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Building a strong position
CMC Markets plc
Annual Report and Financial Statements 2018
Put clients
first
Read more on page
3
Lead with
quality
Read more on page
47
Set the
standards
Read more on page
91
STRATEGIC REPORT
4
6
8
Highlights 2018
CMC at a glance
Chairman’s statement
10 Chief Executive Officer’s report
14 Our business model
16 Our markets
18 Our strategy
20 Key performance indicators
22 Client service
24 Competitive product offering
26 Technology and operational excellence
28 People
32 Financial strength
38 Risk management
GOVERNANCE
48
Introduction to governance
49 Compliance with the UK corporate
governance code
50 The Board
52 Governance report
57 Group Audit Committee
60 Group Risk Committee
62 Nomination Committee
64 Remuneration Committee
66 Directors’ remuneration report
82 Regulated entities
83 Directors’ report
89 Statement of Directors’ responsibilities
FINANCIAL STATEMENTS
92
Independent auditors’ report
99 Consolidated income statement
100 Consolidated statement
of comprehensive income
101 Consolidated statement of financial position
102 Parent company statement
of financial position
103 Consolidated and parent company
statements of changes in equity
104 Consolidated and parent company
statements of cash flows
105 Notes to the consolidated and parent
company financial statements
144 Shareholder information
A clear focus
on supporting
our clients
CMC Group was established in 1989
and is a leading global provider of
online financial trading complete with a
comprehensive retail, professional and
institutional offering. We enable clients
to trade a broad range of financial
instruments through our award-winning
Next Generation and stockbroking trading
platforms, supported by advanced
charting, competitive pricing and
automated execution.
Our purpose is to make the financial
markets truly accessible for investors.
Our strategic goal is to increase
shareholder value by delivering sustainable
and profitable revenue growth, whilst at
the same time delivering best-in-class
service to our clients.
Read more at cmcmarkets.com/group/
111
Strategic reportAnnual Report and Financial Statements 2018 2
CMC Markets plc Put clients first
Our business is service driven and underpinned
by our technology and transparency.
We have built an infrastructure that responds
to our clients’ needs.
3
Annual Report and Financial Statements 2018 HIGHLIGHTS 2018
Strong growth driven
by high value and
institutional clients
“Our strategy of attracting and retaining high value and
institutional clients through our superior platform, technology
and service is delivering results for the Group.”
Peter Cruddas
Chief Executive Officer
OPERATIONAL HIGHLIGHTS
• Value of client trades up 28% to £2,587 billion
• Growth in premium client numbers to 10% of active clients
• Revenue per active client up £447 (18%) to £2,964 and active clients
down 917 (2%) to 59,165
• ANZ Bank white label stockbroking partnership progressing on
schedule for retail migration in September 2018
FINANCIAL HIGHLIGHTS
• Net operating income up £26.3 million (16%) to £187.1 million
• Statutory profit before tax up £11.6 million (24%) to £60.1 million
• Statutory profit before tax margin up 2.0% to 32.1%
• Basic earnings per share up 26% to 17.3 pence
• Dividend per share 8.93 pence
For more information see page 20
4
Strategic reportCMC Markets plc
Net operating income1
£187.1m
Statutory profit before tax
£60.1m
18
17
16
£187.1m
£160.8m
£169.4m
18
17
16
£60.1m
£48.5m
£53.4m
Underlying profit before tax
Revenue per active client2
£60.1m
18
17
16
Active clients3
59,165
18
17
16
£2,964
£60.1m
£48.5m
£62.4m
18
17
16
£2,964
£2,517
£2,828
Value of client trades4
£2,587bn
59,165
60,082
57,329
18
17
16
£2,587bn
£2,016bn
£2,071bn
Basic earnings per share
Ordinary dividend per share5
17.3p
18
17
16
17.3p
13.7p
15.1p
8.93p
18
17
16
8.93p
8.93p
8.93p
1 Net operating income represents total revenue net of introducing partners’ commissions and spread betting levies.
2 Net revenue generated from contract for difference (“CFD”) and spread bet active clients.
3 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 Value of client trades represents the notional value of trades.
5 Ordinary dividends paid/proposed relating to the financial year.
Annual Report and Financial Statements 2018
5
Strategic report Strategic report
CMC AT A GLANCE
A leading global
provider of online trading
OUR AWARD WINNING PLATFORM
Instruments
Around 10,000 instruments
available across Indices, FX,
Commodities, Shares and
Treasuries.
Key features
• Available across mobile,
desktop and tablet
• Automated trade execution
• Sophisticated charting
• Professional offering
• Limited risk accounts
For more information see page 24
THE PRODUCTS WE PROVIDE
Contracts for
difference (“CFDs”)
A financial derivative product
which allows clients to
speculate on price changes in
an underlying financial asset,
without certain costs and
limitations associated
with physical ownership. More
information is available on
www.cmcmarkets.com.
Spread betting
A product available exclusively to
residents in the UK and Ireland
which is similar in many
aspects to our CFD product.
More information is available
on www.cmcmarkets.com.
Digital 100s and
Countdowns
Limited risk products where
the client’s risk and potential
profit are determined at the
point of trade entry. They
allow clients to speculate if
an event will or will not occur
within a set time frame.
Stockbroking
Australian clients are offered
the opportunity to trade
Australian and selected
international shares. Clients
can choose from a wide variety
of instruments, including
shares, options, managed
funds, warrants and exchange
traded funds (“ETFs”).
AN INCREASINGLY DIVERSIFIED BUSINESS
WHY OUR CLIENTS CHOOSE US
CFD and spread bet revenue generated globally
Revenue is diversified across our three major regions, the UK, Europe and
Asia Pacific and Canada (“APAC & Canada”).
Stockbroking
Once the ANZ Bank white label stockbroking transaction in Australia goes
live in September 2018, stockbroking revenue will become a more significant
part of the Group’s revenue.
Institutional
Our institutional business, which has been growing strongly, offering
additional channels to distribute our CFD products.
For more information see page 16
• Quality of platform
• Mobile trading
• Platform features
• Platform reliability
• 24 hour client service
For more information see page 24
6
CMC Markets plc
OUR GEOGRAPHICAL REACH
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’s
headquarters and the primary hub to European operations,
and Sydney being the secondary hub to support the APAC &
Canada region. This approach enables the Group to achieve
the optimum balance between operational gearing and efficiency.
CFD and spread bet
net revenue by region 2018
UK
Europe
41%
29%
APAC & Canada
30%
Offices
15
Countries
14
Continents
4
Clients
59,165
OUR HISTORY
1989
CMC Markets begins
operations in the UK
1996
Launches the world’s
first online retail FX
trading platform
2008
CMC Markets
(Australia) starts
offering a
stockbroking
service following
the acquisition of
local stockbroker
Andrew West & Co
2010
Next Generation
platform launched
2016
CMC Markets lists on
the London Stock
Exchange trading
as CMCX
2018
Record statutory
profit before tax for
the Group
7
Annual Report and Financial Statements 2018Strategic report CHAIRMAN’S STATEMENT
An important year
for the Group
Despite regulatory uncertainty, the Group has delivered record
statutory profits and is becoming more diversified through its
stockbroking business and institutional channel.
“ Regulatory change puts
us in a position to emerge
as a stronger business,
delivering future growth
and shareholder value.”
In my first report as Chairman, I am pleased to report that, against
a backdrop of regulatory uncertainty in Europe, the Group has
made strong progress. The Group continues to deliver on its
strategic initiatives, including the rollout of our new mobile platform,
the opening of our Shanghai office, strong growth in our institutional
business and significant progress on the implementation of our
white label stockbroking partnership with ANZ Bank in Australia.
Results and dividend
The Group has performed strongly throughout the financial
year. Net operating income for the year was £187.1 million, a 16%
improvement on the previous year. Revenue per active client
at £2,964 was 18% higher than the previous year, reflecting the
Group’s strategic focus on generating higher quality earnings
through higher value business.
The Group continues to be highly cash generative, with a strong
balance sheet and total regulatory capital position.
The Board recommends a final dividend payment of 5.95 pence
per share, which represents a total ordinary dividend per share
of 8.93 pence.
Regulation
The Group believes in strong regulation and is supportive of
regulatory change to ensure that all providers operate to the
highest standards, ensuring fair client outcomes. The European
Securities and Markets Authority (“ESMA”) published temporary
product intervention measures on the provision of CFDs and
binary options to retail clients in March 2018, 15 months after the
Financial Conduct Authority (“FCA”) issued consultation paper
16/40 (Enhancing conduct of business rules for firms providing
contracts for difference products to retail clients).
The Group welcomes many of the requirements, and is pleased
that we now have clarity; many of the ESMA requirements have
already been in place throughout the Group for some time.
Whilst these changes are likely to have some short-term adverse
effect on the Group as clients adjust their trading behaviour to
these new requirements, the Board believes that a stronger and
better industry will emerge. In that process the Group will be a
clear winner through its focus on client service and technology.
8
8
CMC Markets plc
Strategic report Board and governance
During this financial year we have made a number of changes to
our Board. Manjit Wolstenholme and Malcolm McCaig resigned
from the Board. Their valuable contribution to the Group in our
early days as a listed business was very much appreciated. It is
also with great sadness that we learnt of Manjit’s passing away
in November 2017; our thoughts are with her family.
We have welcomed Sarah Ing, Clare Salmon and Paul Wainscott
to our Board; their backgrounds and breadth of experience
means they are already proving to be strong additions.
Simon Waugh resigned from the Board at the end of December
after ten years, with five years as Chairman. I would like to thank
Simon for his significant contribution to CMC and I am delighted
that Simon continues to be part of the Group, as Chairman of our
APAC & Canada businesses at this exciting time as we integrate
the ANZ Bank stockbroking partnership.
Given the relatively new composition of the Board, a Board
evaluation has not been completed. The Board expects to
complete the appropriate evaluations during the course of
the next financial year.
Outlook
The Group has made a good start to the new financial year and
the Group’s stockbroking partnership with ANZ Bank in Australia
remains on track to go live in September 2018.
We expect the new margin requirements stipulated by ESMA to
have some adverse short-term impact on the financial performance
once they are in place, which is expected during the summer.
However, the Group’s strategy of attracting and retaining high
value and experienced clients will help to mitigate some of the
impact. The Group has a strong professional offering, “CMC Pro”,
and is in the process of reviewing client requests to be treated as
elective professional clients where the eligibility criteria has been
satisfied. In addition, the Group’s growing institutional business
and stockbroking partnership with ANZ Bank further diversifies
the Group and helps to mitigate the impact of regulatory change.
Costs remain well controlled, although the Board believes that
this is not a time to reduce costs but take advantage of the
opportunities that regulatory change will present, ensuring that
the Group continues to be a leader in the industry.
People and values
Our people are core to everything that we do and, on behalf
of the Board, I would like to thank them for their efforts for once
again delivering strong financial performance against a backdrop
of regulatory uncertainty.
James Richards
Chairman
6 June 2018
During the year the Group refreshed its core values, “the CMC
way”, reflecting the Group’s focus on quality, clients and integrity.
These are listed below and further detail on each is provided
throughout the report.
Read about our governance on page 48
OUR VALUES
Put clients first
Read more on page 3
Lead with quality
Read more on page 47
Set the standards
Read more on page 91
9
Annual Report and Financial Statements 2018Strategic report Strategic report
CHIEF EXECUTIVE OFFICER’S REPORT
Strong progress in 2018
Our focus on high value clients and growing our institutional business
is driving the business forward. These initiatives together with our growing
stockbroking business are making CMC a more diversified Group.
Financial performance and KPIs
The Group has been delivering on its strategic initiatives and
this is now clearly coming through in the financial performance,
where we have delivered record statutory profit before tax of
£60.1 million, up 24% on the prior year. Profit before tax margin
has also increased from 30.1% to 32.1%, highlighting the strong
operational leverage in the business. In addition, revenue per
active client is up 18% on the prior year as we continue to focus
on our high value client proposition. All of this has been against
a backdrop of regulatory uncertainty in the UK and Europe.
However, our strategy puts us in a strong position to mitigate
the impact of the upcoming regulatory changes.
In addition, we have continued to build our presence in our
established and developing offices as well as grow our institutional
business. This, along with market conditions returning to more
normalised levels, resulted in the value of client trades increasing
by 28%, contributing to net operating income increasing by 16%
to £187.1 million against the prior year. All asset classes
contributed to the increase in net operating income.
Operating expenses increased by 13% to £125.9 million mainly
due to higher discretionary remuneration and salary costs. In the
year ahead, operating costs are expected to increase as we take
on more staff and infrastructure cost to service in excess of
250,000 new active stockbroking clients as part of the ANZ Bank
white label stockbroking partnership.
It is worth noting that this performance has been achieved without
providing a cryptocurrency offering throughout the majority of
the year. The interest in cryptocurrencies has undoubtedly added
a new wave of clients to the industry. We did not offer any crypto
products until February 2018, and the offering is only currently
available to professional clients with a minimum margin
requirement of 50%.
Cash generation, given the nature of our business, remains
strong and own funds generated from operating activities was
£55.5 million. During the year the Group has seen significant
fluctuations in margin requirements at our prime brokers due
to hedging growing client positions. Although this reduced
towards the end of the year, we have increased our revolving
credit facility from £40.0 million to £65.0 million; this gives us
headroom to continue growing the business and hedge growing
client positions. Our total regulatory capital ratio remained high
at 31.1% at the year end. Active clients at 59,165 were down 2% on
the previous year and new accounts were also slightly lower than
the previous year. These decreases were primarily due to the
prior year including a number of new accounts being opened
around the EU Referendum and US presidential election, where
clients opened accounts and only traded around that event.
Whilst active and new accounts continue to be important
measures for the Group, the quality and activity of those clients
are more important, and this will become increasingly so once
the regulatory changes are implemented. During the year
premium clients, our internal measure of high quality clients,
increased to 10%.
Regulation
During the year, the FCA consultation paper did not reach a
conclusion due to the impending introduction of ESMA’s product
intervention powers from 3 January 2018. The ESMA announcement
on 15 December 2017 resulted in a short consultation and the final
rules were published in March 2018. These will be implemented
during the summer.
The main aim of these measures around improving retail client
protection can be summarised through:
•
reducing the extent of potential losses for retail investors
by the imposition of margin close-out levels, minimum
margin requirements (leverage limitations) and negative
balance protection; and
• confronting conduct issues, such as the use of aggressive
marketing practices and marketing to an untargeted audience.
In the short term the imposition of higher minimum margin
requirements for retail clients is likely to impact the Group’s
revenue, but it should be noted that the revenue impact will be
partially mitigated through our focus on high value clients and a
proportion of these clients that will opt to be treated as elective
professional clients, thus exempting them from the retail restrictions.
The Group has a robust process in place where clients are only
opted up once proof of meeting the required criteria are met.
Regional review
Net revenue has increased across all regions during the year, with
a globally aligned focus on acquiring and retaining high value clients.
The UK, as the largest and most mature region as well as servicing
most of the Group’s institutional business, has a higher concentration
of high value business than other regions, and as a result saw the
biggest increase in revenue per active client (“RPC”) of 25% from
£3,558 to £4,451. Active client numbers reduced marginally by 6%
10
CMC Markets plc
Profit before tax
£60.1m
Revenue per active client
£2,964
Dividend
8.93p
Strategic progress
Institutional offering
The ANZ Bank white label stockbroking implementation continues
to progress on track for delivery. The retail stockbroking migration
will take place in September 2018 and a number of intermediaries
will be migrated in July 2018. This is a truly transformational deal
for the Australian business and the Group, where CMC will
become the second largest retail stockbroker in Australia.
In addition to the ANZ Bank stockbroking implementation providing
diversification to the business, the institutional and partners channel
for our CFD offering, which provides white and grey label and
API electronic connectivity, also provides diversification. The net
revenue generated by this business has grown by 38% from
£22.7 million to £31.4 million during the year and the ongoing
rollout of additional functionality to meet client demand
continues to be a focus area.
to 16,157 from 17,142 as we focused more on the high value and
institutional segments. Overall, this resulted in an increase in net
revenue of 18% from £61.0 million to £71.9 million.
In Europe, regulatory change in Germany, our largest office in
the region, resulted in lower growth than the UK; client numbers
decreased by 1% to 22,223 from 22,503, however, net revenue
increased by 12%, from £45.3 million to £50.6 million.
In the APAC & Canada region, an education office was opened in
Shanghai in October 2017. Client numbers in the region increased
by 2% to 20,785 from 20,437. Net revenue increased by 18% from
£45.0 million to £52.9 million.
The stockbroking business has delivered another good year of
growth, with net revenue increasing 9% to £8.5 million and active
client numbers growing by 17%. This has been achieved whilst
implementing changes to the platform functionality and building
tools for the migration of ANZ Bank stockbroking retail clients in
September 2018.
Risk management
Effective risk management is essential to the continuing success
of the Group. The Group continually reviews its risk management
practices to ensure that they are proportionate and robust.
With the introduction of regulatory changes it is likely that this
will impact the trading behaviour of some clients and, as these
changes are made, the Group will continually review its trading
risk management strategies to ensure that they remain efficient
and optimal at all times operating within the Board-approved risk
appetite and Risk Management Framework.
“ The Group has been
delivering on its strategic
initiatives and this is now
clearly coming through in
the financial performance,
where we have delivered
record statutory profit
before tax of £60.1 million.”
11
Annual Report and Financial Statements 2018Strategic report Strategic report
CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED
Strategic progress continued
Institutional offering continued
The Group continues to grow its CFD institutional business,
launching its FX Prime offering and through its technology,
liquidity and strong balance sheet continues to attract new
institutional business.
Geographic expansion
In October 2017, the Group opened its education office in Shanghai.
Although the Chinese market remains underdeveloped at the
moment, we believe it represents a great future opportunity
for the Group as this market matures.
The Polish office continues to perform well and the Group
continues to look for new geographies in which to expand.
Product offering
We have continued to invest in and develop the Group’s product
offering. This has included completing the rollout of HTML5 with
improved functionality, a new mobile platform and the launch of
a limited risk account in the UK and Germany.
In the coming year we will launch our MT4/5 offering. This is a
popular product within the trading community and will be offered
in order to meet the demands of both existing and new clients
and also take advantage of opportunities arising from regulatory
change. In April 2018, we also launched “CMC Pro”, our dedicated
offering to meet the needs of professional clients.
Read about our Strategy on page 18
Established markets
When putting future regulatory change in Europe to one side, I am
pleased and encouraged by the ongoing growth and revenue
contribution of all three of our established markets: the UK,
Germany and Australia. The continuing positive performance in
independent surveys in these countries also confirms our status
as a leading trading platform provider delivering strong levels of
client satisfaction.
Digital initiatives
During the year we have continued to invest in our digital marketing
area, where we have seen a rise in applications via the mobile
channel. A more scientific approach to our marketing spend and
improvements in search engine optimisation (“SEO”) have contributed
to an improved and more focused client acquisition process.
Current stockbroking clients
50,000+
ANZ Bank active stockbroking clients
250,000+
Retail go live
September 2018
12
CMC Markets plc People and values
Our people are crucial to our success and throughout the year
I have been consistently impressed by the quality and hard work
of our employees. During the year we have refreshed our Group
values and are committed to retaining and developing our staff.
On behalf of myself and the Board I would like to thank all of our
employees for their continued dedication and hard work.
Read about our people on page 28
Clients
Clients are central to everything we do at CMC. We continually
focus on employing and training high quality client services staff,
onboarding, education, platform features, and a focus on fair
client outcomes. During the year the Group received many
awards in this area and ranked very highly in an independent
survey of the sector.
For more information see page 22
Dividend
The Board recommends a final dividend payment of £17.2 million.
This is 5.95 pence per share (2017: 5.95 pence), resulting in
total dividend payment for the year of 8.93 pence per share
(2017: 8.93 pence), slightly above the Group’s policy of paying
50% of profit after tax.
Outlook
Key areas of focus for the Group during the first half of the year
will be the successful integration of the ANZ Bank stockbroking
partnership in Australia, and in the UK and Europe on meeting the
new regulatory requirements. Alongside this we will continue to
develop our platforms to ensure that we are well positioned from
a product perspective in the new regulatory environment to
acquire and retain experienced and valuable clients as well
as build our institutional offering.
Regulatory change is likely to impact revenue in the UK and
Europe in the short term; however, any revenue decrease from
retail client trading will be partially mitigated by the increasing
revenue from our stockbroking and institutional business.
Regulatory change has always helped strengthen our industry
and I believe that CMC as a strong and well-capitalised company
will benefit.
We have a big year ahead, but we are well positioned to meet the
challenges to grow our business, through our own technology
and 15 offices globally. Through the opportunities that our
proprietary technology provides we are diversifying the business.
Peter Cruddas
Chief Executive Officer
6 June 2018
“ Our people are crucial to our
success and throughout the
year I have been consistently
impressed by the quality and
hard work of our employees.”
In April 2018 CMC launched a new account type that allows professional
clients to gain access to higher levels of leverage than retail clients
and other premium features.
13
Annual Report and Financial Statements 2018Strategic report
Strategic report
OUR BUSINESS MODEL
Delivering sustainable value
Client service is central to our business model. Clients are critical to the
success of the business and we strive to deliver a high quality and efficient
service to them all through a competitive product offering as well as technology
and operational excellence.
Fin
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Technolo
o
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CLIENT
SERVICE
Risk manage m e n t
OUR BUSINESS ENABLERS
1. Client service
2. Competitive
product offering
3. Technology and
operational excellence
Our ambition is to provide an unparalleled
experience to all of our clients, offering
competitive pricing, products and a great
trading experience.
For more information see page 22
CMC Markets continually invests significant
resources in developing both the Next Generation
and the stockbroking platforms to ensure
we stay at the forefront of the industry by
constantly delivering the latest innovations.
For more information see page 24
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. Investment in our technology
infrastructure is central to delivering this.
For more information see page 26
14
CMC Markets plc
REVENUE GENERATION
Transactional spreads
Revenue earned through maintaining a transactional spread (the difference
between the buy and sell price) on CFD and spread bet products.
Commissions
These are charged on CFD equity trades. Clients are either charged a
minimum commission or a percentage based on the value of the trade.
Financing
Positions held by clients overnight may be subject to financing costs, which
can be positive or negative depending on the direction of their holding and
the applicable financing rate.
Hedging
Revenue or losses from management of client positions that the Group
inherits. This consists of gains or losses which accrue to the Group through
client positions and, secondly, the gains or losses which accrue to the Group
through the hedge positions entered into by the Group.
Stockbroking
Predominantly earned through brokerage charged for the execution of
exchange traded products which include shares, options, warrants, ETFs,
managed funds, interest rate securities and bonds.
Other income
Mainly consists of interest income from client deposits.
VALUE OF TRADES
Growing value of client trades provides
both higher transactional spread revenue
and the potential for more natural hedging
of client positions.
Value of client trades
£2,587bn
OUR CLIENTS
We aim to deliver a consistent, high quality
service to all of our clients globally.
Number of active clients
59,165
4. People
5. Financial strength
6. Risk management
CMC Markets is committed to recruiting,
developing, retaining and motivating exceptional
people who are talented, innovative and focused
on delivering excellence. We acknowledge that
this goes hand in hand with the Group’s ongoing
and future success. This is achieved through
embedding Group values throughout the
workforce as well as offering competitive
rewards and benefits.
We aim to maintain our secure capital and
liquidity structure, ensuring that it is appropriate
for the future growth and success of the
Group. This includes maintaining long-term
levels 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.
For more information see page 28
For more information see page 32
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.
For more information see page 38
15
Annual Report and Financial Statements 2018Strategic report Strategic report
OUR MARKETS
Serving the demand
The Group generates the majority of its revenue from CFD and spread bet
products, and this part of the business is globally diversified with revenue and
clients relatively evenly split between our three regions, the UK, Europe and
APAC & Canada. Our Australian stockbroking business currently generates 5%
of net operating income.
Regulation
Regulation of CFD and spread bet products has been a major
area of focus for regulators over the last 18 months and
regulatory change will be a major external driver of revenue
performance in future periods.
At CMC, we believe we differentiate ourselves within the sector
through our focus on fair client outcomes and the high standards
of regulatory compliance we uphold. The sector, however, has
been subject to intense and increased regulatory scrutiny in
a number of jurisdictions globally, particularly in Europe.
CMC believes this scrutiny is well overdue given the risks
posed by a large number of firms providing these products
on a cross-border basis, often unauthorised and acting illegally,
targeting unsophisticated or inappropriate clients through
aggressive and misleading advertising.
CMC has been and continues to be engaged in an active dialogue
with regulators, both individually and through industry associations,
championing the consistent implementation and effective
enforcement of well-considered and proportionate standards
across jurisdictions to improve client outcomes. We believe that
it is vital for our clients that regulators carefully balance the need
to ensure robust investor protection, while allowing customers
who sufficiently understand the products and are able to bear
any associated losses to continue to trade these products.
In Europe, this has led to ESMA introducing the following
temporary product intervention measures on the provision
of CFDs and binary options to retail clients:
• a prohibition on the marketing, distribution and sale of binary
options to retail clients;
•
leverage limits on the opening of a CFD by a retail client
between 30:1 and 2:1, whose limit will vary according to the
volatility of the underlying asset;
• a standardised margin close-out rule on a per account basis;
• negative balance protection on a per account basis;
• a prohibition on firms offering monetary and non-monetary
benefits to retail investors; and
• a standardised risk warning, including firm-specific figures on
the percentage of clients that have lost money trading CFDs.
We have voiced our support of the measures introduced for
the most part, but were disappointed by the onerous leverage
restrictions. The margin changes will inevitably impact how clients
trade, although at this stage it is difficult to understand the full
impact given that clients will adapt to leverage changes in a
number of different ways.
OUR POSITION
Increasingly diversified business
with a focus on high value clients
16
Increasingly diversified
• CFD and spread bet revenue broadly spread
across our three major regions, the UK,
Europe and APAC & Canada
•
Institutional business continues to
grow strongly
• ANZ Bank partnership diversifies the business
Net revenue generated from
institutional business
£31.4m
For more information see page 19
CMC Markets plc These provisions will be in place during summer 2018 and are
applicable only to UK and European retail clients and, given that the
Group focuses on high value, sophisticated clients, a number of them
either have or will request to be treated as elective professional
clients and, if successful, exempt themselves from these provisions.
On 3 January 2018, the EU’s Markets in Financial Instruments
Directive II (“MiFID II”) came into force. This has resulted in changes
to our dealings with third party distributors, repapering clients
and third-party agreements, and creating additional client
disclosures. Existing frameworks and processes such as product
governance, conflicts of interest and best execution have also
been enhanced. Key Information Documents, intended to allow
investors to better understand and compare the key features,
risk, rewards and costs of our products, can be accessed via the
order ticket and our website, following the implementation of the
Packaged Retail and Insurance-based Investment Products
(“PRIIPs”) Regulation, which came into force on 1 January 2018.
Brexit
The Group does not believe the UK’s exit from the European
Union (“EU”) will affect its ability to operate in the EU going forward;
however, the doubt around the future of the UK’s financial services
“passporting” regime means that how we operate in the region
needs to be amended. As a result, plans are underway to establish
a new subsidiary in the EU meaning that the existing business
model will continue to function, but under a revised legal entity
structure. The Group’s headquarters will remain in the UK.
