CMC Markets plc
Annual Report and Financial Statements 2019
Diversifying
through
technology
C
M
C
M
a
r
k
e
t
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2
0
1
9
CMC is focused on
the diversity of the
business, through
its client base and
product offering
64%64%
35%35%
of ESMA region net revenue generated
from professional clients in H2 2019.
ESMA retail value of client trades in
comparison to pre-ESMA levels.
Read more on page 14
Read more on page 15
Net operating income by client base
2019: £130.8 million (2018: £187.1 million)
ESMA region
59%
APAC & Canada
29%
Stockbroking
12%
59+
29
+
12
+
V
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/
STRATEGIC REPORT
2
4
6
8
Highlights 2019
CMC at a glance
Chairman’s statement
Chief Executive Officer’s report
12 Our business model
14 Our markets
16 Our strategy
18
Key performance indicators
20 Client service
22 Competitive product offering
24 Technology and operational excellence
26 People
30 Financial strength
36 Risk management
CORPORATE GOVERNANCE
46 Board of Directors
48
Introduction to governance
49 Governance report
54 Group Audit Committee
57 Group Risk Committee
59 Nomination Committee
61
Remuneration Committee
63 Directors’ remuneration report
79 Regulated entities
80 Directors’ report
86 Statement of Directors’
responsibilities
FINANCIAL STATEMENTS
90
Independent auditors’ report
97 Consolidated income statement
98 Consolidated statement of
comprehensive income
99 Consolidated statement of
financial position
100 Parent company statement of
financial position
101 Consolidated and parent company
statements of changes in equity
102 Consolidated and parent company
statements of cash flows
103 Notes to the consolidated and parent
company financial statements
SHAREHOLDER INFORMATION
140 Shareholder information
Annual Report and Financial Statements 2019
1
HIGHLIGHTS 2019
Focusing on high value
clients and diversifying
the business
“Our strategy is to use the Group’s technology to differentiate
and diversify the business, attracting and retaining high value
clients whilst growing our institutional and stockbroking businesses.”
Peter Cruddas
Chief Executive Officer
OPERATIONAL HIGHLIGHTS
• Value of client trades down 13% to £2,259 billion
• 64% of European net revenue generated by professional clients in H2 2019
• Revenue per active client down £896 (30%) to £2,068 and active clients
down 5,857 (10%) to 53,308
• ANZ Bank white label stockbroking partnership successfully
implemented on time and budget
FINANCIAL HIGHLIGHTS
• Net operating income down £56.3 million (30%) to £130.8 million
• Statutory profit before tax down £53.8 million (89%) to £6.3 million
• Basic earnings per share down 88% to 2.0 pence
• Dividend per share 2.03 pence
For more information see page 18
2
CMC Markets plc
Strategic report
Net operating income1
£130.8m
£130.8m
Statutory profit before tax
£6.3m£6.3m
19
18
17
£130.8m
19 £6.3m
£187.1m
£160.8m
18
17
£60.1m
£48.5m
Active clients3
53,308
53,308
19
18
17
Revenue per active client2
£2,068
£2,068
53,308
59,165
60,082
19
18
17
£2,068
£2,964
£2,517
Value of client trades4
£2,259bn
£2,259bn
19
18
17
£2,259bn
£2,587bn
£2,016bn
Basic earnings per share
2.0p2.0p
19
2.0p
18
17
17.3p
13.7p
Ordinary dividend per share5
2.03p
2.03p
2.03p
19
18
17
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 2019
3
Strategic report Strategic report
CMC AT A GLANCE
A leading global
provider of online trading
OUR TECHNOLOGY
OUR GEOGRAPHICAL REACH
Our Next Generation platform offers an award-winning
trading experience for our clients. Additionally, it provides
CMC with real-time visibility of client and hedge trading
activity and generates operational efficiencies through
the integration of various middle and back office systems.
KEY DATES
• July 2018: ANZ Bank white label stockbroking
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 2019
partnership: intermediaries go-live
Read more on page 10
• August 2018: ESMA leverage
restrictions applied
Read more on page 14
Read more on page 10 43+
• September 2018: ANZ Bank white label
stockbroking partnership: retail go-live
UK
Europe
43%
25%
APAC & Canada
32%
Offices
15
Continents
Countries
Clients
4
14
53,308
4
CMC Markets plc
25
+
32
+
N
OUR CLIENT BASE
CMC predominantly attracts retail and elective professional clients to its Next Generation platform
and has a growing proportion of trading activity generated from institutional clients and stockbroking clients.
nt-end tra din
o
r
F
f o r m
t
g p l a
NEXT
GENERATION
TECHNOLOGY
B
a
c
k
o
ffic
e
C
R
M
s
y
s
t
e
m
P ri cin g and risk
SCALABLE
PLATFORM
Professional clients
• Dedicated service
Retail clients
• Competitive pricing
• Additional products
• Customisable platform
• Rebates
• Higher leverage
• Feature-rich
• Client service
Institutional
• White label
• Grey label
• API
• DMA
Stockbroking
• International shares
• Mobile
• White label
• Online exchange
traded options
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.
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”).
5
Strategic reportAnnual Report and Financial Statements 2019
Strategic report
CHAIRMAN’S STATEMENT
A transitional year
for the Group
2019 has been a difficult year for the
Group with revenue performance
affected by the introduction of the
European Securities and Markets
Authority (“ESMA”) measures and
prolonged and persistent periods
of low market activity.
OUR VALUES
Put clients first
Lead with quality
Set the standards
Read more on page 27
6
Strategic reportCMC Markets plc However, against this backdrop the Group has continued to make
progress on its strategic initiatives, continuing to improve our
platform, obtaining regulatory approval in principle for our Dubai
office and successfully completing the implementation of the
ANZ Bank white label stockbroking partnership. Our continuing
focus on the medium and long term puts the Group in a strong
position to deal with the ongoing change facing the sector.
Results and dividend
Despite a strong first quarter, the Group’s financial performance
has been weak for much of the financial year. Net operating income
for the year was £130.8 million, a 30% reduction on the previous
year. Revenue per active client at £2,068 was 30% lower than the
previous year reflecting the lower levels of client activity.
The Group continues to have a robust balance sheet and total
regulatory capital position, and although performance has been
disappointing, the Board recommends a final dividend payment
of 0.68 pence per share, which results in a total dividend payment
of 100% of profit after tax for the year.
Regulation
The ESMA measures came into effect in July and August 2018
and the Group continues to be supportive of regulatory change
to ensure that all providers operate to the highest standards,
ensuring fair client outcomes.
The Group’s focus over recent years on higher quality, experienced
and sophisticated clients ensured that the Group had a significant
proportion of elective professional clients when the new rules
were implemented, and although these clients were not as active
during the year due to market conditions, they remain very
valuable, particularly when more normalised markets return.
The Board continues to believe that a stronger and better industry
will emerge from these changes, and that CMC will be a clear
winner through its focus on client service and technology.
Board and governance
Following the Board changes that were made in 2018, this
has been the first full year with the new Board. As anticipated
the backgrounds and breadth of experiences that these
Non-Executives bring to the Board is proving valuable.
After six years with the Group, Grant Foley, Chief Operating and
Financial Officer, has decided to leave CMC Markets and pursue
other opportunities. On behalf of the Board I would like to thank
Grant for the significant contribution he has made to the Group.
Reflecting the growing importance of our Asia Pacific business,
I am delighted that Matthew Lewis, Head of Asia Pacific and Canada,
will be joining the Board once we receive regulatory approval.
“ Regulatory change puts us in a
position to emerge as a stronger
business, delivering future
growth and shareholder value.”
Finally, reflecting the continued expansion of his role and
responsibilities, David Fineberg has recently been appointed as
Deputy Chief Executive Officer from his previous role as Group
Commercial Director.
A Board evaluation has been completed relying on the processes
provided by ‘Thinking Board’, a leader in board evaluations. The results
of the Board and Committee evaluations have been very beneficial.
People
Against difficult trading conditions and the implementation of
regulatory change, our people have once again worked hard to
deliver against the Group’s strategic initiatives. On behalf of the
Board, I would like to thank them all for their efforts.
The Group completed an engagement survey in February 2019
and is committed to ensuring that staff are motivated and engaged
across the organisation. A plan is being developed to address the
survey findings in the coming year.
Outlook
The Group has made a profitable start to the new financial year
as it continues to understand the impact of and adapt to the
regulatory changes and market conditions.
The Group continues to diversify through its growing stockbroking
and institutional business, whilst remaining focused on attracting
and retaining high value and experienced clients, which has become
increasingly important in the new regulatory environment.
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 and ensuring
that CMC Markets continues to be a leader in the industry.
As a result, costs are expected to be marginally higher than
the prior year excluding discretionary bonus.
James Richards
Chairman
5 June 2019
Read about our governance on page 48
Annual Report and Financial Statements 2019
7
Strategic report Strategic report
CHIEF EXECUTIVE OFFICER’S REPORT
Focusing on
high value and
institutional clients
We are continuing to focus on our high
value and institutional business and, with
a growing stockbroking business, CMC
is becoming a more diversified Group.
Profit before tax
£6.3m
Revenue per active client
£2,068
Dividend
2.03p
8
CMC Markets plc Financial performance
2019 was a challenging year for the Group. Despite a strong
first quarter, the impact of weak market conditions and regulatory
change following the implementation of the ESMA measures has
resulted in net operating income being significantly lower than
the previous year.
Cost control has been a focus throughout the year, so despite
the Group incurring the additional costs to support the ANZ Bank
white label stockbroking transaction, total operating expenses
have decreased by 2%.
The Group’s cost base is predominantly fixed, meaning much
of the decrease in net operating income has come through to
the bottom line. As a result, profit before tax at £6.3 million was
£53.8 million lower than the previous year.
Whilst this performance is disappointing, the underlying
fundamentals of the business remain strong. Active clients
for the year were down 5,857 (10%) at 53,308, however, levels
of client money, which are an indicator of future trading potential,
remain robust at £332.4 million (up 9%).
In addition, the Group’s balance sheet remains strong. At the end
of the year, the Group’s net available liquidity was £103.3 million
and the regulatory capital ratio was 17.4%.
Although the number of active clients continues to be an important
measure, the Group’s strategy of targeting and retaining higher
value clients leaves the Group well-placed for future periods.
Regulation
The ESMA regulations came into effect from 1 August 2018, and
as anticipated these measures did have a significant impact on
the value of trades placed by ESMA affected retail clients. However,
trading levels for these clients has now stabilised indicating that
there remains a demand from these clients to trade.
The Group’s strategy of focusing on high value and experienced
clients has helped the Group partially mitigate the impact of the
ESMA measures where clients choose to be categorised as
elective professional. The Group has adopted a robust and
rigorous approach to this, ensuring that only clients that meet
the criteria are treated as such.
We believe that increased regulation of the sector is a good thing
for the industry and we are seeing clients adapt to the new margin
requirements, using more of their cash on account to trade and
trading for longer periods. This is an encouraging measure for
the medium and long-term success of the Group.
Looking outside of Europe, it is likely that further regulatory changes
will be made. In Singapore, which contributes under 10% of Group
CFD net revenue, margin rates for foreign exchange will increase
in October 2019 and the Australian regulator, ASIC, is likely to
implement changes at some point in the future.
Any further changes will create a more level playing field globally
and remove some of the practices that we have seen during this
period, with providers based in jurisdictions outside of the
ESMA region targeting European clients by offering them lower
margin requirements.
“ We believe that increased
regulation in the sector
is a good thing in the
long term.”
Regional review
The performance of both the UK and Europe regions were impacted
by ESMA changes which were in place for eight months of the
financial year as well as difficult market conditions. Given that
the value of client trades of retail clients was materially impacted
from August onwards, in conjunction with weak market conditions,
this fed through to lower revenue per active client, which were
down 19% and 38% in the UK and Europe respectively. The UK
was less impacted than Europe due to both the higher proportion
of professional to retail clients and also its larger institutional
business. Active client numbers also reduced 18% and 14%
respectively during the year to 13,181 and 19,159, with market
conditions causing more clients to stop trading in comparison
to the prior year, in addition to enhancements to the application
process impacting client acquisition. This resulted in UK and Europe
net revenue down 34% and 46% respectively to £47.3 million
and £27.1 million.
The APAC & Canada region had a strong year where the value of
client trades increased, both in the retail and institutional businesses.
Active client numbers remained broadly consistent against the
prior year, up 1% to 20,968. Net revenue decreased by 32% to
£35.8 million.
The Australian stockbroking business had a year of significant
growth, with net revenue up 81% to £15.5 million as a result
of the implementation of the ANZ Bank white label partnership
at the end of H1 2019. Client numbers in the core business
increased 2% to 39,400 during the year and ANZ Bank active
clients since go-live in July and September 2018 were 84,132
including intermediaries.
Risk management
Strong and robust risk management is crucial to the ongoing
success of the Group, and the Group’s risk management is
constantly reviewed to ensure it is as effective as possible. With
the introduction of regulatory change we have seen a change
in client behaviour, with a material change for ESMA retail clients
being an increase in their trade duration; this, in conjunction with
weak market conditions and decreasing spread revenue, has led
us to further refine our risk management strategies during the
final months of the financial year. This change has seen the
Group internalise more client flow than previously, particularly in
the more highly traded and liquid instruments which has resulted
in lower hedge costs. It has also increased daily revenue ranges
and market risk exposure, however the Group continues to
maintain a strong regulatory capital ratio and over the medium
term we expect the changes to yield higher revenue.
The Group continues to operate at all times within the
Board-approved risk appetite and Risk Management Framework.
Annual Report and Financial Statements 2019
9
Strategic report CHIEF EXECUTIVE OFFICER’S REPORT continued
Brexit
In order to guarantee the Group’s permission to operate in
the European Union on an uninterrupted basis, the Group has
established a new subsidiary in Germany. The necessary staff
have been recruited in anticipation of starting to onboard new
clients in the region later in the financial year. The Group’s
headquarters will remain in the UK.
Strategic progress
The Group has continued to make strategic progress during
the year; however, both the challenging market conditions and
changing client trading behaviour have caused the Board to
thoroughly consider the priorities of each of the existing five
strategic initiatives and also how they are delivered.
As a result there will be a focus on three initiatives going forward,
being established markets, our institutional offering and optimising
our client journey. These are discussed more below.
Read more on page 16
Institutional offering
The ANZ Bank white label stockbroking transaction was completed
in September 2018, on time and on budget. This was the largest
migration of client accounts in Australian Stock Exchange history
and makes CMC the second largest retail stockbroker in Australia.
