
55
1,085
2,440
31 March
31 March
2017
2016
1,424
2,581
–
4,005
(234)
3,771
1,441
1,079
–
2,520
(157)
2,363
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
The present value of finance lease liabilities is repayable as follows:
The Other provisions balance on 1 April 2015 was in relation to litigation. The costs relating to these were presented as
exceptional costs in the income statement in the year ended 31 March 2015.
GROUP
£‘000
Within one year
148
In the second to fifth years inclusive
After five years
Present value of lease obligations
The weighted average interest rates paid were as follows:
GROUP
%
Finance Leases
Bank loans
31 March
31 March
2017
1,316
2,455
–
3,771
2016
1,333
1,030
–
2,363
31 March
31 March
2017
3.67%
2016
6.03%
In June 2016, the revolving credit facility was renewed at a level of £40,000,000, where £20,000,000 had a maturity date of
June 2017 and £20,000,000 had a maturity date of June 2019. This facility can only be used to meet broker margin
requirements of the Group. The rate of interest payable on any loans is the aggregate of the applicable margin and LIBOR. Other
fees such as commitment fees, legal fees and arrangement fees are also payable on this facility (note 8).
Undrawn borrowing facilities
In all reported years, the Group has an undrawn multi-currency overdraft facility, with NatWest Bank plc of £7,500,000, which is
repayable on demand. The facility is available in Sterling, Canadian Dollars, Euros, Japanese Yen, Swedish Kronor, Swiss Francs,
US Dollars, Australian Dollars, Hong Kong Dollars, Czech Koruna, Danish Krone and South African Rand. The interest rate for
the Sterling overdraft is NatWest Bank’s Base Rate plus 2% per annum and, for all other currencies, the relevant NatWest Bank
currency lending rate.
23. Provisions
GROUP
£‘000
At 1 April 2015
Additional provision
Utilisation of provision
Currency translation
At 31 March 2016
Additional provision
Utilisation of provision
Currency translation
At 31 March 2017
EBT
Property
commitments
180
–
(20)
–
160
–
–
–
160
related
1,431
35
(67)
8
1,407
171
(37)
34
1,575
Other
4,157
–
(4,157)
–
–
208
–
–
208
Total
5,768
35
(4,244)
8
1,567
379
(37)
34
1,943
The provision relating to employee benefit trusts (EBT) represents the obligation to distribute assets held in employee benefit
trusts to beneficiaries.
The property related provisions include dilapidation provisions and discounted obligations under onerous lease contracts less
any amounts considered recoverable by management. Dilapidation provisions have been capitalised as part of cost of leasehold
improvements and are amortised over the term of the lease.
Other provisions balance on 31 March 2017 relates to provisions for redundancy payments.
GROUP
£‘000
Analysis of Total Provisions
Current
Non-current
Total
24. Share capital and premium
GROUP AND COMPANY
Authorised
Ordinary shares of 25p
Allotted, issued and fully paid
Ordinary shares of 25p
Deferred shares of 25p
Total
Share class rights
31 March
31 March
2017
2016
368
1,575
1,943
160
1,407
1,567
149
Number
£‘000
31 March
31 March
31 March
31 March
2017
2016
2017
2016
400,000,000
400,000,000
100,000
100,000
288,103,959
287,923,211
2,478,086
2,478,086
290,582,045
290,401,297
72,026
620
72,646
71,980
620
72,600
The Company has two classes of shares, Ordinary and Deferred, neither of which carries a right to fixed income. Deferred shares
have no voting or dividend rights. In the event of a winding-up, ordinary shares shall be repaid at nominal value plus £500,000 each
in priority to deferred shares.
GROUP AND COMPANY
Number
At 1 April 2015
New shares issued
At 31 March 2016
New shares issued
At 31 March 2017
Ordinary
Deferred
shares
shares
Total
280,296,862
2,478,086
282,774,948
7,626,349
–
7,626,349
287,923,211
2,478,086
290,401,297
180,748
–
180,748
288,103,959
2,478,086
290,582,045
GROUP AND COMPANY
Ordinary
Deferred
Share
£‘000
At 1 April 2015
New shares issued
At 31 March 2016
New shares issued
At 31 March 2017
shares
70,074
1,906
71,980
46
72,026
shares
premium
620
–
620
–
620
33,362
12,881
46,243
(7)
46,236
Total
104,056
14,787
118,843
39
118,882
Movements in share capital and premium
In February 2017, the company issued 28,861 bonus shares with nominal value of 25p utilising share premium to certain client
shareholders as per the terms of the shares subscription at listing. In addition 151,887 shares with nominal value of 25p were
issued to Employee benefit trusts.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
On admission on 5 February 2016, the company issued 6,239,333 shares with nominal value of 25p to public investors and
certain Non-Executive directors for a consideration of £14,974,000. In addition 1,387,016 shares with nominal value of 25p
were issued to Employee benefit trusts and certain employees of the group. Total costs of £534,000 relating to the issue of new
shares were recognised directly in share premium during the year ended 31 March 2016.
Merger reserve
The merger reserve arose following a corporate restructure in 2005 when a new holding company, CMC Markets plc, was
created to bring all CMC companies into the same corporate structure. The merger reserve represents the difference between
the nominal value of the holding company’s share capital and that of the acquired companies.
During the year ended 31 March 2017, no (31 March 2016: nil) ordinary shares were converted to deferred shares in
accordance with the terms of grant to employees who have now left the Group.
150
27. Cash generated from / (used in) operations
151
25. Own shares held in trust
GROUP
Ordinary shares of 25p
At 1 April 2015
Acquisition
Disposal
At 31 March 2016
Acquisition
Utilisation
At 31 March 2017
Number
£‘000
1,069,282
563,816
(876,848)
756,250
766,054
(908,137)
614,167
1,983
141
(1,140)
984
504
(1,022)
466
The shares are held by various Employee Benefit trusts for the purpose of encouraging or facilitating the holding of shares in the
Company for the benefit of employees and the trustees will apply the whole or part of the trust’s funds to facilitate dealing in
shares by such beneficiaries.