Three year volatility index
50%
40%
30%
20%
10%
0%
March
2015
VIX
March
2016
March
2017
March
2018
Volatility
Volatility in the financial markets undoubtedly acts as a call
to action for the Group’s CFD and spread bet target market,
resulting in increases in trading activity both from existing clients
trading more frequently and new or previously inactive clients
starting to trade. However, it should be noted that short bursts
of market activity which result in high velocity movements in the
products that we offer are not necessarily beneficial to our
clients nor the Group.
Stockbroking
The Australian stockbroking business is preparing for a transformative
change through the ANZ Bank partnership, with the retail go
live in September 2018. This will provide CMC with continuing
diversification as a result of becoming the second largest retail
stockbroker1 in Australia.
1 As reported by IRESS, in terms of total value of trades executed by both
CMC Markets and ANZ Share Investing.
High value clients
• RPC amongst the highest in
the industry
• Growing premium client base
• Professional offering differentiates
CMC from competitors
Premium client base as
percentage of total
10%
Platform
• Flexible, proprietary technology easily
adapted for change
• Appeals to experienced clients through
feature-rich, customisable platform
Products available
to trade
9,800+
For more information see page 22
For more information see page 24
17
Annual Report and Financial Statements 2018Strategic report Strategic report
OUR STRATEGY
Focused on value creation
The Group has five strategic objectives underpinning medium-term
revenue growth for the business.
ESTABLISHED MARKETS
GEOGRAPHIC
EXPANSION
Opportunity
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.
Progress
• Led the UK industry in client
satisfaction1
• Maintained market-leading position
in Germany2 and increased market
share in Australia3
• Significant increase in value of
client trades, driving up net
revenue4 and RPC
Priorities for 2018/19
• Continue to grow premium
client base
•
Increase proportion of revenue
generated by professional clients.
Opportunity
New regions and developing regions
offer an opportunity for revenue growth
with marginal additional cost given
the scalability of the business. CMC is
exploring expansion opportunities into
both markets where it already has a
small presence, as well as markets
where CMC does not yet have a
presence, but believes a potential
client base exists.
Progress
• Continued growth in Poland office,
with active clients up 52% during
the year
• New China education office
launched6 in October 2017
• France performed marginally
better than prior year despite
annualised impact of regulatory
change introduced in January 2017
Priorities for 2018/19
• Establish Middle East office
• Continue to look for new
market opportunities
Net revenue5
£122.2m
Poland active clients
+52%
2018 summary
• Continuing to lead the industry
in client satisfaction in the UK,
our largest market
• New China education office
launched in October 2017
• Limited risk offerings launched in the
UK and Germany
• Steady increase in applications
via mobile channels
• Continuing acquisition of
institutional clients
All five strategic initiatives are continuing
to deliver value to the Group and there
are firm plans on how to continue
momentum with each initiative during
the next financial year.
1 Investment Trends May 2017 UK Leveraged
Trading Report.
2 Investment Trends May 2018 Germany CFD and
FX Report.
3 Investment Trends May 2017 Australia
CFD Report.
4 Net revenue generated from CFD and spread
bet active clients, after the impact of rebates
and levies.
5 Net revenue generated from CFD and spread
bet clients, including countdowns and Digital
100’s, after the impact of rebates to introducing
partners and retail clients, and betting levies.
6 The Chinese business is onboarded and
serviced through Australia.
18
CMC Markets plc
MAINTAIN A COMPETITIVE
AND COMPLIANT
PRODUCT OFFERING
Opportunity
We continue to diversify the product
offering to attract existing clients to
trade more with the Group and
broaden the appeal to a wider
potential client base.
We ensure that the product offering
is at all times compliant with
regulatory change.
Progress
• FX Prime functionality launched
May 2017
• CFD products adapted for
regulatory compliance in Germany
from August 2017
• Limited risk offering launched in
the UK and Germany
• CMC Pro launched
Priorities for 2018/19
• Changes to platform to ensure
regulatory compliance in UK
and Europe
• Equities direct market access
(“DMA”) for institutional clients
• Launch MT4/5
DIGITAL INITIATIVES
INSTITUTIONAL
OFFERING
Opportunity
The Group has a 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).
Progress
• ANZ Bank white label stockbroking
partnership passed its first major
milestone in March 2018 and
remains on track for delivery in
September 2018
•
Institutional net revenue up 38%
against prior year
• Strong pipeline of prospective
relationships
Priorities for 2018/19
• ANZ Bank white label stockbroking
implementation
• Growth of institutional business
backed by FX Prime and Equities
DMA offering
Opportunity
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 and targeted
approach to the client journey.
Progress
• Rolled out our new digital
framework enabling greater scale
and targeting efficiencies across
our paid media
• Data science investment in client
onboarding channels starting to
yield returns on marketing
efficiency and return on investment
• Focus on identifying professional
client base has gained significant
traction from January 2018
Priorities for 2018/19
• Continued investment in our data
science capabilities to generate
improvements across the
end-to-end client journey
• Enhancement of our onboarding
and retention processes to
improve the client experience
across all touch points with CMC
•
Investment in brand positioning for
professional and premium clients
CMC Pro launched
April 2018
Value of client trades on mobile
Institutional net revenue growth
55%
38%
19
Annual Report and Financial Statements 2018Strategic report
Strategic report
KEY PERFORMANCE INDICATORS
Tracking our progress
Our Group KPIs monitor the delivery of long-term shareholder value
through a focus on client quality and operating effectiveness.
CLIENT VALUE GENERATION AND CLIENT QUALITY
Revenue per active client
£2,964
18
17
16
£2,964
£2,517
£2,828
Active clients
59,165
18
17
16
59,165
60,082
57,329
KPI definition: net revenue generated from CFD and spread
bet active clients, divided by the number of active clients
during the period.
Why we measure: high value clients are central to the
strategy and the growth in this figure is indicative of the
success in attracting and retaining these clients.
KPI definition: individual clients who have traded or held CFD
or spread bet positions with CMC Markets on at least one
occasion during the financial year.
Why we measure: representative of the continuing success
of the business in acquiring and retaining clients who trade
on a regular basis.
Value of client trades
£2,587bn
Number of trades
68.4m
18
17
16
£2,587bn
£2,016bn
£2,071bn
18
17
16
68.4m
62.7m
66.8m
KPI definition: the notional value of CFD and spread bet
client trades during the period.
KPI definition: CFD and spread bet client trades executed
during the financial year.
Why we measure: the value of client trades is indicative
of the potential to monetise trading activity given its
correlation to transactional spread revenue (see business
model on page 14).
Why we measure: used to understand whether the change
in the value of client trades is caused by changes to the
average notional value of client trades or by changes to
the amount of trades executed.
20
CMC Markets plc REVENUE GROWTH AND OPERATING
EFFECTIVENESS
DELIVERY OF SHAREHOLDER VALUE
AND RETURNS
Net operating income
£187.1m
Profit after tax
£49.7m
18
17
16
£187.1m
£160.8m
£169.4m
18
17
16
£49.7m
£39.2m
£42.5m
KPI definition: this is a statutory measure, which represents
total revenue net of introducing partner commissions and
spread betting levies.
Why we measure: key operating metric.
KPI definition: this is a statutory measure, which comprises
statutory profit before tax less tax expense.
Why we measure: largest driver of shareholder equity and
Board-approved metric for calculating dividend payable.
Statutory profit before tax
Basic earnings per share
£60.1m
18
17
16
£60.1m
£48.5m
£53.4m
17.3p
18
17
16
17.3p
13.7p
15.1p
KPI definition: this is a statutory measure, which
comprises net operating income less operating
expenses and interest expense.
KPI definition: this is a statutory metric, which is calculated as
earnings attributed to ordinary shareholders divided by
weighted average number of shares.
Why we measure: key operating metric.
Why we measure: key shareholder value metric.
Underlying profit before tax
£60.1m
18
17
16
£60.1m
£48.5m
£62.4m
Ordinary dividend per share
relating to the financial year
8.93p
18
17
16
8.93p
8.93p
8.93p
KPI definition: statutory profit before tax net of exceptional
income and costs.
Why we measure: provides reader with more meaningful
indication of underlying performance.
KPI definition: any dividend declared, proposed or paid
relating to the financial period.
Why we measure: key shareholder value metric.
21
Annual Report and Financial Statements 2018Strategic report Strategic report
CLIENT SERVICE
Providing the best service
Clients are central to everything we do as a business and we aim to deliver
the highest quality and efficient service to them all.
Driven by our business enablers
1. CLIENT SERVICE
Our high quality client service is delivered through our staff,
onboarding, education, platform features, and a focus on fair client
outcomes. Our excellence in client service is illustrated through
the awards we receive and the results of independent surveys.
Our staff
We offer a 24-hour support service to all clients which is made
possible through the presence of our rigorously trained, multilingual
and knowledgeable client service team located in 15 offices
across the globe. New members of our client-facing teams
undergo an intensive training scheme which includes product,
platform and financial markets modules and they must pass a
final examination before they start assisting clients. Certain high
value clients also have access to dedicated relationship managers
and sales traders, who provide a high touch service.
UK customer satisfaction drivers
CMC ranking in key selection criteria1
Onboarding
CFDs and spread bets are complex derivative products and are
therefore not suitable for everyone. We follow strict guidelines
when marketing our products, ensuring that our marketing
material is appropriately targeted and transparent.
A new appropriateness assessment was recently launched in the
UK which incorporates a multiple-choice test, enabling us
to assess whether our products are appropriate for prospective
clients. Under the current regulatory framework in the UK,
prospective clients must be warned when the product is deemed
inappropriate for them, but can proceed to trade if they accept
this warning. CMC no longer onboards non-appropriate clients in
the UK. We felt that this was a necessary step to take to achieve
our goal to support fair client outcomes and we intend to roll out
this process globally.
Clients have the opportunity to request to be treated as an
elective professional, which means that should they meet the
required criteria and receive approval, they gain access to lower
margin requirements, cryptocurrency products and receive cash
rebates subject to trading activity.
Customer service
Overall satisfaction
Value for money
Reporting of positions and
transactions
Spreads
Charting
Speed of fund withdrawals
Range of tradeable products
Ease of account opening
Quality of trade execution
Ease of platform navigation
Commissions
Risk management
Training ideas and strategies
Mobile phone/tablet platform
Platform features
Research tools
Education materials/programmes
Platform reliability
1 Ranked in order of importance from contribution and effectiveness modelling (“CEM”) analysis.
Source: Investment Trends UK Leveraged Derivative Trading Report 2017.
22
CMC Markets plc Education
We 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.
Platform features
We offer our clients access to our products through a feature-rich,
user-friendly platform which is accessible on a variety of devices,
more of which is described in our competitive product offering
section of the report on page 24.
From a client protection perspective, our platform offers a number
of risk management tools. These include account level close out
when positions reach 50% of margin requirement, guaranteed
stop-loss orders and in some countries we offer accounts with
negative balance protection.
Fair client outcomes
CMC continues to place the utmost importance on
the continuous delivery of fair outcomes to our clients through
our behaviour, image, product innovation and internal culture.
A dedicated Treating Customers Fairly and Conduct (“TCF”)
Committee holds monthly meetings to ensure the Group is
doing everything possible to treat clients fairly.
The Group fully segregates all retail and professional client funds
globally (with the exception of professional clients that have signed a
title transfer collateral agreement) whether required by regulation
or not.
Our awards and client satisfaction ratings
The Investment Trends UK Leveraged Derivative Trading Report 2017
shows how our efforts have resulted in CMC Markets being
number one in overall client satisfaction, platform features and
value for money and the reports across our three largest offices
demonstrate that our net promoter score, a measure of client
satisfaction, is higher than the industry average in all three of our
established markets. The long tenure of our clients, by industry
standards, is also a positive reflection of client satisfaction.
Net promoter score1 in established markets
40%
35%
30%
25%
20%
15%
10%
5%
0%
40
19
22
24
13
16
6
6
1
UK (NPS)
Australia (NPS)
Germany (NPS)
2016 2017 2017 sector average
1 % of promoters minus % of detractors
Revenue generated from clients
of tenure greater than two years
58%
Number of awards for service,
platform and technology (2017)
47
UK net promoter score
40%
23
Annual Report and Financial Statements 2018Strategic report Strategic report
COMPETITIVE PRODUCT OFFERING
Leading the field
CMC Markets continually invests significant resources in developing both
the Next Generation CFD and spread bet trading platform and stockbroking
Pro and standard platform to ensure we stay at the forefront of the industry
by delivering the latest innovations.
Driven by our business enablers
2. COMPETITIVE PRODUCT
OFFERING
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.
Custom layouts
to suit all types
of user
News feed
Industry‑leading
charting package
Client sentiment
tool shows
real‑times positions
24
CMC Markets plc Stockbroking
Investment in the development of the stockbroking platform has increased
during the financial year as the business prepares to migrate clients from
ANZ Bank. This has resulted in increased functionality to our clients
including the recent release of international shares trading across 11
different markets and an online platform exchange-traded options
offering. ANZ Bank clients will gain access to additional functionality already
available on the CMC platform, such as mFunds, Australian government
bonds, on-market bookbuilds and warrants.
The continuing platform innovation and pricing has led CMC Stockbroking
to be awarded Canstar’s Value Award for the previous eight years and also
the Broker of the Year – Online Share Trading in 2018.
Mobile offering
CMC continues to receive awards and
high customer satisfaction ratings for the
mobile offering. A major release during
the year included:
60%
• a new, customisable dashboard with an
account overview which allows faster
access to popular tools;
50%
• a charting upgrade which enabled
chart extensions and new technical
indicators; and
• market pulse and support
40%
improvements, providing clients with
direct access to the full range of CMC
Markets education content directly
within the mobile app.
Volume of client trades on mobile
55%
International equities: tightly
integrated international
equities trading across
11 markets
Online options: Innovative online
exchange traded options solution
with in‑built risk management
and strategy analytics
ANZ partnership
250k+ active
clients
50k+ active
accounts
Mobile device usage
April
2015
October
2015
April
2016
October
2016
April
2017
October
2017
March
2018
Value of retail client trades completed on mobile devices
25
Annual Report and Financial Statements 2018Strategic report Strategic report
TECHNOLOGY AND OPERATIONAL EXCELLENCE
Investment in infrastructure
Our technology and operations are built to meet current demands
and are scalable for future growth.
Driven by our business enablers
3. TECHNOLOGY AND
OPERATIONAL EXCELLENCE
Technology and operations have always been key to the success
of CMC Markets. 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 best technology we can. The Next Generation
platform has been built to provide the tools and flexibility required
by clients to manage their personal financial investments. Continual
investment in our platform and underlying technology infrastructure
is central to delivering this and the benefits are evident through
a scalable, high performance and reliable platform.
Scalable platform
CMC Markets’ infrastructure and Next Generation Trading Platform
is built in a manner that is highly scalable and therefore able to
cope with increases in the product offering and a growing volume
of orders and trades. The current product offering consists
of around 10,000 instruments, resulting in an average of over
150 million prices being processed per day. Client orders
averaged over 375,000 per day during the year with peaks
in excess of one million orders per day.
Platform reliability
The platform is built to be resilient and highly available. Two
active data centres are used to balance client load with each one
more than capable of sustaining the full business requirements.
Regular testing of this ensures that with any new features or
increases the infrastructure is ready to support the business.
STOCKBROKING FOCUS
As part of delivering the ANZ Bank partnership, we have
made significant investments in our Stockbroking IT platform
and infrastructure during the financial year. This has involved
replacing the existing infrastructure and bringing in house
the previously outsourced managed service as we build out
two new co-location data centre facilities in state-of-the-art
sites around Sydney. We are building and deploying the
new infrastructure in the same scalable, resilient and high
performance architecture as we have built in London. This will
ensure we are able to meet the increased performance and
capacity requirements, as well as achieve higher standards
for security and reliability.
Invested in Australian IT infrastructure
AUD$3.0m
Read about our stockbroking platform on page 25
26
CMC Markets plc
Next Generation trading uptime
Median trade execution time
Record daily trades
99.99%
8.5 milliseconds
896,000*
* February 2018.
We have invested in full-scale non-production test systems so
that performance and capacity can be tested well in excess of
current levels and well before new systems are made available
for clients. The modular scalable architecture of the platform
means we can scale or replace individual parts of the system
rather than being forced into wholesale replacements or redesigns.
This helps with a structured investment programme allowing
consistent regular investment and avoiding unexpected outlays.
The strong focus on resilience and the continued investment in
infrastructure has resulted in platform uptime being 99.99%
during trading hours over the financial year.
Speed of execution
Speed is essential when trading in the financial markets, so at the
same time as ensuring the platform can scale with an increasing
volume of trades we also focus on minimising the execution time
of each and every single trade. The automated execution on the
Next Generation platform led to a median trade execution time
of 8.5 milliseconds during the financial year, with 99% of trades
executed in under 75 milliseconds.
Cyber security
Cyber security is a key focus globally, and CMC Markets has
been investing over time in this area to ensure our people,
systems and processes meet the security needs of today’s
world. As part of this CMC’s in house specialist security team
has increased in size and expanded to provide a global support
model with teams based in Sydney and London. In addition we
continue to work with trusted partners to provide best-of-breed
security solutions for each area of CMC’s business. Investment
continues to focus on enabling the business to meet its core
objectives in a secure manner.
For more information see page 43
27
Annual Report and Financial Statements 2018Strategic report PEOPLE
Our greatest asset
We need a talented global workforce in order to provide the products
and service that our clients demand.
Driven by our business enablers
4. PEOPLE
CMC Markets is committed to recruiting, developing, retaining
and motivating exceptional people who are talented, innovative
and focused on delivering excellence. We acknowledge that this
goes hand in hand with the Group’s ongoing and future success.
This is achieved through embedding values throughout the
workforce as well as offering competitive rewards and benefits.
Our values
CMC’s focus on people is demonstrated through the recent
refresh of our Company values, which communicate to the
whole organisation what really matters in our culture to bring
staff, strategy and clients together and drive the Group forward.
These centre on quality, clients and integrity:
Put clients first
Our business is service driven and underpinned
by our technology and transparency.
We have built an infrastructure that responds
to our clients’ needs.
Lead with quality
Our commitment is to provide a high
quality platform and service combined
with best-in-class pricing and execution.
Excellence through technology, product and
service is the key to retaining our clients.
Set the standards
We believe that we must always be at the
forefront of client service, technology and
regulatory standards.
We will never take a backwards step in
these areas.
Reward and benefits
We offer competitive employment packages, including a flexible
benefit scheme to enable the Group to attract and retain the
best available talent. Senior management and critical talent also
have equity incentives and, since listing, all UK employees have
been offered the ongoing opportunity to contribute to an HMRC
eligible Share Incentive Plan. Similar equity or cash-equivalent
schemes have been rolled out globally.
The flexible benefit scheme allows employees to personalise
their benefits according to their specific circumstances including
the level of pension contribution, life insurance cover, critical
illness cover and holiday trading.
Engagement and development
The Group operates and encourages a collaborative environment
through knowledge sharing and ideas generation with a focus on
quality and delivery.
There is regular communication to staff at all levels through multiple
channels including town halls, results presentations, global emails
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.
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, through
both on-the-job and 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 to drive business performance.
Diversity
As a Group, we are committed to having a diverse workforce,
and believe that diversity brings valuable experience and skills
to the business. We acknowledge that the diversity of the Group
can be improved, particularly with respect to female representation
at leadership level, and the Board monitors and seeks to address
this on an ongoing basis. During the year a Diversity and Inclusion
Committee was set up to agree actions and monitor implementation
of these actions to improve the Group’s diversity.
28
Strategic reportCMC Markets plc All staff1
Male
Female
454
178
Senior management team2
Male
Female
Male
Female
14
1
5
2
Board of Directors
1 Employees of the Group including contractors as at 31 March 2018.
2 Direct reports to CEO and subsidiary Directors excluding Board
Directors as at 31 March 2018.
29
Another example of CMC Markets championing diversity is
our partnership with Leonard Cheshire Disability (“LCD”) and its
Change 100 programme. A graduate student with a disability was
matched with opportunities within the business and they were
given a London living wage for three months’ work experience.
This commitment clearly demonstrates the value CMC Markets
places in young talent and especially those young people who
have to overcome difficulties each and every day. The LCD
Change 100 team provided support to CMC Markets and the
candidate throughout the three months.
“ After six years with CMC in London
I now work in our Sydney office.
CMC is a great place to work, with
a strong entrepreneurial spirit that
empowers employees to have the
freedom to create, improvise and
innovate. This brings new and
exciting challenges.”
Dione Marshall,
Head of Customer Analytics and Research, Sydney
Annual Report and Financial Statements 2018Strategic report Strategic report
PEOPLE CONTINUED
EQUALITY AND DIVERSITY
The Group is committed to promoting equality and diversity
throughout the organisation. Whilst the Board recognises
that there are still a number of improvements to be made
in this area, a number of positive steps forward have been
taken during the year. These have included CMC joining
the Employers Network for Equality and Inclusion, the
Everywoman Network, completing unconscious bias
training and forming an Diversity and Inclusion Committee.
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.
Corporate social responsibility
During the year ended 31 March 2018 the CMC Markets CSR
Committee directly engaged with charities and the community
in both London and Australia. Highlights include:
• Nomination of Centrepoint as the CMC Markets London Charity
of the Year where they have been pledged a minimum of
£75,000 in addition to various staff fundraising initiatives.
• CMC Markets London continued its annual “Dragons’ Den”,
where 30 charities were nominated by staff to be considered
for a donation. The donation to the prior year’s winner, Headway,
contributed to Headway’s Justice Project, which is progressing
the Brain Injury Identity Card scheme.
30
CMC Markets plc • CMC Markets is committed to supporting local talent and,
together with the Peter Cruddas Foundation, sponsored
Making The Leap for the second time to deliver its 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.
• The Sydney office CSR Committee worked closely with
Learning Links, its charity of the year, and also encouraged
staff to volunteer to support and tutor children with learning
disabilities and difficulties, aiming to improve their
mathematics skills and confidence.
Human rights
CMC Markets conducts business in an ethical manner and adheres
to policies which support recognised human rights principles.
The Group anti-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.
Environmental matters
The Group is committed to managing its environmental impact
and is fully aware that by considering the environment in its
decision making, particularly around technology adoption and
office selection, it can have a beneficial impact on its performance.
More information on environmental impact can be found on page 87.
Anti‑bribery and anti‑corruption
The Group does not tolerate any form of bribery or inducements
and it has an anti-bribery and corruption policy which is applicable
to all global staff. The policy is owned by the Chief Operating and
Financial Officer and is implemented by the financial crime team
and compliance officers in offices across the Group. In conjunction
with this policy, the Group also provides clear guidance to staff
in other policies related to politically-exposed persons (“PEPs”)
gifts, entertainment and expenses. Should any member of staff
believe they would like to anonymously raise bribery or corruption
concerns they are also able to do this in accordance with the
Group whistleblowing policy. No occurrences of bribery or
corruption were reported during the financial year.
CENTREPOINT SLEEP OUT
On Thursday 16 November 2017, 14 CMC Markets employees
took part in Centrepoint’s London Sleep Out on the banks
of the Thames at Greenwich. With temperatures dipping to
freezing point they experienced something similar to the
conditions homeless people can suffer during the winter
but they had the knowledge that they had a warm shower
and bed to go to the following day. The event aims to raise
awareness of society’s most vulnerable young homeless
people and the support they need to rebuild their lives.
Our colleagues raised over £10,000 for this event.
31
Annual Report and Financial Statements 2018Strategic report Strategic report
FINANCIAL STRENGTH
Strengthening our position
Our continuous focus on capital and liquidity enables us to support client
trading activity, invest in opportunities as they arise and maintain the
Group’s financial stability.
Driven by our business enablers
5. FINANCIAL STRENGTH
We aim to maintain our secure capital and liquidity structure,
ensuring that it is appropriate for the future growth and success
of the Group. This includes maintaining long-term levels of capital
to withstand the demands of fluctuations in the financial markets
and access to a healthy level of surplus liquid resources in line
with the size of our business and growth opportunities.
The continuing profitability of the business has resulted in further
growth in total capital resources to £194.9 million (2017: £171.9 million).
Our total available liquidity also increased to £306.9 million
(2017: £227.2 million) due to both cash generated from operations
and an increase in our committed facility, which increased from
£40.0 million to £65.0 million in March 2018.
From a profitability perspective, the Group recorded a record
statutory profit before tax of £60.1 million (2017: £48.5 million)
driven by growing net operating income from CFD and spread
bet products, continuing cost control and balanced investment
across the business.
Summary
Net operating income for the year increased by £26.3 million
(16%) to £187.1 million, primarily driven by trading conditions
returning to more normalised levels and our focus on high
value clients, which resulted in the average trade size
increasing during the year. Second half net operating
income was moderately higher than first half performance
at £97.5 million (H1 2018: £89.6 million).
“ We aim to maintain our secure
capital and liquidity structure,
ensuring that it is appropriate
for the future growth and
success of the Group.”
32
CMC Markets plc
Summary income statement
Net operating income
Operating expenses
Operating profit
Finance costs
Profit before tax
Profit before tax margin1
Profit after tax
Basic EPS
Active client numbers have fallen marginally by 917 (2%) to 59,165,
due to fewer event-driven trading opportunities which encourage
certain clients to open or reactivate their accounts to trade
only around these events. In the prior year the US election and
EU Referendum drove the active client figure higher. However,
revenue per active client rose by £447 (18%) to £2,964 due to
an increase in the value of client trades by £571 billion (28%) to
£2,587 billion despite having fewer active clients. Encouragingly
this growth was seen across both of our largest asset classes,
Indices and FX. Indices was the biggest driver of this increase
with the value of client trades up £393 billion (35%) to £1,518 billion,
which equated to 59% of the value of client trades, which is more
representative of the historical share of activity that this asset
class generates for the Group.
Total costs2 increased by £14.7 million (13%) to £127.0 million.
The increase was predominantly caused by a £8.5 million
(17%) increase in net staff costs due to higher average
headcount as we continue to invest in the business and
higher performance-related pay.
2018
£m
187.1
(125.9)
61.2
(1.1)
60.1
32.1%
49.7
2018
Pence
17.3
2017
£m
160.8
(111.6)
49.2
(0.7)
48.5
30.1%
39.2
2017
Pence
13.7
Variance
£m
Variance
%
26.3
(14.3)
12.0
(0.4)
11.6
2.0%
10.5
16%
(13%)
24%
(60%)
24%
—
27%
Variance
Pence
3.6
Variance
%
26%
Profit before tax increased by £11.6 million (24%) to £60.1 million,
as a result of the £26.3 million increase in net operating income
and partly offset by a £14.7 million increase in total costs
explained above. As a result our profit before tax margin
increased by 2.0% to 32.1% highlighting the operational
gearing present in the business.