As well as migrating 500,000+ clients, CMC also acquired
a further 103 intermediaries. This deal makes our stockbroking
business a more significant part of the Group.
Our CFD Institutional business continues to grow; throughout the
year we have invested in the technology and personnel, including
expanding our focus outside of the UK and Europe, to ensure that
this becomes an increasing part of the Group.
Established markets
Our established markets consist of the UK, Germany and Australia.
In both the UK and Germany the year has been dominated by
regulatory change, however we continue to focus on providing
great client service and a superior product offering to our clients
as this will continue to deliver value in the high value and professional
client space going forward. Independent surveys show that we
remain a leader in client satisfaction. Our Australian business
continues to be a leader in the high value client space where we
have been ranked first in 13 out of 15 service elements measured
in another independent survey1.
1 Investment Trends 2018 Australia Leverage Trading Report (December 2018).
Optimising our client journey
Throughout the year we have continued to focus and make
improvements to our client journey to improve the user
experience and conversion rates; we are now beginning to
see these improvements coming through. This will ensure
that our marketing spend generates the optimal returns.
Our product offering and geographical expansion have now
become less of a priority. The major additions to our product
offering to facilitate growth in both the institutional and retail
segments, at least in the short term, are now complete, with a
focus on quickly deployable products on our platform, such as
baskets, now the main deliverables. From a geographical perspective,
aside from the opening of our Dubai office which we feel is important
to support our institutional ambitions, we have no plans to open
further offices in the short term.
ANZ STOCKBROKING DEAL
Delivered on time and on budget
The delivery of this complex project included:
•
New platform functionality including
international shares in 11 countries and online
exchange traded options.
•
An increase in front, middle and back office
staff to accommodate the required increase
in business activity.
ANZ intermediaries go-live in July 2018
• 103 intermediaries migrated.
•
Included major white label St George Bank.
ANZ retail go-live in September 2018
In total:
•
In excess of 500,000 accounts migrated.
• Over 250,000 clients that have either traded or
held shares in the last 12 months.
• Around 125,000 clients that have traded in the
last 12 months.
Retail market share
18%*
* Source: ASX & Chi-X Combined Trading Statistics – IRESS.
10
CMC Markets plc
Strategic report Diversification
The focus on our revised strategic initiatives will result in having
the ability to grow an already geographically diverse CFD client
base and revenue stream, but at the same time continue to
diversify our revenue between retail and institutional businesses
with the use of our proprietary technology, and also become a
little less reliant on CFDs with growth in the stockbroking business.
People
Throughout the year I have been consistently impressed with
the quality and dedication of our staff, against the backdrop of
regulatory change. I am particularly proud of the huge amount of
work that went into the ANZ white label stockbroking transaction.
This project involved staff in the UK as well as Australia and was a
significant achievement.
On behalf of myself and the Board, I would like to thank our staff
for their continued hard work and commitment.
Clients
Our continuing focus on client service and fair client outcomes has
meant that, once again, CMC has won a number of awards. Acquiring
and retaining clients is crucial to the success of the business.
Dividend
The Board recommends a final dividend payment of £2.0 million.
This is 0.68 pence per share (2018: 5.95 pence), resulting in a total
dividend payment for the year of 2.03 pence per share (2018:
8.93 pence). This represents a payment of 100% of profit after
tax, and in excess of the Group’s policy of paying 50% of profit
after tax. The Board believes that this is an appropriate payment
for the year after considering both the Group’s capital and
liquidity position and forecast requirements in the year ahead
to support business growth.
Outlook
This has been a difficult period of trading for CMC and our sector,
but having now weathered the ESMA transition, we exit this year
with renewed confidence in the future. We have learned as our
clients adjusted to the imposition of much lower leverage levels
at the same time as experiencing range bound markets. As a result,
we have adjusted our business to ensure we capture revenue
appropriately and manage the net risk we are exposed to from
higher client margins against smaller positions being held for
longer periods.
Our business is much more balanced today than it has ever been,
with a larger stockbroking business and important growth in our
institutional business alongside our stabilised CFD and spread bet
business all underpinned by our technology platform. We have
demonstrated that our ability to use technology to provide a high
quality service and access to innovative investment opportunities
means we are an attractive partner for a wide array of customers
and partners around the world.
As regulatory change continues to be a key positive driver in
our markets, we believe that our strong product offering, client
service, technology platform and balance sheet will ensure our
ongoing success.
Peter Cruddas
Chief Executive Officer
5 June 2019
ESMA REGULATORY CHANGE
Intervention powers were introduced by
ESMA in August 2018.
Read more on page 14
How has the impact been mitigated at CMC?
CMC has always focused on acquiring and retaining
high value clients and this correlates well with clients
being able to become elective professional clients
who are exempt from ESMA requirements. This has
resulted in over 2,000 clients successfully applying to
become elective professional. In addition, the Group
has a geographically diverse client base where prior
to ESMA changes 32% of CFD net revenue was
generated from outside of the ESMA region. In
addition the stockbroking business, and in particular
the ANZ Bank white label stockbroking deal has
meant we are becoming less reliant on revenue
generated from ESMA retail clients. Recent product
development in the institutional business also means
the Group is able to focus on acquiring and retaining
clients that are outside the scope of ESMA.
Annual Report and Financial Statements 2019
11
Strategic report
OUR BUSINESS MODEL
Focus on the client
We continue to focus on
client service, ensuring
we provide the best trading
experience possible to
our clients. This focus on
clients helps to not only
attract new clients but
retain existing clients,
providing long-term
value to the Group.
ple
o
e
P
Fin
a
n
g
y
a n d operational e
om p e tit i v e product
f
f
o
e
r
x
c
e
ll
e
n
c
e
c
i
a
l
s
t
r
e
n
g
t
h
Techn olo
C
i
n
g
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 20
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 22
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 24
12
Strategic reportCMC Markets plc
REVENUE GENERATION
CFD and spread bet revenue
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 both CFD equity trades and institutional DMA 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.
Risk management
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.
CFD and spread bet
net revenue
£110.2m
Stockbroking net revenue
£15.5m
Stockbroking
Predominantly earned through brokerage charged for the execution of exchange traded
products which include domestic and international shares across 11 markets, options,
warrants, ETFs, managed funds, interest rate securities and bonds. Further, we earn a
number of ancillary fees including interest on deposits, FX revenue and equity capital
markets (“ECM”) income.
Other income
£5.1m
Other income
Mainly consists of interest income from client deposits, rental income and
dormancy charges.
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 26
For more information see page 30
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 36
13
Strategic reportAnnual Report and Financial Statements 2019 OUR MARKETS
Regulatory change and
market conditions dominate
The Group’s revenue, which is mainly generated from CFD and spread bet
products, has been impacted by regulatory change and weak market conditions
during the financial year. Our Australian stockbroking business generates a growing
proportion of Group revenue as a result of our ANZ Bank white label partnership.
CFD AND SPREAD BET
Key market driver
Our response
European regulatory change
ESMA introduced temporary product intervention powers in July
and August 2018 prohibiting the marketing, distribution and sale
of binary options and restricting the provision of CFDs to retail
clients in the following ways:
•
leverage limits on the opening of a CFD between 30:1 and 2:1,
depending on 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.
CMC welcomed many of the measures and was already in
compliance with a number of them, as a Group standard.
The only material impact of the changes for the Group
related to leverage limits for retail clients as this has resulted
overwhelmingly in clients trading in smaller values and to a
lesser extent stopping trading altogether. The revenue impact
has been partly mitigated through our ongoing focus on
acquiring and retaining high value and sophisticated clients.
This has meant many of our client base have successfully
requested to be treated as elective professional clients, thus
exempting themselves from these provisions. The review of
elective professional applications has been rigorous and only
43% of applications have been accepted up to the end of
March 2019. During H2 2019, 64% of UK and Europe net revenue
was generated from elective professional clients.
Brexit
The UK currently operates in the European Union (“EU”) through its
ability to “passport” financial services from the UK using a branch
structure. This may not be permitted once the UK leaves the EU.
The Group has established a new subsidiary in Germany.
The Group is on track to start onboarding new clients in the
region before 31 October 2019, pending final regulatory
approval. The Group’s headquarters will remain in the UK.
Volatility
Volatility in the financial markets undoubtedly acts as a call to
action for the Group’s CFD and spread bet target market.
Other regulatory change
In Singapore margin rates for foreign exchange will increase
in October 2019 and the Australian regulator, ASIC, is likely to
implement changes at some point in the future.
Higher volatility results in increased trading activity from both
existing clients trading more frequently and new or previously
inactive clients starting to trade. However, 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.
Aside from notifying clients of market activity in a timely
manner, for example, having a flexible marketing strategy to
identify and communicate changing levels of market activity,
the Group can have little influence on capitalising more or less
than competitors during times of higher market volatility.
The Group is in active dialogue with regulators and the experience
from the implementation of ESMA provisions will be utilised
should any regulatory changes be made in other jurisdictions.
14
CMC Markets plc
Strategic report ESMA RETAIL CLIENT REACTION TO LEVERAGE CHANGES
Prior to the implementation of regulatory changes in August 2018
for European retail clients, it was unknown how these clients
would react; however, there were a number of actions that retail
clients could take:
• become an elective professional and as a result be out
of scope of the regulatory change;
• amend trading activity levels;
• manage account headroom;
•
increase deposit on account to maintain trading activity; and
When reviewing the reactions of those clients who have not
become elective professional, the overarching findings have
been that clients have mainly continued to trade but at lower
values. At the same time we have seen that clients are utilising
more of their cash to fund their margin requirements rather
than increase their deposit on account to maintain their trading
activity. This is presented in the graph below, which compares
pre and post-regulatory change levels of retail client trading
activity against professional client trading activity and average
account coverage of retail clients during the same period.
• stop trading.
ESMA retail client reactions
)
d
e
s
a
b
e
r
(
t
n
e
i
l
c
r
e
p
r
e
v
o
n
r
u
T
120
100
80
60
40
20
0
e
g
a
r
e
v
o
c
t
n
u
o
c
c
A
6x
5x
4x
3x
2x
1x
0x
Pre-ESMA
average
August
2018
September
2018
October
2018
November
2018
December
2018
January
2019
February
2019
March
2019
Professional
Retail
Retail account coverage
STOCKBROKING
Key market driver
Explanation
Market conditions
Retail stockbroking in Australia is heavily influenced by market sentiment and as a result rising
markets will attract more trading activity. In addition, client outlook and uncertainty also impact
trading activity, and with most trading activity being in local stocks, there were headwinds from
the interest rate environment, impending federal elections and the Banking Royal Commission.
Seasonality
Earnings season is a major driver of activity and as a result strong months are generally seen in
both August and February.
Market size and share
An independent report suggests that the Australian online stockbroking market continued to
grow during 2018 and CMC, in combination with the ANZ Bank white label partnership, has a retail
market share in the region of 18%*.
* Source: ASX & Chi-X Combined Trading Statistics – IRESS.
Annual Report and Financial Statements 2019
15
Strategic report
OUR STRATEGY
Refocusing for
future growth
During 2019 changes to the industry and market conditions have led to strategic initiatives being revisited. This has resulted in
a focus on three core initiatives which the Group believe will continue to unlock future value and continue to support diversification
through the use of our technology.
During 2019 significant progress was made against the existing five strategic initiatives:
Initiative and priorities
2019 progress
Moving forward
Established Markets
• Continue to grow premium client base.
•
Increase proportion of revenue
generated from premium clients.
Geographic expansion
• Establish Middle East office.
• Continue to look for new
market opportunities.
Due to regulatory changes, the internal
classification of premium clients has become
less relevant. However, the focus on client
service to acquire and retain clients has been
evidenced through independent surveys:
• UK: first for overall client satisfaction1;
• Australia: highest client satisfaction in
13 out of 15 service elements2.
• Middle East office. approval in principle
received from local regulator. This will be
an institutional presence only.
Maintain a competitive
and compliant product offering
• Changes to platform to ensure
regulatory compliance in UK and Europe.
• Equities direct market access (“DMA”)
• July 2018: release of changes of platform
functionality to ensure regulatory
compliance in UK and Europe.
• H1 2019: Equities DMA released.
• Q3 2019: MT4 released.
for institutional clients.
• Launch of MT4/5.
Digital initiatives
• 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.
• Continued to build out our marketing
machine, which has driven increased
efficiency of our on boarding.
• Developed personalisation capability
in our communication framework to aid
on-boarding and retention.
• Launched our “CMC Pro” proposition to
provide professionals additional benefits
of trading with CMC.
•
Invested in premium content publication for
prospects and our clients called “Opto”.
2019
Given our market position and
scale of our client base, the
UK, Australia and Germany continue
to be a focus for growth.
N/A
Given the ability to either
expand geographically
through institutional relationships or
through having a digital marketing
presence, going forward there is less
of a focus on expanding our physical
presence in other regions.
All major product releases
required for achieving growth
in our established markets and
institutional offering have been
completed. Future focus will be on
smaller, fast-to-market additions to
the platform such as baskets.
2019 The optimisation of our client
journey from onboarding to
retention continues to be essential
to the growth and sustainability
of the business.
Institutional offering
• ANZ Bank stockbroking white
label implementation.
• Growth in the institutional business
backed by Prime FX and Equities
DMA offering.
• Delivery of ANZ Bank white label partnership
on time and on budget.
• The value of trades through the institutional
business remained broadly the same as prior
year despite weak market conditions. This
however did mean revenue reduced by 33%
to £20.9 million.
2019
The institutional business
continues to be an area
that helps the Group to diversify
and the channel also provides
differentiation from many
competitors.
1 Investment Trends 2018 UK Leverage Trading Report (May 2018).
2 Investment Trends 2018 Australia Leverage Trading Report (December 2018).
16
CMC Markets plc
Strategic report Our focus for 2020
ESTABLISHED
MARKETS
CLIENT JOURNEY
OPTIMISATION
INSTITUTIONAL
OFFERING
Opportunity
The established markets of the UK,
Australia and Germany generate a
significant part of the Group’s revenue
and, given the size and development 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 and
financial strength required to attract
clients from competitors.
Opportunity
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.
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) and recently
released Prime FX and DMA Equities.
Priorities for 2019/20
• UK and Germany: growth in net
revenue generated from active
professional clients.
Priorities for 2019/20
• Continue to improve customer
experience across all touchpoints
with CMC.
Priorities for 2019/20
• Prime FX: further deploy the service to
the international broker community with
an additional focus on Tier 2/3 banks.