26. Other reserves
GROUP
£‘000
At 1 April 2015
Currency translation differences
Losses on net investment hedges
Amounts recycled to income statement
Gain on financial investments
At 31 March 2016
Currency translation differences
Losses on net investment hedges
Amounts recycled to income statement
Losses on financial investments
Net
investment
Translation
hedging
Available for
reserve
reserve
sale reserve
2,348
1,563
–
61
–
3,972
4,255
–
159
–
(4,517)
–
(1,172)
–
–
(5,689)
–
(2,950)
–
–
Merger
reserve
(47,800)
–
–
–
–
(47,800)
–
–
–
–
Total
(49,969)
1,563
(1,172)
61
4
(49,513)
4,255
(2,950)
159
(7)
(47,800)
(48,056)
–
–
–
–
4
4
–
–
–
(7)
(3)
£‘000
Cash flows from operating activities
Profit before taxation
Adjustments for:
Interest income
Dividends received
Finance costs
Depreciation
Amortisation of intangible assets
Impairment of investment in subsidiaries
Other non-cash movements including exchange rate movements
Share-based payment
Changes in working capital:
(Increase) / decrease in trade and other receivables
(Increase) / Decrease in amounts due from brokers
Decrease / (Increase) in trade and other payables
(Increase) / Decrease in net derivative financial instruments
Increase / (Decrease) in provisions
Cash generated from / (used in) operations
GROUP
COMPANY
Year ended
Year ended
Year ended
Year ended
31 March
31 March
31 March
31 March
2017
2016
2017
2016
48,465
53,376
23,618
7,708
(1,739)
(1,762)
–
–
734
4,498
1,337
–
719
3,107
(10,664)
(35,160)
1,180
(954)
342
11,865
–
772
3,951
2,106
–
–
205
(2,189)
25,564
(4,432)
6,671
(4,201)
80,061
(24,050)
(15,000)
–
–
–
–
–
–
(196)
–
–
–
–
1,398
–
1,771
35,444
–
(15,607)
(17,044)
–
–
–
–
(16,235)
14,277
The movement in trade and other payables for the year ended 31 March 2016 also includes £2,230,000 of exceptional listing
related accrued expenses.
The movement in trade and other receivables for the year ended 31 March 2017 also includes £490,000 (31 March 2016:
£1,110,000) of exceptional litigation income received during the year.
The impact of exchange rate movements on components of working capital is presented as a separate line item within the cash
generated from operations for the year ended 31 March 2017. The impact of such presentation is immaterial for the year ended
31 March 2016.
28. Financial instruments
Analysis of financial instruments by category
At 31 March 2017
8,386
(8,639)
Translation reserve
The translation reserve is comprised of translation differences on foreign currency net investments held by the Group.
Financial assets and liabilities as determined by IAS 39, ‘Financial Instruments: Recognition and Measurement’, are categorised
as follows:
During the year ended 31 March 2017, the Group liquidated two of its Austrian subsidiaries; as a result an amount of £159,000
was recycled to the income statement.
Net investment hedging reserve
Overseas net investments are hedged using forward foreign exchange contracts. Gains and losses on instruments used to hedge
these overseas net investments are shown in the net investment hedging reserve. These instruments hedge balance sheet
translation risk, which is the risk of changes in reserves due to fluctuations in currency exchange rates. All changes in the fair
value of these hedging instruments were treated as being effective under IAS 39 – Financial Instruments: Recognition and
Measurement and Eligible Hedged Items.
GROUP
31 March 2017
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Derivatives
Assets at
Assets at
held for
Loans and
FVOCI
FVPL
hedging
receivables
Total
–
20,272
–
–
–
20,272
–
–
–
1,643
–
1,643
–
–
–
292
–
292
53,226
–
119,390
–
24,048
53,226
20,272
119,390
1,935
24,048
196,664
218,871
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Financial liabilities
152
Trade and other payables excluding non-financial liabilities
Derivative financial instruments
Borrowings
Finance lease liabilities
GROUP
31 March 2016
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative Financial instruments
Trade and other receivables
Financial
Derivatives
liabilities at
Liabilities at
FVPL
held for
hedging
amortised
cost
Total
–
(3,340)
–
–
(3,340)
–
–
–
–
–
(39,394)
(39,394)
–
(5,031)
(3,771)
(3,340)
(5,031)
(3,771)
(48,196)
(51,536)
Derivatives
Assets at
Assets at
held for
Loans and
FVOCI
FVPL
hedging
receivables
Total
–
20,374
–
–
–
20,374
–
–
–
795
–
795
–
–
–
–
–
–
78,280
–
84,230
–
13,234
78,280
20,374
84,230
795
13,234
175,744
196,913
Financial
Derivatives
liabilities at
Liabilities at
FVPL
held for
hedging
amortised
cost
Total
Financial liabilities
Trade and other payables excluding non-financial liabilities
–
–
(37,182)
Derivative financial instruments
Borrowings
Finance lease liabilities
Maturity analysis
GROUP
31 March 2017
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Finance lease liabilities
Net liquidity gap
(3,446)
(1,550)
–
–
–
–
–
(77)
(2,363)
(37,182)
(4,996)
(77)
(2,363)
(3,446)
(1,550)
(39,622)
(44,618)
Less than
Three months
On demand
three months
to one year After one year
Total
50,218
–
119,390
–
23,428
193,036
(35,776)
–
(4,274)
–
(40,050)
152,986
–
–
–
1,935
195
2,130
–
(3,340)
(47)
(505)
(3,892)
(1,762)
3,008
19,757
–
–
425
23,190
–
–
(142)
(919)
(1,061)
22,129
–
–
–
–
–
–
–
–
(621)
(2,581)
(3,202)
(3,202)
53,226
19,757
119,390
1,935
24,048
218,356
(35,776)
(3,340)
(5,084)
(4,005)
(48,205)
170,151
GROUP
31 March 2016
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Finance lease liabilities
Net liquidity gap
Fair value estimation
Less than
Three months
On demand
three months
to one year After one year
Total
153
75,577
–
84,230
–
12,124
171,931
(33,127)
–
–
–
(33,127)
138,804
–
–
–
795
208
2,703
20,044
–
–
625
1,003
23,372
–
(4,996)
(5)
(353)
(5,354)
(4,351)
–
–
(17)
(1,088)
(1,105)
22,267
–
–
–
–
277
277
–
–
(55)
(1,079)
(1,134)
(857)
78,280
20,044
84,230
795
13,234
196,583
(33,127)
(4,996)
(77)
(2,520)
(40,720)
155,863
The Group’s assets and liabilities that are measured at fair value are derivative financial instruments and financial investments in
UK Government securities. 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)
GROUP
31 March 2017
£‘000
Financial investments
Derivative financial instruments (Current Assets)
Derivative financial instruments (Current Liabilities)
GROUP
31 March 2016
£‘000
Financial investments
Derivative financial instruments (Current Assets)
Derivative financial instruments (Current Liabilities)
Level 1
20,272
–
–
20,272
Level 1
20,374
–
–
20,374
Level 2
Level 3
–
1,935
(3,340)
(1,405)
–
–
–
–
Level 2
Level 3
–
795
(4,996)
(4,201)
–
–
–
–
Total
20,272
1,935
(3,340)
18,867
Total
20,374
795
(4,996)
16,173
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
29. Financial risk management
Market risk limits
The Group’s day-to-day business activities naturally expose it to strategic, financial (including credit, market and liquidity) and
operational risks. The Board accepts 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 is ultimately responsible
for the implementation of an appropriate risk strategy, defining and communicating the Group’s risk appetite, the establishment
and maintenance of effective systems and controls, and continued monitoring of the adherence to Group policies. The Group
has adopted a standard risk process, through a five step approach to risk management: Risk Identification; Risk Assessment; Risk
Management; Risk Reporting and Risk Monitoring. The approach to managing risk within the business is governed by the Board
approved Risk Appetite Statement and Risk Management Framework.