1 Statutory profit before tax as a percentage of net operating income.
2 Total costs are the sum of operating expenses and finance costs.
Net operating income overview
CFD and spread bet (including
binaries) net revenue
Stockbroking
Interest income
Other operating income
Net operating income
2018
£m
175.4
8.5
2.1
1.1
187.1
2017
£m
151.3
7.8
1.7
—
160.8
33
Annual Report and Financial Statements 2018Strategic report Strategic report
FINANCIAL STRENGTH CONTINUED
Regional performance overview: CFD and spread bet
2018
Value
of
trades
£bn
Active
clients
Net
revenue
£m
71.9
50.6
1,036
16,157
777
22,223
RPC
£
4,451
2,276
Net
revenue
£m
61.0
45.3
2017
Value
of
trades
£bn
Active
clients
793
632
17,142
22,503
RPC
£
3,558
2,012
52.9
774
20,785
2,544
45.0
591
20,437
2,201
UK
Europe
APAC &
Canada
Total
175.4
2,587
59,165
2,964
151.3
2,016
60,082
2,517
% change
Net
revenue
£m
Value
of trades
£bn
18%
12%
18%
16%
31%
23%
31%
28%
Active
clients
(6%)
(1%)
2%
(2%)
RPC
£
25%
13%
16%
18%
External research highlights the Group’s success in appealing
to high value traders, with the Group maintaining the position
of number one provider for high value CFD clients in Australia3.
This report also highlighted that the Group had the highest
prompted brand awareness in the Australian CFD and FX
markets, as the brand continues to strengthen in this area.
Client satisfaction remains a key focus for the Group, and CMC
was recognised as top for overall satisfaction for Australia CFD3
and Singapore CFD and FX3 clients by Investment Trends.
Stockbroking
The Australian stockbroking business has continued to grow, with
revenue up 9% at £8.5 million (2017: £7.8 million), and up 7% in local
currency terms. Strong client acquisition has also been maintained
during the year (47% increase in new clients4), supported by a
sustained reduction in client cost per acquisition delivered
through ongoing enhancements in digital marketing and overall
strong volumes seen across the local market.
The significant stockbroking partnership with ANZ Bank remains
on track for delivery. Our existing retail and intermediary client
base are also expected to be significant beneficiaries of major
platform enhancements required as part of the implementation,
encompassing mobile trading, international equities, online options
and advisor functionality.
Interest income
The low interest rate environment remained largely the same
as the prior year and interest income increased marginally to
£2.1 million (2017: £1.7 million). The majority of the Group’s interest
income is earned through our segregated client deposits in our
Australia, New Zealand and stockbroking subsidiaries. However,
the Group’s interest income is beginning to rise due to the FCA
granting the UK business permission to deposit a proportion of
UK client funds in term deposit accounts.
UK
The value of client trades in the UK grew 31% against the prior year
to £1,036 billion (2017: £793 billion), driven by retail growth of 29%
to £733 billion (2017: £569 billion) as market conditions presented
clients with more trading opportunities, whilst the institutional
business also continues to grow. Although the number of active
clients fell 6% to 16,157 (2017: 17,142), much of this churn was in
low value, short-term clients trading around known political events
in the prior year such as the UK’s EU Referendum in June 2016,
which in turn contributed to revenue per active client increasing
25% to £4,451 (2017: £3,558). Our focus on clients was clearly
reflected in an independent industry survey carried out during
the year1, with our net promoter score further increasing and
the Group continuing to lead in client satisfaction with first
place rankings in 14 out of 19 key service areas.
Europe
Europe comprises offices in Austria, France, Germany, Italy, Norway,
Poland, Spain and Sweden. The value of client trades in Europe was
23% higher than the prior year at £777 billion (2017: £632 billion).
Whilst active clients were marginally lower than the prior year,
the focus on high value clients has yielded strong returns with net
revenue up 12% in the region to £50.6 million (2017: £45.3 million),
and an increase in net revenue across all offices. Our Scandinavian
offices performed particularly well, with the value of client trades
in the region 67% higher than the prior year. The largest office in
the region, Germany, maintained its market-leading position with
an 8% share of primary relationships with active CFD/FX clients2,
and the Polish office continues to grow well with active clients
up 52%.
APAC & Canada
Our APAC & Canada business services clients from our Sydney,
Auckland, Singapore, Toronto and Shanghai offices along with
other regions where we have no physical presence. The value
of client trades was 31% higher at £774 billion (2017: £591 billion).
As with other regions, net revenue growth was driven by high value
clients trading more compared to prior year, reflected in an RPC
increase of 16% to £2,544 (2017: 2,201), whilst active clients were
marginally higher at 20,785 (2017: 20,437).
1 Investment Trends May 2017 UK Leveraged Trading Report.
2 Investment Trends May 2018 Germany CFD and FX Report.
3 Investment Trends May 2017 Australia CFD Report; Investment Trends
October 2017 Singapore CFD and FX Report.
4 Increase in new opened accounts over the period.
34
CMC Markets plc Other expenses
IT costs increased by £1.5 million (10%) to £16.9 million. We continue
to see above-inflation increases in this area, compounded by
some IT contracts showing a trend of moving from intangible
software licences to software maintenance charges, and
increasing charges from market data providers.
Premises costs have increased mainly due to higher rent charges
in Australia and the opening of a new office in China.
Other costs
The increase in other costs was driven by numerous factors,
but mainly irrecoverable sales tax, a lower level of recoverable
bank charges as a result of new EU regulation and higher
recruitment costs.
Taxation
The effective tax rate for the year was 17% (2017: 19%). The
majority of the Group’s profits are taxed in the UK, which had a
corporation tax rate of 19% (2017: 20%). The Group also benefited
from higher utilisation of Australian corporation tax credits in the
year due to higher forecast profitability in the Australian entities.
Profit after tax for the year
The increase in profit after tax for the year of £10.5 million (27%)
to £49.7 million (2017: £39.2 million) was due to both higher
statutory profit before tax and a lower effective tax rate.
Dividend
Dividends of £25.7 million were paid during the year
(2017: £23.9 million), with £17.1 million relating to a final dividend
for the prior year paid in August 2017, and a £8.6 million interim
dividend paid in December 2017 in relation to the current year
performance. The Group has proposed a final ordinary dividend
of 5.95 pence per share (2017: 5.95 pence per share).
Expenses
Total operating expenses increased £14.3 million (13%) to £125.9 million,
driven by higher salary costs and performance-related pay.
Net staff costs
IT costs
Marketing costs
Sales-related costs
Premises costs
Legal and professional fees
Regulatory fees
Other
Depreciation and amortisation
Total operating expenses
Interest
Total costs
2018
£m
57.9
16.9
18.3
2.3
6.2
4.0
3.0
10.5
6.8
125.9
1.1
127.0
2017
£m
49.4
15.4
20.3
1.5
5.2
3.5
2.6
7.9
5.8
111.6
0.7
112.3
Staff costs
Net staff costs increased £8.5 million (17%) to £57.9 million,
largely caused by a rise in wages and salaries of £3.5 million
(9%) due to the annualised impact of investment in personnel
in the prior year and higher performance-related pay, which
increased by £7.3 million. These increases were offset by net
capitalisation, mainly relating to development costs as part of
the ANZ Bank implementation and a decrease of £1.4 million (32%)
in share-based payments.
Wages and salaries
Performance-related pay
Share-based payments (note 29)
Total employee costs
Contract staff costs
Net capitalisation
Net staff costs
2018
£m
43.4
10.7
3.0
57.1
3.5
(2.7)
57.9
2017
£m
39.9
3.4
4.4
47.7
1.7
—
49.4
Marketing costs
Marketing costs decreased by £2.0 million (10%) to £18.3 million
during the year due to a reduction in brand and sponsorship
activity. However, digital marketing spend increased year on year
and also from the first half to the second half of the year. The
Group continues to sponsor the New South Wales Waratahs
rugby team in Australia.
35
Annual Report and Financial Statements 2018Strategic report Strategic report
FINANCIAL STRENGTH CONTINUED
Group statement of financial position
Intangible assets
Property, plant and equipment
Deferred tax assets
Financial investments
Trade and other receivables
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
2018
£m
4.4
20.7
8.8
10.8
2.2
46.9
48.0
7.3
10.3
156.9
60.5
283.0
329.9
91.8
3.9
1.3
2.3
0.1
99.4
5.5
2.3
0.7
2.0
10.5
109.9
220.0
329.9
2017
£m
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
59.0
195.8
254.8
Non-current assets
The Group is committed to maintaining its Next Generation
trading platform and these costs are expensed as incurred.
However, £2.6 million of internal development costs relating to
the ANZ Bank implementation have been capitalised as intangible
assets during the year and this will continue to be the case until
the implementation is complete. The majority of the remaining
intangible assets relate to the net book value of software licences.
There has also been significant investment in the fit-out of a new
property in Australia to accommodate more staff to support the
imminent increase in size of the stockbroking business and this
has been the main driver of the increase in property, plant and
equipment over the period along with ongoing investment in
IT infrastructure.
Deferred tax assets increased during the year due to the
recognition of a higher amount of tax losses on the balance sheet
relating to Australian tax credits. This has been driven by increasing
profitability in the stockbroking business as a result of the
ANZ Bank partnership.
Financial investments both in non-current and current assets
relate to the FCA requirement to hold eligible assets against
potential liquidity stress.
Current assets
Trade and other receivables relate mainly to client receivables
from stockbroking positions yet to settle, an escrow deposit
relating to the ANZ Bank transaction, prepayments, amounts due
from our segregated client accounts on the next working day
and other client debtors. The year-on-year rise is a result of the
escrow deposit. Amount due from brokers relates to cash held
at brokers either for initial margin or to reduce interest payable
on the Group’s overall hedge position. Cash and cash equivalents
have increased during the course of the year with a proportion
being deposited with brokers to fund growing margin requirements.
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.
Regulatory capital resources
For the year under review, the Group was supervised on a
consolidated basis by the FCA. The Group maintained a significant
capital surplus over the regulatory requirement at all times.
The Group’s total capital resources increased due to the rise in
retained earnings relating to audited 2018 profits, partly offset
by higher intangible assets and deferred tax assets on the
balance sheet.
At 31 March 2018 the Group had a total capital ratio of 31.1%
(31 March 2017: 30.2%). 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 28 to the
Financial Statements.
£m
Core Equity Tier 1 capital1
Less: intangibles and deferred
tax assets
Total capital resources
Pillar 1 requirement2
Total risk exposure3
Total capital ratio (%)
2018
202.8
(7.9)
194.9
50.2
627.0
31.1%
2017
178.6
(6.7)
171.9
45.6
569.4
30.2%
1 Total audited capital resources as at the end of the financial period, less
proposed dividends.
2 The minimum capital requirement required to adhere to CRD IV.
3 Calculated in accordance with article 92(3) of the CRR.
36
CMC Markets plc Own funds have increased to £193.9 million (2017: £183.4 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 28
of the Financial Statements.
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 LAB
2018
£m
193.9
48.0
65.0
306.9
(16.6)
(103.7)
186.6
21.2
2017
£m
183.4
3.8
40.0
227.2
(19.8)
(93.0)
114.4
20.0
Client money
Total segregated client money held by the Group was £304.8 million
at 31 March 2018 (2017: £310.0 million).
Client money represents 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 clients
excluding a small number of large clients who have entered
a TTCA with the firm. This is in accordance with or exceeding
applicable client money regulations in countries in which
it operates. The majority of client money requirements fall
under the Client Assets sourcebook (“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 52 to 54.
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
does not require clients to sign a TTCA in order to be treated
a professional client and as a result their funds remain segregated.
The Group considers these funds as an ancillary source of
liquidity and places no reliance on its stability. The increase
during the year was reflective of the increase in the institutional
client base and certain other professional clients, where we
require the funds of these clients to be held under a TTCA.
• Available committed facility (off‑balance sheet liquidity)
The Group has access to a facility of up to £65.0 million
(2017: £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 £25.0 million increase during the year
was due to the syndication of the existing facility in March 2018.
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 £32.5 million and a three-year
term facility of £32.5 million, both of which were increased
in March 2018 from £20.0 million for each term. There was
no drawdown on the facility at 31 March 2018 (2017: £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 2018, the Group held cash balances of £60.5 million
(2017: £49.0 million). In addition, £304.8 million (2017: £310.0 million)
was held in segregated client money accounts for clients.
The movement in Group cash and cash equivalents is set out
in the Consolidated Statement of Cash Flows.
37
Annual Report and Financial Statements 2018Strategic report
Strategic report
RISK MANAGEMENT
Effective risk culture
Strong risk management is central to the Group’s success and is
embedded across the organisation, ensuring key risks are identified
and effectively managed.
Driven by our business enablers
6. RISK MANAGEMENT
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:
•
identifying, evaluating 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
• establishing and maintaining 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) provides additional
support to the integrated assurance programme and ensures
that the Group is effectively identifying, managing and
reporting its risks.
The Group continues to make enhancements to its Risk
Management 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
those that would threaten its business model, future performance,
solvency or liquidity and how these risks 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 28
to the Financial Statements.
38
CMC Markets plc 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:
• Regulatory change: further to announcements and consultations
from national competent authorities (“NCAs”) and ESMA, changes
will be required to be made to the marketing and distribution
of CFDs to retail clients throughout Europe in summer 2018.
These changes have been regularly discussed at Board,
Board Committee and Executive Committee meetings
throughout the period, including the Group’s readiness and
potential impact on the Group’s business model. Many of the
new requirements are already in place throughout the Group;
however, some of the measures will have an impact on client
trading behaviour that is not possible to accurately understand
until implemented. Once implemented, management will
constantly monitor any impact. The Group’s strategic focus
has been on high value and experienced clients, many of whom
may be eligible to request to become elective professionals,
which will help to mitigate the impact of regulatory change. In
addition, the Group believes that in the medium to long term
these changes present opportunities for the Group and the Group’s
strong balance sheet and increasing diversification put it in a
strong position to deal with, and take advantage of, these changes.
• UK’s exit from the European Union (“Brexit”): the impact that
Brexit has on the Group is closely monitored. Plans are underway
to establish a new subsidiary in the European Union. Once
implemented this new structure should mitigate any impact
that could arise from regulatory change resulting from Brexit.
Further information on the structure and workings of Board and
Management Committees is included in the Corporate
governance report on page 48.
dit
u
al a
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 and 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
39
Annual Report and Financial Statements 2018Strategic report Strategic report
RISK MANAGEMENT CONTINUED
40
CMC Markets plcBusiness and strategic risksRiskDescriptionManagement and mitigationRegulatory changeThe 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.• 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.Acquisitions and disposalsThe 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 ongoing or previously unidentified liabilities.• Robust corporate governance structure including strong challenge from independent Non-Executive Directors.• Vigorous and independent due diligence process.• Align and manage the businesses to Group strategy as soon as possible after acquisition.Strategic/business model riskThe 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.• 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.Reputational riskThe risk of damage to the Group’s brand or standing with shareholders, regulators, existing and potential clients, the industry and the public at large.• The Group is conservative in its approach to reputational risk and operates robust controls to ensure significant risks to its brand and standing are appropriately mitigated.• Examples include: -proactive engagement with the Group’s regulators and active participation with trade and industry bodies; and -positive development of media relations with strictly controlled media contact. 41
Financial risksRiskDescriptionManagement and mitigationCredit and counterparty riskThe risk of a client, custodian or counterparty failing to fulfil contractual obligations, including settlement, resulting in financial loss for the Group, specifically:Client credit riskFinancial losses may be incurred in cases where an adverse price move exceeds the margin that a client holds to maintain their position, followed by the client defaulting against their contractual obligations to pay the deficit.Counterparty credit riskA financial institution failing to meet or defaulting on their obligations in accordance with agreed terms.Client credit riskThe 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; and• 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 riskRisk management is carried out by a central liquidity risk management (“LRM”) team under the Counterparty Concentration Risk Policy, approved by the Board of Directors.Mitigation is achieved by:• monitoring concentration levels to counterparties and reporting these internally/externally on a monthly/quarterly basis; and• 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 28 to the Financial Statements.Financial reporting riskThe risk that financial, statutory or regulatory reports are submitted late or incomplete or are inaccurate.• Robust process of checking and oversight in place to ensure accuracy.• Knowledgeable and experienced staff undertake and overview the relevant processes. Insurance riskThe risk that an insurance claim by the Group is declined (in full or in part) or there is insufficient insurance coverage.• Use of a reputable insurance broker who 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.Annual Report and Financial Statements 2018Strategic report Strategic report
RISK MANAGEMENT CONTINUED
42
Financial risks continuedRiskDescriptionManagement and mitigationLiquidity riskThe risk that there is insufficient available liquidity to meet the liabilities of the Group as they fall due.Risk management is carried out by a central LRM team under policies approved by the Board and in line with the FCA’s individual liquidity adequacy standards (“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 £65.0 million (page 37) to meet short-term liquidity obligations to broker counterparties in the event that the Group does not have sufficient access to its own cash; and• 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 28 to the Financial Statements.Market riskMarket risk is defined as the risk that the value of our residual portfolio will decrease due to changes in market risk factors. The three standard market risk factors are price moves, interest rates and foreign exchange rates.Trading risk management monitors and manages the exposures it inherits from clients on a real-time basis and in accordance with Board-approved appetite.CMC Markets predominantly acts as a market maker in linear, highly liquid financial instruments in which it can easily reduce 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 28 to the Financial Statements.CMC Markets plc 43
Operational risksRiskDescriptionManagement and mitigationBusiness change riskThe 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.• 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 and disaster recovery riskThe risk that a physical business continuity event or system failure results in a reduced ability or inability to perform core business activities or processes.• 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.Financial crime riskFinancial crime covers a number of unlawful activities including fraud (first and third party), theft, scams, confidence tricks, tax evasion, bribery, embezzlement, identity theft, money laundering, forgery, counterfeiting and acts of terrorism.• Adoption of the risk-based approach to financial crime, including undertaking formal and regular risk assessments across global operations.• Global reporting procedures and surveillance processes in place using local compliance and legal expertise.• Regular and ongoing training and awareness programme in place for staff at all levels and in all jurisdictions.• Group Whistleblowing Policy provides a clear framework for escalation of issues.Information and data security riskThe risk of unauthorised access to or external disclosure of client or Company information, including those caused by “cyber attacks”.• Dedicated information security and 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 also requires the appropriate authorisation.• Key data loss prevention initiatives and regular system access reviews implemented across the business. Annual Report and Financial Statements 2018Strategic report Strategic report
RISK MANAGEMENT CONTINUED
44
Operational risks continuedRiskDescriptionManagement and mitigationInformation technology and infrastructure riskThe 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) risksThe 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.Operations (processing) risksThe risk that the design or execution of business processes is inadequate or fails to deliver an expected level of service and protection to client or Company assets.• Investment in system development and 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 and procurement risksThis is the risk of third-party organisations inadequately providing or performing or failing to provide or perform the outsourced activities or contractual obligations to the standards required by the Group. • Outsourcing only employed where there is a tactical gain in resource or experience.• Due diligence performed on service supplier ahead of outsourcing being agreed.• Service level agreements in place and regular monitoring of performance undertaken.CMC Markets plc 45
Operational risks continuedRiskDescriptionManagement and mitigationPeople riskThe risk of loss of key staff or having insufficient skilled resources available.• The Board has directed that the Group maintains 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; and• achieving a reputation as a good employer with an equitable remuneration policy.Regulatory and compliance riskThe risk of regulatory sanction or legal proceedings as a result of failure to comply with regulatory, statutory or fiduciary requirements or as a result of a defective transaction.• Effective compliance function.• Internal audit outsourced to an independent third-party professional services firm.• Effective compliance oversight, planning and implementation.• Comprehensive monitoring programmes by compliance and internal audit.• Controls for appointment and approval of staff holding a controlled function and annual declarations to establish ongoing fitness and propriety.• Governance and reporting of regulatory risks through the Risk Management Committee, Group Audit Committee and Group Risk Committee.• Anti-money laundering controls for client due diligence and sanctions checking. Grant Foley Chief Operating and Financial Officer6 June 2018Annual Report and Financial Statements 2018Strategic report 46
CMC Markets plc Lead with
quality
Our commitment is to provide a high quality
platform and service combined with best‑in‑class
pricing and execution.
Excellence through technology, product and
service is the key to retaining our clients.
47
Annual Report and Financial Statements 2018 INTRODUCTION TO GOVERNANCE
Corporate governance
introduction
Corporate governance is important in underpinning our long-term success.
Board composition
It is critical that the Board has the right composition, so it can
provide the best possible leadership for the Group and discharge
its duties to shareholders. This includes the right balance of skills
and experience, ensuring that all of the Directors have a good
working knowledge of the Group’s business, and that the Board
retains its independence and objectivity. During the year the Board
composition of independent Non-Executive Directors changed
with the departure of Manjit Wolstenholme and Malcolm McCaig
at the 2017 Annual General Meeting (“AGM”) and the subsequent
appointments of Paul Wainscott (Senior Independent Director),
Sarah Ing and Clare Salmon.
Board effectiveness
The Board is unanimous in its view that the appointments have
enhanced its range of experience, skills and strength of leadership.
In accordance with the Company’s procedure for new Directors,
all three new appointments have undergone a full induction
process and will continue with ongoing training, tailored to their
knowledge and previous experience. A short biography of all
Directors can be found on pages 50 to 51. Due to the recent
appointment of three new Non-Executive Directors the Board
has deferred the evaluation of the Board, its Committees and
individual Directors until no later than 31 March 2019. This has
resulted in non-compliance with provision B.6.1 of the Code.
Shareholder engagement
As Chairman, I am responsible for the effective communication
between shareholders and the Company and for ensuring the
Board understands the views of major shareholders.
I look forward to listening to the views of our shareholders at the
Company’s 2018 AGM. 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.
James Richards
Chairman
6 June 2018
Dear shareholders
On behalf of the Board, I am pleased to present the Group
Corporate governance report for the year ended 31 March 2018.
The Board continues to recognise that an effective governance
framework is fundamental in ensuring the Group’s ability to
deliver long-term shareholder value. The Group continues to
apply the principles and is compliant with the provisions of the
UK Corporate Governance Code (the “Code”), except in the
limited circumstances detailed on page 49. However, I hope that
the Corporate governance report will provide assurance that this
is only a temporary issue and full compliance will resume in the
next financial reporting cycle.
This Corporate governance report aims to assist our shareholders
in understanding the Group’s approach to corporate governance.
As a Company listed on the main market of the London Stock
Exchange, CMC Markets plc is required by the Listing Rules and
Disclosure and Transparency Rules of the UK Listing Authority to
review its practices against, and report to its shareholders on its
compliance with, each of the provisions of the Code throughout
the year.
48
Corporate governanceCMC Markets plc COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
During the year to 31 March 2018, the Company complied with
all the provisions of the UK Corporate Governance Code (the “Code”)
but for the exceptions noted below.
Code provision B.7.2
The chairman should confirm to shareholders when
proposing re-election that, following formal performance
evaluation, the individual’s performance continues to be
effective and to demonstrate commitment to the role.
As noted above, a formal Board performance evaluation was not
completed during the year to 31 March 2018. Notwithstanding that
the Chairman is of the opinion that all Directors standing for
re-election at the 2018 Annual General Meeting are effective and
demonstrate commitment to their roles. The newly appointed
Remuneration Committee has reviewed the Executive Directors’
performance to objectives during the year.
Code provision C.3.1
The board should establish an audit committee of at least
three, or in the case of smaller companies two, independent
non-executive directors. In smaller companies, the company
chairman may be a member of, but not chair, the committee
in addition to the independent non-executive directors,
provided he or she was considered independent on
appointment as chairman. The board should satisfy itself
that at least one member of the audit committee has recent
and relevant financial experience.
Code provision D.2.1
The board should establish a remuneration committee
of at least three, or in the case of smaller companies two,
independent non-executive directors. In smaller companies,
the company chairman may be a member of, but not chair,
the committee if he or she was considered independent
on appointment as chairman. The remuneration committee
should make available its terms of references, explaining its
role and the authority delegated to it by the board. Where
remuneration consultants are appointed, they should be
identified in the annual report and a statement made as to
whether they have any other connection with the company.
Excluding the Chairman, in respect of the provisions of both
C.3.1 and D.2.1 as described under B.1.2 above, there was only one
independent Non-Executive Director on the Audit and Remuneration
Committees between 27 July 2017 (when Malcolm McCaig and
Manjit Wolstenholme retired from the Board) and 14 September 2017,
when Sarah Ing was appointed to the Board (appointment proposed
on 14 July 2017 pending FCA approval). With the appointment
of Clare Salmon on 2 October 2017 (appointment proposed on
27 July 2017 pending FCA approval), the Audit and the Remuneration
Committees comprised of three Non-Executive Directors.
Code provision A.4.2
The Code recommends that the chairman should hold meetings
with the non-executive directors without the executive directors
present and that, led by the senior independent director,
the non-executive directors should meet at least annually
to appraise the chairman’s performance and on other
occasions as deemed appropriate.
The Non-Executive Directors met without Executive Directors
present. The Non-Executive Directors have not met to appraise
the Chairman’s performance since his appointment at the beginning
of January 2018 but plan to do so during the year to 31 March 2019.
Code provision B.1.2
Except for smaller companies, at least half of the board,
excluding the chairman, should comprise non-executive
directors determined by the board to be independent.
A smaller company should have at least two independent
non-executive directors.
There were three Executive Directors throughout the financial
year. Excluding the Chairman, there was only one independent
Non-Executive Director between 27 July 2017 (when Malcolm
McCaig and Manjit Wolstenholme retired from the Board) and
14 September 2017, when Sarah Ing was appointed to the Board
(appointment proposed on 14 July 2017 pending FCA approval).
With the appointment of Clare Salmon on 2 October 2017
(appointment proposed on 27 July 2017 pending FCA approval),
at least half of the Board, excluding the Chairman, comprised
of Non-Executive Directors.
Code provision B.6.1
The Code recommends that the board should state in the
annual report how performance evaluation of the board, its
committees and its individual directors has been conducted.
The Board did not conduct a formal effectiveness review during
the year to 31 March 2018. Three independent Non-Executive
Directors were appointed to the Board in the reporting period,
replacing the three resignations. Due to the limited number of
meetings of the new Board members at Board and Committee
meetings, the Board felt that it would not be particularly
meaningful to carry out an evaluation. However, the Board intends
to carry out an evaluation of itself, its Committees and individual
Directors before 31 March 2019 and will report to shareholders on
the findings in the next Annual Report.
Code provision B.6.3
The Code recommends that the non-executive directors, led
by the senior independent director, should be responsible
for performance evaluation of the chairman, taking into
account the views of the executive directors.
As set out in the explanations for Code provisions A.4.2 and B.6.1
a formal performance evaluation for the year to 31 March 2018 has
not been carried out. However, the Senior Independent Director
and Non-Executive Directors intend to carry out a performance
evaluation of the Chairman before 31 March 2019 and will report
to shareholders on the findings in the next Annual Report.
49
Annual Report and Financial Statements 2018Corporate governance THE BOARD
Paul Wainscott
Senior Independent
Director
Appointment
19 October 2017
Committee membership
A
G
R
N
Skills and experience
Paul joined the Group as an
independent Non-Executive
Director in October 2017 and
acts as the Group’s Senior
Independent Director. After over
27 years’ experience as finance
director, Paul recently stood
down from his position at the
Peel Group. During his time at
the Peel Group, Paul gained wide
experience at both Board level
and in several different business
sectors. These have included
real estate, transport, media
and utilities.
Current external
appointments
Peel Developments Espana ES
The role of
the Board
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
(www.cmcmarkets.com/group/
committees).