• Australia: continue to grow the high
value client base.
• Continue to optimise customer
retention and life time value.
• Commence onboarding to the new
German subsidiary.
•
Improve customer advocacy to
drive greater share of voice.
• Continue to maintain market-leading
client service levels in all three countries.
• API: further optimise both the product
and augment sales for what is already
a globally recognised CFD liquidity
provision solution to the
brokerage community.
• Hedge funds: strengthen our position
as a broker in the emerging and small
hedge fund sector.
• White label: acquire strategic distribution
partnerships utilising our contemporary
White Label platform and associated
technology.
17
Strategic reportAnnual Report and Financial Statements 2019 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
£2,068
19
18
17
£2,068
£2,964
£2,517
Active clients
53,308
19
18
17
53,308
59,165
60,082
KPI definition: Net revenue generated from CFD and
spread bet active clients, divided by the number of
active clients during the period.
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: 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.
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
£2,259bn
Number of trades
64.5m
19
18
17
£2,259bn
£2,587bn
£2,016bn
19
18
17
64.5m
68.4m
62.7m
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 12).
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.
18
CMC Markets plc
Strategic report REVENUE GROWTH AND OPERATING
EFFECTIVENESS
DELIVERY OF SHAREHOLDER VALUE
AND RETURNS
Net operating income
£130.8m
Profit after tax
£5.9m
19
18
17
£130.8m
19
£5.9m
£187.1m
£160.8m
18
17
£49.7m
£39.2m
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
£6.3m
19 £6.3m
18
17
£60.1m
£48.5m
2.0p
19
2.0p
18
17
17.3p
13.7p
KPI definition: this is a statutory measure, which
comprises net operating income less operating
expenses and interest expense.
Why we measure: key operating metric.
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 shareholder value metric.
Ordinary dividend per share
relating to the financial year
2.03p
2.03p
19
18
17
8.93p
8.93p
KPI definition: any dividend declared, proposed
or paid relating to the financial period.
Why we measure: key shareholder value metric.
Annual Report and Financial Statements 2019
19
Strategic 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.
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
All clients have access to our rigorously trained, multilingual and
knowledgeable client service team. We offer 24-hour support
from our 15 offices across the globe.
New staff on these teams undergo an intensive training scheme
designed to give them all the skills and knowledge required to
service clients using any of our retail, professional, institutional
and stockbroking platforms and the products we provide on the
platform. They must also pass a final examination before they
start assisting clients.
Average client services FTE by half year
250
200
150
100
50
0
H1 2018
H2 2018
H1 2019
H2 2019
CFD Stockbroking
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.
An appropriateness assessment, which incorporates a multiple-choice
test, enables us to assess whether our products are appropriate
for prospective clients. Under the current regulatory framework
in the UK and Europe, prospective clients scoring low appropriateness
must pass a multiple-choice knowledge test before they can
place a trade. CMC does not onboard non-appropriate clients
in the UK and Europe.
In regions where the professional status exists, clients have the
opportunity to request to be treated as an elective professional.
Should we be satisfied that they have evidenced they meet the
required criteria they receive approval and gain access to lower
margin requirements, countdown products and receive cash
rebates subject to trading activity.
20
CMC Markets plc
Revenue generated from clients
of tenure greater than two years
67%
Number of awards for service,
platform and technology (2018)
37
UK net promoter score
28%
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.
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 negative balance protection
for European retail clients.
High value client proposition
CMC has had a focus on acquiring and retaining high value
clients for a number of years, and client service forms a major
part of our proposition to this segment. Certain high value
and professional clients have access to dedicated relationship
managers and sales traders, who provide them with a high touch
service. During the year we have also invested in producing a
premium content publication, Opto, aimed at both prospective
and existing clients. Within our stockbroking business, Alpha,
an offering for high net worth clients was released in Q3 2019.
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.
Net promoter score1 in established markets
40%
30%
20%
40
10%
0%
-10%
-20%
28
21
24
10
-1
6
0
-17
UK (NPS) 2
Australia (NPS) 3
Germany (NPS) 4
2017 2018 2018 sector average
1 % of promoters minus % of detractors.
2 Investment Trends 2018 UK Leverage Trading Report (May 2018).
3 Investment Trends 2018 Australia Leverage Trading Report (December 2018).
4 Investment Trends 2019 Germany Leverage Trading Report (May 2019).
Annual Report and Financial Statements 2019
21
Strategic report COMPETITIVE PRODUCT OFFERING
Number one for satisfaction1
Our powerful and scalable trading platforms continue to provide us with
a competitive advantage.
2. Competitive
product offering
The Group continues receive independent commendations for its
trading platform across our major regions. In a recent Investment
Trends report2 it was ranked first for: platform ease of use,
reliability, charting and overall features.
We use advanced client behaviour analytics, customer feedback
and new industry trends to determine our platform development
pipeline. This past year brought numerous new innovations to
both our web and mobile platforms across CFD, Spread bet
and stockbroking.
Product and desktop platform
We completed the HTML platform rollout to all regions, bringing
performance enhancements along with a host of innovative new
features. Notable upgrades to the desktop platform include:
• three new watchlist views;
• enhanced charting;
• multi-interval chart feature;
• full screen tabs; and
• ability to resize column widths for better layout management.
1 Source: Investment Trends 2018 UK Leverage Trading Report (May 2018).
2 Source: Investment Trends 2018 Australia Leverage Trading Report (December 2018).
22
CMC Markets plc
Strategic report Stockbroking
After successfully transitioning both ANZ and St George broking
clients including 103 intermediaries and over 500,000 clients to our
stockbroking platform, CMC Markets is now the second largest
retail stockbroker in Australia* and the largest white label provider
in the country. For the ninth consecutive year we have been
awarded the Canstar Online Share Trading Broker of the Year.
The stockbroking platform has evolved significantly in the last
year and is now one of the most feature-rich solutions available
to retail and wholesale clients in the Australian market. The main
highlights include:
•
international share trading now launched for retail plus several
white label partners and has seen encouraging growth across
both the retail and intermediary client base;
• expanded online options product to include support for
multi-leg orders, a pre-defined strategy selection finder,
real-time margin vetting, account analytics and straight through
(non-dealer assisted) order processing;
• first white label mobile app launched for St George
Directshares in the Apple and Google Play stores with further
rollouts on roadmap for FY20;
• wholesale grey label Advantage Platform launched incorporating
customised adviser tools, in-platform onboarding, adviser
reporting, dial-up brokerage, Excel add-in and contract note
branding and IPO centre;
• transitioned the stockbroking infrastructure to two Tier 3 state
of the art co-located data centres; and
• complementing Alpha CFD proposition – Alpha Stockbroking
successfully launched, designed to provide the best possible
service for high-volume traders who execute >$3,000 in annual
brokerage spend or have $2.5 million in holdings.
* As reported by IRESS, in terms of total value of trades executed by both
CMC Markets’ retail and partner clients.
Mobile apps
We have made several updates to the layout and functionality of
the apps to simplify navigation. Major releases this year include:
• updated Product Library to help users to discover products by
adding a range of “new” topical watchlists including: popular
products, price movers and those currently trending;
• updated charting package with a range of new features
including additional intervals, new draw tools and font size
controls; and
• new mini “trend” charts that provide a quick snapshot of recent
price action.
Annual Report and Financial Statements 2019
23
Strategic report TECHNOLOGY AND OPERATIONAL EXCELLENCE
Continuous investment
in infrastructure
Our technology and operations are built to meet current
demands with capacity for future growth.
3. Technology and
operational excellence
Platform reliability
During a period of unprecedented change in the industry and
wider technology landscape CMC Markets has continued to
prioritise operational resilience and cyber security as core to
the success of the business. Speed of change in the digital world
is everything but for a global online financial business availability,
stability and reliability will always be paramount. Despite the high
degree of complex change, uptime for the Next Generation
platform was in excess of 99.9%.
Cyber security
In today’s world cyber risk is one of the biggest threats to any
business. With ever growing and evolving threats and increased
regulation the importance of robust security governance has
never been greater. CMC continues to invest in security and to
strengthen its internal processes to meet the growing challenge.
By investing in new emerging technology and improved
monitoring CMC aims to stay ahead of the threats.
The security of CMC’s client data is critically important to the
business and with the advent of the new General Data Protection
Regulation which came into force in Europe in May 2018 a
significant programme of work was undertaken to ensure all
CMC’s systems and processes would meet the new and
enhanced requirements. All staff from the frontline staff to the
Board of Directors undertake regular security awareness training
to ensure everyone understands the importance of security, its
criticality to the business and their role in its protection.
Scalable platform
CMC Markets’ infrastructure and Next Generation trading
platform continues to be architected to scale as the business
requires. Whilst the new regulation may have seen the average
number of daily active clients and trades reduce, the number
of products and prices in the system only continues to grow.
We now process an average of more than 225 million prices
per day with peaks in excess of 23,000 per second, an
increase of more than 50% over the year.
“ For a global online financial
business, availability, stability
and reliability will always
be paramount.”
24
CMC Markets plc
Strategic report Stockbroking orders executed in
under 1 second
95%
CFD median trade execution time
7.5 milliseconds
Average CFD and spread bet prices
processed per day
225 million
Speed of execution
Despite the ever growing number of products and prices, speed
of execution is still a differentiator for CMC. The automated
execution on the Next Generation platform means the execution
time of every single trade is minimised. The focus on performance
improvements and optimisations means that we have been able
to reduce the median execution time from 8.5 milliseconds during
the prior financial year to under 7.5 milliseconds for the year ended
31 March 2019. This continues to improve with March 2019 showing
a median execution time of just 4 milliseconds.
During the year planning began for a further investment in new
infrastructure to support the Next Generation platform with
improved performance a key driver for any new technology. A new
infrastructure partner has been selected and the implementation
of the new solution will begin early in the new financial year.
Stockbroking
The investment in new infrastructure and data centre facilities for
the stockbroking platform has been completed. The new platform
has performed even better than expected following the migration
of ANZ Bank clients to CMC’s stockbroking platform. Despite an
increase of more than half a million customers and nearly three
times the number of trades and orders flowing through the system
each day, median execution times have improved by more than
30% and 95% of stockbroking orders are now executed in under
1 second.
Data and analytics
In order to support CMC’s strategic objective to become a more
data-driven organisation, two new modern data analytics platforms
are being implemented. The first is already in use and providing
a truly flexible and scalable platform for the teams to use with
the key aim of improving how we onboard new clients. The
second will utilise best of breed high performance, highly
scalable storage to allow CMC to analyse more data faster than
ever before. The new insight this will provide will allow CMC to
optimise its risk management strategies.
Annual Report and Financial Statements 2019
25
Strategic report PEOPLE
Our greatest
asset
CMC Markets is committed to
recruiting, developing, retaining
and motivating exceptional
people who are talented,
innovative and focused on
delivering excellence.
4. People
Employee turnover
23%23%
26
Strategic reportCMC Markets plc 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 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.
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 encourages 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.
The Group is also committed to maintaining an engaged and
motivated workforce. During February 2019 the Group completed
an engagement survey to highlight areas where improvements
could be made. Key findings were that teamwork across the
Group is strong with an inclusive environment, however, areas
for improvement include career development and continuing
to improve internal communications. The Group is developing
a clear plan to address the findings in the coming year.
OUR VALUES
OUR VALUES
Put clients first
Our business is built around our clients.
We’re proud to have long-lasting relationships
by understanding and supporting them
every step of the way.
Lead with quality
Our commitment to quality is at the
heart of our culture. Whatever we do, we
do it properly. When faced with the choice,
we always prioritise quality over quantity.
Set the standards
We’re clear, open and honest with our
clients, and with each other. We don’t
wait for others, but set the standards
for others to follow.
Annual Report and Financial Statements 2019
27
Strategic report Senior management team2
PEOPLE continued
All staff1
73+
94+
71+
Board of Directors
Male
Female
501
186
Male
Female
Male
Female
16
1
5
2
1 Employees of the Group including contractors as at 31 March 2019.
2 Direct reports to CEO and subsidiary Directors excluding Board
Directors as at 31 March 2019.
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 the Diversity and
Inclusion Committee oversaw the ongoing membership with the
Everywoman Network which provides female employees with
access to tools to assist their personal development.
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.
28
CMC Markets plc
Strategic report27
+
N
6
+
N
29
+
N
THE THINGS WE LIVE BY
THE THINGS WE LIVE BY
Stand with our clients
We’re as passionate about
trading as our clients, and
we’re here to help them
make the most of every
opportunity. In everything
we do. we put our clients
at the centre.
Be human
We’re personable and
approachable. We know
the value of personal
interaction and, wherever
possible, we talk in person
or pick up the phone.
Take ownership
We make decisions as
accountable individuals,
not as committees. We
do our research and listen
with intent to drive
improvements.
Be bold
We’re not afraid to
challenge ourselves or
the status quo and we’re
always looking for ways
to improve. If things don’t
work: we learn, iterate
and succeed.
Work as a team
We’re inclusive,
welcoming and
encourage collaboration.
We work together across
boundaries and don’t
have time for egos.
Keep it simple
In a complex industry, we
always strive to keep things
as simple as possible We’re
honest, reliable and
straight-talking.
Focus on impact
We focus on solving the
most important problems
that will deliver the biggest
impact. We use our time
and money wisely and stay
focused on the end goal.
Corporate social responsibility
During the year ended 31 March 2019 the CMC Markets CSR
Committee directly engaged with charities and the community
in both London and Australia. Highlights include:
• Appointing Greenhouse Sports as the CMC Markets London
Charity of the Year – they have been pledged £55,000.
Greenhouse Sports uses sport to engage with young people and
improve their life chances. They partner with schools, placing full-
time coaches into the school environment to deliver programmes
that empower and inspire young people growing up in
disadvantaged areas.
• CMC Markets is committed to supporting local talent and,
together with the Peter Cruddas Foundation, sponsored Making
The Leap for the third time to deliver its highly successful Social
Mobility Careers Fair, where over 200 students attended on the
day. In addition to this, the London Finance department provided
an internship to one candidate, which assisted them in securing
a permanent placement at a new employer after their internship
had been completed.
• Staff social events have also been used as opportunities to
raise funds for chosen charities alongside the opportunity for
employees to access Company matching contributions for their
own charity work.
• 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 84.
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. One occurrence of bribery
or corruption was reported during the financial year.