154
Market risk positions are managed in accordance with the Group’s Risk Appetite Statement and Group Risk Management
Framework to ensure that the Group has sufficient capital resources to support the calculated Market Risk Capital Requirement
as well as staying within the Risk Appetite. The Group manages this component under notional position limits that are set on an
instrument and asset class level with overarching capital based limits.
Client exposures can vary significantly over a short period of time and are highly dependent on underlying market conditions.
The Group’s Own funds requirement (OFR) is calculated as per the CRR. It has increased against the prior year but remains well
within the Board-approved risk appetite.
155
The Board sets the strategy and the policies for managing these risks and delegates the monitoring and management of these
risks to various committees including Group Risk Committee and Risk Management Committee.
The Group’s Internal Capital Adequacy Assessment Process (ICAAP) review document is prepared under the requirements set
out in the Prudential Regulation Authority (PRA) Rulebook in accordance with CRD IV1. A key purpose of an ICAAP is to inform
a firm’s board of the ongoing assessment of the firm’s risks; how the firm intends to mitigate those risks, and how much current
and future capital is necessary. This is achieved by considering potential stresses as well as mitigating factors.
Financial risks arising from financial instruments are categorised into market, credit and liquidity risks which, together with how
the Group categorises and manages these risks, are described below.
Market risk
Market risk is defined as the risk that the value of our residual portfolio will decrease due to the change in market risk factors.
The three standard market risk factors are price moves, interest rates and foreign exchange rates.
Market price risk
This is the risk that the fair value of a financial instrument will fluctuate due to changes in market prices other than due to
currency or interest rate risk.
Mitigation of market risk
The Group benefits from a number of factors which also reduce the volatility of its revenue and protect it from market shocks
as follows:
• Natural mitigation of concentration
The Group acts as a market maker in over 10,000 asset instruments, specifically equities, equity indices, commodities, treasuries
and foreign exchange. Due to the high level of notional turnover there is a high level of internal crossing and natural hedging
across instruments and asset classes to mitigate significant single instrument concentration risk within the portfolio.
• Natural aggregation
In the year ended 31 March 2017, the Group traded with over 60,000 clients. This large international client base has a diverse
range of trading strategies resulting in the Group enjoying a high degree of natural hedging between clients. This ‘portfolio
effect’ leads to a significant reduction in the Group’s net market risk exposure.
• Ease of hedging
The Group predominantly acts as a market maker in linear, highly liquid financial instruments in which it can easily neutralise
market risk exposure through its prime broker (PB) arrangements. In order to avoid over-reliance on one arrangement the Group
has six PB relationships. For instruments where there is no equivalent underlying market (e.g. Countdowns) the Group controls
its risk through setting low position/exposure limits. This is further augmented by dealer monitoring and intervention, which can
take the form of restricting the size offered or, if deemed necessary, restricting the clients’ ability to take a position in an
instrument.
1 The Capital Requirements Directive (2013/36/EU) (CRD) and the Capital Requirements Regulation (575/2013) (CRR), called ‘CRD IV’
GROUP OFR
£‘000
Asset class
Consolidated equities
Commodities
Fixed income and interest rates
Foreign exchange
Countdowns and binaries
Market price risk – stress testing
31 March
31 March
2017
2016
6,831
2,561
711
1,124
–
11,227
4,838
1,838
1,175
1,862
1
9,714
Group Financial Risk conducts market price risk stress testing on a daily basis. The stress testing approach is tailored according
to the asset class and the client behaviours seen to ensure the most suitable stress testing model is used. For example longer /
shorter holding periods, intraday movements or end of day positions, historic volatility or Conditional Value at Risk (CVaR) /
Expected Tail Loss (ETL). It should be noted that the Group not only runs likely and probable scenarios but also extreme case stress
scenarios on a daily basis, where the stress factors simulate almost black swan type events to ensure capital adequacy is
maintained.
None of the stress tests run through the year implied any significant risk to the capital adequacy nor ongoing profitability of
the Group.
Non trading book interest-rate risk
Interest rate risk arises from either less interest being earned or more being paid on interest bearing assets and liabilities due to
a change in the relevant floating rate.
Interest rate risk is felt by the Group through a limited number of channels: income on segregated client and own funds; debits
on client balances that are over a pre-defined threshold; changes to the value of fixed rate UK government securities held.
The sensitivity analysis performed is based on a reasonable and possible move in the floating rate by 0.5% upwards and 0.25%
downwards. This is in line with the movement used for the year ended 31 March 2016.
This is summarised in the below table, and reflects the Group’s view that in the current economic environment, interest rate
volatility is unlikely to have a significant impact on the profits of the Group.
Changes in interest rate variables result in a decrease / increase in the fair value of fixed rate financial assets classified as
available for sale. This has no material impact on the Group’s equity.
GROUP
31 March 2017
£‘000
Impact of
Profit after tax
Equity
Absolute
increase
Absolute
decrease
0.50% change
0.25% change
842
842
(529)
(529)
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
GROUP
31 March 2016
£‘000
Impact of
Profit after tax
156
Equity
Absolute
increase
Absolute
decrease
0.50% change
0.25% change
731
731
(512)
(512)
Non trading book foreign exchange risk
Foreign exchange risk is the risk that the Group’s results are impacted by movements in foreign exchange rates.
CMC is exposed to foreign exchange risk in the form of transaction and translation exposure.
Transaction exposure is from holdings of cash and other current assets and liabilities in a currency other than the base currency of
the entity. This risk is hedged each month by the Liquidity Risk Management team according to a policy based on a cap and floor
model, with gains/losses recognised in the income statement. Any foreign exchange transaction exposures are hedged in
accordance with Group Foreign Exchange Hedging Policy. Given the effectiveness of the hedging program (income statement
impact in year ended 31 March 2017: Gain of £1,103,000, Year ended 31 March 2016: Loss of £267,000), no sensitivity analysis
has been performed. These ‘fair value hedges’ are derivative financial instruments and are reported as described in note 2.
Translation exposure occurs when the net assets of an entity are denominated in a foreign currency other than GBP, when the
consolidated statement of financial position is prepared. The Group hedges this exposure by using FX forwards. These ‘Net
Investment Hedges’ are derivative financial instruments and are reported as described in note 2. The unhedged portion does not
pose a significant risk to the capital adequacy or to the ongoing profitability of the Group.
Credit risk
Credit risk is the risk that the counterparty to a transaction will cause the Group financial loss by failing to fulfil a contractual
obligation. Below are the channels of credit risk the Group is exposed through:
• Credit institution (CI);
• Client.
Credit institution credit risk
The Group has relationships with a number of counterparties that provide prime brokerage and/or banking services (e.g. cash
accounts, foreign exchange trading, credit facilities, custodian services etc.). All these market counterparties can be described as
CIs as defined by Article 4 ‘Definitions’ in the CRR (‘credit institution’ is defined as an undertaking the business of which is to take
deposits or other repayable funds from the public and to grant credits for its own account).