James Richards
Chairman
Peter Cruddas
Chief Executive Officer
Appointment
1 April 2015
Appointment
3 June 2004
Committee membership
Committee membership
G
R
N
E
Skills and experience
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 adviser 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
Skills and experience
James joined the Group as
a Non-Executive Director in
April 2015 and was appointed
as Chairman with effect from
1 January 2018. He has previously
held positions as Chairman of
the Remuneration Committee
and been a member of the
Nomination Committee, Group
Risk Committee and Group
Audit Committee. With effect
from 31 January 2018, James was
appointed as Chairman of the
Nomination Committee. James
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 14 years. Having
occupied various senior
positions within leading law
firms James has extensive
experience in derivatives, debt
capital markets and structured
finance working with major
corporates, central banks and
governmental organisations.
No external appointments
50
CMC Markets plcCorporate governance
Sarah Ing
Independent
Non‑Executive Director
Clare Salmon
Independent
Non‑Executive Director
David Fineberg
Group Commercial
Director
Grant Foley
Chief Operating and
Financial Officer
Appointment
14 September 2017
Appointment
2 October 2017
Appointment
1 January 2014
Appointment
1 August 2013
Committee membership
Committee membership
Committee membership
Committee membership
A
G
R
N
A
G
R
N
E M
E M
Skills and experience
Sarah joined the Group as a
Non-Executive Director in
September 2017. She has
30 years’ experience in
accountancy, investment
banking and fund management,
including time with HSBC and
UBS. She is a Chartered
Accountant and was a top-rated
equity research analyst covering
the general financials sector.
Sarah also founded and ran
a hedge fund investment
management business.
Current external
appointments
The Horse Rangers Association
(Hampton Court) Limited
Skills and experience
Clare joined the Group as a
Non-Executive Director in
October 2017. She has held a
broad variety of international
leadership roles with Board-level
experience across a range of
service businesses. These have
included the AA, RSA, Vodafone,
ITV, Prudential and Royal London.
Clare is also an experienced
non-executive director having
spent six years on the Board
of Alliance Trust Plc, and most
recently was CEO of the British
Equestrian Federation.
Current external
appointments
GS Yacht Charters LLP
Swinton Group Limited
Skills and experience
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
David 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 external appointments
Skills and experience
Grant joined the Group in April
2013 as Group Head of Finance
and 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 external appointments
Key
A Group Audit Committee
N Nomination Committee
R Remuneration Committee
E Executive Committee
G Group Risk Committee
Chairman
M Risk Management Committee
51
Annual Report and Financial Statements 2018Corporate governance GOVERNANCE REPORT
Leadership
Matters reserved for the Board
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;
• delegation of authority;
• corporate governance matters;
•
•
financial reporting and controls;
• policies;
internal controls and risk management;
• political charitable donations;
• contracts;
• communications;
• appointment of principal professional advisers;
• material litigation; and
• Board membership and other appointments;
•
insurance.
•
remuneration;
The schedule of matters reserved for the Board is available on the CMC Markets plc Group website.
Board composition
Corporate governance: meeting attendance
Name
James Richards1
Paul Wainscott2
Sarah Ing3
Clare Salmon4
Peter Cruddas
Position
Chairman
Senior Independent Director
Independent Non-Executive Director
Independent Non-Executive Director
Chief Executive Officer
David Fineberg
Group Commercial Director
Grant Foley
Chief Operating and Financial Officer
Malcolm McCaig
Retired as a Director on 27 July 2017
Simon Waugh
Retired as a Director on 31 December 2017
Manjit Wolstenholme Retired as a Director on 27 July 2017
Board
meetings
Group Audit
Committee
Group Risk
Committee
Nomination
Committee
Remuneration
Committee
8 (10)
4 (5)
5 (5)
5 (5)
9 (10)
9 (10)
10 (10)
2 (3)
6 (7)
2 (3)
3 (3)
2 (2)
2 (2)
2 (2)
—
—
—
2 (2)
—
2 (2)
4 (4)
1 (1)
2 (2)
2 (2)
—
—
—
2 (2)
4 (4)
2 (2)
5 (5)
2 (2)
2 (2)
2 (2)
—
—
—
2 (3)
4 (4)
2 (3)
7 (7)
3 (4)
4 (4)
4 (4)
—
—
—
2 (2)
4 (4)
2 (2)
1 Appointed as Chairman on 1 January 2018 –
previously independent Non-Executive Director.
2 Appointed as a Director on 19 October 2017.
3 Appointed as a Director on 14 September 2017.
4 Appointed as a Director on 2 October 2017.
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.
52
Corporate governanceCMC Markets plc The roles of the Chairman and Chief Executive Officer (“CEO”) are separate, clearly defined in writing and agreed by the Board.
DIVISION OF RESPONSIBILITIES
Chairman
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;
• overseeing each Director’s induction and
ongoing training; and
•
leadership of the Board effectiveness
process through his role as Chairman of
the Nomination Committee.
CEO
Responsibilities of the CEO 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
• promoting 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;
Responsibilities of the Non-Executive
Directors include:
• constructively challenging management proposals
and providing advice in line with their respective
skills and experience;
• acting as lead independent Non-Executive Director;
• helping develop proposals on strategy;
•
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 that
the Chairman, Chief Executive Officer or other
Executive Directors are unavailable.
• having a prime role in appointing and, where
necessary, removing Executive Directors; and
• having an integral role in succession planning.
53
Annual Report and Financial Statements 2018Corporate governance Corporate governance
GOVERNANCE REPORT CONTINUED
Governance structure as at 31 March 2018
INDEPENDENT
ASSURANCE
GROUP BOARD
GROUP AUDIT
COMMITTEE
GROUP RISK
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
INTERNAL
ASSURANCE
RISK MANAGEMENT
COMMITTEE
EXECUTIVE
COMMITTEE
EXTERNAL
AUDITORS
GROUP INTERNAL
AUDIT
CLIENT MONEY
REVIEW GROUP
COMMITTEE
TREATING CUSTOMERS
FAIRLY AND CONDUCT
COMMITTEE
PROJECT
MANAGEMENT
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 ANZ Bank;
• challenge and approval of ICAAP, ILAA and other regulatory
documents; and
• post-EU Referendum/Brexit.
54
CMC Markets plc Accountability
Election of Directors
The 2018 AGM will be held on 26 July 2018 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 seek election or re-election at the
Company’s 2018 AGM, which will be set out in the Notice of AGM.
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 and has been conducted on the three new Non-Executive
Directors. As part of a new Director’s application for approval from
the FCA, a skills gap analysis and Learning and Development Plan
has been created. 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 and their respective roles and
responsibilities and to gain a greater 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. New Non-Executive Directors
attended internally and externally facilitated training sessions.
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
are 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 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,
is 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.
55
Annual Report and Financial Statements 2018Corporate governance GOVERNANCE REPORT CONTINUED
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 57 to 59.
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 60 to 61.
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 was
regularly appraised of shareholder sentiment. Monthly investor
relations reports are distributed to the Board and considered at
each Board meeting.
2018 KEY SHAREHOLDER ENGAGEMENTS
January
Q3 FY2018 Interim management statement
March
FY2018 Pre-close trading update
June
FY2018 Results
July
Annual General Meeting
Q1 FY2019 Interim management statement
September
Q2 FY2019 Pre-close update
November
H1 FY2019 Results
56
Corporate governanceCMC Markets plc Corporate governance
GROUP AUDIT COMMITTEE
Committee Chair
Paul Wainscott
Other members
Sarah Ing
Clare Salmon
Meetings held
Four
Principal responsibilities
of the Audit Committee
The Committee operates within the agreed terms
of reference, which outline the key responsibilities
of the Committee.
The Committee’s full terms of reference can be
found on the Group’s website:
www.cmcmarkets.com/group/committees.
Areas of focus in 2017/18
The main responsibilities during the year, as set out in the
Code, were as follows:
•
•
•
•
•
•
•
•
•
to monitor the integrity of the Financial Statements of
the Group;
to review and report to the Board on significant financial
reporting issues and judgements;
to assess the adequacy and effectiveness of the Group’s
internal control systems and report to the Board on any
key findings;
to review and approve 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 auditors including appointment, reappointment
and removal of the external auditors;
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 ten years.
Dear shareholders
As Chairman of the Group Audit Committee (the “Committee”)
I am pleased to present my first 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.
Paul Wainscott
Senior Independent Director and Chairman of Group
Audit Committee
6 June 2018
Composition and advisers
The Committee is chaired by Paul Wainscott, who joined the
Committee upon appointment as a Non-Executive Director and
became Chairman on 28 November 2017. James Richards was a
member and chaired the Committee following the departure of
Manjit Wolstenholme until Paul Wainscott’s appointment. Sarah
Ing and Clare Salmon joined upon their appointment as Non-
Executive Directors. James Richards ceased to be a member with
his appointment as Group Chairman in alignment with the UK
Corporate Governance Code. The Committee is considered
independent to management and the members are all
independent Non-Executive Directors.
The UK Corporate Governance Code requires the inclusion
on the Committee of at least one member determined by
the Board as having recent and relevant financial experience.
The Committee Chairman is considered to fulfil this requirement.
The Committee held three scheduled meetings and one ad-hoc
meeting during the financial year. The key activities and discussion
points are outlined in the relevant section of this Committee report.
The Chief Operating and Financial Officer, Group Head of
Finance, Group Head of Tax and Client Asset Management
and Group Head of Financial Crime and UK Money Laundering
Reporting Officer attend Committee meetings by invitation.
Representatives from PricewaterhouseCoopers LLP (“PwC”), the
external auditors, and Grant Thornton LLP, the internal auditors
attend the Committee meetings by standing invitation.
The Group Chairman was invited to attend all meetings.
Committee attendance is presented on page 52.
57
Annual Report and Financial Statements 2018Corporate governance Corporate governance
GROUP AUDIT COMMITTEE CONTINUED
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, follows up verification
reports on any findings identified by internal audit, and annually
approves the Internal Audit Plan and Charter.
During the year, the internal auditors presented the following
reports to the Committee:
June 2017
• UK client onboarding;
• cyber security review; and
• human resources review.
November 2017
• dealing desk systems review; and
• MiFID II plan.
March 2018
• UK security audit;
• Australia security audit; and
• corporate governance.
The Committee approved the Internal Audit Plan for 2018, which
includes reviews on:
• General Data Protection Regulation (“GDPR”);
•
•
Internal Capital Adequacy Assessment Process (“ICAAP”);
financial crime;
• business continuity planning, disaster planning and
crisis management; and
• Senior Managers and Certification Regime (“SM&CR”).
External auditors
The Committee considers the reappointment of the external
auditors annually and such consideration includes review of the
independence of the external auditors and assessment of the
auditors’ performance. As part of this review, the Committee
agreed to recommend to the Board the reappointment of
PricewaterhouseCoopers LLP as the Group’s external auditors
and a resolution to this effect will be put before the shareholders
at the 2018 AGM. The current auditors have been in place for
nine years.
The Committee, in line with Financial Reporting Council (“FRC”)
guidance, continues to review the qualification, expertise,
resources, effectiveness and independence of the external
auditors. Also in line with FRC guidance, the Committee reviews
the appointment of staff from the external auditors to positions
within the Group and meets with the external audit partner at
least annually without executive management present.
The Group’s audit and other services fees are disclosed in note 8
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 2013.
Non-audit services policy
The Group has a number of relationships with independent
advisory and assurance firms which provide alternatives to using
PricewaterhouseCoopers LLP. However, the Group has engaged
with PricewaterhouseCoopers LLP for a limited number of
non-audit services during the year. For each engagement the
auditors’ 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 8 of the Financial Statements.
In order to ensure compliance with the Ethical Standard
issued by the FRC regarding the requirement for safeguarding
independence of the external auditors, the Committee has in
place a formal policy governing the engagement of the auditors
to provide non-audit services, which was reviewed and reapproved
in November 2017. The Committee received a non-audit services
report for review and approval with the nature of expenditure
categorising by Discretionary/Non-Discretionary and incurred
and proposed fees.
Priorities for financial year 2018/19
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.
The Committee will closely monitor the delivery of the stockbroking
partnership with ANZ Bank in Australia and review any newly
required accounting practices and matters of judgement in
recognition of this partnership.
There will be continued focus on internal systems of control
and particular focus will be paid to the results of upcoming
internal audits.
58
CMC Markets plc 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 Chief Operating and Financial Officer on the year-to-date
financial performance of the Group;
• receives an update on current and planned internal audits and any internal audit issues
highlighted in completed audit reports; and
• receives an update on significant accounting judgements.
June 2017
• Considered the year-end audit report presented
by the external auditors and discussed the audit
with the lead audit partner. In line with the
Committee terms of reference the Committee
met with the Group auditors without management
or the Executive Directors present.
• Reviewed the Annual Report and Financial
Statements including the specific disclosures
such as going concern, viability and risk
management and internal controls reporting,
for recommendation to the Board.
• Reviewed the annual report from the Money
Laundering Reporting Officer (“MLRO”).
November 2017
• Met with the internal auditors without
management or the Executive Directors present
in line with the Committee terms of reference.
• Considered the interim review report presented
by the external auditors and discussed the review
with the lead audit partner.
• Reviewed the interim results including consideration
of going concern, viability and risk management
and internal controls reporting, for recommendation
to the Board and agreed the engagement letter,
audit fee and audit plan for the external auditors.
• Considered the half year Whistleblowing report.
July 2017
• Considered the results of the external auditors’
reasonable assurance report on client money
and collateral and limited assurance report on
custody assets by the independent auditor to
the Financial Conduct Authority in respect of the
Group’s two UK regulated entities, CMC Markets
UK plc and CMC Spreadbet plc.
• Reviewed the detailed findings of the external
auditors’ evaluation.
March 2018
• Considered the update on year-end audit
presented by the external auditors.
• Reviewed the design and content update on
the Annual Report and Financial Statements.
• Discussed with the external auditor the Financial
Reporting Council’s latest Quality Review (which
included the CMC Markets audit).
• Reviewed and reapproved the Group
Whistleblowing Policy.
• Considered the significant accounting
adjustments made in finalising the Group
accounts, with a particular focus on recognition
of deferred tax assets and capitalisation of
intangible assets.
59
Annual Report and Financial Statements 2018Corporate governance GROUP RISK COMMITTEE
Committee Chair
Sarah Ing
Other members
James Richards
Clare Salmon
Paul Wainscott
Meetings held
Four
Principal responsibilities
of the Group Risk Committee
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 ICAAP, ILAA and the Group CFP;
• oversight of, and recommendations to the Board on
current risk exposures and future risk strategy;
•
review of 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 of 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 (www.cmcmarkets.com/group/committees).
The Committee has oversight of the Group’s risk
management processes as detailed on page 38 to 45.
60
Dear shareholders
As the new Chairman of the Group Risk Committee
(the “Committee”), I am pleased to present my first
Group Risk Committee report.
The Committee assists the Board by providing oversight of the
risk appetite and Risk Management Framework of the Group and
takes an active role in advising the Board on the Group’s risk
strategy. The Committee reviews, challenges and recommends,
if it sees fit, the Group’s key processes and procedures including
its Internal Capital Adequacy Assessment Process (“ICAAP”),
Individual Liquidity Adequacy Assessment (“ILAA”) and Group
Contingency Funding Plan (“CFP”), which were reviewed and
recommended for Board approval in October 2017. A key priority
for the Committee is to ensure that a robust risk culture
continues to be embedded across the business.
The Committee actively monitors and discusses the latest risk
and regulatory developments affecting the Group.
Further information on the activities of the Committee and its
priorities for the year ahead is provided in the following report.
Sarah Ing
Non-Executive Director and
Chairman of the Group Risk Committee
6 June 2018
Composition
The Committee is chaired by Sarah Ing, who joined the
Committee upon appointment as a Non-Executive Director
and became Chairman on 28 November 2017. James Richards
was a member of the Committee throughout the year and chaired
the Committee following the departure of Malcolm McCaig.
Clare Salmon and Paul Wainscott joined upon their appointment
as Non-Executive Directors.
The Committee held four scheduled meetings during the financial
year. The Chief Executive Officer, Chief Operating and Financial
Officer, Group Commercial Director, Group Head of Risk and
Head of Compliance attend Committee meetings by standing
invitation. Representatives from other areas of the business
attend the Committee meetings by invitation as appropriate
to the matter under consideration.
Committee attendance is presented on page 52.
Corporate governanceCMC Markets plc Regulatory compliance
The Committee continued to closely monitor global regulatory
changes and the impact on the Group, in particular risks associated
with the potential impact of the product intervention measures
proposed by the European Securities and Markets Authority (“ESMA”).
The Committee monitored the Group’s MiFID II compliance.
The Committee continued to focus on cyber and data security
and associated risks given the Group’s online trading platform.
In preparation for the EU General Data Protection Regulation
(“GDPR”), which came into force on 25 May 2018, the Committee
considered the Group’s processes for dealing with employees’,
partners’ and clients’ personal data. Subsequent to the financial
year end, the Committee received an update on GDPR readiness
in April 2018 and a post-implementation report in May 2018.
Priorities for financial year 2018/2019
Key priorities for the year ahead remain focused on continued
enhancement of risk culture and frameworks 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 Committee will continue to closely monitor
risks associated with regulatory change in line with the Group’s
approach as outlined in pages 38 to 45 of the Strategic report.
In addition to fulfilling the responsibilities outlined in its terms
of reference, the Committee will:
• monitor the risks associated with regulatory change;
• monitor the Group’s compliance with MiFID II regulations
and its impact on the Group;
• monitor planning and process implementation for the FCA’s
Senior Managers and Certification Regime (“SM&CR”) as it
extends SM&CR to all Financial Services and Markets Act
(“FSMA”) authorised firms;
•
review the Group’s planning for, and implementation of, actions
to mitigate the impact of Brexit and ensure that the Group
remains compliant with regulations as we move towards the
transitional period;
• monitor the Group’s offering and the impact of any global
regulatory action; and
• monitor the Group’s response to FCA’s Business Plan for the
coming year and to its thematic reviews and focus areas,
including culture.
Main activities during the financial year
The Committee has oversight and makes recommendations to
the Board on current risk exposures and future risk appetite and
strategy. The Committee reviews the risks associated with
proposed strategic transactions and the effectiveness of risk
mitigation and monitoring processes.
The Committee monitored the Group’s top and emerging risks at
each Committee meeting during the year. 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. Following RMC review and
discussion, risk-related reports are provided to the Committee
for independent oversight and challenge. The Committee routinely
asks business leaders to present an overview of their risk
management practice and receive updates on key issues and
discussion points from the RMC. Since her appointment, the
Committee Chairman has been a regular attendee of the
monthly RMC meetings.
During the year, the Committee discussed and reviewed risk-related
reports, including the recommendation to the Board to adopt
the annually reviewed Group Risk Management Framework.
The Committee assessed the Risk Appetite Statement and
recommended changes to include client interests and other
updates to risk-related issues before obtaining approval by the
Board. The Committee recommends the Group’s ICAAP, ILAA
and CFP to the Board for its approval.
The Committee received updates from the RMC and discussed
management reports from the Group’s risk departments including
Financial Risk Management, Liquidity Risk Management, Operational
Risk Management, Compliance, Financial Crime, Complaints Handling
and Legal together with the output from the Client Money Review
Group Committee and the Treating Customers Fairly and
Conduct Committee.
Stockbroking partnership with ANZ Bank
Following the partnership the Committee continues to review
and challenge the status of the project implementation.
During the year, the Committee received reports and considered
the risks related to the integration of software, transfer of client
data, processes, employee transition, technology implementation
and integration, governance and other related matters.
Cryptocurrency trading
The Committee discussed the impact of rolling out cryptocurrencies
as underlying instruments to the Group’s CFD and spread bet
products to the Group’s professional clients.
People and culture
The Committee has challenged and approved initiatives to enhance
conduct and culture and reviews risk taking by Directors and
senior management as it impacts their remuneration incentives.
Risk management and internal controls
The Group continues to invest in risk management and internal
controls and continues to improve and enhance the Risk
Management Framework.
Following an annual review undertaken in October 2017, the
Committee was satisfied that the Group’s risk management
and internal controls were effective.
61
Annual Report and Financial Statements 2018Corporate governance NOMINATION COMMITTEE
Dear shareholders
As the new Chairman of the Nomination Committee (the
“Committee”) appointed 28 February 2018, I am pleased to
present the Nomination Committee report. I took over the role
in line with the Group’s succession plans from Simon Waugh,
who after almost ten years as a Non-Executive Director of the
Company and four years as Chairman retired from the Board
on 31 December 2017.
I would firstly like to thank Simon for his considerable efforts
chairing the Committee. The Committee spent the greater part
of the year under Simon’s chairmanship. Simon remains with the
Group as Chairman of CMC Markets Group Australia Pty Ltd,
and will continue to hold this position until 31 December 2018,
overseeing the strengthening of the Asia-Pacific Board reflecting
the growing importance of the region to the Group. Appointing
new Non-Executive Directors was a particular focus this year
after Manjit Wolstenholme and Malcolm McCaig retired from the
Board at the Annual General Meeting on 27 July 2017, following the
announcements on 23 May and 14 July 2017. Having examined the
Board composition and succession requirements, the Committee
agreed that in order to meet the requirements of the Company
it was appropriate to seek the appointment of three additional
members. The Committee is very pleased that its search afforded
the Company the opportunity to find three new Non-Executive
Directors with a suitably diverse range of skills and experience.
This will be of great benefit to the Company, allowing the
business to continue to deliver its strategy as it adapts to the
changing regulatory environment.
Following a recruitment process, which included the use of an
external executive search and recruitment platform, the Committee
recommended to the Board the appointment of Sarah Ing (appointed
on 14 September 2017), Clare Salmon (appointed on 2 October 2017)
and Paul Wainscott (appointed on 19 October 2017) and each
became a member of the Group Audit Committee, Group Risk
Committee, Nomination Committee and Remuneration
Committee upon appointment.
On 28 November 2017 the Board appointed Paul Wainscott as
Senior Independent Director and Chairman of the Audit Committee,
Sarah Ing as Chairman of the Group Risk Committee and
Clare Salmon as Chairman of the Remuneration Committee.
Given the changes to the Non-Executive Directors during 2017
the Board and Board Committee evaluations have been deferred
until a date during the financial year commencing 1 April 2018.
This is to enable the new Non-Executive Directors to settle in their
new roles.
Talent development to lay the foundations for succession
planning will continue to be a key priority in the coming year.
Further information on the activities of the Committee and its
priorities for the year ahead is provided in the following report.
James Richards
Group Chairman and Chairman of the Nomination Committee
6 June 2018
Committee Chairman
James Richards
Other members
Paul Wainscott
Sarah Ing
Clare Salmon
Meetings held
Five
Principal responsibilities
of the Nomination Committee
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 Committee’s full terms of reference are available on the
Company’s website (www.cmcmarkets.com/group/committees).
The main roles 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;
to monitor the external interests of Non-Executive
Directors, as part of the review of Non-Executive
Directors’ independence;
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.
62
Corporate governanceCMC Markets plc Composition and advisers
The Committee is chaired by James Richards with Sarah Ing,
Clare Salmon and Paul Wainscott as members. The Committee
is considered independent to management.
Succession planning and diversity
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 held three scheduled meetings and two ad-hoc
meetings during the financial year. The Executive Directors and the
Group Head of Reward attend Committee meetings by invitation.
Committee attendance is presented on page 52.
The Committee engaged an external executive search and
recruitment agency as part of the Non-Executive Director
recruitment process. It was confirmed that none of the
Committee members nor the Group had any other connection
with this agency.
Board and Board Committee evaluation
Notwithstanding the changes to the Board since the 2017 AGM
and the Committee’s deferral of a formal internal Board and
Board Committee self-assessment evaluation, the Group’s internal
auditors (Grant Thornton UK LLP) conducted a review to evaluate
the corporate governance arrangements in place and in order to
determine whether the controls are appropriate and sufficient for
the needs of the business. The scope of their audit was to assess
whether the Board as a whole: operated effectively with open
debate and constructive challenge; had evolved and matured,
particularly in the context of being a company with a premium
listing on the London Stock Exchange and had further embedded
the process required of a listed company to assess whether
appropriate composition and structure of the Board and its
Committees are present, the appointment and re-election of
members of the Board and Committees, the effective operation
of the Board and its Committees and the adequacy of
management information. No material issues were raised.
The Committee regularly considers diversity, including gender, in
its succession planning and works closely with the Remuneration
Committee with regard to issues such as the gender pay gap.
Following the Board’s acknowledgement in the 2017 Annual
Report and Financial Statements that the number of women in
senior roles is an area the Company could improve upon, we are
pleased that two of the three newly appointed Non-Executive
Directors are women.
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 29.
Priorities for the financial year 2018/19
The Committee will continue to focus on key themes such
as diversity and succession planning. It will support the new
Non-Executive Directors as they settle into their new roles.
Board evaluations will be conducted in the coming year.
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.
April 2017
• Review of Executive Director roles.
July 2017
• Non-Executive Director recruitment process.
• Appointment of agents, roles and criteria.
March 2018
• Discussion of the internal auditors’ report on
corporate governance.
June 2017
• Succession planning discussion.
• Review of Non-Executive Director independence
and re-election to the Board.
November 2017
• Review of structure, size and composition
of the Board and Board Committees.
• Subsidiary Board discussions.
• Development of Directors and relevant
senior managers.
• Non-Executive Director induction programme.
63
Annual Report and Financial Statements 2018Corporate governance REMUNERATION COMMITTEE
Committee Chair
Clare Salmon
Other members
Sarah Ing
James Richards
Paul Wainscott
Meetings held
Seven
Principal responsibilities
of the Remuneration Committee
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 advisers were used to ensure
remuneration was appropriately benchmarked with the
Group’s peer companies.
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.
64
Committee composition, attendance and advisers
The Committee was chaired by James Richards until the appointment
of Clare Salmon on 28 November 2017. James Richards remains
a member of the Committee. Sarah Ing and Paul Wainscott
joined upon their appointment as Non-Executive Directors.
The Committee held four scheduled meetings and three ad-hoc
meetings during the financial year.
Committee attendance is presented on page 52.
The Committee was advised by Willis Towers Watson (“WTW”),
who was appointed by the Committee in January 2017 to advise
the Committee on remuneration matters, including independent
advice on the information and proposals presented to the
Committee by Company executives. WTW is a member of the
Remuneration Consultants Group (“RCG”) and is a signatory to
the RCG’s Code of Conduct. It was confirmed that none of the
Committee members had any connection or conflicts of interest
in regard to this appointment.
During the year, the Committee received support on remuneration
matters from the Group Head of Reward and Chief Executive
Officer in regard to Executive Director remuneration and from
the Chief Operating and Financial Officer and Group Commercial
Director in regard to members of the Executive Committee.
Remuneration Policy
The Directors’ Remuneration Policy (“Policy”) was approved by
shareholders at the 2016 AGM as set out on pages 69 to 76.
The Committee has carried out a thorough review of CMC’s
current Remuneration Policy. Following this, we intend to put
forward a new Policy at the AGM as detailed on pages 66 to 68,
which will include a single combined incentive plan in place of the
current Annual Incentive and Management Equity Plan (“MEP”).
Subject to approval, our intention is that the new Policy would
apply from the 2018/19 financial year, with the first deferred share
awards following the year ending on 31 March 2019.
Priorities for the financial year 2018/19
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.
Corporate governanceCMC Markets plc MAIN ACTIVITIES DURING THE FINANCIAL YEAR
April 2017
• Reviewed the draft Directors’ remuneration report
to be included in the Annual Report and Financial
Statements to 31 March 2017.