Annual Report and Financial Statements 2019
29
Strategic report Strategic report
FINANCIAL STRENGTH
Maintaining the
Group’s stability
5. Financial strength
Our focus of maintaining strong levels of capital and
liquidity in the Group ensures that even during more
difficult trading conditions as seen throughout much of
this financial year, the Group remains financially stable
and can continue to invest in opportunities for the
long-term success of the Group.
The significantly lower profitability of the business has
resulted in a small decrease in total capital resources to
£192.6 million (2018: £194.9 million). Our total available liquidity
also decreased to £197.4 million (2018: £306.9 million) due to
both cash generated from operations and a decrease in
our committed facility, which decreased from £65.0 million
to £40.0 million in March 2019, reflecting the lower
planned usage of the facility in the coming year.
From a profitability perspective, the Group recorded a
disappointing statutory profit before tax of £6.3 million
(2018: £60.1 million) driven by the impact of regulatory
change and low levels of volatility throughout much
of the year, partly offset by ongoing tight cost control.
30
CMC Markets plc
Summary
Net operating income for the year decreased by £56.3 million (30%) to £130.8 million, primarily driven by a significant decrease in trading
volumes from those clients that were impacted by ESMA regulation, and a further reduction in overall client volumes due to lower
levels of market volatility presenting fewer trading opportunities for our clients. This had a particular impact on the second half with net
operating income lower than first half performance at £60.2 million (H1 2019: £70.6 million).
Summary income statement
Net operating income
Operating expenses
Operating profit
Finance costs
Profit before tax
Profit before tax margin1
Profit after tax
Basic EPS
2019
£m
130.8
(123.1)
7.7
(1.4)
6.3
4.8%
5.9
2019
Pence
2.0
2018
£m
187.1
(125.9)
61.2
(1.1)
60.1
32.1%
49.7
2018
Pence
17.3
Variance
£m
Variance
%
(56.3)
2.8
(53.5)
(0.3)
(53.8)
(27.3%)
(43.8)
(30%)
2%
(87%)
(23%)
(89%)
—
(88%)
Variance
Pence
Variance
%
(15.3)
(88%)
Active client numbers have fallen by 5,857 (10%) to 53,308, due
to fewer trading opportunities resulting in more clients stopping
trading than the prior year. In addition, the Group implemented
enhanced appropriateness checks during the year. This contributed
to the acquisition of fewer new clients; however, the quality of those
new clients has improved, which is encouraging for the future.
Regarding the impact on active clients resulting from the
implementation of ESMA measures, during August 2018 there was
a rise in clients who stopped trading in the UK and Europe, however,
monthly active client numbers have remained broadly stable for
the remainder of the financial year and client money levels have
remained strong, rising £27.6 million (9%) to £332.4 million.
Lower active client numbers in conjunction with the lower net
operating income has resulted in revenue per client falling by
£896 (30%) to £2,068.
The value of client trades has decreased by £328 billion (13%) to
£2,259 billion, due to lower volumes from ESMA impacted clients
and fewer trading opportunities for other clients.
Given the lower revenue performance there has been a significant
focus on cost control; as a result, operating costs have decreased
slightly to £123.1 million, from £125.9 million. This decrease has been
due to lower discretionary bonus costs and reduced marketing
spend, partly offset by higher costs associated with the
increased size and scale of the Group’s stockbroking business as
part of the ANZ implementation.
Profit before tax decreased to £6.3 million from £60.1 million,
reflecting the high level of operational gearing in the business
whereby much of the decrease in net operating income directly
impacts the bottom line.
1 Statutory profit before tax as a percentage of net operating income.
Net operating income overview
CFD and spread bet (including
binaries) net revenue
Stockbroking
Interest income
Other operating income
Net operating income
2019
£m
110.2
15.5
3.4
1.7
130.8
2018
£m
175.4
8.5
2.1
1.1
187.1
Regional performance overview: CFD and spread bet
2019
2018
% change
Net
revenue
£m
Value
of trades
£bn
Active
clients
47.3
27.1
882
527
13,181
19,159
RPC
£
3,597
1,413
Net
revenue
£m
Value of
trades
£bn
Active
clients
RPC
£
Net
revenue
Value
of trades
71.9
50.6
1,036
16,157
777
22,223
4,451
2,276
(34%)
(46%)
(15%)
(32%)
Active
clients
(18%)
(14%)
RPC
(19%)
(38%)
74.4
1,409 32,340
2,300
122.5
1,813
38,380
3,191
(39%)
(22%)
(16%)
(28%)
35.8
850 20,968
1,705
52.9
774
20,785
2,544
(32%)
10%
1%
(33%)
UK
Europe
ESMA
region
APAC &
Canada
Total
110.2
2,259 53,308
2,068
175.4
2,587
59,165
2,964
(37%)
(13%)
(10%)
(30%)
Annual Report and Financial Statements 2019
31
Strategic report FINANCIAL STRENGTH continued
Regional performance overview: CFD
and spread bet continued
ESMA Region
The ESMA region consists of two of our market segments, the
UK and Europe. It was impacted by regulatory changes which
were implemented on 1 August 2018 due to leverage restrictions
placed on retail clients. This, along with market conditions, has
dominated the deterioration in performance in comparison to 2018.
Interest income
The low interest rate environment remained largely the same
as the prior year, however interest income increased 63% to
£3.4 million (2018: £2.1 million) driven by the FCA granting the UK
business permission to deposit a proportion of UK client funds
in term deposit accounts. The majority of the Group’s interest
income is earned through our segregated client deposits in
our UK, Australia, New Zealand and stockbroking subsidiaries.
UK
The number of active clients in the region fell, down 18% to 13,181
(2018: 16,157). Consequently, the value of client trades in the UK
also fell, down 15% against the prior year to £882 billion (2018:
£1,036 billion). These decreases were driven by the retail
business, with growth in the number of active institutional clients
year on year, and the value of institutional client trades only
slightly lower as a result of the lower volatility environment.
Europe
Europe comprises offices in Austria, France, Germany, Italy, Norway,
Poland, Spain and Sweden. The value of client trades in the region
was 32% lower than the prior year at £527 billion (2018: £777 billion).
Regulatory changes in the region drove this decrease, with clients
trading lower volumes in all offices except for Poland, which
continues to show strong growth. The number of active clients
decreased 14% to 19,159 (2018: 22,223).
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 increased by 10% to £850 billion (2018: £774 billion),
despite the prior period including a record final quarter for client
activity. Active clients were up 1% to 20,968 (2018: 20,785).
Stockbroking
The Australian stockbroking business has grown significantly during
the year due to the successful implementation of the ANZ Bank
white label partnership at the end of H1 2019. This has been
the main driver of the 81% increase in revenue to £15.5 million
(2018: £8.5 million). Existing business revenue was broadly flat
on prior year in a market where direct competitors saw market
volumes decrease in the region of 14%*.
The ANZ Bank implementation has also meant that our existing
retail and intermediary client base have been the beneficiaries of
platform enhancements during the year, including mobile trading,
international equities and online exchange traded options and this
should have revenue benefits for the existing business going forward.
* Source: ASX & Chi-X Combined Trading Statistics – IRESS.
Expenses
Total operating expenses decreased by £2.8 million (2%) to
£123.1 million.
Net staff costs
IT costs
Marketing costs
Sales-related costs
Premises costs
Legal and professional fees
Regulatory fees
Depreciation and amortisation
Other
Total operating expenses
Interest
Total costs
2019
£m
51.7
20.0
14.1
2.2
7.3
4.6
2.9
7.3
13.0
123.1
1.4
124.5
2018
£m
57.9
16.9
18.3
2.3
6.2
4.0
3.0
6.8
10.5
125.9
1.1
127.0
Net staff costs
Net staff costs decreased £6.2 million (11%) to £51.7 million due to
lower performance-related pay and share-based payments. This
was partly offset by higher wages and salaries predominantly due
to higher headcount in the stockbroking business relating to both
the ANZ Bank implementation and the ongoing requirements of
the larger business post go-live.
Wages and salaries
Performance-related pay
Share-based payments (note 29)
Total employee costs
Contract staff costs
Net capitalisation
Net staff costs
2019
£m
46.5
1.8
0.8
49.1
5.1
(2.5)
51.7
2018
£m
43.4
10.7
3.0
57.1
3.5
(2.7)
57.9
32
CMC Markets plc
Strategic report Marketing costs
Marketing costs have decreased by £4.2 million (23%) to £14.1 million
with a focus during the year on targeting spend towards the
most efficient channels.
Other expenses
IT costs increased £3.1 million (18%) to £20.0 million mainly due to
higher costs in the stockbroking business, with increases also
due to the provision of new software and hardware services.
Premises costs increased mainly due to a move to a new office
in Sydney to accommodate the required headcount to support
the growing stockbroking business. Note that premises costs
will reduce in the next financial year, where changes to accounting
standards will result in the rental costs of leases in excess of
one year will be recategorised from premises costs to
depreciation and interest charges.
Other costs increased due to a number of factors, with the
main drivers being higher bank charges, with a full year of
lower recoverable bank charges resulting from EU regulation
introduced in January 2018 and higher bad debt charges due
to an exceptionally low charge in the prior financial year.
Taxation
The effective tax rate for the year was 7% (2018: 17%). The low
rate was impacted by the a credit in respect of recognition of
an additional amount of Australian tax credits in the year due to
higher forecast profitability of the Australian entities. The impact
of the credit was accentuated through the lower overall statutory
profit before tax for the year.
Profit after tax for the year
The decrease in profit after tax for the year of £43.8 million (88%)
was due to lower net operating income and the operational
gearing in the business.
Dividend
Dividends of £21.1 million were paid during the year (2018: £25.7 million),
with £17.2 million relating to a final dividend for the prior year
paid in August 2018, and £3.9 million interim dividend paid in
December 2018 relating to current year performance. The Group
has proposed a final ordinary dividend of 0.68 pence per share
(2018: 5.95 pence per share).
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
Current tax recoverable
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
2019
£m
5.0
18.1
11.6
11.3
2.7
48.7
118.0
2.9
10.7
3.4
88.1
48.7
271.8
320.5
100.6
4.3
1.1
—
0.2
106.2
4.8
1.2
1.2
2.0
9.2
115.4
205.1
320.5
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
Non-current assets
The Group is committed to maintaining its Next Generation
trading platform and these costs are expensed as incurred.
The increase in intangible assets was caused by £2.7 million
of internal development costs relating to the implementation
of the ANZ Bank stockbroking white label partnership that
were capitalised during the year.
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.
Financial investments both in non-current and current assets,
mainly relate to the FCA requirement to hold eligible assets
in order to meet the Group’s liquid asset buffer (“LAB”).
Annual Report and Financial Statements 2019
33
Strategic report FINANCIAL STRENGTH continued
Group statement of financial position continued
Current assets
Trade and other receivables largely relate to client receivables
from stockbroking positions yet to settle, an escrow deposit
and deferred expenses relating to the ANZ Bank transaction,
prepayments and other client debtors. The increase year on year
is primarily as a result of the ANZ Bank partnership implemented
during the first half of the year, which has significantly increased
the value of the receivables from stockbroking clients.
Amounts due from brokers relate to cash held at brokers
either for initial margin and balances in excess of this for
cash management purposes.
Cash and cash equivalents have decreased during the year as
a result of dividend and bonus payments, as well as a reduction
in title transfer funds held, offset by reductions in amounts
from brokers.
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 and Sydney properties.
Borrowings relate to lease agreements 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 capital
surplus over the regulatory requirement at all times.
The Group’s total capital resources were broadly unchanged on
prior year at £192.6 million (2018: £194.9 million) with retained
earnings for the year being offset by the interim and proposed
final dividend distribution and an increase in both deferred tax
assets and intangible assets.
At 31 March 2019 the Group had a total capital ratio of 17.4%
(31 March 2018: 31.1%). The decrease in the total capital ratio
resulted from a higher total risk exposure; this was driven mainly
by an increase in market risk capital requirement caused by
adjustments to the Group’s market risk management. 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 (%)
2019
203.1
(10.5)
192.6
88.7
1,108.9
17.4%
2018
202.8
(7.9)
194.9
50.2
627.0
31.1%
1 Total audited capital resources as at the end of the financial period, less
proposed dividends.
2 The minimum capital required to adhere to CRD IV.
3 Calculated in accordance with article 92(3) of the CRR.
Liquidity
The Group has access to the following sources of liquidity that
make up total available liquidity:
• Own funds The primary source of liquidity for the Group.
It represents the funds that the business has generated
historically, including any unrealised gains/losses on open
hedging positions. All cash held on behalf of segregated
clients is excluded. Own funds consist mainly of cash and cash
equivalents and also include investments in UK government
securities which are held to meet the Group’s 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 as 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 decrease during the year was reflective of the
impact of a small number of 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 £40.0 million
(2018: £65.0 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 decrease during
the year was due to a reduction in the syndicated facility in
March 2019, reflecting that the Group believes that a reduced
facility is more representative of its potential requirements
going forward. The facility consists of a one-year term facility
of £20.0 million (2018: £32.5 million) and a three-year term
facility of £20.0 million (2018: £32.5 million). 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. There was no drawdown on the facility
at 31 March 2019 (2018: £nil).
The Group’s use of total available liquidity resources consists of:
• Blocked cash Amounts held to meet the requirements of local
regulators and exchanges, in addition to 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 and cryptocurrency positions.
At 31 March 2019, the Group held cash balances of £48.7 million
(2018: £60.5 million). In addition, £332.4 million (2018: £304.8 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.
34
CMC Markets plc
Strategic report Own funds have decreased to £149.8 million (2018: £193.9 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. The fall is predominantly
due to dividend payments, bonus payments relating to 2018
performance and corporation tax payments.
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
2019
£m
149.8
7.6
40.0
197.4
(25.8)
(68.3)
103.3
22.0
2018
£m
193.9
48.0
65.0
306.9
(16.6)
(103.7)
186.6
21.2
Client money
Total segregated client money held by the Group was £332.4 million
at 31 March 2019 (2018: £304.8 million).
Client money represents the capacity for our clients to trade and
offers 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 which 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 49 to 51.
Annual Report and Financial Statements 2019
35
Strategic report RISK MANAGEMENT
Effective risk management
Effective risk management is crucial to the Group’s ongoing
success and is embedded across the organisation, ensuring
key risks are identified and effectively managed.
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.
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,
Data Privacy and Security. 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.
36
CMC Markets plc
Strategic report • Regulatory change: on 1 August 2018 the Group implemented
ESMA changes relating to the marketing and distribution of CFDs
to retail clients throughout Europe. Since then management
has been monitoring the impact on the Group. The Group’s
strategic focus has and continues to be on acquiring and
retaining high value and experienced clients, many of whom
have successfully requested to become elective professionals.