CI credit risk can therefore be defined as the risk that a CI will default on their contractual obligation to the Group resulting in
a loss to the Group.
The above could be felt in two ways:
Contractual losses can be reduced by the ‘close-out netting’ conditions in the ISDA and broker agreements. If a specified event
of default occurs, all transactions or all of a given type are terminated and netted (i.e. set off against each other) at market value
or, if otherwise specified in the contract or if it is not possible to obtain a market value, at an amount equal to the loss suffered
by the non-defaulting party in replacing the relevant contract.
Liquidity Risk Management monitor the credit quality of all CIs, by tracking the credit ratings issued by Moody’s, Standard &
Poor’s and Fitch rating agencies and the CDS (Credit Default Swap) spreads determined in the CDS market. Credit ratings, rating
outlooks and CDS spreads are reported to senior management on a weekly basis with any changes highlighted.
157
All CIs that the Group transacts with are of investment grade quality; however no quantitative credit rating limits are set by the
Group that CIs must exceed because the choice of suitable CIs is finite and therefore setting minimum rating limits could lead to
the possibility that no CIs are able to meet them. As an alternative, the Group reviews negative rating action and large CDS spread
widening to CIs on a case-by-case basis. Negative rating action on CIs rated below A3/A-/A- (by Moody’s, S&P and Fitch
respectively) would be escalated directly to the Chief Financial Officer & Head of Risk in the first instance to decide if any
management actions were required. Possible actions by the Group to reduce exposure to CIs depend on the nature of the
relationship and the practical availability of substitute CIs. Possible actions include the withdrawal of cash balances from a CI on
a daily basis, switching a proportion of hedge trading to another prime broker CI or ceasing all commercial activity with the CI.
The tables below present CMC Markets’ exposure to credit institutions based on their long-term credit rating.
GROUP
31 March 2017
£‘000
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
GROUP
31 March 2016
£‘000
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
Cash and cash
equivalents
Net Derivative
(Net of Bank
Amounts due
financial
Overdraft)
from brokers
instruments
18,852
7,150
22,949
1
48,952
–
84,600
34,788
2
119,390
–
(1,876)
471
–
(1,405)
Cash and cash
equivalents
Net Derivative
(Net of Bank
Amounts due
financial
Overdraft)
from brokers
instruments
20,804
5,748
51,727
1
78,280
–
12,578
71,652
–
84,230
–
139
(4,340)
–
(4,201)
Total
18,852
89,874
58,208
3
166,937
Total
20,804
18,465
119,039
1
158,309
No cash balances or deposits with institutions were considered past due but not impaired or impaired (Year ended 31 March
2016: £nil).
• For CIs used as a bank and those as a broker, the Group does not receive the funds the CI holds on the Group’s account
Client credit risk
• For the CIs used as broker, the default causes the need to re-hedge at a different broker at a different price.
Mitigation of CI credit risk
To mitigate or avoid a credit loss:
• The Group maintains, where practical, a range of relationships to reduce over-reliance on a single CI – as detailed in the Group
Counterparty Concentration Risk Policy
• The Group monitors the credit worthiness of the credit institution and reviews counterparties at least annually – as detailed
in the Group Hedge Counterparty Selection Policy
The Group operates a real-time mark-to-market leveraged trading facility where clients are required to lodge collateral against
positions, with any profits and losses generated by the client credited and debited automatically to their account. As with any
leveraged product offering, there is the potential for a client to lose more than the collateral lodged.
Client counterparty risk captures the risk associated with a client defaulting on their obligations due to the Group. As the Group
does not offer most of its retail clients credit terms and has a robust liquidation process, client counterparty credit risk will in
general only arise when markets and instruments gap and the movement in the value of a clients leveraged portfolio exceeds the
value of equity that the client has held at the Group leaving the client account in deficit.
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
Debt ageing analysis
The Group works efficiently to minimise the effects of client debts on the Company’s profit and loss. Client debts are managed
very early in their life cycle in order to minimise the likelihood of them becoming doubtful debts or of being written off. There
are no debts past due which have not been impaired. The following table sets out aging of debts that are past due and the
provisions charged against them:
Mitigation of client credit risk
• Liquidation process
This is the automated process of closing a client’s open position if the total equity is not enough to cover a predefined percentage of
required margin for the portfolio held.
158
The Group has a fully automated liquidation process on the Next Generation platform and a semi-automated liquidation order
management process on Marketmaker. These processes ensure a consistent and timely approach to the processing of liquidation
orders and ultimately aim to minimise client credit risk exposure through protecting the client from becoming a debtor.
Pre-emptive processes are also in place where a client’s free equity (total equity less total margin requirement) becomes
negative*. At this point the client is requested to deposit additional funds and is restricted from increasing their position.
• Tiered margin
Tiered margin was implemented in September 2013 on the Next Generation platform. It enables the Group to set higher margin
rates (therefore requiring a client to lodge more collateral) against positions that are deemed to be more risky due to risk profile,
which could be due to size relative to the underlying’s turnover, the Group’s risk appetite or volatility of the instrument.
• Position limits
Position limits can be implemented on an instrument and client level on the Next Generation platform. The instrument level
enables the Group to control the total exposure the Group acquires in a single instrument. At a client level this ensures that the
client can only reach a pre-defined size in any one instrument.
GROUP
31 March 2017
£‘000
Less than one month
One to three months
Three to 12 months
Over 12 months
GROUP
31 March 2015
£‘000
Less than one month
One to three months
Three to 12 months
Over 12 months
159
Debt
Provision
682
63
483
3,861
5,089
Debt
14
288
1,654
2,510
4,466
13
19
416
3,043
3,491
Provision
1
150
1,642
2,197
3,990
Client Credit Risk Stress Testing
None of the stress tests run through the year implied any significant risk to the capital adequacy or to the ongoing profitability of
the Group.
Liquidity risk
Client debt history
For the year ended 31 March 2017, new debt arising was £2,594,000 (Year ended 31 March 2016: £5,240,000). This constituted
1.4% of total revenue (Year ended 31 March 2016: 2.8%).
The Group establishes specific provisions against debts due from clients where the Group determines that it is probable that it
will be unable to collect all amounts owed in accordance with contractual terms of the clients agreement. Net debt provided for
in the year ended 31 March 2017 amounted to £883,000 (Year ended 31 March 2016: £2,384,000), the provision representing
0.5% of total revenue (Year ended 31 March 2016: 1.3%). Bad debt written off during the year ended 31 March 2017 was
£1,382,000 or 0.7% of revenue (Year ended 31 March 2016: £4,279,000; 2.3% of revenue).
The table below details the movement on the Group provision for impairment of trade receivables:
GROUP
£‘000
Opening provision
Net debt provided
Debt written off
Closing provision
31 March
31 March
2017
3,990
883
(1,382)
3,491
2016
5,885
2,384
(4,279)
3,990
Liquidity risk is the risk that there is insufficient available liquidity to meet the obligations of the Group as they fall due.