• Considered Executive Directors’ remuneration
benchmarking based on new roles.
• Reviewed Executive Directors’ performance against
objectives/annual incentives including bonus payment
and Long Term Incentive Plan (“LTIP”) targets.
• Reviewed senior leadership team performance
against personal objectives/annual incentives.
August 2017
• Grant of LTIP post-setting EPS.
January 2018
• Received an update on Executive Director
objectives and mid-year performance reviews.
• Received an update on market trends from the
remuneration consultants.
• Considered FRC consultation on the Corporate
Governance code.
• Discussed the Remuneration Policy and Executive
Director Remuneration.
• Discussed its terms of reference.
June 2017
• Reviewed and recommended the Directors’
remuneration report and Remuneration Policy
included in the Annual Report and Financial
Statements to 31 March 2017.
• Reviewed LTIP targets and awards to those below
senior management.
• Approval of annual incentive awards under the
Committee’s remit.
• Considered and approved the FCA required
Remuneration Policy Statement.
October 2017
• Reviewed the performance of the Group’s
remuneration consultants.
• Received an update on feedback post-AGM from
investors and investor advisory groups.
• Reviewed proposed grant to new Executive
Committees (“ExCo”) members and high potential
employees (“HIPOs”) and key talent.
March 2018
• Considered potential changes to the Remuneration
Policy and the proposed Combined Incentive Plan.
• Received an update on considerations of
Executive Director and senior management
remuneration in light of regulatory developments.
• Received a report on the Company’s remuneration
strategy and Group employee retention.
65
Annual Report and Financial Statements 2018Corporate governance 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.
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 2018, 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.
The deferral into shares will provide a good fit with the shareholder
experience over the long term and ensure that short-term success
is sustained. The Committee also believes that the new arrangements
will represent a significantly simplified structure. Details of the
proposed Remuneration Policy are provided on page 69.
Implementation of Remuneration Policy for 2018/19
If approved by shareholders, the new Remuneration Policy will be
applicable for the year ended 31 March 2019. The Committee
proposes that Group and individual performance against targets
for the 2019 financial year will form the basis on which the first
combined incentive will be awarded. It is anticipated that the
performance measures applied to the combined incentive in the
first year of operation will be:
• 60% earnings per share;
• 30% strategic performance; and
•
10% personal objectives.
As deferred share awards under the new Combined Incentive
Plan will vest over a five-year period, compared to the three year
performance period under the current LTIP, to help bridge the
transitional gap the Committee proposes to grant LTIP awards
equal to 125% salary to the Chief Operating and Financial Officer
and Group Commercial Director, as permitted under the existing
policy in July 2018. The Committee will use the same three metrics
for LTIP awards as applied in 2017 – 60% earnings per share, 30%
relative total shareholder return and 10% net promoter score.
In relation to the EPS target, the Committee has ensured that
a sufficiently stretching range has been set by taking account
of a number of internal and external reference points and the
impact of regulatory change. The target range will be disclosed
in next year’s Annual Report. With regard to the strategic and
personal objectives, these will be evaluated based on quantitative
measurable objectives in the significant majority of cases. A detailed
disclosure of these quantitative performance measures and
associated outcomes will be disclosed in the 2019 Annual Report
and Accounts.
Dear shareholders
I am pleased to present my first Remuneration Committee
(“Committee”) report as its new Chairman. This independent
Board Committee has three key accountabilities. Firstly, it is
responsible for assessing and setting Executive Director
remuneration, incentives and retention arrangements. Secondly,
the Committee reviews and, if appropriate, endorses senior
management remuneration. The Committee also reviews other
Group remuneration as required. This report summarises the
outcomes of these activities and describes the future focus
of the Committee over the coming year.
Remuneration Policy Review
During this year the Committee faced significant challenges in
aligning the Executive Directors’ rewards with shareholders’ interests.
The Financial Conduct Authority published its consultation paper
CP16/40 ‘Enhancing conduct of business rules for firms providing
contract for difference products to retail clients’. This led to a
sharp decline in CMC’s share price, in common with our competitors,
and hence the need to consider how best to motivate and retain
key members of the team in light of this. A provisional assessment
of the 2016 LTIP identified a major and sustained downgrade in
the likely outturn from the plan as a result of the volatile regulatory
environment. In these circumstances, the Committee recognised
the difficulty of aligning the shareholder and Executive Director
experience, whilst also ensuring that we are able to drive sustainable
performance in the business by retaining and attracting key
talent. With this in mind, the Remuneration Committee took the
opportunity to review the Remuneration Policy to ensure that it
aligns Executive Directors’ interests with our strategic objectives
and shareholders’ interests, and also that it continues to motivate
and retain our critical talent. Following this review, and after
consultation with major shareholders, the Committee considered
it was appropriate to restructure the existing incentive arrangements
to align better with the Group’s strategy. The Committee has
proposed a revised Directors Remuneration Policy which will be
subject to a binding vote at the Company Annual General Meeting
on 26 July 2018.
Remuneration Policy Changes
We have designed a new Remuneration Policy which we believe
will reflect the systemic changes underway, and enable CMC
to benefit from the regulator’s intent to create a fairer and more
transparent market place and full alignment to our strategic
objectives. The Committee propose to replace the current short
and long-term incentive arrangements with a single combined
incentive plan.
The level of award under the combined incentive plan will be
determined primarily on financial performance in the previous
financial year, with a portion of the award (45%) settled in cash
and the remaining portion (55%) deferred into shares for up to
five years. The vesting of the deferred share portion will be subject
to an underpinning performance assessment over three years to
ensure that vesting is warranted based on sustained success. The
proposed structure will support the Committee in taking account
of short-term developments, whilst at the same time reinforcing
continued performance through the use of deferral and associated
performance criteria. The Committee believes that this approach
will strengthen the alignment of pay with the measures of performance
that are important in creating value for shareholders, as well as
forming a strong retention/motivation mechanism for Executives.
66
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The graph below demonstrates how awards under the existing and proposed remuneration policy will be delivered:
Timeline for transition to new policy
OLD POLICY
2018 LTIP AWARD PERFORMANCE PERIOD
100% VEST
(JULY 2021)
NEW POLICY
COMBINED
INCENTIVE
PLAN –
LEVEL OF
AWARD
DETERMINED BY
PERFORMANCE
IN YEAR 0
CASH PORTION
PAYABLE
(JULY 2019)
DEFERRED SHARE PORTION
SHARES VEST AFTER 3, 4 AND 5 YEARS SUBJECT
TO UNDERPIN PERFORMANCE
40% VEST
(JULY 2022)
30% VEST
(JULY 2023)
30% VEST
(JULY 2024)
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FY MAR 2020
FY MAR 2021
FY MAR 2022
FY MAR 2023
FY MAR 2024
FY MAR 2025
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Overview of performance in the year ended 31 March 2018
The Group had a very strong year of financial performance in 2018. Continued strong organic growth and resilient responses
to regulatory uncertainty have contributed to strong financial results including:
• net operating income increasing by 16% to £187 million; and
• profit before tax increasing by 24% to £60 million.
In addition to the strong financial performance, the Group achieved considerable progress against our strategic objectives.
The stockbroking partnership with ANZ Bank continues to progress to plan with the retail go live in September 2018, generating
revenues from that point onwards. In addition we have increased the number of premium clients serviced by the Group by 3%. These
are important achievements for the Group as we continue to diversify our risk exposure and will ensure we are well positioned to
respond to developing regulatory changes.
These strong financial and strategic results are directly attributable to the dedication and quality of our people, and their response
to market pressures.
Implementation of Remuneration Policy for 2017/18
When determining the annual incentive plan payouts in respect of 2018, the Committee took into account the overall performance
of the business as well as the Executive Directors’ performance. The annual incentive plan was assessed against Group and individual
targets as follows:
• 80% based on performance against profit before tax, which increased significantly to £60 million; and
• 20% on individual performance against individual objectives, which were determined by the Committee in light of the revised
remuneration strategy. The targets and the level of achievement against them are described on pages 69 to 72.
INDEPENDENT
ASSURANCE
GROUP BOARD
The Group profit target was achieved and the Group has continued to make strong progress on its strategic initiatives, which is reflective
of the significant contributions from each of the Executive Directors. After careful consideration, the Committee determined that
bonuses of 100% of salary should be paid to each of the Executive Directors in respect of the year ended 31 March 2018.
Long term incentive awards, with a three-year performance period, were granted to the Executive Directors (excluding the CEO)
following listing in 2016. The first tranche of LTIP awards are due to vest in 2019 subject to performance.
GROUP AUDIT
GROUP RISK
REMUNERATION
NOMINATION
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.
COMMITTEE
COMMITTEE
COMMITTEE
COMMITTEE
Clare Salmon
Remuneration Committee Chairman
6 June 2018
INTERNAL
ASSURANCE
RISK MANAGEMENT
COMMITTEE
EXECUTIVE
COMMITTEE
EXTERNAL
AUDITORS
GROUP INTERNAL
AUDIT
CLIENT MONEY
REVIEW GROUP
COMMITTEE
TREATING CUSTOMERS
FAIRLY AND CONDUCT
COMMITTEE
67
PROJECT
MANAGEMENT
COMMITTEE
Board/Board Committee
Management Committee
Direct reporting line
Senior Management Committee
Internal assurance
Reporting line for certain matters
Independent assurance
Annual Report and Financial Statements 2018Corporate governance Summary of policy changes and 2018 implementation
No changes have been proposed to the following elements of Policy; (i) base salary, (ii) pension, (iii) benefits and (iv) SIP. The table below
summarises how the incentive arrangements in our proposed remuneration policy will differ from our current policy.
Full details of the new policy are set out on pages 69 to 72.
Current policy
New policy
Variable
Annual Incentive
Performance measured annually each
financial year with 100% settled in cash
subject to Remuneration Committee
discretion to defer up to 50% in shares
which vest after three years.
Maximum opportunity up to 120% of salary.
Management Equity Plan
(“LTIP”)
LTIP awards granted annually subject to a
three-year performance period.
Maximum opportunity up to 125% in
normal circumstances and 200% of
salary in exceptional circumstances.
Replace the annual incentive and LTIP with
a combined incentive plan. Performance
measured annually with:
• 45% settled in cash after the year; and
• 55% deferred into shares for up to
five years.
The deferred share portion will vest pro-rata
over a five-year period, subject to achieving
performance underpin, as follows – 40%
after year three, 30% after year four and
30% after year five.
Maximum opportunity up to 300% of base
salary (135% cash settled and 165% in
deferred shares).
At a glance
Potential under existing policy
Potential under new policy
Actual
0
0
0
£
’
1,200
1,000
800
600
400
200
0
0
0
0
£
’
1,200
1,000
800
600
400
200
0
Peter Cruddas
Grant Foley
David Fineberg
Peter Cruddas
Grant Foley David Fineberg
Peter Cruddas
Grant Foley David Fineberg
Salary
Annual incentive
LTIP
Salary
Combined incentive
Salary
Annual incentive
LTIP
Total shareholder return
Source: DataStream
31 March
2018
5 February
2016
31 March
2016
31 March
2017
CMC Markets plc
FTSE 250
68
1,200
1,000
800
600
400
200
0
150
125
100
75
50
25
0
0
0
0
£
’
)
0
0
1
o
t
d
e
s
a
b
e
R
(
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ Remuneration Policy
The current Remuneration Policy was introduced upon CMC’s listing in February 2016 and was structured to include relatively
market-typical annual bonus and long-term performance share elements. In 2018 the Board carried out a review of the Company’s
strategy, particularly in light of the evolving and challenging regulatory environment in which it operates. Following this review the
Committee considered it was appropriate to restructure the existing incentive arrangements to better align with the Group’s strategy.
Participants in the new plan will include the Executive Directors, however, the CEO will not participate in the share portion of the plan.
Policy table
The below table summarises the key components of the proposed Remuneration Policy for the Executive Directors which will be put
to a binding shareholder vote at the Annual General Meeting on 26 July 2018.
Purpose and
link to strategy
Base salary
To reflect the market
value of the role and
individual’s experience,
responsibility and
contribution.
Pension
To provide
competitive
retirement benefits
Share Incentive
Plan (“SIP”)
To encourage broad
employee share
ownership.
Benefits
To provide market
competitive benefits.
Operation
Maximum opportunity
Performance measures
Business performance
is considered in any
adjustment to base salary.
Executive Director salary increases
will normally be in line with those
awarded to the wider employee
population.
Increases may be above this level if
(i) there is an increase in scale, scope,
market comparability of the role and/
or (ii) where an Executive Director has
been promoted or has had a change
in responsibilities.
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.
The policy is for base salary to be
competitive. In making this assessment
the Committee has regard for:
•
the individual’s role, responsibilities,
and experience;
• business performance and the
external economic environment;
• salary levels for similar roles at
relevant comparators; and
• salary increases across the Group
payable in cash.
Salaries are reviewed on an annual basis,
with any increase normally taking effect
from 1 April.
Executive Directors participate in a
defined contribution pension scheme or
may receive a cash allowance in lieu.
In line with HMRC rules. Executive
Directors are entitled to participate
in the SIP on the same terms as
other employees.
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.
69
Annual Report and Financial Statements 2018Corporate governance Directors’ Remuneration Policy continued
Purpose and
link to strategy
Combined
incentive plan
To ensure that
incentives are fully
aligned to the
Group’s strategy.
Operation
Maximum opportunity
Performance measures
The value of an award will be determined
based on performance achieved in the
previous financial year against defined
financial and strategic targets.
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.
The award will be delivered as follows:
Cash award: 45% of the award will be
settled in cash as soon as practicable
following the financial year.
Deferred shares: 55% of the award will be
deferred into shares for up to five years
following the financial year. This portion
of the award will vest subject to the
achievement of a three-year
performance underpin to ensure the
deferred portion of the award is
warranted based on sustained success.
Subject to the achievement of the
performance underpin, the deferred
share portion of the award will vest
pro-rata over a period of at least five
years. It is anticipated this will be
as follows:
• 40% after three years;
• 30% after four years; and
• 30% after five years.
Incentive awards are discretionary.
Awards under the combined incentive
plan are non-pensionable and are subject
to malus and clawback 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 consider appropriate.
Participants in the new plan will include
the Executive Directors. However, the
CEO will not participate in the
deferred share element of the plan.
Executive Directors (excluding CEO):
Awards may be up to 300% of salary
delivered as follows:
• Cash award: 135% salary.
• Deferred shares: 165% salary.
CEO:
Awards may be made under the cash
element of the plan only up to 135%
of salary.
Performance is assessed
against Group and
individual performance
measures as considered
appropriate by the
Committee.
Financial performance will
account for at least 60% of
an award.
It is anticipated that the
performance measures
applied in 2018/19 will be:
• 60% financial: based on
achievement of
absolute earnings per
share targets;
• 30% strategic: based
on the achievement of
measurable objectives
against targets on
metrics including
net promoter score,
premium client
growth etc; and
•
10% personal
objectives.
The deferred share
portion will vest subject to
a performance underpin
measured over a period of
at least three years. The
Committee will review
Group performance over
the relevant period, taking
into account factors such
as a) the Company’s TSR
performance, b) aggregate
profit levels and c) any
regulatory breaches
during the period.
Subject to shareholder approval of the new policy it is anticipated that effective from 31 March 2018 one additional award of the LTIP
will be granted to Executive Directors in 2018 and no further grants under the annual incentive will be awarded to Executive Directors,
albeit the Company reserves the right to make awards under the LTIP to facilitate external recruitment.
70
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED Directors’ Remuneration Policy continued
Purpose and
link to strategy
Annual incentive
To reinforce and
reward delivery of
annual strategic
business priorities.
2015 Management
Equity Plan (“LTIP”)
To reinforce delivery
of sustained
long-term success,
and align the
interests of
participants with
those of
shareholders.
Operation
Maximum opportunity
Performance measures
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 is measured on an annual
basis for each financial year.
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.
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.
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.
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.
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.
Awards vest subject to the
Company’s 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’s 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.
71
Annual Report and Financial Statements 2018Corporate governance Directors’ Remuneration Policy continued
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.
Shareholding guidelines
Executive Directors are required to build up a holding of 200% of base annual salary. Executive Directors will be required to build up to
this level over a period of five years, starting from the date of our listing in 2016 for the current Executive Directors and from
appointment for any future recruits.
Dividend equivalents
Dividend equivalents are payable on the deferred share portion of the combined incentive.
Clawback and malus provisions
Awards under the plan will be subject to provisions that allow the Committee to withhold, reduce or require the repayment of awards
after vesting if there is found to have been (a) material misstatement of the Company’s financial results, (b) gross misconduct on the
part of the award holder, or (c) any other material event as the Committee considers appropriate.
Executive Directors’ 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: “Threshold”, “Target” and “Stretch”.
Peter Cruddas
Grant Foley
David Fineberg
0
0
0
£
’
1,200
1,000
800
600
400
200
0
0
0
0
£
’
1,400
1,200
1,000
800
600
400
200
0
0
0
0
£
’
1,400
1,200
1,000
800
600
400
200
0
Threshold
Target
Stretch
Threshold
Target
Stretch
Threshold
Target
Stretch
Salary
Combined incentive
Assumptions underlying each element of remuneration are provided in the table below.
Component
Fixed
Threshold
Target
Stretch
Base salary
Latest salary
Pension
Contribution applies to latest salary
Other benefits
As presented as a single figure on page 77
Combined incentive
No payment
50% of maximum
100% of maximum
The projected value of the deferred element of the combined incentive excludes the impact of share price growth and any potential
dividend accrual. Actual remuneration delivered, however, will be influenced by these factors. Deferred awards are subject to
continuing employment.
The Company currently anticipates that Peter Cruddas will not participate in the deferred share element of the combined incentive
plan or pension arrangements and so these elements are not included for him in the above chart.
72
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ Remuneration Policy continued
Remuneration policy for new hires
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.
New appointees will be entitled to participate in the combined incentive plan, as described in the policy table above, with the relevant
maximum being pro-rated to reflect the period served. The deferred share portion of a new appointees combined incentive award will
normally vest on the same terms as other Executive Directors, as described in the policy table. Individual objectives will be tailored to
the individual’s role.
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 and/or under the existing LTIP (MEP), 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 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.
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 75.
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 Director
Position
Effective date of contract
Notice period
from Company
Notice period
from Director
Peter Cruddas
Grant Foley
David Fineberg
Chief Executive Officer
1 February 2016
12 months
12 months
Chief Operating and Financial Officer
1 February 2016
Group Commercial Director
1 February 2016
6 months
6 months
6 months
6 months
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:
Non-Executive Director
Date of letter
Date of appointment
Notice period
James Richards
25 January 2016
Sarah Ing
Clare Salmon
Paul Wainscott
7 July 2017
19 July 2017
11 July 2017
1 April 2015
14 September 2017
2 October 2017
19 October 2017
3 months
3 months
3 months
3 months
73
Annual Report and Financial Statements 2018Corporate governance Directors’ Remuneration Policy continued
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.
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.
Event
Combined
incentive
Timing of vesting/award
Calculation of vesting/payment
“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.
Annual
incentive
“Good leaver”
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.
“Bad leaver”
Not applicable.
Change of control1
Annual incentive awards are paid and
unvested deferred share awards vest
on 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, subject to the Remuneration
Committee’s discretion otherwise.
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.
Individuals lose the right to their annual incentive
and unvested deferred share awards.
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.
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 and combined incentive plan 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.
74
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED Directors’ Remuneration Policy continued
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.
Remuneration policy for other employees
CMC Market’s 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.
It is envisaged that for the year ending 31 March 2019 and thereafter other senior executives will also participate in the combined incentive plan.
Consideration of shareholder views
The Committee is committed to an ongoing 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.
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
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 fee for the Chairman
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.
Expenses
The Company may reimburse NEDs in
cash for reasonable expenses incurred
in carrying out their role.
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.
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.
75
Annual Report and Financial Statements 2018Corporate governance Directors’ Remuneration Policy continued
Group’s Remuneration Policy for Chairman and Non-Executive Directors continued
Performance measurement selection continued
It is proposed to replace the annual incentive and LTIP with a new combined incentive plan for the year ending 31 March 2019 and
thereafter. This combined plan strengthens the alignment of pay with the measures of performance that are important in creating
value for shareholders and also form a strong retention and motivation mechanism for executives. The performance measures selected
are a combination of financial performance, strategic performance and individual objectives. The achievement of these performance
measures will be reviewed by the Committee ahead of any award and the vesting of share awards will be subject to the achievement
of a performance underpin over the vesting period.
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 Chief
Operating and Financial Officer 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;
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;
• 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;
• 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; and
• 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.
76
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED Annual Report on Remuneration
The following section sets out the remuneration arrangements and outcomes for the year ended 31 March 2018, and how the
Committee intends the Remuneration Policy to apply during the year ending 31 March 2019.
The following pages have been prepared in accordance with Part 3 of The Large and Medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013 and Rule 9.8.6 of the Listing Rules, and will be put to an advisory shareholder vote at the
Annual General Meeting on 26 July 2018.
Single figure of Executive Director Remuneration (audited)
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 2018 and 31 March 2017.
Name
Peter Cruddas
Grant Foley
David Fineberg
Year ended
31 March
2018
2017
2018
2017
2018
2017
Salary
£’000
420.2
410.1
304.5
276.8
286.8
246.0
Benefits 1
£’000
Annual
incentives 2
£’000
Long-term
incentives
£’000
Pension 3
£’000
Share
Incentive Plan 4
£’000
3.3
2.8
2.5
1.3
1.3
1.4
422.3
—
310.0
27.7
295.0
24.6
—
—
—
—
—
—
—
—
30.4
27.7
28.7
24.6
—
—
2.7
2.1
2.7
2.2
Total
£’000
845.8
412.8
650.1
335.6
614.5
298.8
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 2018: the total earned in respect of performance during the relevant financial year.
3 Pension: during the year ended 31 March 2018, 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
qualifying service.
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 2017/18, 1,594 matching shares were
allocated to Grant Foley and 1,602 matching shares to David Fineberg, calculated by reference to the share price on 31/03/2018. 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. 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.
Annual incentive plan for the year ended 31 March 2018 (audited)
During the year ended 31 March 2018 the 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 Chief Operating and Financial Officer and the Group Commercial Director.
In considering the annual incentive amounts payable to the Executive Directors for the year ended 31 March 2018, the Committee
began by reviewing Group profit before tax (“PBT”) against targets over the period, to ensure that the value available under the
incentive plan based on formulaic outcomes is an appropriate reflection of the Group’s performance over the period.
Group performance measures
Measure
Group profit before tax
Threshold
£52.9m
Target
£55.4m
Maximum
£57.9m
Actual
£60.1m
As outlined above, the Group’s PBT exceeded targets set by the Committee and as a result all Executive Directors are eligible to
receive bonus payments, subject to the Committee’s assessment of their personal contributions over the performance period.
The Committee reviewed each Executive Directors personal performance over the period, as outlined in the table below. In assessing
the annual incentive awards outcomes for the period the Committee also considered:
•
the overall company performance over the period;
• whether individual behaviour over the period is reflective of the Group’s culture and represents compliance with the Company’s risk
appetite; and
•
if the formulaic outcomes are reflective of shareholders’ experience over the period.
77
Annual Report and Financial Statements 2018Corporate governance Annual Report on Remuneration continued
Annual incentive plan for the year ended 31 March 2018 (audited) continued
As a result of the strong financial performance achieved in the year combined with the successful delivery of the key strategic milestones
outlined below, the Committee determined the formulaic results from the annual incentive plan are appropriately reflective of each
individual’s contribution over the period and approved the following individual bonus payments:
Individual
Individual performance
Annual
incentive
payout
(as % max)
Chief Executive Officer
• successful delivery of ANZ stockbroking transaction
83%
key milestones
•
liaising with regulators concerning regulatory change
Bonus Outcomes
Annual
incentive
payout
(% salary)
100%
Annual
incentive
payout
(£’000)
422.3
Chief Operating and
Financial Officer
• management of the Company’s response following
100%
100%
310.0
the FCA and other regulatory announcements
•
increasing and syndicating the Group’s revolving
credit facility from £40 million to £65 million
Group Commercial Director • continued expansion of the APAC hub with the
100%
100%
295.0
successful integration of China into the framework
• adapting the risk engine to cater for new products
Long term incentive plan (LTIP) (audited)
The table below outlines the LTIP awards granted to the Chief Operating and Financial Officer and Group Commercial Director in
2017/18 under the existing Remuneration Policy.
Director name
Date of award
Number of
shares
Face value 1
% of salary
Performance
conditions
Performance period
Grant Foley
27/07/2017
420,814
£620,000
200%
60% based on
EPS; 30% based
on TSR; and 10%
based on
Three
consecutive
financial
years ending
% vesting at
threshold
25%
David Fineberg
27/07/2017
400,452
£590,000
200%
NPS score
31 March 2020
1 Face value calculation is based on the share price of £1.473 on 26 July 2017 calculated as the average closing share price for the three prior days. 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.
The Remuneration Policy approved at the 2016 AGM allows the Committee the discretion to award up to 200% of salary under the
LTIP in exceptional circumstances. The FCA’s announcement in 2016 of its intention to review the sale of CFD’s to retail investors had a
significant impact on short-term prospects of CMC markets and in particular the Group’s ability to incentivise and retain critical talent,
including the Chief Operating and Financial Officer and Group Commercial Director. The retention concerns in respect of these two
Executive Directors was compounded when coupled with the impact of share price decline on the value of the IPO “retention awards”
granted to both individuals which partially vested in February 2017 (50%), and February 2018 (50%).
Given the limited retentive value of the current in-flight awards to the two Executive Directors, the Remuneration Committee determined
that it would be appropriate to make exceptional awards of up to 200% salary to both the Chief Operating and Financial Officer and
Group Commercial Director in 2017.
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 independently assessed
by Investment Trends. The table below sets out the performance conditions applicable to these awards:
Cumulative EPS target
(60% weighting)
TSR relative to FTSE 250
constituents
(30% weighting)
Net promoter score
(10% weighting)
Threshold performance
(25% vesting)
Stretch performance
(full vesting)
22.79
37.98
Median
Above industry average
Upper quartile
Upper quartile of industry
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.
78
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED Annual Report on Remuneration continued
Implementation in 2018/19
Salary
With effect from 1 June 2018, the Executive Directors will receive a pay rise of 2.5% of salary, in line with the increase awarded across
the Group.
Name
New role
Previous salary
Adjusted salary
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
David Fineberg
Group Commercial Director
£422,300
£310,000
£295,000
£432,858
£317,750
£302,375
Percentage
change
2.5%
2.5%
2.5%
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.
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.
The table below shows the interests of the Directors and connected persons in shares and the extent to which CMC Market’s
shareholding guidelines are achieved.
Name
Executive Directors
Peter Cruddas
(including shares held by spouse)
Grant Foley1
David Fineberg1
(including shares held by spouse)
Total share
interests at
31 March 2017
Total share
interests at
31 March 2018
Total share
interests
31 March 2018
as a % salary
Requirement
met
Unvested
awards
not subject to
performance
conditions 1
Unvested
awards
subject to
performance
conditions 2
179,929,906
179,929,906
72,091%
104,474
221,377
168,794
330,511
121%
190%
Yes
No
No
—
—
4,295
569,566
4,354
532,676
1 Grant Foley and David Fineberg have interests under the Share Incentive Plan subject to forfeiture for three years.
2 Awards under the LTIP as described on page 78 are nil cost options.
3 Grant Foley and David Fineberg have continued to participate in the Share Incentive Plan, each acquiring 84 and 83 matching shares and 84 and 83 partnership
shares in April and May respectively.