This has helped to mitigate the impact of these regulatory
changes. There continues to be a focus on potential for, and
readiness for, regulatory change across our client base elsewhere
in the Group. The Group continues to believe 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. A new subsidiary
has been set up in Germany which mitigates the impact on client
acquisition and revenue generation arising from the potential
that the UK could lose its MiFID II passport rights as a result
of Brexit. The new subsidiary is on track to start conducting
regulated activity before 31 October 2019, pending final
regulatory approval.
Further information on the structure and workings of Board
and Management Committees is included in the Corporate
governance report on page 48.
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.
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:
• Market risk management: the Group’s risk management is
constantly reviewed to ensure it is optimised and as efficient
as possible. During the second half of the financial year the
Board reviewed and approved a revised approach to market
risk with increased limits resulting in higher levels of internalisation
in more liquid instruments. For more information on market risk
management and mitigation see page 40.
Annual Report and Financial Statements 2019
37
Strategic report RISK MANAGEMENT continued
BUSINESS AND STRATEGIC RISKS
Risk
Description
Management and mitigation
Regulatory
change
Acquisitions
and disposals
Strategic/
business
model risk
The risk that changes to the regulatory
framework the Group operates in
impacts the Group performance.
Such changes could result in the
Group’s product offering becoming
less profitable, more difficult to offer
to clients, or an outright ban on the
product offering in one or more of the
countries where the Group operates.
• 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
are responsive to changes in regulatory requirements.
The risk that mergers, acquisitions,
disposals or other partnership
arrangements made by the Group
do not achieve the stated strategic
objectives or that they give rise
to 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.
The risk of an adverse impact resulting
from the Group’s strategic decision
making as well as failure to exploit
strengths or take opportunities.
It is a risk which may cause damage
or loss, financial or otherwise, to the
Group as a whole.
• 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.
Reputational risk
The risk of damage to the Group’s
brand or standing with shareholders,
regulators, existing and potential clients,
the industry and the public at large.
• The Group is conservative in its approach to reputational
risk and operates robust controls to ensure significant risks
to its brand and standing are appropriately mitigated.
• Examples include:
- proactive engagement with the Group’s regulators and
active participation with trade and industry bodies; and
- positive development of media relations with strictly
controlled media contact.
38
CMC Markets plc
Strategic report FINANCIAL RISKS
Risk
Description
Management and mitigation
Credit and
counterparty
risk
The risk of losses arising from a borrower
or counterparty failing to meet its
obligations as they fall due.
Client credit risk
The Group’s management of client credit risk is significantly
aided by automatic liquidation functionality where margin
levels are continuously reviewed. If they fall below pre-agreed
levels, the positions held on the account will automatically be
closed out.
Other platform functionality mitigates risk further:
• tiered margin requires clients to hold more collateral against
bigger or higher risk positions;
• mobile phone access allowing clients to manage their
portfolios on the move;
• guaranteed stop-loss orders allow clients to remove their
chance of debt from their position(s); and
• position limits can be implemented on an instrument and
client level. The instrument level enables the Group to
control the total exposure the Group takes on in a single
instrument. At a client level this ensures that the client can
only reach a pre-defined size in any one instrument.
In Europe CMC Markets offers negative balance protection to
retail clients limiting the liability of a retail investor to the funds
held in their trading account.
However, after mitigations, there is a residual risk that the
Group could incur losses relating to clients (excluding negative
balance protection accounts) moving into debit balances if
there is a market gap.
Counterparty credit risk
Risk management is carried out by a central liquidity
risk management (“LRM”) team under the Counterparty
Concentration Risk Policy, approved by the Policy Steering
Group (“PSG”) on behalf of the Board.
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 2019 Annual
Report and Financial Statements.
Tax and financial
reporting risk
The risk that financial, statutory
or regulatory reports, including
corporation tax, VAT and similar
taxes, 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.
Annual Report and Financial Statements 2019
39
Strategic report RISK MANAGEMENT continued
FINANCIAL RISKS continued
Risk
Description
Management and mitigation
Insurance risk
The 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 which ensures cover
is placed with financially secure insurers.
• Comprehensive levels of cover maintained.
Liquidity risk
The risk that there is insufficient
available liquidity to meet the liabilities
of the Group as they fall due.
Market risk
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.
• 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.
• 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 incorporate the impact of all liquidity regulations
in force in each jurisdiction and other impediments to the
free movement of liquidity around the Group.
Risk is mitigated by:
• the provision of timely daily, weekly and monthly liquidity
reporting and real-time broker margin requirements to enable
strong management and control of liquidity resources;
• a committed bank facility of up to £40.0 million 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 2019 Annual Report
and Financial Statements.
Trading risk management monitors and manages the exposures
it inherits from clients on a real-time basis and in accordance
with Board-approved appetite.
The Group 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 2019 Annual Report
and Financial Statements.
40
CMC Markets plc
Strategic report OPERATIONAL RISKS
Risk
Description
Management and mitigation
Business
change risk
The risk that business change projects
are ineffective, fail to deliver stated
objectives, or result in resources
being stretched to the detriment
of business-as-usual activities.
• Governance process in place for all business change
programmes with Executive and Board oversight and scrutiny.
• Key users engaged in development and testing of all key
change programmes.
•
Significant post-implementation support, monitoring and
review procedures in place for all change programmes.
• Strategic benefits and delivery of change agenda
communicated to employees.
Business
continuity
and disaster
recovery risk
The risk that a physical business
continuity event or system failure
results in a reduced ability or inability
to perform core business activities
or processes.
• 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.
Financial
crime risk
The risk that CMC Markets is not
committed to combating financial
crime and ensuring that our platform
and products are not misused for the
purpose of money laundering, sanctions
evasion and terrorism financing. As
such, adherence with applicable laws
and regulations regarding anti-money
laundering (“AML”), counter terrorism
financing (“CTF”), sanctions and
anti-bribery and corruption is mandatory
and fundamental to our AML/CTF
framework. We have strict and
transparent standards and we
continuously strengthen our processes
so as to ensure compliance with
applicable laws and regulations. CMC
Markets reserves the right to reject any
client, payment or business that is not
consistent with our Risk Appetite.
Information and
data security risk
The risk of unauthorised access to
or external disclosure of client or
Company information, including those
caused by “cyber attacks”.
• Prompt response to significant systems failures or interruptions.
• Establishing and maintaining a risk-based approach towards
assessing and managing the money laundering and terrorist
financing risks to the Group.
• Establishing and maintaining risk-based Know Your Customer
(“KYC”) procedures, including enhanced due diligence for
those customers presenting higher risk, such as Potentially
Exposed Persons (“PEPs”).
• Establishing and maintaining risk-based systems for
surveillance and procedures to monitor ongoing
customer activity.
• Procedures for reporting suspicious activity internally and
to the relevant law enforcement authorities as appropriate.
• Maintenance of appropriate records for the minimum
prescribed record keeping periods.
• Training and awareness for all employees.
• Provision of appropriate MI and reporting to
senior management of the Group’s compliance
with the requirements.
•
Oversight of Group entities for financial crime in line
with the Group AML/CTF Oversight Framework.
• 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 2019
41
Strategic report RISK MANAGEMENT continued
OPERATIONAL RISKS continued
Risk
Description
Description
Management and mitigation
Information
technology and
infrastructure
risk
The risk of loss of technology services
due to loss of data, system or data
centre or failure of a third party to
restore services in a timely manner.
• Continuous investment in increased functionality, capacity
and responsiveness of systems and infrastructure, including
investment in software that monitors and assists in the
detection and prevention of cyber attacks.
• 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 resilient data centres to support each platform
(two in the UK to support Next Gen and two in Australia to
support stockbroking).
• Systems and data centres designed for high availability and
data integrity.
• Continuous service available to clients in the event of individual
equipment failures or major disaster recovery events.
Legal
(commercial/
litigation) risks
The risk that disputes deteriorate
into litigation.
• Compliance with legal and regulatory requirements
including relevant codes of practice.
• Early engagement with legal 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)
risks
The risk that the design or execution
of business processes is inadequate
or fails to deliver an expected level
of service and protection to client
or Company assets.
•
Investment in system development and 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.
Procurement and
outsourcing risk
This 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.
42
CMC Markets plc
Strategic report OPERATIONAL RISKS continued
Risk
People risk
Description
Description
Management and mitigation
The 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.
•
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.
• The Treating Customers Fairly (“TCF”) and Conduct Committee
reports into the Risk Management Committee (“RMC”). The
Committee is chaired by the TCF Champion, a member of
the Executive Committee (“Exco”). The Committee is comprised
of senior management and subject matter experts and
meets regularly to review the TCF management information
and any emerging issues or incidents which could impact
on issues of client fairness. It also reports to the Board via
the RMC on TCF matters and reviews and recommends
approval of the TCF policy.
• The Client Money Review Group (“CMRG”), which reports
into the RMC, is a fundamental part of the Group’s client
money governance and oversight procedures. The CMRG is
chaired by the CF10a, an FCA-approved person, who is
responsible for overseeing the controls and procedures in
place to protect client money. The Committee is comprised
of senior management from across the Group who oversee
functions which impact client money. The CMRG forms a
key part of the oversight of client money in addition to
compliance, internal audit and our external auditors.
Regulatory and
compliance risk
The risk of regulatory sanction or legal
proceedings as a result of failure to
comply with regulatory, statutory or
fiduciary requirements or as a result
of a defective transaction.
Conduct risk
This is the risk that through our culture,
behaviours or practices we fail to meet
the reasonable expectations of our
customers, shareholders or regulators.
Client money
segregation risk
This is the risk that the firm fails to
implement adequate controls and
processes to ensure that client money
is segregated in accordance with
applicable regulations.
Grant Foley
Chief Operating and Financial Officer
5 June 2019
Annual Report and Financial Statements 2019
43
Strategic report 12+71+17+V
A diversified
client base
Our client base has a
broad global mix of retail
and institutional leveraged
product traders along with
a growing base of Australian
stockbroking clients.
44
Strategic reportCMC Markets plc 2019 proportion of net revenue
12+71+17+V
Revenue continues to be generated predominantly
from our retail CFD and spreadbet clients, which is
diversified across four continents.
The institutional business continues to be a focus area which
the Group aims to grow both in existing and new geographies. The
Australian stockbroking business has the largest client base, however
due to lower revenue per client, generates a small but growing
proportion of the Group’s revenue. The Group’s proprietary
technology has the scalability to grow the client base in many ways
including geographically, by channel and also by product offering.
Retail
71%
Institutional
17%
Stockbroking
12%
45
Strategic reportAnnual Report and Financial Statements 2019 BOARD OF DIRECTORS
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).
46
James Richards
Chairman
Peter Cruddas
Chief Executive Officer
Paul Wainscott
Senior Independent
Director
Appointment
1 April 2015
Appointment
3 June 2004
Appointment
19 October 2017
Committee membership
Committee membership
Committee membership
G
R
N
E
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 España ES
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 and Chairman of
the Nomination Committee from
31 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. 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, (2012 to 2016).
Prior to this he was a 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
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
CMC Markets plcCorporate governance Sarah Ing
Independent
Non-Executive Director
Clare Salmon
Independent
Non-Executive Director
David Fineberg
Deputy CEO
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.
Sarah recently joined XPS
Pensions Group Plc as a
non-executive director.
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 was
CEO of the British Equestrian
Federation. Most recently, Clare
joined Amigo Holdings plc as
a non-executive director.
Current external
appointments
The Horse Rangers Association
(Hampton Court) Limited
Current external
appointments
Amigo Holdings plc
XPS Pensions Group Plc
GS Yacht Charters LLP
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 and
then in April 2019 was promoted
to the position of Deputy CEO.
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 over 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.
In April 2019, Grant announced
his intention to leave CMC to
pursue other opportunities and
would therefore not be considered
for re-election at the Annual
General Meeting (“AGM”) on
25 July 2019.
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
47
Annual Report and Financial Statements 2019Corporate governance 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.
Board effectiveness
The balance of skills, experience and independence of the Board
and individual Directors was reviewed as part of the Board and
Committee evaluation process. All Directors received computer
based training on relevant financial service matters with emphasis
on the responsibilities with regard to regulation and compliance.
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. A monthly
investor relations report is distributed to the Board and
considered at each Board meeting.
I look forward to listening to the views of our shareholders at the
Company’s 2019 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.
James Richards
Chairman
5 June 2019
DEAR SHAREHOLDERS
On behalf of the Board, I am pleased to present the Group
Corporate governance report for the year ended 31 March 2019.
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”).
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
CMC Markets plcCorporate 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
Position
James Richards
Chairman
Paul Wainscott
Senior Independent Director
Sarah Ing
Clare Salmon
Peter Cruddas
David Fineberg
Grant Foley
Independent Non-Executive Director
Independent Non-Executive Director
Chief Executive Officer
Group Commercial Director
Chief Operating and Financial Officer
Board
meetings
Group Audit
Committee
Group Risk
Committee
Nomination
Committee
Remuneration
Committee
11 (11)
11 (11)
11 (11)
11 (11)
11 (11)
11 (11)
11 (11)
—
4 (4)
4 (4)
4 (4)
—
—
—
5 (5)
5 (5)
5 (5)
5 (5)
—
—
—
3 (3)
3 (3)
3 (3)
3 (3)
—
—
—
10 (10)
9 (10)
10 (10)
10 (10)
—
—
—
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.
49
Corporate governanceAnnual Report and Financial Statements 2019 GOVERNANCE REPORT continued
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;
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
• ensuring effective communication between major
of the Group; and
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.
• 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.
50
CMC Markets plcCorporate governance Governance structure as at 31 March 2019
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:
• 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
• Brexit.
51
Annual Report and Financial Statements 2019Corporate governance GOVERNANCE REPORT continued
Accountability
Election of Directors
The 2019 AGM will be held on 25 July 2019 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 with the exception of Grant Foley will
seek re-election at the Company’s 2019 AGM, which will be set
out in the Notice of AGM.
Conflicts of interest
The Company’s articles of association, in line with the Companies
Act 2016, allow the Board to authorise any potential conflicts of
interest that may arise and impose limits or conditions as appropriate.
The Board has a formal process for the Directors to disclose any
conflicts of interest and any decision of the Board to authorise
a conflict of interest is only effective if it is agreed without the
conflicted Director(s) voting or without their votes being counted.