Liquidity is managed centrally for the Group by the Liquidity Risk Management team. The Group utilises a combination of
liquidity forecasting and stress testing (formally documented in the Individual Liquidity Adequacy Assessment (‘ILAA’)) to ensure
that it retains access to sufficient liquid resources in both normal and stressed conditions to meets its liabilities as they fall due.
Liquidity forecasting fully incorporates the impact of liquidity regulations in force in each jurisdiction and other impediments
to the free movement of liquidity around the Group, including its own protocols on minimum liquidity to be retained by
overseas entities.
Stress testing is undertaken on a quarterly basis upon a range of individual and combined, firm specific and market wide, short
and medium term scenarios that represent plausible but severe stress events to ensure the Group has appropriate sources of
liquidity in place to meet such events.
Due to the risk management strategy adopted and the changeable scale of the client trading book, the largest and most variable
consumer of liquidity is PBs margin requirements. The collateral calls are met in cash from own funds but to ensure liquidity is
available for extreme spikes the Group has a committed bank facility of £40.0 million to meet short term liquidity obligations to PBs
in the event that it does not have sufficient access to own cash and leave a sufficient liquidity buffer to cope with a stress event.
The Group does not engage in maturity transformation as part of its underlying business and therefore maturity mismatch of
assets and liabilities does not represent a liquidity risk to the Group.
Financial statements
Own Funds
Own funds is a key measure the Group uses to monitor the overall level of liquidity available to the Group. Own funds includes
investments in UK government securities which are held to meet the Group’s liquid asset buffer (LAB - as set by the FCA). These
UK government securities are BIPRU 12.7 eligible securities and are available to meet liabilities which fall due in periods of
stress. The derivation of own funds is shown in the table below:
160
GROUP
£‘000
Cash and cash equivalents (Net of bank overdraft)
Amount due from brokers
Financial investments
Derivative financial instruments (Current Assets)
Less: Title transfer funds
Less: Derivative financial instruments (Current Liabilities)
Own Funds
31 March
31 March
2017
48,952
119,390
20,272
1,935
190,549
(3,839)
(3,340)
183,370
2016
78,280
84,230
20,374
795
183,679
(2,245)
(4,996)
176,438
As part of the transaction with ANZ Bank, the Group deposited AUD 25,000,000 (£14,455,000) in escrow post year end.
The following Own Funds Flow Statement summarises the Group’s generation of own funds during each year and excludes all
cash flows in relation to monies held on behalf of clients. Additionally, 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.
GROUP
£‘000
Operating activities
Profit before tax
Adjustments for:
Finance costs
Depreciation and amortisation
Other non-cash adjustments
Tax paid
Own funds generated from operating activities
Movement in working capital
(Outflow) / Inflow from investing activities
Net Purchase of property, plant and equipment and intangible assets
Proceeds from issuance of ordinary shares
Other outflow from investing activities
Outflow from financing activities
Interest paid
Dividends paid
Other outflow from financing activities
Total outflow from investing and financing activities
Increase in own funds
Own funds at the beginning of the year
Effect of foreign exchange rate changes
Own funds at the end of the year
31 March
31 March
2017
2016
48,465
53,376
734
5,835
5,661
(11,372)
49,323
(10,683)
(3,762)
–
(4,792)
(734)
(23,946)
(1,422)
(34,656)
3,984
176,438
2,948
772
6,057
209
(6,872)
53,542
(5,240)
(3,933)
14,787
–
(772)
(24,935)
(413)
(15,266)
33,036
143,072
330
183,370
176,438
Annual Report 2017
CMC Markets plc
Financial statements
Capital management
The Group’s objectives for managing capital are as follows:
• to comply with the capital requirements set by the financial market regulators to which the Group is subject;
• to ensure that all Group entities are able to operate as going concerns and satisfy any minimum externally imposed capital
requirements; and
161
• to ensure that the Group maintains a strong capital base to support the development of its business.
The capital resources of the Group consists of equity, being share capital reduced by own shares held in trust, share premium,
other reserves and retained earnings, which at 31 March 2017 totalled £195,773,000 (31 March 2016: £176,327,000).
The Group is supervised on a consolidated basis by the FCA.
The Group’s Internal Capital Adequacy Assessment Process (ICAAP), prepared under the requirements of the FCA and the
Capital Requirements Directive, is an on-going assessment of CMC Markets’ risks and risk mitigation strategies, to ensure that
adequate capital is maintained against risks that the Group wishes to take to achieve its business objectives.
The outcome of the ICAAP is presented as an Internal Capital Assessment document covering the Group. It is reviewed and
approved by the Board on an annual basis.
Further information on the Group’s management of regulatory capital is provided in the ‘Pillar 3 Disclosure’ report, which is
available on the CMC Markets plc website (www.cmcmarkets.com/group). The Group’s country-by-country reporting disclosure
is also available in the same location on the website.
30. Share-based payment
The Company operates both equity and cash settled share options schemes for certain employees including Directors.
Current awards have been granted under the terms of the Management Equity Plan 2015 (‘2015 MEP’), the UK Share Incentive
Plan (‘UK SIP’) and the International Share Incentive Plan (‘Australian SIP’). Equity settled schemes are offered to certain
employees, including Executive Directors in the UK and Australia and automatically vest on vest date subject to conditions
described below for each scheme. Cash settled schemes are offered to certain employees outside of the UK and Australia.
Equity schemes for UK employees are settled net of employee taxes due.
Income statement charge for share-based payments
The total charge costs relating to these schemes for the year ended 31 March 2017 was £4,408,000 (Year ended 31 March
2016: £6,486,000) where prior year charges include exceptional costs detailed in Note 6.
For the year ended 31 March 2017 the charge relating to equity-settled share-based payments was £3,107,000 (Year ended 31
March 2016: £5,254,000) and the charge relating to cash-settled share-based payments was £1,301,000 (Year ended 31 March
2016: £1,232,000).
No shares were gifted to employees during the year (Year ended 31 March 2016: nil).
Financial statements
Current Schemes
2015 MEP
Share options granted under the 2015 MEP have been in the form of ‘non-market performance’ or a combination of ‘non-
market performance’ and ‘market performance’ awards. The Remuneration Committee approves any awards made under the
2015 MEP. Current schemes are:
162
• Executive Retention Scheme: awards to certain Executive Directors which were granted at listing and in November 2016.
The only vesting condition of the shares granted at listing is that the Executive Directors remain employed by the Group.
The options have dividend equivalence where additional shares will be awarded in place of dividends on vesting. Equity
settled awards made in November 2016 are a combination of ‘market performance’ and ‘non-market performance’ awards.
The awards are based on three performance conditions: Total Shareholder Return (TSR), diluted earnings per share and
customer satisfaction measures and in addition the employee must remain employed by the Group.
• Long Term Incentive Plan: awards to senior management and critical staff, excluding Executive Directors, which were granted at
listing and in November 2016. The only vesting condition of the awards made at listing is that the employees remain employed
by the Group. The options have dividend equivalence where additional shares will be awarded in place of dividends on vesting.