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.
Total shareholder return
)
0
0
1
o
t
d
e
s
a
b
e
R
(
150
125
100
75
50
25
0
5 February
2016
31 March
2016
31 March
2017
CMC Markets plc
FTSE 250
Source: DataStream
31 March
2018
79
Annual Report and Financial Statements 2018Corporate governance
Annual Report on Remuneration continued
CEO pay history
Name
CEO single figure of remuneration (£’000)
Annual incentive payout (as % of maximum)
Long-term incentives (as % of maximum)
Year ended
31 March 2016 1
Year ended
31 March 2017
Year ended
31 March 2018
739.9
100%
412.8
0%
845.8
83%
Not applicable
Not applicable
Not applicable
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
Salary
Taxable benefits
Annual incentive
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
420.2
3.3
422.3
410.0
2.8
—
Increase/
(decrease)
2.5%
18.0%
100.0%
Average
increase across
all employees
6.1%
7.1%
213.1%
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 2017 and 31 March 2018.
m
£
60
50
40
30
20
10
0
m
£
60
50
40
30
20
10
0
Employee remuneration
Distribution to shareholders
2017
2018
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 ten-year period) and executive share plans (5% in any rolling
ten-year period).
Payments to past Directors and for loss of office (audited)
There were no payments to past Directors or for loss of office during the year.
Non-Executive Director 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
External appointments
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. Only Peter Cruddas held any external
appointments during the year ended 31 March 2018.
80
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED
Annual Report on Remuneration continued
Single figure of Non-Executive Director remuneration (audited)
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 2018 and 31 March 2017.
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.
Name
James Richards
Paul Wainscott
Clare Salmon
Sarah Ing
Simon Waugh
Manjit Wolstenholme
Malcolm McCaig
Year ended
31 March
Base fee
£’000
Committee fee
£’000
SID fee
£’000
Benefits 1
£’000
Total 2
£’000
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
85.0
60.0
26.6
—
30.0
—
32.8
—
120.0
160.0
20.0
60.0
35.0
60.0
7.5
10.0
4.4
—
5.0
—
5.4
—
—
—
3.3
10.0
5.8
10.0
—
—
2.2
—
—
—
—
—
—
—
1.7
5.0
—
—
—
—
—
—
—
—
—
—
1.3
2.9
1.7
3.4
—
—
92.5
70.0
33.2
—
35.0
—
38.2
—
121.3
162.9
26.7
78.4
40.8
70.0
1 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.
2 Non-Executive Directors are not entitled to receive share-based payments and no award of shares was granted to any NEDs during the period.
Non-Executive Director share ownership and share interests (audited)
The table below shows the interests of the Non-Executive Directors and connected persons in shares and the extent to which
CMC Market’s shareholding guidelines are achieved.
Name
Non-Executive Directors
James Richards
Paul Wainscott
Clare Salmon
Sara Ing
Simon Waugh
Malcolm McCaig
Manjit Wolstenholme
Ordinary shares
held at
31 March 2017
Ordinary shares
held at
31 March 2018
—
—
—
—
25,000
12,500
12,500
—
—
—
—
n/a
n/a
n/a
The Remuneration Committee
During the year, the Committee sought internal support from the Executive Directors, 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. Willis Towers Watson have
continued to act as advisers to the Committee throughout the year. 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, 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 Willis Towers Watson in respect of work carried out for the Committee for the year under review totalled
£65,500. The Committee is comfortable that the advice it has received has been objective and independent.
81
Annual Report and Financial Statements 2018Corporate governance Annual Report on Remuneration continued
Voting outcome for 2016/17 Remuneration Report at AGM
The Company AGM was held on 27 July 2017 and our remuneration report received strong support from shareholders. The result of
the vote on these resolutions is set out below.
For
Against
Total votes cast
Withheld1
Remuneration Policy
(at 2016 AGM when the current policy was approved)
Remuneration report
% of votes
(excluding withheld)
Number
of votes
% of votes
(excluding withheld)
92.78%
7.22%
231,912,237
18,038,191
249,950,428
424,564
91.11%
8.89%
Number of votes
242,198,501
23,619,462
265,817,963
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.
REGULATED ENTITIES
CMC Markets entity
CMC Markets UK plc
Financial services regulator(s)
Financial Conduct Authority (“FCA”), UK
CMC Markets UK plc – European branches
FCA, UK
Italy
CMC Markets UK plc Succursale di Milano
Commissione Nazionale per le Società e la Borsa (“CONSOB”),
Italy
France
CMC Markets UK plc France
Autorité des Marchés Financiers (“AMF”) and
Autorité de Controle Prudential et de resolution (“ACPR”)
Germany
Niederlassung Frankfurt am Main der CMC Markets UK plc
Bundesanstalt fűr Finanzdienstleistungsaufsicht (“BaFin”),
Germany
Norway
CMC Markets UK plc Filial Oslo
Spain
CMC Markets UK plc, Sucursal en España
Sweden
CMC Markets UK plc Filial Stockholm
Finanstilsynet (The Financial Supervisory Authority of Norway)
Comisión Nacional del Mercado de Valores (“CNMV”), Spain
Finansinspektionen (The Financial Supervisory Authority Sweden)
Poland
CMC Markets UK plc Oddział w Warszawie
Komisja Nadzoru Finansowego
(The Polish Financial Supervision 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
ASIC
CMC Markets Stockbroking Ltd
CMC Markets Stockbroking Services Pty Ltd
CMC Markets Canada Inc
(operating as Marches CMC Canada in Quebec)
ASIC and
Australia Stock Exchange (“ASX”)
ASIC and
Australia Stock Exchange (“ASX”)
Investment Industry Regulatory Organization of Canada (“IIROC”);
Autorité des Marchés Financiers (“AMF”),
Ontario Securities Commission and
British Columbia Securities Commission
CMC Markets NZ Ltd
Financial Markets Authority (New Zealand)
CMC Markets Singapore Pte Ltd
Monetary Authority of Singapore (“MAS”)
82
Corporate governanceCMC Markets plcDIRECTORS’ REMUNERATION REPORT CONTINUED DIRECTORS’ REPORT
The Corporate governance report can be found on pages 52 to 56 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”).
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 38 to 45 and financial risks described in note 28 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 4 to 45).
• 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 18 to 19) 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 a 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 as outlined in the strategic report, to 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 2018.
• 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 38 to 45) and monitored monthly by 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 reviews 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 of regulatory change, 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.
83
Annual Report and Financial Statements 2018Corporate governance DIRECTORS’ REPORT CONTINUED
Directors
All Directors will seek election at the 2018 AGM on 26 July 2018. 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 79 and other directorships are disclosed on pages 50 to 51.
The Directors of the Company who were in office during the year and up to the date of signing the Financial Statements were:
James Richards
Chairman – appointed 1 January 2018 (previously Non-Executive Director)
Paul Wainscott
Peter Cruddas
Senior Independent Director – appointed 19 October 2017 (SID from 28 November 2017)
Chief Executive Officer
David Fineberg
Group Commercial Director
Grant Foley
Sarah Ing
Clare Salmon
Simon Waugh
Chief Operating and Financial Officer
Non-Executive Director – appointed 14 September 2017
Non-Executive Director – appointed 2 October 2017
Chairman – retired 31 December 2017
Manjit Wolstenholme
Senior Independent Director – resigned 27 July 2017
Malcolm McCaig
Non-Executive Director – resigned 27 July 2017
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 45. 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 27 to the consolidated Financial Statements
on page 129. The Group’s vision is to be a global provider of online retail financial services complete with a complete professional and
institutional offering. 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 6 June 2018, the Board recommended a final dividend of 5.95 pence per Ordinary Share in respect of the full financial year ended
31 March 2018, subject to shareholder approval at the 2018 AGM. Further information on dividends is shown in note 11 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 2018,
there were 289,008,354 Ordinary and 2,478,086 Deferred Shares in issue.
Further information about share capital can be found in note 23 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.
84
Corporate governanceCMC Markets plc 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.
Share capital and Directors’ powers
The powers of the Directors, including in relation to the issue or buyback 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
2017 AGM.
Shareholders will be asked to renew these authorities in line with the latest institutional shareholder guidelines at the 2018 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
Employees (employment of disabled persons and employee engagement)
Disclosure of overseas branches
Employee share schemes
Financial instruments
Likely future developments
Directors’ interests
Related party transactions
Location in Annual Report
Page 29
Page 82
Note 29, Pages 140 to 141
Note 27, Page 129
Pages 18 to 19
Page 79
Pages 142 to 143
85
Annual Report and Financial Statements 2018Corporate governance DIRECTORS’ REPORT CONTINUED
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).
Disclosure
None.
None.
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 Board
Directors (LR 9.4.3).
Details can be found on page 78 of the Directors’
remuneration report.
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.
None.
None.
None.
None.
9.8.4(9)
Listed company is a subsidiary of another company.
Not applicable.
9.8.4(10)
9.8.4(11)
Contracts of significance involving a Director
or a controlling shareholder.
Contracts for the provision of services
by a controlling shareholder.
9.8.4(12)
Shareholder waiver of dividends.
9.8.4(13)
Shareholder waiver of future dividends.
9.8.4(14)
Agreement with controlling shareholder.
None.
None.
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.
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.
See Controlling Shareholder Disclosure on page 85 of the
Directors’ report.
Substantial shareholdings
Information provided to the Company by substantial shareholders pursuant to the DTR is published via a Regulatory Information
Service. As at 31 March 2018, 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 2018
Peter Andrew Cruddas
Schroder Investment Mgt
Fiona Jane Cruddas
J O Hambro Capital Management
BlackRock Investment Mgt (UK)
Ordinary Shares held
% of
voting rights
165,155,374
17,470,140
14,774,532
13,470,104
8,978,323
57.15
6.03
5.11
4.66
3.11
As at 6 June 2018 the substantial shareholding in the Ordinary Shares of the Company remain as stated in the table above.
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.
Research and development
The Group continues to invest in the development of the Next Generation platforms and stockbroking platforms in addition to
maintaining existing infrastructure with considerable effort applied by the technical and software development teams. In addition
the Group has capitalised development costs relating to the ANZ Bank implementation. During the year development expenditure
amounting to £2.9 million has been capitalised (2017: £nil).
86
Corporate governanceCMC Markets plc Our environmental impact
The Group 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; this has been the main driver of the reduction in total emissions in the year ended
31 March 2018.
We are also mindful of the environmental impact of each of our global offices and have a clear preference for energy efficient rated
office buildings. Our new Sydney office is the world’s first ever building to be awarded the top WELL Building Institute1 certification,
at Platinum level, for the buildings features, which were certified and monitored as positively impacting the health of people who live,
work, and learn in them. We have chosen to seek to match this impressive result by targeting a similar six star Green Star1 rating for the
office fit-out in the building by adopting environmentally sustainable design and construction, innovation in sustainable building practices,
consideration for occupational health, productivity and reducing its ongoing energy and similar operational costs. In addition, 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.
1 WELL Building Institute (www.IWBI.com) and the Green Star rating (which is awarded by the Green Building Council of Australia, (www.gbca.org.au) are internationally
recognised sustainability rating systems.
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 reporting: conversion factors 2017”
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.
Mandatory greenhouse gas emissions report by scope
GROUP
Scope 1
Natural Gas consumption
Scope 2
Electricity consumption
Total global emissions
Net operating income
Unit
Year ended
31 March 2018
Year ended
31 March 2017
Year ended
31 March 2015
(Base year)
tCO₂e
104.9
104.8
108.4
tCO₂e
tCO₂e
£m
1,701.2
1,806.1
187.1
9.7
2,052.0
3,452.0
2,156.8
3,560.4
160.8
13.4
143.6
24.8
Intensity ratio (total global emissions/net operating income)
tCO₂e/£m
The majority of the reduction in electricity consumption is due to efficiencies achieved in our UK data centres during the year.
Total emissions (tCO2e)
Year ended 31 March 2018
Total emissions (tCO2e)
Year ended 31 March 2017
Gas
6%
Electricity
94%
Gas
5%
Electricity
95%
87
Annual Report and Financial Statements 2018Corporate governance DIRECTORS’ REPORT CONTINUED
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 auditors are aware of that information. This confirmation is given pursuant to Section 418 of the
Companies Act 2006.
Independent auditors
PricewaterhouseCoopers LLP acted as auditors throughout the year. In accordance with Section 489 and Section 492 of the
Companies Act 2006, resolutions proposing the reappointment of PricewaterhouseCoopers LLP as the Company’s auditors and
authorising the Directors to determine the auditors’ remuneration will be put to the 2018 AGM.
Political donations
No political donations were made by the Company during the year.
Corporate jet
The Group did not maintain or have use of a corporate jet in the reporting period.
Annual General Meeting
The 2018 AGM is to be held at 133 Houndsditch, London EC3A 7BX at 10.00 am on Thursday 26 July 2018.
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.
88
Corporate governanceCMC Markets plc STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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;
• make judgements and estimates that are reasonable and 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 IFRSs, subject to any material departures disclosed and explained in the Financial Statements; and
•
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 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;
the Strategic report contained in this Annual Report 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 Financial Statements, 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 6 June 2018.
By order of the Board
Jonathan Bradshaw
Company Secretary
CMC Markets plc
Registered number: 05145017
89
Annual Report and Financial Statements 2018Corporate governance Divider page to be designed
90
CMC Markets plc Divider page to be designed
Set the
standards
We believe that we must always be at the
forefront of client service, technology and
regulatory standards.
We will never take a backwards step in these areas.
91
Annual Report and Financial Statements 2018 INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF CMC MARKETS PLC
Report on the audit of the Financial Statements
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 2018 and of the Group’s
profit and the Group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the parent company’s
Financial Statements, as applied in accordance with the provisions of the Companies Act 2006; and
• 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.
We have audited the Financial Statements, included within the Annual Report and Financial Statements (the “Annual Report”), which comprise:
the Consolidated and parent company Statements of Financial Position as at 31 March 2018; the Consolidated Income Statement and
the Consolidated Statement of Comprehensive Income for the year then ended; the Consolidated and parent company Statements of
Cash Flows; the Consolidated and parent company Statements of Changes in Equity for the year then ended; and the notes to the
Financial Statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements
in the UK, which include the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the Group or the parent company.
Other than those disclosed in note 8 to the Financial Statements, we have provided no non-audit services to the Group or the parent
company in the period from 1 April 2017 to 31 March 2018.
Our audit approach
Overview
Materiality
• Overall Group materiality: £3.0 million (2017: £2.4 million), based on 5% of profit before tax.
• Overall parent company materiality: £2.5 million (2017: £2.0 million), based on 2.5% of net assets.
Audit
Scope
Group:
• 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 92% of consolidated net operating income, 80% of consolidated operating profit and 96% of
consolidated profit before tax fell within the scope of our audit procedures. Balances within the scope of our audit
contributed 99% of Group total assets.
Parent:
• The parent company balance sheet consists of investment in subsidiaries, receivables, payables and cash. The audit
work was performed by the Group audit team in London.
• Risk of fraud in revenue recognition, specifically in relation to superuser access to systems (Group).
• Recoverability of deferred tax assets (Group).
• Measurement of investment in subsidiaries (parent).
Key audit
matters
92
Financial statementsCMC Markets plc The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and
considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit
procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the
Company’s Financial Statements, including but not limited to, the Companies Act 2006, and the Financial Conduct Authority’s Client
Asset Sourcebook. Our tests included, but were not limited to, a review of the financial statement disclosures to underlying supporting
documentation, review of correspondence with the regulators, review of correspondence with legal advisors, enquiries of management
and review of internal audit reports in so far as they related to the Financial Statements. There are inherent limitations in the audit
procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions
reflected in the Financial Statements, the less likely we would become aware of it.
We found the risk of fraud in revenue recognition, specifically in relation to superuser access to systems to be a key audit matter, and
this is discussed further below. As in all of our audits we also addressed the risk of management override of internal controls, including
testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement
due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the Financial
Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Risk of fraud in revenue recognition, specifically in relation to
superuser access to systems – Group
We have concluded that the greatest risk of fraud in revenue recognition
arises from superuser access to systems. Individuals with such access
could have the opportunity and incentive to commit fraud, including
through inappropriate manipulation of revenue recognition.
To address the risk of inappropriate access to systems which
generate the Group’s financial records we first identified the key
systems which contribute to the recognition of revenue in the
Group’s Financial Statements.
For each of these systems, we evaluated the design of, and
tested the operation of, the IT general controls in place.
Where control exceptions were identified, we tested data
integrity reconciliations between downstream systems and
upstream systems. These reconciliations mitigate the risk that
superuser access to systems could result in inappropriate or
fraudulent recognition of revenue.
We also performed incident management analysis over privileged
access and toxic user combinations testing with no
exceptions noted.
93
Financial statementsAnnual Report and Financial Statements 2018 INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF CMC MARKETS PLC
Report on the audit of the Financial Statements continued
Our audit approach continued
Key audit matters continued
Key audit matter
How our audit addressed the key audit matter
Recoverability of deferred tax assets – Group
The recognition of deferred tax assets is complex and often subjective.
There are substantial tax losses in relation to the Group’s Australia
business carried forward and not yet utilised; these give rise to a
material deferred tax asset. The extent of recognition of this asset
depends on a judgement surrounding forecast profitability. The
judgement is subjective, in particular given the additional uncertainty
introduced by the future assumption of the ANZ stockbroking business.
Measurement of investment in subsidiaries – Parent
The parent company has a number of significant investments in
subsidiaries. The determination as to whether there are indications
that the carrying value of these investments may be impaired
depends on judgement. This judgement needs to take account of
events or changes which have occurred within the subsidiaries and
their affiliates, the industry, or the economy. Any such events could
indicate that the carrying value of one or more of the subsidiaries
could be impaired.
Where impairment indicators are identified, the need to record
an impairment must be assessed by comparing the recoverable
amount of an investment to its carrying value. The calculation of
the recoverable amount is subjective and depends on the exercise
of judgement.
94
To address the risk associated with the recoverability of deferred
tax assets we identified key assumptions made by management
in relation to the future taxable profits to be earned in the Australia
business and the period over which these profits could be
reasonably foreseen.
We evaluated these assumptions by:
• assessing the growth rate used to forecast revenue and
costs, comparing it to growth rates used for budgeting
and historic growth rates and considering the impact of
the planned changes to the Australia business;
• assessing the accuracy of the forecast by comparing
the forecast profit for the current year (from the prior
year forecast) to profit for the current year;
• assessing the period over which profits are deemed to be
reasonably foreseeable and comparing this period to other
forecasting periods used by the Group; and
• 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.
To address the risk associated with the carrying value of these
investments being measured incorrectly we performed the
following procedures:
• we evaluated management’s assessment as to whether any
impairment indicators existed;
• we assessed the methods used by management to
determine the recoverable amount of any investments where
impairment indicators existed;
• we compared the assumptions used in determining
recoverable amounts to corroborating evidence;
• we evaluated the mathematical accuracy of the calculations
of those recoverable amounts; and
• we compared the carrying value to the recoverable amounts
in order to assess management’s conclusions that no
impairments needed to be recorded.
The above procedures were performed with no exceptions noted.
Financial statementsCMC Markets plc 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, taking into account the structure of the Group and the parent company, the accounting processes and controls, and the
industry in which the Group operates.
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 the following UK legal entities: CMC Markets plc, CMC Markets UK plc, CMC Markets
Holdings Limited and CMC Markets UK Holdings Limited were material components and therefore we 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 intangible assets, property, plant and equipment, deferred tax, trade receivables,
cash and cash equivalents and deferred revenue 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 in aggregate on the Financial Statements as a whole.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group Financial Statements
Parent company Financial Statements
Overall materiality
£3.0 million (2017: £2.4 million)
£1.65 million (2017: £2.0 million)
How we determined it
5% of profit before tax
1% of net assets
Rationale for benchmark applied
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.
We have used net assets as the materiality
benchmark as the parent company of the
Group primarily holds investments in its
underlying subsidiaries.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range
of materiality allocated across components was between £2.5 million and £2.85 million.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £150,000 (Group audit)
(2017: £121,000) and £82,500 (parent company audit) (2017: £121,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
95
Financial statementsAnnual Report and Financial Statements 2018 INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF CMC MARKETS PLC
Report on the audit of the Financial Statements continued
Our audit approach continued
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in respect
of the Directors’ statement in the Financial Statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting in preparing the Financial
Statements and the Directors’ identification of any material uncertainties to the Group’s
and the parent company’s ability to continue as going concerns over a period of at least
twelve months from the date of approval of the Financial Statements.
We have nothing material to add or to
draw attention to. However, because not
all future events or conditions can be
predicted, this statement is not a guarantee
as to the Group’s and parent company’s
ability to continue as going concerns.
We are required to report if the Directors’ statement relating to going concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditors’
report thereon. The Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the Financial Statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by ISAs (UK) unless otherwise stated).
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’
report for the year ended 31 March 2018 is consistent with the Financial Statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and parent company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic report and Directors’ report. (CA06)
96
Financial statementsCMC Markets plc The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity
of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 38 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 83 of the Annual Report 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 to report having performed a review of the Directors’ statement that they have carried out a robust assessment
of the principal risks facing the Group and 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 UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the Group and parent company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 89, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the 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
obtained in the course of performing our audit.
• The section of the Annual Report on page 57 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The Directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
97
Financial statementsAnnual Report and Financial Statements 2018 INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF CMC MARKETS PLC
Responsibilities for the Financial Statements and the audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 89, the Directors are responsible for the
preparation of the Financial Statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation
of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but
to do so.
Auditors’ responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
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 we require for our audit; or
• 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
• certain disclosures of Directors’ remuneration specified by law are not made; 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.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 29 October 2009 to audit the
Financial Statements for the year ended 31 March 2010 and subsequent financial periods. The period of total uninterrupted
engagement is nine years, covering the years ended 31 March 2010 to 31 March 2018.
Gilly Lord (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 June 2018
98
Financial statementsCMC Markets plc CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2018
GROUP
Revenue
Interest income
Total revenue
Introducing partner commissions and betting levies
Net operating income
Operating expenses
Operating profit
Finance 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)
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Note
209,128
2,114
211,242
(24,142)
187,100
(125,863)
61,237
(1,173)
60,064
(10,379)
49,685
17.3p
17.1p
185,927
1,739
187,666
(26,876)
160,790
(111,591)
49,199
(734)
48,465
(9,309)
39,156
13.7p
13.6p
4
3
5
7
8
9
10
10
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.
99
Financial statementsAnnual Report and Financial Statements 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2018
GROUP
Profit for the year
Other comprehensive income/(expense):
Items that may be subsequently reclassified to income statement
Gain/(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 (expense)/income for the year
Total comprehensive income for the year attributable to owners of the parent
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Note
49,685
39,156
25
25
25
1,755
—
(3,093)
(58)
(1,396)
48,289
(2,950)
159
4,255
(7)
1,457
40,613
100
Financial statementsCMC Markets plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2018
COMPANY REGISTRATION NUMBER: 05145017
GROUP
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Financial investments
Trade and other receivables
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
Note
31 March 2018
£’000
31 March 2017
£’000
12
13
14
18
16
16
17
18
19
20
17
21
22
20
21
14
22
23
23
24
25
4,365
20,685
8,802
10,822
2,237
46,911
47,940
7,335
10,330
156,887
60,468
2,115
18,197
8,113
—
—
28,425
31,542
1,935
20,272
119,390
53,226
282,960
226,365
329,871
254,790
91,696
36,389
3,922
1,274
2,347
145
3,340
5,760
5,489
368
99,384
51,346
5,389
2,346
682
2,040
10,457
109,841
72,872
46,236
(567)
(49,452)
150,941
3,030
3,042
24
1,575
7,671
59,017
72,646
46,236
(466)
(48,056)
125,413
220,030
195,773
329,871
254,790
The Financial Statements on pages 99 to 143 were approved by the Board of Directors on 6 June 2018 and signed on its behalf by:
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
101
Financial statementsAnnual Report and Financial Statements 2018
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2018
COMPANY REGISTRATION NUMBER: 05145017
COMPANY
ASSETS
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
Note
31 March 2018
£’000
31 March 2017
£’000
15
166,737
168,906
166,737
168,906
16
19
20
14,445
280
14,725
196
149
345
181,462
169,251
15,235
15,235
15,235
21,363
21,363
21,363
23
23
72,872
46,236
72,646
46,236
29,006
42,064
(23,951)
47,119
166,227
181,462
26,223
23,618
(20,835)
29,006
147,888
169,251
The Financial Statements on pages 99 to 143 were approved by the Board of Directors on 6 June 2018 and signed on its behalf by:
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
102
Financial statementsCMC Markets plc
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2018
GROUP
At 1 April 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
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 2018
46
—
—
—
—
—
—
72,646
226
—
—
—
—
—
—
Share
capital
£’000
Share
premium
£’000
Own shares
held in trust
£’000
Other
reserves
£’000
72,600
46,243
(984)
(49,513)
(7)
—
—
—
—
—
—
—
—
(504)
1,022
—
—
—
—
1,457
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(104)
3
—
—
—
—
(1,396)
—
—
—
—
—
Retained
earnings
£’000
107,981
—
39,156
—
—
2,253
(31)
Total
equity
£’000
176,327
39
40,613
(504)
1,022
2,253
(31)
(23,946)
(23,946)
—
49,685
—
—
1,505
57
195,773
226
48,289
(104)
3
1,505
57
(25,719)
(25,719)
46,236
(466)
(48,056)
125,413
72,872
46,236
(567)
(49,452)
150,941
220,030
Total equity is attributable to owners of the Company
COMPANY
At 1 April 2016
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2017
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2018
Share capital
£’000
Share premium
£’000
Retained earnings
£’000
Total equity
£’000
72,600
46,243
46
—
—
—
72,646
226
—
—
—
(7)
—
—
—
26,223
—
23,618
3,114
145,066
39
23,618
3,114
(23,949)
(23,949)
46,236
29,006
—
—
—
—
—
42,064
1,773
(25,724)
147,888
226
42,064
1,773
(25,724)
72,872
46,236
47,119
166,227
103
Financial statementsAnnual Report and Financial Statements 2018
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2018
GROUP
COMPANY
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Note
26
Cash flows from operating activities
Cash generated from/(used in) operations
Interest income
Tax paid
Net cash generated from/(used in) operating activities
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
Inflow/(outflow) on net investment hedges
Net contribution from subsidiaries
Dividends received
64,242
2,114
(13,787)
52,569
(8,640)
42
(3,518)
—
11,865
1,739
(11,372)
2,232
(3,069)
85
(811)
33
(21,426)
(20,562)
20,512
2,206
—
—
20,710
(4,792)
—
—
Net cash (used in)/generated from investing activities
(10,824)
(8,406)
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Proceeds from issue of Ordinary Shares
Acquisition of own shares
Dividends paid
Finance costs
(171,686)
170,778
42
(104)
(25,719)
(1,173)
(20,204)
19,247
—
(465)
(23,946)
(734)
(3,859)
(16,235)
253
—
—
—
(3,606)
(16,235)
—
—
—
—
—
—
—
3,942
25,695
29,637
—
—
226
—
—
—
—
—
—
—
—
1,244
24,050
25,294
—
—
39
—
(25,724)
(402)
(23,949)
—
Net cash used in financing activities
(27,862)
(26,102)
(25,900)
(23,910)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
13,883
48,952
(2,367)
(32,276)
78,280
2,948
Cash and cash equivalents at the end of the year
60,468
48,952
131
149
—
280
(14,851)
15,000
—
149
104
Financial statementsCMC Markets plc
NOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2018
1. General information and basis of preparation
Corporate information
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 (“IFRSs”), IFRS Interpretations Committee (“IFRS IC”) interpretations as adopted by the European Union and
the Companies Act 2006 applicable to companies reporting under IFRSs.