In making such a decision, the Directors must act in a way they
consider in good faith will be most likely to promote the success
of the Group.
Independence of Non-Executive Directors
and time commitment
Each of the Non-Executive Directors is considered to be independent.
Each Director is aware of the need to allocate sufficient time to
the Company in order to fulfil their responsibilities and is notified
of all scheduled Board and Board Committee meetings.
Directors’ induction
A formal procedure for Director induction and ongoing training is
in place. As part of a new Director’s application for approval from
the FCA, a skills gap analysis and Learning and Development Plan
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. Non-Executive Directors attended internally and externally
facilitated training sessions.
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.
52
CMC Markets plcCorporate governance 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 54 to 56.
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
57 to 58.
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.
2018/19 KEY SHAREHOLDER ENGAGEMENTS
April 2018
Directors’ Remuneration Policy consultation
June 2018
FY2018 Results
July 2018
Annual General Meeting 2018
Q1 FY2019 Interim management statement
September 2018
Q2 FY2019 Pre-close update
November 2018
H1 FY2019 Results
January 2019
Q3 FY2019 Interim management statement
53
Annual Report and Financial Statements 2019Corporate governance Dear shareholders
As Chairman of the Group Audit Committee (the “Committee”) I
am pleased to present the Group Audit Committee report.
The Committee is the independent Board Committee that
assesses and has independent oversight of financial reporting
and the effectiveness of internal control systems. This report
summarises the activities, key responsibilities and future focus of
the Committee.
Paul Wainscott
Senior Independent Director and
Chairman of the Group Audit Committee
5 June 2019
Composition and advisers
The Committee is chaired by Paul Wainscott with Sarah Ing
and Clare Salmon as members. 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 continue to fulfil this requirement.
The Committee held four scheduled meetings during the
financial year. The key activities and discussion points are
outlined in the relevant section of this Committee report.
The Chief Executive Officer, Chief Operating and Financial
Officer, Group Commercial Director, 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 and attended all meetings.
Committee attendance is presented on page 49.
Corporate governance
GROUP AUDIT COMMITTEE
Committee Chairman
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 2018/19
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 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, or in accordance
with regulatory requirements.
54
CMC Markets plcCorporate governance 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:
May 2018
•
Internal Capital Adequacy Assessment Process (“ICAAP”).
November 2018
•
Transaction Reporting; and
•
General Data Protection Regulation (“GDPR”).
March 2019
• Security;
• Financial Crime; and
• Compliance.
The Committee approved the Internal Audit Plan for 2019, which
includes reviews on:
• treating customers fairly and complaints;
• conduct and culture risk;
• market abuse compliance;
• Singapore;
• Australia stockbroking and
• Senior Managers and Certification Regime (“SM&CR”) –
deferred due to delayed implementation.
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 2019 AGM. The current auditors have been in place for
ten 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
(when necessary) 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 continues to
engage 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 2018. The Committee received a non-audit services
report for review and approval with the nature of expenditure
categorised by discretionary/non-discretionary and incurred
and proposed fees.
Priorities for financial year 2019/20
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.
55
Annual Report and Financial Statements 2019Corporate governance GROUP AUDIT COMMITTEE continued
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.
May 2018
• 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.
• 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 annual report from the Money
Laundering Reporting Officer (“MLRO”).
November 2018
• 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.
The review of internal controls included consideration
of an internal fraud when concerns had been
raised by a whistleblower. After presenting the
sophistication of the fraud, it was concluded that
adequate controls were in place and that it had no
material impact, if any, on the Group’s
financial position.
• Considered the half year whistleblowing report.
• Reviewed the performance of the internal
audit provider.
56
July 2018
• Reviewed the detailed findings of the external
auditors’ evaluation.
March 2019
• 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.
• Considered the significant accounting judgements
made in finalising the Group accounts with
a particular focus on recognition of deferred
tax assets, the impact of the ANZ Bank white
label stockbroking deal and the Going
Concern judgement.
• Considered initiation of an external auditor
re-tender.
CMC Markets plcCorporate governance GROUP RISK COMMITTEE
Dear shareholders
As the Chairman of the Group Risk Committee (the “Committee”),
I am pleased to present the 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 November 2018. 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.
Meetings held
Five
Further information on the activities of the Committee and its
priorities for the year ahead is provided in the following report.
Committee Chair
Sarah Ing
Other members
James Richards
Clare Salmon
Paul Wainscott
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 pages 36 to 43.
Sarah Ing
Non-Executive Director and
Chair of the Group Risk Committee
5 June 2019
Composition
The Committee is chaired by Sarah Ing with James Richards,
Clare Salmon and Paul Wainscott as members.
The Committee held five 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 49.
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 receives updates on key issues
and discussion points from the RMC. The Committee Chairman
continues to be a regular attendee of the monthly RMC meetings.
57
Corporate governanceAnnual Report and Financial Statements 2019 Priorities for financial year 2019/20
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 closely monitors risks
associated with regulatory change in line with the Group’s
approach as outlined in pages 36 to 43 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.
GROUP RISK COMMITTEE continued
Main activities during the financial year continued
During the year, the Committee discussed and reviewed
risk-related reports, including the recommendation to the Board
to adopt the Group Risk Management Framework 2018/19.
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 continued to review
and challenge the status of the project implementation until the
successful migration in September 2018 and thereafter.
During the year, the Committee received updated 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.
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 challenges the business to improve and enhance
the Risk Management Framework.
Following an annual review undertaken in November 2018, the
Committee was satisfied that the Group’s risk management and
internal controls were effective.
Regulatory compliance
The Committee continued to closely monitor global regulatory
changes and the impact on the Group, in particular risks associated
with the impact of the ESMA measures introduced in the year
enacted by the European Securities and Markets Authority (“ESMA”).
The Committee monitored the Group’s MiFID II and EU General
Data Protection Regulation (“GDPR”) compliance, with a continued
focus on cyber and data security and associated risks given the
Group’s online trading platform including the necessary changes
in process.
58
CMC Markets plcCorporate governance NOMINATION COMMITTEE
Committee Chairman
James Richards
Other members
Paul Wainscott
Sarah Ing
Clare Salmon
Meetings held
Three
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’ conflicts 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.
Dear shareholders
As the Chairman of the Nomination Committee (the
“Committee”), I am pleased to present the Nomination
Committee report.
During the year ended 31 March 2019 the Committee reviewed
and oversaw the Board and Board Committee evaluation process,
having been deferred in 2017 due to the significant changes to
the Board. The Committee will monitor and ensure progress is
made on the actions arising from the evaluation process.
David Fineberg’s promotion to Deputy Chief Executive Officer and
Matthew Lewis’ promotion to the Board is in line with succession
plans. With Grant Foley, Chief Operating and Financial Officer
stepping down, the search for a successor is underway.
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
5 June 2019
59
Corporate governanceAnnual Report and Financial Statements 2019 NOMINATION COMMITTEE continued
Composition
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 meetings during the financial year.
The Executive Directors attend Committee meetings by invitation.
Committee attendance is presented on page 49.
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.
It is committed to addressing this through 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 28.
Priorities for the financial year 2019/20
The Committee will continue to focus on key themes such as
diversity and succession planning and is committed to ensuring
that further improvements to Board and Board Committee
effectiveness are made following the evaluation carried out
this year.
Board and Board Committee evaluation
The Committee oversaw a formal Board and Board Committee
evaluation and discussed the results and the action plan for the
coming year with the full Board present. It was agreed that good
progress continued to be made and that the Board as a whole
operated effectively with open debate and constructive
challenge. Areas for improvement for the Board included the
need to further evolve and mature, particularly in the context
of being a company with a premium listing on the London Stock
Exchange; in particular, further embedding the processes
required of a listed company, Board ownership and involvement
in setting strategy (following the development of the five-year
strategic plan prior to listing), and building the interaction and
relationships of Board members.
Each of the Board Committees were evaluated and it was concluded
that both the Group Audit and Risk Committees were highly
effective with excellent Executive support and very robust and
high quality information provided in a timely manner for each
Committee, which enabled constructive and open debate.
Whilst deemed “fit for purpose”, it was concluded that both the
Nomination and Remuneration Committees could be more
effective although there had been valuable improvements during
the course of the 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.
May 2018
• Evaluation of individual Directors.
• Determination of annual re-election of Directors.
November 2018
• Establishing Board and Board Committee evaluation.
• Subsidiary Board membership.
March 2019
• Board and Board Committee evaluation results
• Succession planning for Executive Directors and
the Senior Leadership Team.
consideration.
• Director appraisals.
60
CMC Markets plcCorporate governance REMUNERATION COMMITTEE
Committee Chair
Clare Salmon
Other members
Sarah Ing
James Richards
Paul Wainscott
Meetings held
10
Principal responsibilities
of the Remuneration Committee
The Committee reviews and sets the remuneration of the
Executive Directors within the parameters of the Directors’
Remuneration Policy as approved by shareholders at the
2018 Annual General Meeting. The Committee is presented
with and asked to review and approve the remuneration of
senior management, ensuring it is consistent with the
Directors’ Remuneration Policy.
The main role and responsibilities of the Remuneration
Committee are:
• to review, agree and approve an appropriate Directors’
Remuneration Policy as well as wider remuneration policies
for all employees which comply with relevant regulations.;
• to review and set the remuneration of the Executive
Directors and approve the remuneration of the senior
management team;
• to review and ensure that bonus payments to Executive
Directors are linked to the achievement of agreed objectives
using discretion where necessary;
• 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 and approve 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
Directors’ remuneration are adhered to.
Committee composition, attendance and advisers
The Committee is chaired by Clare Salmon with James Richards,
Sarah Ing and Paul Wainscott as members.
The Committee held ten meetings during the financial year.
Committee attendance is presented on page 49.
The Committee was advised by Willis Towers Watson (“WTW”),
whose continued appointment was reviewed by the Committee
in September 2018 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. Additional legal
advice was sought from Tapestry Compliance Limited in respect
of the Group’s share-based plans, in particular the Combined
Incentive Plan (“CIP”) approved by shareholders at the 2018 AGM.
During the year, the Committee received support on remuneration
matters from the Chief Executive Officer (in regard to Executive
Directors’ remuneration), the Chief Operating and Financial Officer,
the Deputy Chief Executive Officer (in regard to members of the
Executive Committee) and the Head of Compliance UK and
Europe on specific bonus schemes for Group employees.
Remuneration Policy
The Directors’ Remuneration Policy (“Policy”) was approved by
shareholders at the 2018 AGM as set out on pages 65 to 72.
The Committee carried out a thorough review of CMC’s
Directors’ Remuneration Policy and following this, a new Policy
was tabled and approved at the 2018 AGM.
Priorities for the financial year 2019/20
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.
61
Corporate governanceAnnual Report and Financial Statements 2019 REMUNERATION COMMITTEE continued
MAIN ACTIVITIES DURING THE FINANCIAL YEAR
April 2018
• Considered the draft Directors Remuneration Policy
(“Policy”), new Combined Incentive Plan (“CIP”) term sheet
and significant shareholder consultation letter.
• Annual Review of Directors Expenses Claims Policy.
• Formalised the structure and process of the 2018
performance review process.
July 2018
• Considered the preliminary proxy voting (in conjunction
with proxy agency and shareholder feedback) on the
Remuneration related resolutions put to the 2018 AGM.
• Reviewed and recommended revisions to the
Committee’s Terms of Reference.
• Considered and approved re-worked Executive Directors’
objectives to align with the CIP.
September 2018
• Noted the shareholder approval of the Policy and CIP and
the significant minority vote against.
• Received an update on the Employee Engagement process.
• Reviewed performance of the external
Remuneration Consultant.
• Reviewed Peter Cruddas’ objectives.
• Received an update on the re-work of the senior
leadership team’s objectives to align with the CIP.
• Considered and approved re-worked Company Secretary
objectives.
December 2018
• Considered and approved re-worked senior leadership
team’s objectives to align with the CIP.
February 2019
• Received a corporate governance and external
environment update relating to the provisions of the 2018
UK Corporate Governance Code (the “Code”) and the
potential implications for the Committee.
• Considered the position of remuneration given the poor
business performance and regulatory change.
• Reviewed the possible outcome scenarios for Executive
Directors under the CIP in light of the poor business
performance and requested review of compliance with
the Code in advance of any formal awards under
the scheme.
62
May 2018
• Reviewed and considered shareholder feedback on the
CIP and 2018 Policy.
• Reviewed and approved the Policy and draft Rules of the
CIP for recommendation to the Group Board.
• Reviewed resolutions related to the Policy and CIP to be
put to the 2018 AGM.
• Reviewed Executive Directors’ and the senior
leadership team performance against personal and
strategic objectives.
• Approved the base pay increases and bonus pot
allocation for Executive Directors and the senior
leadership team, having regard to individual performance
and the allocation and proposed usage of the bonus pool
for other employees.
• Reviewed the draft FY19 Executive Directors’ performance
objectives.
• Reviewed the draft Directors’ Remuneration Report to be
included in the Annual Report and Financial Statements to
31 March 2018.
November 2018
• Approved Peter Cruddas’ objectives.
• Considered the use and structure of bonus schemes for
levels below the senior leadership team including Code and
client facing staff.
• Approved pro-forma bonus scheme template for Code and
client facing staff.
• Considered and approved a Group Remuneration Policy for
all levels below the senior leadership team.
January 2019
• Considered and approved a new bonus arrangement and
amendments to an existing bonus arrangement for certain
Code and client facing staff.
• Discussed Executive Directors’ and senior leadership team
performance in light of revised strategy.
• Discussed employee bonus pot accrual in light of the
Group’s poor performance.
March 2019
• Considered legal advice on amendments to the CIP in
order to ensure compliance with the Code and approved
recommendation to the Board to amend the CIP.
• Considered possible outcome scenarios for the senior
leadership team under the CIP.
• Considered Objectives for FY20.
• Reviewed initial output from the Employee
Engagement survey.
• Reviewed the trends from the Gender Pay Gap report
for the year to 5 April 2018.
CMC Markets plcCorporate governance DIRECTORS’ REMUNERATION REPORT
Dear shareholders
I am pleased to present my Remuneration Committee (“Committee”)
report as Chair. This independent Board Committee has three key
accountabilities. Firstly, it is responsible for assessing and setting
Directors’ remuneration, incentives and retention arrangements.