Equity settled awards made in November 2016 are a combination of ‘market performance’ and ‘non-market performance’
awards. The awards are based on three performance conditions: Total Shareholder Return (TSR), diluted earnings per share and
customer satisfaction measuresand in addition the employee must remain employed by the Group.
• The fair value of awards made under the TSR criteria for both the schemes above was calculated using an options pricing
model and was 29.2p per option. The significant inputs into the model were share price at grant date of 192.5p, volatility of
39%, and an expected option life of three years.
Share
price
At the
Awarded
Forfeited
awarded
Exercised
start of
during
during
during
during
At the
end of
Scheme
at award
Vesting date
the year
the year
the year
the year
the year
the year
Number
Dividend
equivalent
Executive Retention
Scheme
Executive Retention
240.0p
5 February 2017
444,425
Scheme
240.0p
5 February 2018
444,425
Executive Retention
–
–
Scheme
192.5p
13 September 2019
–
280,976
Long Term Incentive
Plan
240.0p
5 February 2017 1,018,863
Long Term Incentive
Plan
240.0p
5 February 2018 1,018,862
Long Term Incentive
13 September
–
–
–
–
–
23,537
(467,962)
–
23,538
7,503
–
–
467,963
288,479
(4,350)
44,765 (1,059,278)
–
(19,355)
44,823
–
–
1,044,330
414,398
Plan
192.5p
2019
–
456,402
(52,782)
10,778
The share price at exercise date for the Executive Retention Scheme and the Long Term Incentive Plan awards during the year
in the above table was 109.1p.
The weighted average exercise price of all Executive Retention Scheme awards is zero.
The weighted average exercise price of all Long Term Incentive Plan awards for UK participants (1,229,453 awards outstanding
at the end of the year) in the Long Term Incentive Plan is zero; for Australian participants, excluding dividend equivalents
(229,275 awards outstanding at the end of the year) the exercise price is 25p.
In addition, cash settled awards were granted on listing of which 108,225 vested on 5 February 2017, 108,225 vest on 5 February
2018 and 129,000 on 5 February 2019. All of these awards benefit from dividend equivalence. The only vesting condition is that
the employees remain employed by the Group. The value of these awards is the share price on the date these awards vest.
Annual Report 2017
CMC Markets plc
Financial statements
UK and Australia SIP Awards
SIP awards of £3,600 of free shares were made to all eligible UK employees at listing on 11 February 2016. An equivalent of
£3,600 of free shares was also made to all eligible Australian employees on 10 May 2016. All free shares will vest three years
after listing should the employees remain employed by the Group for the term of the award. Shares awarded under the UK
scheme are held in trust in accordance with UK tax authority conditions and all shares awarded under the Australian scheme are
held in a UK trust. Employees are entitled to receive dividends in the form of additional shares on the shares held in trust as
long as they remain employees.
163
UK employees were also invited to subscribe for up to £1,800 of partnership shares relating to each of the tax years to 5 April
2016 and 5 April 2017 with the Company matching on a one-for-one basis. All matching shares vest after three years should the
employee remain employed by the Group for the term of the award.
Australian employees were invited to subscribe for up to AUD$3,376 of investment shares on 5 July 2016 with the Company
matching on a one-for-one basis. All matching shares vest on 6 April 2019 should the employee remain employed by the Group
for the term of the award.
Number
Country of
award
UK
UK
Australia
Australia
Share
price at
Vesting period /
start of
during
during
during
At the
Awarded
Forfeited
Exercised
At the
end of
Award date
award
date
the year
the year
the year
the year
the year
11 February 2016
240.0p
10 February 2019
477,000
–
(73,500)
(4,500)
399,000
May 2016 to
285.3p to
March 2017
10 May 2016
5 July 2016
112.6p
250.5p
266.3p
April 2019 to
March 2020
10 February 2019
6 April 2019
–
–
–
191,385
145,137
13,970
(7,581)
(21,555)
(676)
–
–
–
183,804
123,582
13,294
The share price for all awards exercised during the year in the above table was 163.9p.
The weighted average exercise price of all awards during the year ended 31 March 2017 was nil.
The fair value of SIP awards are determined to be the share price at grant date without making adjustments for dividends as
awardees are entitled to dividend equivalents over the vesting period.
Movement in share options
1,242,814 new share options were granted in the year ended 31 March 2017 (2016: 5,391,300) and these are detailed above in
the current schemes section. Movements in the number of share options outstanding are as follows:
GROUP
Number
At beginning of year
Awarded (including dividend equivalents)
Forfeited
Exercised
At end of year
31 March
31 March
2017
2016
3,403,575
1,242,814
(179,799)
934,300
5,391,300
–
(1,531,740)
(2,922,025)
2,934,850
3,403,575
Financial statements
Annual Report 2017
CMC Markets plc
Financial statements
31. Retirement benefit plans
33. Operating lease commitments
A defined contribution plan is a post-employment benefit plan into which the Group pays fixed contributions to a third party
pension provider and has no legal or constructive obligation to pay further amounts. Contributions are recognised as staff
expenses in the income statement in the years during which related employee services are fulfilled.
GROUP
£‘000
164
The Group operates defined contribution pension schemes for its Directors and employees. The assets of the schemes are held
separately from those of the Group in independently administered funds.
Minimum lease payments under operating leases recognised in expense for the year
Year ended
Year ended
31 March
31 March
2017
2,538
2016
2,065
165
Operating lease payments represent rentals payable by the Group for office space. As on 31 March 2017, leases are negotiated for
an average term of 4.1 years (31 March 2016: 3.2 years) and rentals are fixed for an average of 3.7 years (31 March 2016: 2.7
years).
The Group had outstanding commitments under non-cancellable operating leases as follows:
GROUP
£‘000
Within one year
Within two to five years
After five years
34. Contingent liabilities
31 March
31 March
2017
3,725
13,272
6,692
23,689
2016
2,755
8,330
6,056
17,141
The Group engages in partnership contracts that could result in non-performance claims and from time to time is involved in
disputes during the ordinary course of business. The Group provides for claims where costs are likely to be incurred, and there are
no contingent liabilities which are expected to have a material adverse financial impact on the Group.
35. Ultimate controlling party
The Group’s ultimate controlling party is Peter Cruddas by virtue of his majority shareholding in CMC Markets plc.
The pension charge for these plans for the year ended 31 March 2017 was £1,338,000 (Year ended 31 March 2016:
£1,145,000).
32. Related party transactions
Company
The amounts outstanding with Group entities at year end were as follows:
GROUP
£‘000
Amounts due to group undertakings
Group
Transactions between the Group and its other related parties are disclosed below:
Compensation of key management personnel
GROUP
£‘000
Key management compensation:
Short-term employee benefits
Post-employment benefits
Share based payments
Aggregate remuneration of highest paid director:
Key management comprise the Board of CMC Markets plc only.