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’s 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 2018 and 31 March 2017. Financial annual years are referred to as 2018 and 2017 in the Financial Statements.
Changes in accounting policy and disclosures
Application of new and revised accounting standards
With effect from 1 April 2017, the Group has adopted:
• Amendments to IAS 7 ‘Statement of Cash Flows: Disclosure Initiative’, which requires disclosure of changes in liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes, such as foreign exchange adjustments.
This new disclosure is provided in note 21 to the Financial Statements.
• Amendments to IAS 12 ‘Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses’. Application of these amendments
has had no impact on the Financial Statements.
Otherwise, the accounting policies set out in note 2, below, have been applied consistently to both years presented in these
Financial Statements.
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 Group intends
to adopt the standard in the accounting year beginning 1 April 2018. The Group does not expect that the adoption of IFRS 9 will
have a material impact on the Financial Statements but will impact both the measurement and disclosure of financial instruments.
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 Group intends to adopt the standard in the accounting year beginning
1 April 2018. The Group has assessed the impact of this new standard on its Financial Statements, and our conclusion is that new
revenue standard does not have a material impact on the Group’s earned income and does not change the timing of recognition
of revenue, as our current recognition approach is consistent with the new requirements under IFRS 15.
105
Financial statementsAnnual Report and Financial Statements 2018
1. General information and basis of preparation continued
Changes in accounting policy and disclosures continued
New accounting standards in issue but not yet effective continued
•
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. The Group intends to
adopt the standard in the accounting year beginning 1 April 2019. The Group continues to assess the full impact of IFRS 16; however,
the impact will greatly depend on the facts and circumstances at the time of adoption and upon transition choices adopted. It is
therefore not yet practicable to provide a reliable estimate of the financial impact on the Group’s consolidated results.
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.
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.
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 IFRSs 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.
2. Summary of significant accounting policies
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.
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.
106
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 2. Summary of significant accounting policies continued
Introducing partner commissions and betting levies
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 and Digital 100 products. This levy is payable on net gains
generated from clients on these products.
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.
Share-based payment
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.
Retirement benefit costs
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.
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.
107
Financial statementsAnnual Report and Financial Statements 2018 2. Summary of significant accounting policies continued
Taxation
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.
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.
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.
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.
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.
108
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 2. Summary of significant accounting policies continued
Intangible assets continued
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:
• an asset is created that can be identified;
•
•
it is probable that the asset created will generate future economic benefits;
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 assets 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
Computer software (purchased or developed)
Trademarks and trading licences
Client relationships
Amortisation policy
3 years or life of licence
10–20 years
14 years
Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
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:
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.
109
Financial statementsAnnual Report and Financial Statements 2018 2. Summary of significant accounting policies continued
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 16), “amounts due from brokers” and “cash and cash
equivalents” (note 19) in the statement of financial position.
Derivative financial instruments
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 IAS 39, 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.
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 ongoing 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
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 the 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 IAS 39, 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.
110
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 2. Summary of significant accounting policies continued
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 are posted to meet broker margin requirements. Assets or liabilities resulting from profits or
losses on open positions are recognised separately as derivative financial instruments.
The Group offers cryptocurrencies as a product that can be traded on its platform. The Group purchases and sells cryptocurrencies
to hedge the clients’ positions. This product is used in a similar manner to using broking counterparties for hedging purposes. Whilst it
does not strictly meet the definition of a financial asset we have accounted for the cryptocurrencies as a financial asset and included
the values within “Amounts due from brokers”.
Cash and cash equivalents
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.
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. The amounts held on behalf of clients at the balance sheet date are stated
in notes 19 and 20. Segregated client funds comprise individual client balances which are pooled in segregated client money bank
accounts. Segregated client money bank accounts hold statutory trust status restricting the Group’s ability to use the monies and
accordingly such amounts and are not recognised on the Group’s Statement of Financial Position.
Trade payables
Trade payables are not interest bearing and are stated at fair value on initial recognition and subsequently at amortised cost.
Borrowings
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.
111
Financial statementsAnnual Report and Financial Statements 2018 2. Summary of significant accounting policies continued
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 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.
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, whereas the financial spread betting products are only available to trade in the UK and Ireland and the Group
provides stockbroking services only in Australia. The Group’s core business is generally managed on a geographical basis and, for
management purposes, the Group is organised into three segments:
• UK and Ireland (“UK & IE”);
• Europe; and
• Australia, New Zealand and Singapore (“APAC”) and Canada.
These segments are in line with the management information received by the chief operating decision maker (“CODM”).
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
Segment revenue net of introducing partner
commissions and betting levies
Interest income
Net operating income
Segment operating expenses
Segment contribution
Allocation of central operating expenses
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
Year ended 31 March 2018
UK & IE
£’000
Europe
£’000
APAC & Canada
£’000
Central
£’000
Total
£’000
73,087
593
73,680
(16,001)
57,679
(25,603)
32,076
(62)
(484)
31,530
50,465
—
50,465
(9,840)
40,625
(26,734)
13,891
—
(320)
13,571
61,434
1,521
62,955
(14,544)
48,411
(33,141)
15,270
(1)
(306)
14,963
—
—
—
184,986
2,114
187,100
(85,478)
(125,863)
(85,478)
85,478
—
(1,110)
1,110
61,237
—
61,237
(1,173)
—
—
60,064
112
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018
3. Segmental reporting continued
GROUP
Segment revenue net of introducing partner
commissions and betting levies
Interest income
Net operating income
Segment operating expenses
Segment contribution
Allocation of central operating expenses
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
Year ended 31 March 2017
UK & IE
£’000
Europe
£’000
APAC & Canada
£’000
Central
£’000
Total
£’000
61,091
192
61,283
(13,603)
47,680
(23,050)
24,630
(71)
(271)
24,288
45,194
—
45,194
(11,916)
33,278
(23,355)
9,923
(4)
(202)
9,717
52,766
1,547
54,313
(13,217)
41,096
(26,450)
14,646
(2)
(184)
14,460
—
—
—
(72,855)
(72,855)
72,855
—
(657)
657
—
159,051
1,739
160,790
(111,591)
49,199
—
49,199
(734)
—
48,465
The measurement of net operating income for segmental analysis is consistent with that in the income statement.
The Group uses “Segment contribution” to assess the financial performance of each segment. Segment contribution comprises
operating profit for the year before finance costs and taxation.
4. Total revenue
Revenue
GROUP
CFD and spread bet
Stockbroking
Other
Total
Interest income
GROUP
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
31 March 2018
£’000
Year ended
31 March 2017
£’000
197,385
10,633
1,110
175,842
10,104
(19)
209,128
185,927
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
2,087
3
24
2,114
1,622
64
53
1,739
113
Financial statementsAnnual Report and Financial Statements 2018 5. Operating expenses
GROUP
Net staff costs (note 6)
IT costs
Sales and marketing
Premises
Legal and professional fees
Regulatory fees
Depreciation and amortisation
Other
Capitalised internal software development costs
Operating expenses
The above presentation reflects the breakdown of operating expenses by nature of expense.
6. Employee information
The aggregate employment costs of staff and Directors were:
GROUP
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Total Director and employee costs
Contract staff costs
Capitalised internal software development costs
Net staff costs
Compensation of key management personnel is disclosed in note 31.
The monthly average number of Directors and employees of the Group during the year is set out below:
GROUP
By activity:
Key management
Client acquisition and maintenance
IT development and support
Global support functions
Total Directors and employees
Contract staff
Total staff
The Company had no employees during the current year or prior year.
114
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
57,936
16,949
20,558
6,224
4,027
2,951
6,810
10,645
126,100
(237)
125,863
49,380
15,352
21,791
5,211
3,520
2,550
5,835
7,952
111,591
—
111,591
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
46,106
6,677
1,354
3,003
57,140
3,475
60,615
(2,679)
57,936
36,819
5,102
1,348
4,408
47,677
1,703
49,380
—
49,380
Year ended
31 March 2018
Number
Year ended
31 March 2017
Number
7
278
133
148
566
26
592
7
266
120
167
560
18
578
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 7. Finance costs
GROUP
Interest and fees on bank borrowings
Other finance costs
Total
8. Profit before taxation
GROUP
Profit before tax is stated after charging/(crediting):
Depreciation
Amortisation of intangible assets
Net foreign exchange gain
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
Audit services
Audit of CMC Markets plc’s financial statements
Audit of CMC Markets plc’s subsidiaries
Total audit fees
Non-audit services
Audit related services
Tax compliance services
Other non-audit services
Total non-audit fees
Total fees
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
1,020
153
1,173
549
185
734
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
5,628
1,182
(599)
2,794
1,105
4,498
1,337
(969)
2,538
985
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
324
359
683
366
38
18
422
1,105
324
289
613
144
228
—
372
985
115
Financial statementsAnnual Report and Financial Statements 2018 9. Taxation
GROUP
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
31 March 2018
£’000
Year ended
31 March 2017
£’000
10,769
201
10,970
(656)
(29)
94
(591)
9,034
(41)
8,993
414
(187)
89
316
10,379
9,309
The standard rate of UK corporation tax charged was 19% with effect from 1 April 2017. Taxation outside the UK is calculated at the rates
prevailing in the respective jurisdictions. The effective tax rate of 17.28% (year ended 31 March 2017: 19.21%) differs from the standard rate
of UK corporation tax rate of 19% (year ended 31 March 2017: 20%). The differences are explained below:
GROUP
Profit before taxation
Profit multiplied by the standard rate of corporation tax in the UK of 19% (31 March 2017: 20%)
Adjustment in respect of foreign tax rates
Adjustments in respect of previous years
Impact of change in tax rate
Expenses not deductible for tax purposes
Income not subject to tax
Irrecoverable foreign tax
Recognition of previously unrecognised tax losses
Other differences
Total tax
GROUP
Tax on items recognised directly in equity
Tax credit/(charge) on share-based payments
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
60,064
11,412
591
172
94
180
34
357
(2,262)
(199)
10,379
48,465
9,693
465
(228)
89
366
(115)
292
(1,380)
127
9,309
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
57
(31)
116
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 10. Earnings per share (“EPS”)
Basic EPS is calculated by dividing the earnings attributable to the equity owners of the Company by the weighted average number
of Ordinary Shares in issue during each 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 2018.
GROUP
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)
Year ended
31 March 2018
Year ended
31 March 2017
49,685
39,156
287,556
2,629
286,693
2,072
Weighted average number of shares used in the calculation of diluted earnings per share (‘000)
290,185
288,765
Basic earnings per share (p)
Diluted earnings per share (p)
17.3p
17.1p
13.7p
13.6p
For the year ended 31 March 2018, 2,629,000 (year ended 31 March 2017: 2,072,000) potentially dilutive weighted average Ordinary Shares
in respect of share options in issue were included in the calculation of diluted EPS.
11. Dividends
GROUP
Declared and paid in each year
Final dividend for 2017 at 5.95p per share (2016: 5.36p)
Interim dividend for 2018 at 2.98p per share (2017: 2.98p)
Total
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
17,137
8,582
25,719
15,392
8,554
23,946
The final dividend for 2018 of 5.95 pence per share, amounting to £17,196,000, was proposed by the Board on 6 June 2018 and has not
been included as a liability at 31 March 2018. The dividend will be paid on 24 August 2018, following approval at the Company’s AGM,
to those members on the register at the close of business on 3 August 2018.
The dividends paid or declared in relation to the financial year are set out below:
GROUP
Declared per share
Interim dividend
Final dividend
Total dividend
Year ended
31 March 2018
Pence
Year ended
31 March 2017
Pence
2.98p
5.95p
8.93p
2.98p
5.95p
8.93p
117
Financial statementsAnnual Report and Financial Statements 2018 12. Intangible assets
GROUP
Cost
At 1 April 2016
Additions
Disposals
Foreign currency translation
At 31 March 2017
Additions
Transfers
Foreign currency translation
Goodwill
£’000
Computer
software
£’000
Trademarks and
trading licences
£’000
Client
relationships
£’000
Assets under
development
£’000
11,500
116,582
—
—
—
811
(101)
2,736
11,500
120,028
—
—
—
602
273
(2,186)
1,352
—
—
103
1,455
—
—
(50)
At 31 March 2018
11,500
118,717
1,405
Accumulated amortisation
At 1 April 2016
Charge for the year
Disposals
Foreign currency translation
At 31 March 2017
Charge for the year
Foreign currency translation
At 31 March 2018
Carrying amount
At 1 April 2016
At 31 March 2017
At 31 March 2018
(11,500)
—
—
—
(114,423)
(1,286)
68
(2,736)
(11,500)
(118,377)
—
—
(1,132)
2,185
(11,500)
(117,324)
—
—
—
2,159
1,651
1,393
(862)
(51)
—
(78)
(991)
(50)
47
(994)
490
464
411
2,898
—
—
405
3,303
—
—
(324)
2,979
(2,898)
—
—
(405)
(3,303)
—
324
(2,979)
—
—
—
—
—
—
—
—
2,916
(273)
(82)
2,561
—
—
—
—
—
—
—
—
—
—
2,561
Total
£’000
132,332
811
(101)
3,244
136,286
3,518
—
(2,642)
137,162
(129,683)
(1,337)
68
(3,219)
(134,171)
(1,182)
2,556
(132,797)
2,649
2,115
4,365
Computer software includes capitalised development costs of £26,487,000 relating to the Group’s next generation trading platform
which has been fully amortised.
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 2018 (year ended 31 March 2017: £nil).
As a result of the ANZ Bank white label stockbroking agreement, the Group is committed to capital expenditure relating to the capitalisation
of internal software development costs. It is estimated that the remaining internal software development costs up to the implementation
date in September 2018 will total in the region of £2.2 million.
118
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 13. Property, plant and equipment
GROUP
Cost
At 1 April 2016
Additions
Disposals
Foreign currency translation
At 31 March 2017
Additions
Disposals
Foreign currency translation
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
Foreign currency translation
At 31 March 2017
Charge for the year
Disposals
Foreign currency translation
At 31 March 2018
Carrying amount
At 1 April 2016
At 31 March 2017
At 31 March 2018
Leasehold
improvements
£’000
Furniture,
fixtures and
equipment
£’000
Computer
hardware
£’000
Construction
in progress
£’000
14,242
1,982
(136)
372
16,460
1,924
(138)
(440)
9,400
555
(49)
301
10,207
573
(163)
(121)
28,600
3,577
(126)
382
32,433
2,834
(40)
(387)
—
—
—
—
—
3,309
—
(50)
Total
£’000
52,242
6,114
(311)
1,055
59,100
8,640
(341)
(998)
17,806
10,496
34,840
3,259
66,401
(6,101)
(1,310)
34
(190)
(7,567)
(2,161)
138
205
(8,231)
(21,560)
(417)
149
(212)
(8,711)
(500)
120
84
(2,771)
43
(337)
(24,625)
(2,967)
15
253
(9,385)
(9,007)
(27,324)
8,141
8,893
8,421
1,169
1,496
1,489
7,040
7,808
7,516
—
—
—
—
—
—
—
—
—
—
—
(35,892)
(4,498)
226
(739)
(40,903)
(5,628)
273
542
(45,716)
16,350
18,197
3,259
20,685
The net book value amount of property, plant and equipment on 31 March 2018 includes £3,191,000 (31 March 2017: £4,684,000)
in respect of computer hardware held under finance leases.
14. Deferred tax
GROUP
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
Net deferred tax asset
31 March 2018
£’000
31 March 2017
£’000
4,634
4,168
8,802
(5)
(677)
(682)
8,120
2,170
5,943
8,113
(5)
(19)
(24)
8,089
119
Financial statementsAnnual Report and Financial Statements 2018 14. Deferred tax continued
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
At 1 April
Credit/(charge) to income for the year
Credit/(charge) to equity for the year
Change in tax rate
Foreign currency translation
At 31 March
31 March 2018
£’000
31 March 2017
£’000
8,089
685
57
(94)
(617)
7,696
(227)
(31)
(89)
740
8,120
8,089
The following table details the deferred tax assets and liabilities recognised by the Group and movements thereon during the year:
GROUP
At 1 April 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
Credit/(charge) to income for the year
Credit to equity for the year
Change in tax rate
Foreign currency translation
At 31 March 2018
Tax losses
£’000
Accelerated
capital
allowances
£’000
Other timing
differences
£’000
3,968
2,183
128
—
(2)
560
4,654
121
—
—
(475)
4,300
(94)
—
(70)
48
2,067
(1,063)
—
(94)
56
966
1,545
(261)
(31)
(17)
132
1,368
1,627
57
—
(198)
Total
£’000
7,696
(227)
(31)
(89)
740
8,089
685
57
(94)
(617)
2,854
8,120
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 2018 the Group did not recognise deferred tax assets of £12,922,000 (year ended
31 March 2017: £16,781,000) in respect of losses amounting to £43,513,000 (year ended 31 March 2017: £56,454,000). In respect of these
losses, £42,497,000 (year ended 31 March 2017: £55,258,000) relates to the Group’s Australian subsidiaries and there are no time limits
on their utilisation. £1,016,000 (year ended 31 March 2017: £1,196,000) of the losses relates to the Group’s Information Internet Ltd subsidiary
and there are no time limits on their utilisation.
The Group has recognised a deferred tax asset of £4,268,000 (year ended 31 March 2017: £4,596,000) in respect of losses of £14,227,000
(year ended 31 March 2017: £15,319,000) in the Group’s Australian subsidiaries as at 31 March 2018. The Group has recognised a deferred
tax asset of £32,000 (year ended 31 March 2017: £31,000) in respect of losses of £172,000 (year ended 31 March 2017: £164,000) in the
Group’s Information Internet Ltd subsidiary as at 31 March 2018.
The change in the main rate of UK corporation tax from 19% to 17%, effective from 1 April 2020, passed into legislation in September 2016
through the 2016 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.
120
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 15. Investment in subsidiary undertakings
COMPANY
At 1 April
Capital contribution relating to share-based payments
Amounts contributed by subsidiaries in relation to share-based payments
Investment
At 31 March
31 March 2018
£’000
31 March 2017
£’000
168,906
167,036
1,773
(4,234)
292
3,114
(1,244)
—
166,737
168,906
The list below includes all of the Group’s direct and indirect subsidiaries as at 31 March 2018:
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 Services Pty 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
England
England
England
England
England
England
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Canada
New Zealand
Singapore
China
Principal activities
Holding company
Holding company
Online trading
IT development
Financial spread betting
Holding company
Online trading
Training and education
Holding company
Stockbroking
Dormant
Stockbroking nominee
Dormant
Client introducing office
Online trading
Online trading
Training and education
Held
Directly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Please refer to page 148 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.
No direct and indirect subsidiaries of the Group were dissolved during the year ended 31 March 2018.
The list below includes all of the Group’s employee benefit trusts as at 31 March 2018:
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
Country of
incorporation
Jersey
England
England
Isle of Man
Isle of Man
121
Financial statementsAnnual Report and Financial Statements 2018 16. Trade and other receivables
Current
Gross trade receivables
Less: provision for impairment of trade receivables
Trade receivables
Amounts due from Group companies
Prepayments and accrued income
Stockbroking debtors
Other debtors
Non-current
Other debtors
Total
GROUP
COMPANY
31 March 2018
£’000
31 March 2017
£’000
31 March 2018
£’000
31 March 2017
£’000
7,455
(2,964)
4,491
—
8,065
19,386
15,998
47,940
2,237
50,177
5,089
(3,491)
1,598
—
7,494
19,292
3,158
31,542
—
31,542
—
—
—
505
237
—
13,703
14,445
—
14,445
—
—
—
—
196
—
—
196
—
196
Stockbroking 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 20).
As part of the transaction with ANZ Bank, the Group has AUD 25,000,000 (£13,703,000) deposited in escrow, which is included in other
debtors above.
17. Derivative financial instruments
Assets
GROUP
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
Liabilities
GROUP
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 2018
£’000
31 March 2017
£’000
3,275
3,218
842
—
7,335
480
979
184
292
1,935
31 March 2018
£’000
31 March 2017
£’000
(1,401)
(2,356)
(6)
(159)
(3,007)
(328)
(5)
—
(3,922)
(3,340)
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.
122
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 17. Derivative financial instruments continued
Held for trading
As described in note 28, the Group enters derivative contracts in order to hedge its market price risk exposure arising from open
client positions.
Held for hedging
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 2018, £311,000 of gains
net of revaluation gains or losses relating to economic hedges were recognised in the income statement (year ended 31 March 2017:
gains £1,103,000).
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 2018, £6,884,000 (31 March 2017: £8,639,000) of fair value losses were recorded in net investment hedging
reserve within other reserves. At 31 March 2018, £5,293,000 (31 March 2017: £8,386,000) 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’.
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 IAS 32 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.
18. Financial investments
GROUP
UK government securities
At 1 April
Purchase of securities
Maturity of securities and coupon receipts
Accrued interest
Net losses transferred to equity
At 31 March
Less: non-current portion
Current portion
31 March 2018
£’000
31 March 2017
£’000
20,272
21,426
(20,512)
24
(58)
21,152
(10,822)
10,330
20,374
20,562
(20,710)
53
(7)
20,272
—
20,272
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 0.15% to 1.93%.
Financial investments are shown as current assets when they have a maturity less than one year and as non-current when they have
maturity more 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.
123
Financial statementsAnnual Report and Financial Statements 2018 19. Cash and cash equivalents
Gross cash and cash equivalents
Less: client monies
Cash and cash equivalents
Analysed as:
Cash at bank
Short-term deposits
GROUP
COMPANY
31 March 2018
£’000
31 March 2017
£’000
31 March 2018
£’000
31 March 2017
£’000
365,271
(304,803)
363,258
(310,032)
60,468
53,226
60,468
—
50,218
3,008
280
—
280
280
—
149
—
149
149
—
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.
Cash and cash equivalents comprise the following for the purpose of the statement of cash flows:
Cash and cash equivalents
Less: bank overdrafts (note 21)
Cash and cash equivalents (net of bank overdrafts)
20. Trade and other payables
Current
Gross trade payables
Less: client monies
Trade payables
Amount due to Group companies
Tax and social security
Stockbroking creditors
Other creditors, accruals and deferred income
Non-current
Accruals and deferred income
Total
GROUP
COMPANY
31 March 2018
£’000
31 March 2017
£’000
31 March 2018
£’000
31 March 2017
£’000
60,468
—
60,468
53,226
(4,274)
48,952
280
—
280
149
—
149
GROUP
COMPANY
31 March 2018
£’000
31 March 2017
£’000
31 March 2018
£’000
31 March 2017
£’000
352,826
(304,803)
313,871
(310,032)
48,023
3,839
—
272
16,992
26,409
91,696
5,389
97,085
—
25
17,079
15,446
36,389
3,030
39,419
—
—
—
8
—
8
15,160
21,242
—
—
75
—
—
113
15,235
21,363
—
—
15,235
21,363
Stockbroking creditors represent the amount payable in respect of equity and security transactions executed on behalf of clients with
a corresponding balance included within trade and other receivables (note 16).
124
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 21. Borrowings
GROUP
Current
Finance lease liabilities
Bank overdrafts
Other liabilities
Non-current
Finance lease liabilities
Other liabilities
Total
The fair value of financial liabilities is approximate to the book value shown above.
GROUP
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
The present value of finance lease liabilities is repayable as follows:
GROUP
Within one year
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
31 March 2018
£’000
31 March 2017
£’000
839
—
435
1,274
1,615
731
2,346
3,620
1,316
4,274
170
5,760
2,455
587
3,042
8,802
31 March 2018
£’000
31 March 2017
£’000
904
1,677
—
2,581
(127)
2,454
1,424
2,581
—
4,005
(234)
3,771
31 March 2018
£’000
31 March 2017
£’000
839
1,615
—
2,454
1,316
2,455
—
3,771
31 March 2018
%
31 March 2017
%
3.21
3.67
Bank loans
In March 2018, the Group completed a syndication of the revolving credit facility, which resulted in an increase to £65,000,000
(31 March 2017: £40,000,000) where £32,500,000 had a maturity date of March 2019 and £32,500,000 had a maturity date of March 2021.
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 7).
Undrawn borrowing facilities
At 31 March 2018 the Group no longer had a multi-currency overdraft facility (31 March 2017: £7,500,000).
125
Financial statementsAnnual Report and Financial Statements 2018 21. Borrowings continued
Analysis of net cash
GROUP
Cash and cash equivalents
Less: bank overdrafts
Cash and cash equivalents (net of bank overdrafts)
Borrowings (excluding overdrafts)
Net cash
GROUP
At 1 April
Increase/(decrease) in cash and cash equivalents
Proceeds from borrowings
Repayment of borrowings
Change in net cash resulting from cash flows
Inception of finance leases
Effect of foreign exchange rate changes
At 31 March
22. Provisions
GROUP
At 1 April 2016
Additional provision
Utilisation of provision
Currency translation
At 31 March 2017
Additional provision
Utilisation of provision
Currency translation
At 31 March 2018
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
60,468
—
60,468
(3,620)
56,848
53,226
(4,274)
48,952
(4,528)
44,424
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
44,424
13,883
(170,778)
171,686
59,215
—
(2,367)
75,840
(32,276)
(19,247)
20,204
44,521
(3,045)
2,948
56,848
44,424
EBT
commitments
£’000
160
—
—
—
160
—
(15)
—
145
Property
related
£’000
1,407
171
(37)
34
1,575
494
—
(29)
2,040
Other
£’000
—
208
—
—
208
—
(208)
—
—
Total
£’000
1,567
379
(37)
34
1,943
494
(223)
(29)
2,185
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.
The other provisions balance on 31 March 2017 relates to provisions for redundancy payments.
GROUP
Analysis of total provisions
Current
Non-current
Total
126
31 March 2018
£’000
31 March 2017
£’000
145
2,040
2,185
368
1,575
1,943
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 23. 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
Number
£’000
31 March 2018
31 March 2017
31 March 2018
31 March 2017
400,000,000 400,000,000
100,000
100,000
289,008,354
288,103,959
2,478,086
2,478,086
291,486,440
290,582,045
72,252
620
72,872
72,026
620
72,646
Share class rights
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
At 1 April 2016
New shares issued
At 31 March 2017
New shares issued
At 31 March 2018
GROUP AND COMPANY
At 1 April 2016
New shares issued
At 31 March 2017
New shares issued
At 31 March 2018
Ordinary Shares
Number
Deferred Shares
Number
Total
Number
287,923,211
2,478,086
290,401,297
180,748
—
180,748
288,103,959
2,478,086 290,582,045
904,395
—
904,395
289,008,354
2,478,086
291,486,440
Ordinary Shares
£’000
Deferred Shares
£’000
Share premium
£’000
Total
£’000
71,980
46
72,026
226
72,252
620
—
620
—
620
46,243
118,843
(7)
39
46,236
—
46,236
118,882
226
119,108
Movements in share capital and premium
In February 2017, the Company issued 28,861 bonus shares with nominal value of 25 pence utilising share premium to certain client
shareholders as per the terms of the shares subscription at listing. In addition 904,395 (year ended 31 March 2017: 151,887) shares
with nominal value of 25 pence were issued to employee benefit trusts.