Secondly, the Committee reviews and, if appropriate, approves
senior management, Code staff (individuals whose professional
activities have a material impact on the Group’s risk profile) and
client facing staff 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 the last financial year, the Committee faced significant
challenges in aligning the Executive Directors’ rewards with
shareholders’ interests. This was due to the Financial Conduct
Authority publishing 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. With this in mind, the Remuneration
Committee took the opportunity to review the Remuneration
Policy to ensure that it aligned Executive Directors’ interests
with the Group’s strategic objectives and shareholders’ interests,
and also that it continues to motivate and retain critical talent.
Following this review, and after consultation with major shareholders,
the Committee restructured the incentive arrangements to align
better with the Group’s strategy. The Committee proposed the
revised Directors’ Remuneration Policy which was approved
at the Company’s Annual General Meeting on 26 July 2018.
The Committee noted the significant minority vote against the
Directors Remuneration Policy and remained mindful throughout
the year of comments made by major shareholders during the
consultation process.
Overview of performance in the year ended
31 March 2019
The financial performance of the Group in 2019 has been very
disappointing, due to the impact of regulatory change and
particularly benign markets. This led to a significant fall in CFD
and spreadbet revenues, overall net operating income 30% lower
than the previous year at £130.8 million and profit before tax
£53.8 million lower at £6.3 million.
Against the weak financial performance, the Group did
make good strategic progress, in particular the stockbroking
partnership with ANZ Bank was successfully implemented
in September 2018, preparing for regulatory change and
launching new products.
Implementation of Remuneration Policy
during 2018/19
As indicated to shareholders ahead of the 2018 Annual General
Meeting, once approved the 2018 Remuneration Policy was
applicable for the year ended 31 March 2019. During the year,
bonus payments were made under the Annual Incentive Plan
and the final award of shares was made under the Long Term
Incentive Plan.
Group financial, strategic and individual performance against
targets for the 2019 financial year formed the basis on which the
first combined incentive would be awarded. Accordingly during
the year strategic and personal targets were re-worked and
approved by the Committee in order to align with the Combined
Incentive Plan.
The Combined Incentive Plan was assessed against Group
financial, strategic and individual performance targets as follows:
• 60% based on financial performance;
• 30% based on strategic performance; and
• 10% based on achievement of personal objectives.
During the latter half of the financial year the Committee took
the decision to review the Combined Incentive Plan against the
new 2018 UK Corporate Governance Code (the “Code”). In order
to ensure compliance with the new provision 37 of the Code,
to avoid inappropriate formulaic outcomes, the Committee
recommended to the Board (and the Board approved) procedural
amendments to the Combined Incentive Plan. These amendments
allow the Committee to use its discretion to override formulaic
outcomes by a reduction of the value of either the Cash Award
or Share Award, each independently, which would otherwise be
granted as well as to allow the reduction of the extent to which
a Share Award will Vest.
63
Corporate governanceAnnual Report and Financial Statements 2019 Implementation of Remuneration Policy
during 2018/19 continued
Subsequent to the year end, the Committee assessed the
performance of participants under the Combined Incentive
Plan and determined the total Award of each of the Executive
Directors and the senior leadership team. The Group failed to
reach the threshold financial performance target set for the
year of 7.56p diluted earnings per share, but Executive Directors
managed to meet certain of their strategic targets including
successful implementation of the stockbroking partnership with
ANZ Bank, preparing the business for regulatory change and
launching new products as well as personal targets under which
the Executive Directors have performed well. Achievement of these
strategic and personal objectives therefore led to the creation
of a 40.5% Award of base salary for the CEO, Peter Cruddas and
a 90% Award of base salary for the Deputy CEO, David Fineberg,
which in accordance with the rules of the Combined Incentive
Plan would have been comprised of a 45% Cash Award and a
55% Share Award. It should be noted that the Chief Operating
and Financial Officer, Grant Foley having served notice of
resignation on the Company in early April, was not considered
for an Award under the Combined Incentive Plan in accordance
with the rules.
Minded of comments made during the shareholder consultation
process early in the year and given the poor financial performance
of the Group in 2019 and the corresponding poor outcome for
shareholders the Committee determined to utilise their discretion
to avoid a formulaic outcome. The Committee unanimously agreed
to reduce both the Cash Award and Share Award to zero.
Implementation of Remuneration Policy for 2019/20
The 2018 Remuneration Policy continues to be applicable for the
year ended 31 March 2020. The Committee proposes to continue
to use Group financial, strategic and individual performance
against targets for the 2020 financial year as the basis on which
the combined incentive will be awarded. It is anticipated that the
performance measures applied to the combined incentive will be:
• 60% earnings per share;
• 30% strategic performance; and
• 10% personal objectives.
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 2020 Annual Report and Accounts.
I hope you find the report helpful in understanding the challenges
facing the Group in endeavouring to strike the right balance with
remuneration in a challenging regulatory environment whilst still
aligning remuneration with shareholder outcomes.
Clare Salmon
Non-Executive Director and
Chair of the Remuneration Committee
5 June 2019
64
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued Directors’ Remuneration Policy
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 presents 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
The policy is for base salary to be
competitive. In making this assessment
the Committee has regard for:
Executive Director salary increases will
normally be in line with those awarded
to the wider employee population.
Business performance
is considered in any
adjustment to base salary.
Increases may be above this level if
(i) there is an increase in scale, scope
or 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 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.
65
Corporate governanceAnnual Report and Financial Statements 2019 Directors’ Remuneration Policy continued
Policy table 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 and
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 any other circumstance the
Committee considers 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.
Further to shareholder approval of the new policy, the final award of the LTIP was granted to Executive Directors in 2018 and no further
awards under the LTIP will be awarded to Executive Directors, albeit the Company reserves the right to make awards under the LTIP
to facilitate external recruitment.
66
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued Directors’ Remuneration Policy continued
Purpose and
link to strategy
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
LTIP awards may only be granted by the
Remuneration Committee to facilitate
external recruitment. 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.
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.
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.
67
Corporate governanceAnnual Report and Financial Statements 2019 Directors’ Remuneration Policy continued
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
£
’
1,000
800
600
400
200
0
0
0
0
£
’
1,400
1,200
1,000
800
600
400
200
0
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
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 73
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.
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 71.
68
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued
Directors’ Remuneration Policy continued
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
Deputy Chief Executive Officer
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.
Non-Executive Directors are all on a 3 month notice period, details of the effective date of Non-Executive Directors’ letters of
appointment are set out below:
Non-Executive Director
Date of initial letter
Date of latest letter
Date of appointment
James Richards
25 January 2016
16 February 2018
1 April 2015
Sarah Ing
Clare Salmon
Paul Wainscott
7 July 2017
19 July 2017
11 July 2017
7 July 2017
19 July 2017
11 July 2017
14 September 2017
2 October 2017
19 October 2017
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 Combined Incentive Plan, 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.
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.
69
Corporate governanceAnnual Report and Financial Statements 2019 Directors’ Remuneration Policy continued
Exit payment policy continued
Event
Timing of vesting/award
LTIP
“Good leaver”
On normal vesting date (or earlier
at the Committee’s discretion).
Calculation of vesting/payment
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.
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 Directors’
Remuneration Policy nor does it use any remuneration comparison measurements.
Remuneration policy for other employees
CMC Markets’ approach to annual salary reviews is consistent across the Group. All employees are eligible to participate in the annual
incentive, with targets appropriate to their organisational level and business area. Key senior managers are also eligible for LTIP awards
to further support long-term alignment with shareholder interests. LTIP performance conditions are consistent for these employees,
while award opportunities may vary by organisational level or business area.
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.
70
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued Directors’ Remuneration Policy continued
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
Fee increases are applied in line with
the outcome of the review.
Not applicable.
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 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.
The 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.
71
Corporate governanceAnnual Report and Financial Statements 2019 Directors’ Remuneration Policy continued
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.
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.
In addition during May 2019, the Remuneration Committee recommended and the Board adopted amendments to the Combined
Incentive Plan to ensure alignment with the 2018 UK Corporate Governance Code by the inclusion of relevant clauses to ensure
the Remuneration Committee are able to use their discretion to reduce the value of a Cash Award or the number of Shares to a
Share Award or the extent to which a Share Award will Vest, to avoid an otherwise formulaic outcome.
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.
72
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued Annual Report on Remuneration
The following section sets out the remuneration arrangements and outcomes for the year ended 31 March 2019, and how the
Committee intends the Remuneration Policy to apply during the year ending 31 March 2020.
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 25 July 2019.
Single total figure of Executive Director remuneration (audited)
The table below sets out the single total figure of the remuneration received by each Executive Director who served during the year
ended 31 March 2019 and 31 March 2018.
Name
Peter Cruddas
Grant Foley
David Fineberg
Year ended
31 March
2019
2018
2019
2018
2019
2018
Salary
£’000
431.1
420.2
316.5
304.5
301.6
286.8
Benefits 1
£’000
Annual
incentives 2
£’000
Long-term
incentives
£’000
Pension 3
£’000
Share
Incentive Plan 4
£’000
3.3
3.3
2.6
2.5
1.4
1.3
—
422.3
—
310.0
—
295.0
—
—
—
—
—
—
—
—
31.6
30.4
30.6
28.7
—
—
1.4
2.7
1.4
2.7
Total
£’000
434.4
845.8
352.1
650.1
335.0
614.5
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 2019: the total earned in respect of performance during the relevant financial year.
3 Pension: during the year ended 31 March 2019, 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 2018/19, 1,682 matching shares were
allocated to Grant Foley and 1,688 matching shares to David Fineberg, calculated by reference to the share price on 31/03/2019. In 2017/18, 1,594 matching shares
were allocated to Grant Foley and 1,602 matching shares to David Fineberg, and calculated by reference to the share price on 31 March 2018. 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.
Combined incentive plan for the year ended 31 March 2019 (audited)
During the year ended 31 March 2019 the Executive Directors participated in the Combined Incentive Plan with a maximum opportunity of up
to 135% of salary for the CEO and up to 300% of salary for the Chief Operating and Financial Officer and the Deputy Chief Executive Officer.
In considering the combined incentive Cash Award and Share Award, together comprising the Award, due to the Executive Directors for
the year ended 31 March 2019, the Committee reviewed Group earnings per share (‘EPS’) against targets over the period.
Group financial performance measure
Measure
Threshold
Group earnings per share (“EPS”)
7.56
Target
10.08
Maximum
12.6
Actual
2.0
The Committee also considered the Group’s strategic achievements during the year, which included the successful implementation of
the ANZ Bank Stockbroking transaction on time and budget, preparing for regulatory change, and making improvements to the client
on-boarding journey and experience. Finally the Committee reviewed each Executive Directors personal performance over the period.
Grant Foley, Chief Operating and Financial Officer having served notice of resignation on the Company in early April was not considered
for an Award under the Combined Incentive Plan in accordance with the rules.
Group strategic performance measures
Measure
Revenue and Growth
ANZ Bank Stockbroking transaction
Regulatory change
New Products
Proportion of
strategic measures
%
20
40
20
20
100
Attainment
%
0
100
100
33
Weighted
outcome
%
0
40
20
7
67
73
Corporate governanceAnnual Report and Financial Statements 2019 Annual Report on Remuneration continued
Combined incentive plan for the year ended 31 March 2019 (audited) continued
Personal performance measures
Measure
Develop Skills and knowledge
Culture
Talent and capability
Proportion of
personal measures
%
33
33
34
100
Attainment
%
100
100
100
Weighted
outcome
%
33
33
34
100
Consideration of the above matters determined the total potential award available to the Executive Directors, in accordance with the
policy and the terms of the Combined Incentive Plan. Subsequently 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 were reflective of shareholders’ experience over the period.
Although the Group continued to make strategic progress and the Executive Directors performed well against their personal objectives,
due to the disappointing financial performance achieved in the year, the Committee determined that the formulaic outcome from the
Combined Incentive Plan was not reflective of shareholder experience over the period. As a result, the Committee utilised the newly
incorporated clauses in the Combined Incentive Plan, allowing avoidance of formulaic outcomes, and decided not to make a Cash Award
or Share Award under the Combined Incentive Plan.
Combined Incentive Outcomes
Total award
Cash award
Share award
Individual
Award
(as % max)
Award
(% salary)
Award
(£’000)
(% salary)
(£’000)
Chief Executive Officer
30
40.5
175
40.5
175
Chief Operating
and Financial Officer1
Group Commercial Director
—
30
—
90
—
272
—
40.5
—
122
Cash Award
(post
discretionary
reduction
(£’000))
Share Award
(post
discretionary
reduction
(£’000))
(% salary)
(£’000)
—
—
—
—
—
49.5
—
—
150
—
—
—
1 Grant Foley, Chief Operating and Financial Officer having served notice of resignation on the Company in early April was not considered for an award under the
Combined Incentive Plan.
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 2018/19
under the 2016 Remuneration Policy.
Director name
Date of award
Number of
shares
Face value 1
% of salary
Performance
conditions
Performance period
Grant Foley
5 July 2018
189,301
387,499
125
David Fineberg 5 July 2018
180,141
368,749
125
60% based on
EPS; 30% based
on TSR; and
10% based on
NPS score
Three
consecutive
financial
years ending
31 March 2021
% vesting at
threshold
25%
1 Face value calculation is based on the share price of £2.047 on 5 July 2018 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.
74
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued Annual Report on Remuneration continued
Long Term Incentive Plan (“LTIP”) (audited) continued
As noted in the prior year, final Awards were granted in July 2018 under the LTIP 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 cumulative diluted 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 across the Group’s four main markets (UK, Australia, Germany and Singapore). 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)
26.91p
44.86
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.
2016 LTIP vesting
With respect to the LTIP awards granted on 24 November 2016, vesting is based 60% on Earnings Per Share (“EPS”) growth, 30% on TSR
and 10% on Net Promoter Score (“NPS”). The three-year performance period for these awards ended on 31 March 2019 with vesting on
13 September 2019, subject to continued employment. The Group failed to achieve the EPS threshold of 50.6 pence over the period and
the TSR performance was also below the threshold. As a result vesting in respect of EPS and TSR performance is zero. In respect of
NPS it is 8.4%, making a total award of 8.4%.
Implementation in 2019/20
Salary
With effect from 1 June 2019, the Executive Directors will receive a pay rise of 3% of salary, in line with the increase awarded across the
Group. Grant Foley will receive no adjustment due to him serving notice of resignation on 2 April 2019.
Name
Role
Previous salary
Adjusted salary
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
David Fineberg
Deputy Chief Executive Officer
£432,858
£317,750
£302,375
£445,843
£317,750
£311,446
Percentage
change
3%
0%
3%
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 Markets’
shareholding guidelines are achieved.