31 March
31 March
2017
21,242
2016
35,548
Year ended
Year ended
31 March
31 March
2017
2016
1,372
52
1,483
2,907
1,165
1,942
44
420
2,406
740
Directors’ transactions
During the year ended 31 March 2017, £nil (Year ended 31 March 2016: £34,648) was paid to Astre Associates Limited in respect
of non-executive director fees payable to John Jackson.
During the year ended 31 March 2017, the Group donated £nil to The Peter Cruddas Foundation (Year ended 31 March 2016:
£450,000), a charity at which Peter Cruddas holds a Trustee position.
Shareholder information
Annual Report 2017
Group history
CMC Markets began trading in 1989 as a foreign exchange
broker, led by founder Peter Cruddas. In 1996, the Group
launched the world’s first online retail forex trading platform,
offering its clients the opportunity to take advantage of markets
previously only accessible to institutional traders.
166
CMC Markets has since become a global leader in online
trading. There have been a number of significant milestones for
the Group over the past 28 years, as it has expanded into new
markets around the world and continues to promote innovation
and new trading technology.
In 2000, CMC Markets expanded its business to become
a CFD broker. A year later, the Group launched an online
financial spread betting service, becoming the first spread
betting company to release the daily Rolling Cash® Bet. The
ground-breaking daily Rolling Cash® concept was to become
an industry benchmark. In 2002, CMC Markets opened its first
overseas office in Sydney, launching into the Australian market
as an online CFD and forex provider. By 2007, the Group had
expanded its global footprint with offices in New Zealand,
Germany, Canada, Singapore and Sweden. Further global
growth followed over the next few years, with offices opened
across Europe – and most recently in Poland, in 2015. The
Group continued to grow its product offering during the year,
following the launch of its fixed-odds Countdowns product
in 2015.
The Company successfully listed on the London Stock Exchange
in February 2016. In April 2016 CMC Markets successfully
introduced binary trading. Later in the year it unveiled Knock-
Outs in Germany and Austria, as CMC Markets became the first
CFD provider to offer the product in Germany, reinforcing its
position as a global leader in innovation.
Further cementing its place as one of the industry leaders, the
Group were awarded a number of important accolades during
the year. In the 2016 Investment Trends UK Leveraged Trading
Report, which measures customer satisfaction, CMC Markets
ranked first across 17 service categories among CFD traders.
The Group achieved the highest rating for overall satisfaction,
mobile trading, platform features and charting in all three
product segments of spread betting, CFD trading and FX.
Additional notable recognition came as the company won
Financial Services Provider of the Year for the fourth successive
year, an award voted for by the readers of Shares magazine.
The Group also received Best CFD Broker for its burgeoning
institutional offering, in line with one of its core strategic
objectives, following on from its new CFD API technology which
was unveiled earlier in the year.
Double winner at the 2016 Shares Awards
1989
1996
2000
2001
2002
2005
2006
2007
2008
2010
2011
2012
2013
2014
2015
2016
CMC Markets begins operations in the UK
Launches the world’s first online retail FX trading platform
Starts offering CFDs in the UK
Launches online spread betting service in the UK
Opens first non-UK office in Sydney, Australia
Offices opened in Beijing, Canada and Germany
Opens New Zealand office
Singapore and Sweden offices opened; Goldman Sachs purchases 10% stake
CMC Markets (Australia) starts offering a stockbroking service following the acquisition of
local stockbroker Andrew West & Co.
Next Generation platform is launched; offices opened in Italy and France; spread betting
iPhone app launched in the UK
CMC Markets wins Financial Services Provider of the Year (Shares Magazine)
Spread betting app for AndroidTM launched
CMC Markets wins 33 industry awards globally
CMC Markets celebrates 25 years of being a world-leader in online trading
Countdowns launched. Poland and Austria offices opened. Stockbroking Pro Platform launched
CMC Markets lists on the London Stock Exchange trading as CMCX. Binaries launched
Shareholder information
Annual Report 2017
CMC Markets plc
Shareholder information
168
Five-year Summary
Group Income statement
£m
For the year ended 31 March
Net operating income
Other income
Operating expenses
EBITDA
Analysed as:
Underlying EBITDA
Net exceptional items
EBITDA
Depreciation and amortisation
Finance costs
Profit / (Loss) before tax
Analysed as:
Underlying profit / (loss) before tax
Net exceptional items
Profit / (Loss) before tax
Taxation
Profit / (Loss) after tax
Other Metrics
2017
160.8
–
(105.8)
55.0
55.0
–
55.0
(5.8)
(0.7)
48.5
48.5
–
48.5
(9.3)
39.2
2016
169.4
3.1
(112.3)
60.2
69.2
(9.0)
60.2
(6.0)
(0.8)
53.4
62.4
(9.0)
53.4
(10.9)
42.5
2015
143.6
–
(92.3)
51.3
59.7
(8.4)
51.3
(6.9)
(0.9)
43.5
51.9
(8.4)
43.5
(8.8)
34.7
2014
122.0
–
(78.4)
43.6
43.6
–
43.6
(10.7)
(0.7)
32.2
32.2
–
32.2
(8.2)
24.0
2013
107.0
–
(94.2)
12.8
12.8
–
12.8
(16.8)
(1.4)
(5.4)
(5.4)
–
(5.4)
1.6
(3.8)
Own funds generated from operations (£m)
£49.3m
£53.5m
£45.2m
£42.4m
£11.5m
2017
2016
2015
2014
2013
Profit Margin
Underlying PBT margin (%)
PBT margin (%)
Earnings per share (EPS)
Basic earnings per share (pence)
Diluted earnings per share (pence)
Dividend per share
Interim dividend per share (pence)
Final dividend per share (pence)
Ordinary dividend per share (pence)
Special dividend per share (pence)
Total dividend per share (pence)
Client Metrics
Revenue per active client (£)
Number of active clients
Value of trades (£bn)
Number of trades (m)
30.1%
30.1%
13.7
13.6
2.98
5.95
8.93
–
8.93
2017
2,517
60,082
2,016
62.7
36.8%
31.5%
15.1
15.0
3.57
5.36
8.93
1.79
10.72
2016
2,828
57,329
2,071
66.8
36.2%
30.3%
26.4%
26.4%
12.4
12.4
2.14
3.57
5.71
–
5.71
8.6
8.5
2.14
2.14
4.28
–
4.28
2015
2,716
50,303
1,626
44.6
2014
2,374
48,006
1,351
33.0
(5.0)%
(5.0)%
(1.4)
(1.4)
–
–
–
–
–
2013
1,724
56,103
1,287
31.8
Statement of Financial position
£m
As at 31 March
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Trade and other receivables
Derivative financial instruments
Financial investments
Current tax recoverable
Amounts due from brokers
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Current tax payable
Short term provisions
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Long term provisions
TOTAL LIABILITIES
EQUITY
Total equity
TOTAL EQUITY AND LIABILITIES
169
2017
2016
2015
2014
2013
2.1
18.2
8.1
28.4
31.6
1.9
20.3
–
119.4
53.2
226.4
254.8
36.3
3.3
5.8
5.5
0.4
51.3
3.1
3.0
–
1.6
7.7
2.6
16.4
7.7
26.7
20.9
0.8
20.4
–
84.2
78.3
204.6
231.3
34.6
5.0
1.4
7.8
0.2
49.0
3.5
1.1
–
1.4
6.0
3.7
17.4
7.5
28.6
18.7
3.3
–
–
109.8
38.6
170.4
199.0
38.8
0.8
1.4
3.5
4.3
48.8
3.9
2.5
0.1
1.4
7.9
4.1
13.7
7.4
25.2
19.7
0.6
–
–
65.9
57.8
144.0
169.2
39.7
2.1
0.6
1.2
0.3
43.9
4.5
0.3
0.6
0.3
5.7
10.7
16.1
13.9
40.7
25.7
0.6
–
0.4
48.8
45.9
121.4
162.1
43.7
2.2
1.2
–
3.7
50.8
4.8
1.0
1.1
0.1
7.0
59.0
55.0
56.7
49.6
57.8
195.8
254.8
176.3
231.3
142.3
199.0
119.6
169.2
104.3
162.1
Shareholder information
Annual Report 2017
CMC Markets plc
Shareholder information
Proposed final dividend for the year ended
Registered Office
UK – Head Office
China (Shanghai)
New Zealand
31 March 2017
Ex-dividend date: Monday 3 August 2017
Record date: Tuesday 4 August 2017
Dividend payment date: Friday 25 August 2017
170
CMC Markets plc
133 Houndsditch
London EC3A 7BX
United Kingdom
Registered number: 05145017
Tel: 020 7170 8200
Website: www.cmcmarkets.com/group
Annual General Meeting
The 2017 AGM is to be held at 133 Houndsditch, London
EC3A 7BX at 10.00am on Thursday 27th July
Company Secretary
Jonathan Bradshaw, ACIS
Registrars / Shareholder enquiries
Investor relations
Capita Asset Services can be contacted to deal with any
questions regarding your shareholding using the contact
details listed below. Alternatively, you can access
www.capitashareportal.com where you can view and
manage all aspects of your shareholding securely.