During the year ended 31 March 2018, no Ordinary Shares were converted to Deferred Shares in accordance with the terms of grant
to employees who have now left the Group (31 March 2017: nil).
127
Financial statementsAnnual Report and Financial Statements 2018 24. Own shares held in trust
GROUP
Ordinary Shares of 25p
At 1 April 2016
Acquisition
Utilisation
At 31 March 2017
Acquisition
Utilisation
At 31 March 2018
Number
£’000
756,250
766,054
(908,137)
614,167
77,840
(18,637)
673,370
984
504
(1,022)
466
104
(3)
567
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.
25. Other reserves
GROUP
At 1 April 2016
Currency translation differences
Losses on net investment hedges
Amounts recycled to income statement
Losses on financial investments
At 31 March 2017
Currency translation differences
Gains on net investment hedges
Losses on financial investments
Translation
reserve
£’000
Net investment
hedging reserve
£’000
Available-for-sale
reserve
£’000
3,972
4,255
—
159
—
8,386
(3,093)
—
—
(5,689)
—
(2,950)
—
—
(8,639)
—
1,755
—
Merger
reserve
£’000
(47,800)
—
—
—
—
(47,800)
—
—
—
Total
£’000
(49,513)
4,255
(2,950)
159
(7)
(48,056)
(3,093)
1,755
(58)
(47,800)
(49,452)
4
—
—
—
(7)
(3)
—
—
(58)
(61)
At 31 March 2018
5,293
(6,884)
Translation reserve
The translation reserve is comprised of translation differences on foreign currency net investments held by the Group.
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’.
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.
128
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 26. Cash generated from/(used in) operations
Cash flows from operating activities
Profit before taxation
Adjustments for:
Interest income
Dividends received
Finance costs
Depreciation
Amortisation of intangible assets
Research and development tax credit
Other non-cash movements including exchange rate movements
Share-based payment
Changes in working capital
Increase in trade and other receivables
Increase in amounts due from brokers
Increase/(decrease) in trade and other payables
Decrease in net derivative financial instruments
Increase in provisions
Cash generated from/(used in) operations
GROUP
COMPANY
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
60,064
48,465
42,064
23,618
(2,114)
—
1,173
5,628
1,182
(333)
357
1,773
(18,659)
(37,497)
57,666
(5,269)
271
64,242
(1,739)
—
734
4,498
1,337
—
719
3,107
(10,664)
(35,160)
1,180
(954)
342
(253)
(42,168)
402
—
—
—
—
—
(14,249)
—
10,345
—
—
—
(24,050)
—
—
—
—
—
—
(196)
—
(15,607)
—
—
11,865
(3,859)
(16,235)
The movement in trade and other receivables for the year ended 31 March 2018 also includes £310,000 (31 March 2017: £490,000)
of exceptional litigation income received during the year. This exceptional income was recognised in the year ended 31 March 2016.
27. Financial instruments
Analysis of financial instruments by category
Financial assets and liabilities as determined by IAS 39 ‘Financial Instruments: Recognition and Measurement’ are categorised
as follows:
GROUP
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
31 March 2018
Assets
at FVOCI
£’000
Assets
at FVPL
£’000
Derivatives held
for hedging
£’000
Loans and
receivables
£’000
—
21,152
—
—
—
21,152
—
—
—
7,335
—
7,335
—
—
—
—
—
—
60,468
—
156,887
—
42,112
Total
£’000
60,468
21,152
156,887
7,335
42,112
259,467
287,954
129
Financial statementsAnnual Report and Financial Statements 2018 27. Financial instruments continued
Analysis of financial instruments by category continued
Financial liabilities
Trade and other payables excluding non-financial liabilities
Derivative financial instruments
Borrowings
Finance lease liabilities
GROUP
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 excluding non-financial liabilities
Derivative financial instruments
Borrowings
Finance lease liabilities
31 March 2018
Liabilities
at FVPL
£’000
Derivatives held
for hedging
£’000
Financial
liabilities at
amortised cost
£’000
Total
£’000
—
(3,763)
—
—
—
(159)
—
—
(90,419)
(90,419)
—
(1,166)
(2,454)
(3,922)
(1,166)
(2,454)
(3,763)
(159)
(94,039)
(97,961)
31 March 2017
Assets
at FVOCI
£’000
Assets
at FVPL
£’000
Derivatives held
for hedging
£’000
Loans and
receivables
£’000
—
20,272
—
—
—
20,272
—
—
—
1,643
—
1,643
—
—
—
292
—
292
53,226
—
119,390
—
24,048
196,664
31 March 2017
Liabilities
at FVPL
£’000
Derivatives held
for hedging
£’000
Financial
liabilities at
amortised cost
£’000
Total
£’000
53,226
20,272
119,390
1,935
24,048
218,871
Total
£’000
—
(3,340)
—
—
(3,340)
—
—
—
—
—
(39,394)
(39,394)
—
(5,031)
(3,771)
(3,340)
(5,031)
(3,771)
(48,196)
(51,536)
130
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 27. Financial instruments continued
Maturity analysis
GROUP
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
GROUP
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
31 March 2018
On demand
£’000
Less than
three months
£’000
Three months
to one year
£’000
After
one year
£’000
—
9,950
—
—
14,203
24,153
—
—
(404)
(641)
—
10,500
—
—
2,237
12,737
—
—
(746)
(1,677)
Total
£’000
60,468
20,450
156,887
7,335
42,112
287,252
(90,419)
(3,922)
(1,222)
(2,581)
60,468
—
156,887
—
25,427
242,782
(90,419)
—
—
—
(90,419)
152,363
—
—
—
7,335
245
7,580
—
(3,922)
(72)
(263)
(4,257)
3,323
(1,045)
(2,423)
(98,144)
23,108
10,314
189,108
31 March 2017
On demand
£’000
Less than
three months
£’000
Three months
to one year
£’000
After
one year
£’000
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)
Total
£’000
53,226
19,757
119,390
1,935
24,048
218,356
(35,776)
(3,340)
(5,084)
(4,005)
(48,205)
170,151
131
Financial statementsAnnual Report and Financial Statements 2018 27. Financial instruments continued
Fair value estimation
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
Financial investments
Derivative financial instruments (current assets)
Derivative financial instruments (current liabilities)
GROUP
Financial investments
Derivative financial instruments (current assets)
Derivative financial instruments (current liabilities)
Level 1
£’000
21,152
—
—
21,152
Level 1
£’000
20,272
—
—
20,272
31 March 2018
Level 2
£’000
—
7,335
(3,922)
3,413
31 March 2017
Level 2
£’000
—
1,935
(3,340)
(1,405)
Level 3
£’000
—
—
—
—
Level 3
£’000
—
—
—
—
Total
£’000
21,152
7,335
(3,922)
24,565
Total
£’000
20,272
1,935
(3,340)
18,867
28. Financial risk management
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.
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 the Group Risk Committee and Risk Management Committee.
The Group’s 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.
1 The Capital Requirements Directive (2013/36/EU) (“CRD”) and the Capital Requirements Regulation (575/2013) (“CRR”), called “CRD IV”.
132
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 28. Financial risk management continued
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 around 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 2018, the Group traded with around 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.
Market risk limits
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.
GROUP OFR
Asset class
Consolidated equities
Commodities
Fixed income and interest rates
Foreign exchange
Countdowns and binaries
31 March 2018
£’000
31 March 2017
£’000
3,974
3,569
533
3,882
7
11,965
6,831
2,561
711
1,124
—
11,227
133
Financial statementsAnnual Report and Financial Statements 2018
28. Financial risk management continued
Market risk continued
Market price risk – stress testing
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”)
(for severe market movements). 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 2017.
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.
31 March 2018
Absolute increase
£’000
Absolute decrease
£’000
0.50% change
0.25% change
863
863
31 March 2017
(523)
(523)
Absolute increase
£’000
Absolute decrease
£’000
0.50% change
0.25% change
842
842
(529)
(529)
GROUP
Impact of
Profit after tax
Equity
GROUP
Impact of
Profit after tax
Equity
134
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 28. Financial risk management continued
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 2018: Gain of £311,000, year ended 31 March 2017: Gain of £1,103,000), no sensitivity analysis has been performed. These “fair
value hedges” are derivative financial instruments and are reported as described in note 17.
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 17 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:
• 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.
• 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.
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.
135
Financial statementsAnnual Report and Financial Statements 2018 28. Financial risk management continued
Non-trading book foreign exchange risk continued
Mitigation of CI credit risk continued
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 Operating and Financial Officer 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 (or similar) based on their long-term credit rating.
GROUP
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
GROUP
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
Cash and cash
equivalents
(net of bank
overdraft)
£’000
22,979
6,963
30,526
—
31 March 2018
Amounts due
from brokers
£’000
Net derivative
financial
instruments
£’000
—
113,000
41,164
2,723
—
2,735
678
—
Total
£’000
22,979
122,698
72,368
2,723
60,468
156,887
3,413
220,768
Cash and cash
equivalents
(net of bank
overdraft)
£’000
18,852
7,150
22,949
1
31 March 2017
Amounts due
from brokers
£’000
Net derivative
financial
instruments
£’000
—
84,600
34,788
2
—
(1,876)
471
—
Total
£’000
18,852
89,874
58,208
3
48,952
119,390
(1,405)
166,937
No cash balances or deposits with institutions were considered past due but not impaired or impaired (year ended 31 March 2017: £nil).
Client credit risk
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 its 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 client’s leveraged portfolio exceeds the value of equity that the
client has held at the Group leaving the client account in deficit.
136
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 28. Financial risk management continued
Credit risk continued
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.
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 negative1.
At this point the client is requested to deposit additional funds and is restricted from increasing their position.
1 Clients in some regions may use limited risk accounts, where it is guaranteed that a client cannot move to a negative equity balance.
• 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 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.
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.
Client debt history
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 2018 amounted to £323,000 (year ended 31 March 2017: £883,000), the provision representing 0.2% of total revenue
(year ended 31 March 2017: 0.5%). Bad debt written off during the year ended 31 March 2018 was £850,000 or 0.4% of revenue (year
ended 31 March 2017: £1,382,000; 0.7% of revenue).
The table below details the movement on the Group provision for impairment of trade receivables:
GROUP
Opening provision
Net debt provided
Debt written off
Closing provision
31 March 2018
£’000
31 March 2017
£’000
3,491
323
(850)
2,964
3,990
883
(1,382)
3,491
137
Financial statementsAnnual Report and Financial Statements 2018
28. Financial risk management continued
Credit risk continued
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 ageing of debts that are past due and the provisions charged
against them:
GROUP
Less than one month
One to three months
Three to 12 months
Over 12 months
GROUP
Less than one month
One to three months
Three to 12 months
Over 12 months
31 March 2018
Debt
£’000
3,178
1,166
241
2,870
7,455
31 March 2017
Debt
£’000
682
63
483
3,861
5,089
Provision
£’000
2
481
192
2,289
2,964
Provision
£’000
13
19
416
3,043
3,491
Liquidity risk
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 PB 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 £65.0 million to meet short-term liquidity obligations to PBs in the event that it does
not have sufficient access to own cash and to 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.
138
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 28. Financial risk management continued
Liquidity risk continued
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:
GROUP
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 2018
£’000
31 March 2017
£’000
60,468
156,887
21,152
7,335
245,842
(48,023)
(3,922)
48,952
119,390
20,272
1,935
190,549
(3,839)
(3,340)
193,897
183,370
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
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 inflow/(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 2018
£’000
31 March 2017
£’000
60,064
48,465
1,173
6,810
1,288
(13,787)
734
5,835
5,661
(11,372)
55,548
49,323
(4,882)
(10,683)
(12,116)
42
2,206
(1,173)
(25,719)
(1,012)
(3,762)
—
(4,792)
(734)
(23,946)
(1,422)
(37,772)
(34,656)
12,894
183,370
(2,367)
3,984
176,438
2,948
193,897
183,370
139
Financial statementsAnnual Report and Financial Statements 2018 28. Financial risk management continued
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
•
to ensure that the Group maintains a strong capital base to support the development of its business.
The capital resources of the Group consist of equity, being share capital reduced by own shares held in trust, share premium, other
reserves and retained earnings, which at 31 March 2018 totalled £220,030,000 (31 March 2017: £195,773,000).
The Group is supervised on a consolidated basis by the FCA.
The Group’s ICAAP, prepared under the requirements of the FCA and the Capital Requirements Directive, is an ongoing assessment
of CMC Market’s 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.
29. 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 2018 was £3,003,000 (year ended 31 March 2017: £4,408,000).
For the year ended 31 March 2018 the charge relating to equity-settled share-based payments was £1,773,000 (year ended 31 March 2017:
£3,107,000) and the charge relating to cash-settled share-based payments was £1,230,000 (year ended 31 March 2017: £1,301,000).
No shares were gifted to employees during the year (year ended 31 March 2017: nil).
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:
• 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 and July 2017 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, July 2017 and March 2018 are a combination of “market performance” and “non-market performance” awards.
The awards are based on up to 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.
140
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 29. Share-based payment continued
Current schemes continued
2015 MEP continued
The fair value of awards made under the TSR criteria for the schemes granted above was calculated using an options pricing model
and was 29.2 pence per option for the November 2016 scheme and 27.9 pence per option for the July 2017 scheme. The significant
inputs into the model were share price at grant date of 192.5 pence, volatility of 39%, and an expected option life of three years for the
November 2016 scheme and share price at grant date of 147.3 pence, volatility of 48%, and an expected option life of three years for
the July 2017 scheme.
Scheme
Share
price
at award
Vesting date
At the start
of the year
Awarded
during the
year
Forfeited
during the
year
Dividend
equivalent
awarded
during the
year
Number
Executive Retention Scheme 240.0p
5 February 2018
467,963
Executive Retention Scheme
192.5p 13 September 2019
288,479
Executive Retention Scheme
147.3p
Long Term Incentive Plan
240.0p
27 July 2020
—
5 February 2018 1,044,330
414,398
192.5p 13 September 2019
—
—
—
—
28,661
17,668
821,266
— 50,299
— (75,624)
51,324
(1,020,030)
—
— (94,674)
19,842
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Total
147.3p
154.3p
154.3p
27 July 2020
1 April 2020
1 April 2021
— 2,127,556
(174,834)
106,941
— 338,430
— 338,430
—
—
—
—
2,215,170
3,625,682
(345,132)
274,735
(1,516,654) 4,253,801
Exercised
during the
year
At the end
of the year
(496,624)
—
— 306,147
— 871,565
— 339,566
— 2,059,663
— 338,430
— 338,430
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 157.6 pence.
The weighted average exercise price of all Executive Retention Scheme awards is £nil.
The weighted average exercise price of all Long Term Incentive Plan awards for UK participants (3,746,875 awards outstanding at the
end of the year) in the Long Term Incentive Plan is £nil; for Australian participants, excluding dividend equivalents (506,926 awards
outstanding at the end of the year), the exercise price is 25 pence.
In addition, cash settled awards were granted on listing of which 117,000 vest on 5 February 2019. Three further tranches of cash settled
awards were granted during the financial year and vest in periods from April 2020 to April 2021. Balances of 45,126 shares, 152,338 and
121,510 shares remained at the end of the period for each of the three schemes. All of these awards benefit from dividend equivalence.
The value of these awards is the share price on the date these awards vest.
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.
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,
5 April 2017 and 5 April 2018 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 the equivalent of £1,800 of investment shares on 5 July 2016 and 5 April 2017
with the Company matching on a one-for-one basis. Matching shares for each scheme vest on 5 April 2019 and 5 April 2020 should the
employee remain employed by the Group for the term of the award.
141
Financial statementsAnnual Report and Financial Statements 2018 29. Share-based payment continued
Current schemes continued
UK and Australia SIP Awards continued
Number
Country of award
Award date
Share price
at award
Vesting period/date
At the start
of the year
Awarded
during the
year
Forfeited
during the
year
Exercised
during the
year
At the end
of the year
UK
UK
UK
Australia
Australia
Australia
Total
11 February 2016
240.0p
10 February 2019
399,000
— (57,000)
(12,000) 330,000
April 2016 to
March 2017
285.3p to
112.6p
April 2017 to
March 2018
171.4p to
115.3p
10 May 2016
5 July 2016
5 April 2017
250.5p
266.3p
118.0p
April 2019 to
March 2020
April 2020 to
March 2021
183,804
— (18,306)
(1,620)
163,878
— 133,297
(5,379)
(1,078)
126,840
10 February 2019
123,582
— (18,681)
(2,874)
102,027
6 April 2019
13,294
—
5 April 2020
—
15,219
(676)
—
—
—
12,618
15,219
719,680
148,516
(100,042)
(17,572)
750,582
The weighted share price at the exercise date of options exercised during the year ended 31 March 2018 was 150.3 pence.
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
4,048,933 new share options were granted in the year ended 31 March 2018 (2017: 1,242,814) and these are detailed above in the current
schemes section. Movements in the number of share options outstanding are as follows:
GROUP
At beginning of year
Awarded (including dividend equivalents)
Forfeited
Exercised
At end of year
31 March 2018
Number
31 March 2017
Number
2,934,850
4,048,933
(445,174)
3,403,575
1,242,814
(179,799)
(1,534,226)
(1,531,740)
5,004,383
2,934,850
30. Retirement benefit plans
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.
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.
The pension charge for these plans for the year ended 31 March 2018 was £1,354,000 (year ended 31 March 2017: £1,348,000).
31. Related party transactions
Company
The amounts outstanding with Group entities at year end were as follows:
COMPANY
Amounts due from Group undertakings
Amounts due to Group undertakings
31 March 2018
£’000
31 March 2017
£’000
505
(15,160)
—
(21,242)
142
Financial statementsCMC Markets plcNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2018 31. Related party transactions continued
Group
Transactions between the Group and its other related parties are disclosed below:
Compensation of key management personnel
GROUP
Key management compensation:
Short-term employee benefits
Post-employment benefits
Share-based payments
Aggregate remuneration of highest paid Director
Key management comprises the Board of CMC Markets plc only.
Directors’ transactions
There were no other transactions with Directors.
32. Operating lease commitments
GROUP
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
2,434
59
536
3,029
903
1,372
52
1,483
2,907
1,165
Year ended
31 March 2018
£’000
Year ended
31 March 2017
£’000
Minimum lease payments under operating leases recognised in expense for the year
2,794
2,538
Operating lease payments represent rentals payable by the Group for office space. As on 31 March 2018, leases are negotiated for an
average term of 4.0 years (31 March 2017: 4.1 years) and rentals are fixed for an average of 3.6 years (31 March 2017: 3.7 years).
The Group had outstanding commitments under non-cancellable operating leases as follows:
GROUP
Within one year
Within two to five years
After five years
Sub-lease payments:
GROUP
31 March 2018
£’000
31 March 2017
£’000
4,825
17,498
7,003
3,725
13,272
6,692
29,326
23,689
31 March 2018
£000
31 March 2017
£000
Future minimum lease payments expected to be received in relation to non-cancellable sub-leases
of operating leases
1,108
—
33. Contingent liabilities
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.
34. Ultimate controlling party
The Group’s ultimate controlling party is Peter Cruddas by virtue of his majority shareholding in CMC Markets plc.
143
Financial statementsAnnual Report and Financial Statements 2018 SHAREHOLDER INFORMATION
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.
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 groundbreaking 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
Digital 100s. 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 was 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.
Timeline
1989 – CMC Markets begins operations in the UK
1996 – Launches the world’s first online retail FX trading platform
2000 – Starts offering CFDs in the UK
2001 – Launches online spread betting service in the UK
2002 – Opens first non-UK office in Sydney, Australia
2005 – Offices opened in Beijing, Canada and Germany
2006 – Opens New Zealand office
2007 – Singapore and Sweden offices opened; and Goldman Sachs purchases 10% stake
2008 – CMC Markets (Australia) starts offering a stockbroking service following the acquisition of local stockbroker Andrew West & Co.
2010 – Next Generation platform is launched; offices opened in Italy and France; and spread betting iPhone app launched in the UK
2011 – CMC Markets wins Financial Services Provider of the Year (Shares Magazine)
2012 – Spread betting app for AndroidTM launched
2013 – CMC Markets wins 33 industry awards globally
2014 – CMC Markets celebrates 25 years of being a world leader in online trading
2015 – Countdowns launched; Poland and Austria offices opened; and Stockbroking Pro platform launched
2016 – CMC Markets lists on the London Stock Exchange, trading as CMCX; and Digital 100s and Knock-Outs launched
144
Financial statementsCMC Markets plc Five-year summary
Group income statement
Net operating income
Other income
Operating expenses
Operating profit
Analysed as:
Underlying operating profit
Net exceptional items
Operating profit
Finance costs
Profit before tax
Analysed as:
Underlying profit before tax
Net exceptional items
Profit before tax
Taxation
Profit after tax
Other metrics
Own funds generated from operations (£m)
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)
For the year ended 31 March
2018
£m
187.1
—
(125.9)
61.2
61.2
—
61.2
(1.1)
60.1
60.1
—
60.1
(10.4)
49.7
2018
55.5
32.1
32.1
17.3
17.1
2.98
5.95
8.93
—
8.93
2017
£m
160.8
—
(111.6)
49.2
49.2
—
49.2
(0.7)
48.5
48.5
—
48.5
(9.3)
39.2
2017
49.3
30.1
30.1
13.7
13.6
2.98
5.95
8.93
—
8.93
2016
£m
169.4
3.1
(118.3)
54.2
63.2
(9.0)
54.2
(0.8)
53.4
62.4
(9.0)
53.4
(10.9)
42.5
2016
53.5
36.8
31.5
15.1
15.0
3.57
5.36
8.93
1.79
10.72
2015
£m
143.6
—
(99.2)
44.4
52.8
(8.4)
44.4
(0.9)
43.5
51.9
(8.4)
43.5
(8.8)
34.7
2015
45.2
36.2
30.3
12.4
12.4
2.14
3.57
5.71
—
5.71
2014
£m
122.0
—
(89.1)
32.9
32.9
—
32.9
(0.7)
32.2
32.2
—
32.2
(8.2)
24.0
2014
42.4
26.4
26.4
8.6
8.5
2.14
2.14
4.28
—
4.28
2018
2,964
59,165
2,587
68.4
2017
2,517
60,082
2,016
62.7
2016
2,828
57,329
2,071
66.8
2015
2014
2,716
50,303
1,626
44.6
2,374
48,006
1,351
33.0
145
Financial statementsAnnual Report and Financial Statements 2018 SHAREHOLDER INFORMATION CONTINUED
Five-year summary continued
Statement of financial position
As at 31 March
2018
£m
4.4
20.7
8.8
10.8
2.2
46.9
48.0
7.3
10.3
156.9
60.5
283.0
329.9
91.8
3.9
1.3
2.3
0.1
99.4
5.5
2.3
0.7
2.0
10.5
109.9
220.0
329.9
2017
£m
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
2016
£m
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
2015
£m
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
2014
£m
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
59.0
55.0
56.7
49.6
195.8
254.8
176.3
231.3
142.3
199.0
119.6
169.2
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Financial investments
Trade and other receivables
Current assets
Trade and other receivables
Derivative financial instruments
Financial investments
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
146
Financial statementsCMC Markets plc Proposed final dividend
for the year ended 31 March 2018
Ex-dividend date: Thursday 2 August 2018
Record date: Friday 3 August 2018
Dividend payment date: Friday 24 August 2018
Annual General Meeting
The 2018 AGM is to be held at 133 Houndsditch,
London EC3A 7BX at 10.00 am on Thursday 26 July 2018
Registrars/shareholder enquiries
Link Asset Services can be contacted to deal with any
questions regarding your shareholding using the contact
details listed below. Alternatively, you can access
www.cmcmarketsshares.com, where you can view
and manage all aspects of your shareholding securely.
Email
Shareholderenquiries@linkgroup.co.uk
Mail
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Phone
Tel: 0871 664 0300
Calls cost 12 pence 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 09.00am–5.30pm, Monday to Friday excluding
public holidays in England and Wales.
Registered office
CMC Markets plc
133 Houndsditch
London
EC3A 7BX
United Kingdom
Registered number: 05145017
Tel: 020 7170 8200
Website: www.cmcmarkets.com
LEI: 213800VB75KAZBFH5U07
Company Secretary
Jonathan Bradshaw, ACIS
Investor relations
Email: investor.relations@cmcmarkets.com
Website: 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
1 Embankment Place
London
WC2N 6RH
Legal advisers
Linklaters LLP
One Silk Street
London
EC2Y 8HQ
Media relations advisers
Camarco
107 Cheapside
London
EC2V 6DN
147
Financial statementsAnnual Report and Financial Statements 2018
SHAREHOLDER INFORMATION CONTINUED
Global offices
UK – head office
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.com
Australia
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, CMC Markets
Stockbroking Services Pty Ltd
Level 20, Tower 3
International Towers
30 Barangaroo Avenue
Sydney NSW 2000
T 1300 303 888
T +61 (0)2 8221 2100
E
support@cmcmarkets.com.au
brokingservice@cmcmarkets.com.au
www.cmcmarkets.com.au
Austria
CMC Markets Zweigniederlassung
Österreich
Millennium City
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 2915
100 Adelaide Street West
Toronto
Ontario M5H 1S3
T +1 416 682 5000
E
info@cmcmarkets.ca
www.cmcmarkets.ca
China (Shanghai)
CMC Business Service
(Shanghai) Limited
Room 3404, Floor 34
Shanghai Tower
No. 501, Middle Yincheng Road
Lujiazui Financial Center
Pudong District
Shanghai
T
(China toll free) 4008 168 888
E support@cmcmarkets.com.au
www.cmcmarkets.com/zh
China (Beijing)
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
New Zealand
CMC Markets NZ Ltd
Level 25
151 Queen Street
Auckland 1010
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 plc
Oddzial w Warszawie
Emilii Plater 53
00-113 Warsaw
T +48 22 160 5600
E biuro@cmcmarkets.pl
www.cmcmarkets.pl
Singapore
CMC Markets Singapore Pte Limited
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 3203
E kundservice@cmcmarkets.se
www.cmcmarkets.se
148
Financial statementsCMC Markets plc CMC Markets plc’s commitment to environmental issues is reflected in this
Annual Report which has been printed on Galerie Silk, an FSC® certified material.
This document was printed by Pureprint Group using their environmental print
technology, which minimises the impact of printing on the environment.
Vegetable based inks have been used and 99 per cent of dry waste is diverted
from landfill. The printer is a CarbonNeutral® company.
Both the printer and the paper mill are registered to ISO 14001.
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CMC Markets plc
133 Houndsditch
London EC3A 7BX
United Kingdom
T +44 (0)20 7170 8200
E
info@cmcmarkets.co.uk
www.cmcmarkets.com/group