Email
shareholderenquiries@capita.co.uk
Mail
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Phone
Tel: 0871 664 0300
Email: investor.relations@cmcmarkets.com
Website: http://www.cmcmarkets.com/group/investor-
relations
Brokers
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
RBC Capital Markets
Riverbank House
2 Swan Lane
London EC4R 3BF
Independent auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
Calls cost 12p per minute plus your phone company’s access
charge. Calls outside the United Kingdom will be charged
at the applicable international rate. Lines are open between
09:00 – 17:30, Monday to Friday excluding public holidays in
England and Wales.
Legal advisers
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Media relations advisers
Camarco
107 Cheapside
London EC2V 6DN
Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries.
171
CMC Markets plc, CMC Markets UK plc,
CMC Spreadbet plc, CMC Markets
Holdings Ltd, CMC Markets UK Holdings
Ltd, CMC Markets Overseas Holdings
Ltd, Information Internet Ltd
133 Houndsditch
London EC3A 7BX
T +44 (0)20 7170 8200
E info@cmcmarkets.co.uk
www.cmcmarkets.co.uk
CMC Business Service (Shanghai)
Limited
Room 3404, Floor 34
Shanghai Tower
Z3-2 Lujiazui Financial Center
Pudong District
Shanghai
T (China toll free) 4008 168 888
E support@cmcmarkets.com.au
www.cmcmarkets.com/zh
Australia
China (Beijing)
CMC Markets Asia Pacific Pty Ltd,
CMC Markets Stockbroking Ltd, CMC
Markets Group Australia Pty Ltd, CMC
Markets Pty Ltd, CMC Markets
Stockbroking Nominees Pty Ltd, CMC
Markets Stockbroking Nominees
(No. 2 Account) Ltd
Level 16
130 Pitt Street
Sydney NSW 2000
T 1300 303 888
T +61 (0)2 8221 2100
E info@cmcmarkets.com.au
www.cmcmarkets.com.au
Austria
CMC Markets Zweigniederlassung
Österreich
Millennium Tower
Wehlistraße 66/5. OG
1200 Wien
T +43 (0)1 532 1349 0
E kundenservice@cmcmarkets.at
www.cmcmarkets.at
Canada
CMC Markets Canada Inc.
Suite 1420
120 Adelaide Street West
Toronto
Ontario M5H 1T1
T +1 416 682 5000
E info@cmcmarkets.ca
www.cmcmarkets.ca
CMC Markets UK plc
Beijing Representative Office
Unit 22, Room 1901, Tower E2
Oriental Plaza
No1 East Chang An Avenue
Dong Cheng District
Beijing 100738
T +86 (0)10 8520 0021
E info@cmcmarkets.com.cn
www.cmcmarkets.cn
France
CMC Markets UK plc
32 rue de Monceau
75 008 Paris
T +33 (0)1 53 83 14 03
E gestionclients@cmcmarkets.fr
www.cmcmarkets.fr
Germany
CMC Markets Niederlassung Frankfurt
am Main der CMC Markets UK Plc
Garden Tower
Neue Mainzer Straße 46-50
60311 Frankfurt am Main
T +49 (0)69 2222 44 000
E kundenservice@cmcmarkets.de
www.cmcmarkets.de
Italy
CMC Markets UK plc Succursale di
Milano
Corso di Porta Romana 68
20122 Milano
T +39 02 3600 9604
E info@cmcmarkets.it
www.cmcmarkets.it
CMC Markets NZ Limited
Level 25
151 Queen Street
Auckland
T +64 (0)9 359 1200
E info@cmcmarkets.co.nz
www.cmcmarkets.co.nz
Norway
CMC Markets UK plc Filial Oslo
Fridtjof Nansens Plass 6
0160 Oslo
T +47 22 01 97 02
E info@cmcmarkets.no
www.cmcmarkets.no
Poland
CMC Markets UK Spółka
Akcyjna Oddział w Polsce
Emilii Plater 53
00-113 Warsaw
T +48 22 160 5600
F +48 22 160 5690
E biuro@cmcmarkets.pl
www.cmcmarkets.pl
Singapore
9 Raffles Place #30-02
Republic Plaza Tower 1
Singapore 048619
T 1800 559 6000 (Local)
T +65 6559 6000
E info@cmcmarkets.com.sg
www.cmcmarkets.com.sg
Spain
CMC Markets UK plc
Sucursal en España
Calle Serrano No 21
4th Floor
28001 Madrid
T +34 911 140 700
E info@cmcmarkets.es
www.cmcmarkets.es
Sweden
CMC Markets UK plc Filial
Stockholm
Hamngatan 11
111 47 Stockholm
T +46 (0)8 5069 3200
E info@cmcmarkets.se
www.cmcmarkets.se
CMC Markets plc133 HoundsditchLondon EC3A 7BXUnited KingdomTel +44 (0)20 7170 8200Fax +44 (0)20 7170 8499Email info@cmcmarkets.co.ukwww.cmcmarkets.com/group