Name
Executive Directors
Peter Cruddas1
(including shares held by spouse)
Grant Foley2
David Fineberg2
(including shares held by spouse)
Total share
interests at
31 March 2018
Total share
interests at
31 March 2019
Total share
interests
31 March 2019
as a % salary
Requirement
met
Unvested
awards
not subject to
performance
condition 2
Unvested
awards
subject to
performance
conditions 3
179,929,906
174,149,738
33,433
221,377
228,640
330,511
337,847
59
92
Yes
No
No
—
—
4,081
758,867
4,140
712,817
1 Fiona Cruddas transferred 2,890,084 shares to Annabel and Lucinda Cruddas respectively (daughters of Peter and Fiona Cruddas) during the year.
2 Grant Foley and David Fineberg have interests under the Share Incentive Plan subject to forfeiture for three years.
3 Awards under the LTIP as described on page 74 are nil cost options.
Grant Foley and David Fineberg have continued to participate in the Share Incentive Plan, each acquiring 180 and 189 matching shares and 180 and 189 partnership
shares in April and May respectively.
75
Corporate governanceAnnual Report and Financial Statements 2019 Annual Report on Remuneration continued
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
CEO pay history
Name
31 March
2017
31 March
2018
CMC Markets plc
FTSE 250
Source: DataStream
31 March
2019
Year ended
31 March 2016 1
Year ended
31 March 2017
Year ended
31 March 2018
Year ended
31 March 2019
CEO single figure of remuneration (£’000)
Annual incentive payout (as % of maximum)
739.9
100%
412.8
0%
845.8
83%
434.4
0%
Long-term incentives (as % of maximum)
Not applicable
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 2019
£’000
Year ended
31 March 2018
£’000
Increase/
(decrease)
Average
increase across
all employees
431.1
3.3
—
420.2
3.3
422.3
2.5%
0%
(100%)
(2.1%)
4.1%
(85.5%)
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 2018 and 31 March 2019.
m
£
60
50
40
30
20
10
0
Employee remuneration
Distribution to shareholders
2018
2019
m
£
60
50
40
30
20
10
0
76
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued
Annual Report on Remuneration continued
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.
Board changes
Departure of Grant Foley
As announced on 3 April 2019, Grant Foley, Chief Operating and Financial Officer, informed the Board of his intention to leave CMC
to pursue other opportunities. No termination payments have been or will be made.
Grant will continue to receive fixed pay on a monthly basis during his limited period of employment and will not be eligible for
a Combined Incentive Plan award in respect of 2018/19 or 2019/20. In accordance with the rules of the Management Equity Plan,
Grant will be considered a Bad Leaver and accordingly all unvested LTIP awards lapsed on 2 April 2019.
Appointment of Matthew Lewis
Consistent with the April 2019 announcement, Matthew Lewis will join the Company Board subject to FCA approval.
Non-Executive Director remuneration
Remuneration for the year ending 31 March 2019 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 2019 and received no fees in relation to these appointments.
Single total figure of Non-Executive Director remuneration (audited)
The table below sets out the single total figure of the remuneration received by each Non-Executive Director who served during the
year ended 31 March 2019 and 31 March 2018.
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 and Senior Independent Director.
Name
James Richards
Paul Wainscott
Clare Salmon
Sarah Ing
Year ended
31 March
Base fee
£’000
Committee fee
£’000
SID fee
£’000
Benefits 1
£’000
2019
2018
2019
2018
2019
2018
2019
2018
160.0
85.0
60.0
26.6
60.0
30.0
60.0
32.8
—
7.5
10.0
4.4
10.0
5.0
10.0
5.4
—
—
5.0
2.2
—
—
—
—
—
—
2.5
—
—
—
—
—
Total 2
£’000
160.0
92.5
77.5
33.2
70.0
35.0
70.0
38.2
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.
77
Corporate governanceAnnual Report and Financial Statements 2019 Annual Report on Remuneration continued
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 Markets’ shareholding guidelines are achieved.
Name
James Richards
Paul Wainscott
Clare Salmon
Sara Ing
Ordinary Shares
held at
31 March 2018
Ordinary Shares
held at
31 March 2019
—
—
—
—
—
—
13,051
—
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
£65,000. The Committee is comfortable that the advice it has received has been objective and independent.
Voting outcome for 2017/18 Remuneration Report at AGM
The Company AGM was held on 26 July 2018, where a revised Directors Remuneration Policy together with the Combined Incentive
Plan was tabled. The Board recognised that a significant minority of shareholders voted against the Remuneration Policy and the
Remuneration Committee have taken this into account in considering the outcome under the Combined Incentive Plan for the year
ending 31 March 2019.
The result of the vote on these resolutions is set out below.
Remuneration Policy
(at 2018 AGM when the current
policy was approved)
% of votes
(excluding
withheld)
78.03
21.97
Number
of votes
201,826,156
56,839,473
258,665,629
1,979
Remuneration report
Combined Incentive Plan
% of votes
(excluding
% of votes
(excluding
withheld) Number of votes
withheld) Number of votes
84.46
15.54
218,457,117
40,208,512
258,665,629
1,979
83.49
16.51
215,970,122
42,695,292
258,665,414
2,194
For
Against
Total votes cast
Withheld1
1 A vote withheld is not a vote in law and so is not counted for the purposes of the calculation of the proportion of votes “for” and “against” a resolution.
78
CMC Markets plcCorporate governanceDIRECTORS’ REMUNERATION REPORT continued 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 Stockbroking Ltd
ASIC and Australia Stock Exchange (“ASX”)
CMC Markets Stockbroking Services Pty Ltd
ASIC and Australia Stock Exchange (“ASX”)
CMC Markets Canada Inc
(operating as Marchés CMC Canada in Quebec)
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”)
79
Corporate governanceAnnual Report and Financial Statements 2019 DIRECTORS’ REPORT
The Corporate governance report can be found on pages 48 to 53 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 36 to 43 and financial risks described in note 28 to the Financial Statements.
Viability statement
In accordance with Provision C.2.2 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 2 to 43).
• The Group’s business model: market conditions and regulatory change in the UK and Europe during the financial year have tested the
business model. During the period the Group’s risk management has been optimised and strategic initiatives have been refined. On this
basis the Group continues to believe that it will continue 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 16 to 17) 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 2019.
• 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 36 to 43) 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 further 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.
80
CMC Markets plcCorporate governance Directors
All Directors with the exception of Grant Foley will seek re-election at the 2019 AGM on 25 July 2019. 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 75 and other directorships are disclosed on pages 46 to 47.
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
Paul Wainscott
Senior Independent Director
Peter Cruddas
Chief Executive Officer
David Fineberg
Deputy Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer – resigned 2019
Sarah Ing
Non-Executive Director
Clare Salmon
Non-Executive Director
Directors’ indemnities
As permitted by the articles of association, the Directors have the benefit of an indemnity which is a qualifying third-party indemnity
provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is
currently in force.
The Company also maintains appropriate insurance to cover Directors’ and Officers’ liability, which is assessed annually and approved
by the Board. No amount was paid under the Directors’ and Officers’ liability insurance during the year.
Strategic report
The Companies Act 2006 requires the Group to prepare a Strategic report, which commences at the start of this Annual Report and
Financial Statements up to page 43. 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 126. 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 5 June 2019, the Board recommended a final dividend of 0.68 pence per Ordinary Share in respect of the full financial year ended
31 March 2019, subject to shareholder approval at the 2019 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 2019,
there were 289,091,700 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.
81
Annual Report and Financial Statements 2019Corporate governance DIRECTORS’ REPORT continued
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,
entitle 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
2018 AGM.
Shareholders will be asked to renew these authorities in line with the latest institutional shareholder guidelines at the 2019 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 risk management
Likely future developments
Directors’ interests
Related party transactions
Location in Annual Report
Page 28
Page 79
Note 29, Pages 135 to 137
Note 28, Pages 128 to 135
Pages 16 to 17
Page 75
Note 31, Page 138
82
CMC Markets plcCorporate governance Disclosure table pursuant to Listing Rule LR 9.8.4C
Listing Rule
Information to be included
Interest capitalised by Group.
Unaudited financial information (LR 9.2.18R).
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 9.4.3R).
Details can be found on page 74 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 82 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 2019, 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 2019
Peter Andrew Cruddas
Schroder Investment Mgt
J O Hambro Capital Management
Aberforth Partners
Fiona Jane Cruddas
Ordinary Shares held
% of
voting rights
165,155,374
17,666,972
15,088,282
9,505,910
8,994,364
57.13
6.11
5.22
3.29
3.11
In the period from 31 March 2019 to the date of this report, the Company has received notification from Schroders plc (Schroder
Investment Mgt) indicating that it is holding 14,523,336 Ordinary Shares representing 5.024% of the total voting rights attached to the
issued share capital.
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 stockbroking implementation. During the year development
expenditure amounting to £2.7 million has been capitalised (2018: £2.9 million).
83
Annual Report and Financial Statements 2019Corporate governance DIRECTORS’ REPORT continued
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”) and the Department for Business, Energy & Industrial Strategy (“BEIS”).
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 2019. During the year despite the move to a materially larger office in Sydney, emissions have reduced. However, the
intensity ratio has increased due to a fall in net operating income.
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.
In addition, we have well-established waste management initiatives in place to effectively reduce our carbon footprint, including
management and reduction of waste, which have been implemented across the organisation. During the year we have introduced
reusable cups for all employees in the UK and Australian offices. This will eliminate our annual paper cup consumption by approximately
250,000 per year and we will be rolling out reusable cups across the remainder of the Group. In addition, we recycle all paper, cardboard
waste, aluminium cans and plastics and also operate a managed print solution to help control paper usage. We use a registered waste
disposal contractor for their strict compliance with relevant waste legislation.
Basis of preparation
Greenhouse gas emissions are calculated in alignment with records used for the production of the consolidated Financial Statements
for the relevant accounting period. We have used emission factors from BEIS’s “Greenhouse gas reporting: conversion factors 2018” to
calculate our Scope 1 emissions and have determined the Scope 2 electricity impacts for electricity from the International Energy
Agency (“IEA”) emission factors. 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. 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
Unit
Year ended
31 March 2019
Year ended
31 March 2018
Year ended
31 March 2015
(Base year)
tCO₂e
104.8
104.9
108.4
tCO₂e
tCO₂e
£m
1,587.8
1,692.5
130.7
12.9
1,701.2
1,806.1
187.1
9.7
3,452.0
3,560.4
143.6
24.8
GROUP
Scope 1
Gas consumption
Scope 2
Electricity consumption
Total global emissions
Net operating income
Intensity ratio (total global emissions/net operating income)
tCO₂e/£m
84
CMC Markets plcCorporate governance Total emissions (tCO2e)
Year ended 31 March 2019
Total emissions (tCO2e)
Year ended 31 March 2018
Gas
6%
Electricity
94%
Gas
6%
Electricity
94%
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 2019 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 2019 AGM is to be held at 133 Houndsditch, London EC3A 7BX, at 10.00 am on Thursday 25 July 2019.
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.
85
Annual Report and Financial Statements 2019Corporate governance DIRECTORS’ REPORT continued
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic report, the 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.
86
CMC Markets plcCorporate governance 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 5 June 2019.
By order of the Board
Jonathan Bradshaw
Company Secretary
5 June 2019
CMC Markets plc
Registered number: 05145017
87
Corporate governanceAnnual Report and Financial Statements 2019 A diversified
platform
offering
CMC Markets continues to invest in its
Next Generation CFD and spread bet trading
platform and stockbroking Pro and standard platform.
The CFD and spread bet platform offers around 10,000 products and
recent updates include new watchlist views, enhanced charting and
a multi-interval chart feature. The stockbroking platform has gone
through a large number of enhancements during the year as part of
the investment in the ANZ Bank white label stockbroking partnership,
which include international share trading, an expanded online options
product and our first white label mobile app.
88
CMC Markets plcCorporate governance CMC’s CFD and
stockbroking platforms are
available across desktop,
tablet and mobile apps,
offering clients flexibility
in how they access the
financial markets.
89
Annual Report and Financial Statements 2019Corporate governance INDEPENDENT AUDITORS’ REPORT
To the members of CMC Markets plc and its subsidiaries (collectively the “Group”)
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 2019 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 International Financial Reporting Standards (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 2019; the Consolidated Income
Statement and Consolidated Statement of Comprehensive Income, the Consolidated and parent company Statements of Cash Flows,
and 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 includes 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 2018 to 31 March 2019.
Our audit approach
Overview
Materiality
• Overall Group materiality: £1.65m (2018: £3.0m), based on 1% of revenue.
• Overall parent company materiality: £1.5m (2018: £2.5m), based on 1% 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.
• We determined the appropriate work to perform based on the consolidated balances of the Group. The majority of
the audit work was performed by the Group audit team in London. Given the heightened risk around the implementation
of the ANZ Bank white label stockbroking partnership, a full scope audit was also performed by PwC Australia on the
following three entities which we have scoped in as significant components: CMC Markets Stockbroking Ltd, CMC Markets
Group Australia Pty Ltd, and CMC Markets Asia Pacific Pty Ltd.
• Accounts comprising 99% of consolidated net operating income, 86% of consolidated operating profit and 93% of
consolidated profit before tax fell within the scope of our audit procedures. Balances within the scope of our audit
contribute 87% to Group total assets.
Parent:
• The parent company balance sheet consists of investment in subsidiaries, receivables, payables and cash. The audit
work thereon was performed by the Group audit team in London.
Key audit
matters
• Recoverability of deferred tax assets (Group).
• The appropriateness of management’s judgements regarding going concern (Group).
• The implementation of the ANZ Bank white label stockbroking partnership (Group).
• Measurement of investment in subsidiaries (parent).
90
CMC Markets plc
Financial statements 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.
Capability of the audit in detecting irregularities, including fraud
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
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.
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
Recoverability of deferred tax assets – Group
The recognition of deferred tax assets is complex and often subjective.
There are substantial historic tax losses in Australia giving rise to a
material deferred tax asset. The extent of recognition of this asset
depends on a judgement surrounding forecast profitability. These
forecasts include future profits from the implementation of the ANZ
Bank white label stockbroking partnership, which are highly judgemental.
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 rates used to forecast revenue and
costs, comparing it to growth rates used for budgeting and
historic growth rates. We also considered the impact of the
implementation of the ANZ Bank white label stockbroking
partnership on the stockbroking business in Australia;
• assessing the accuracy of forecasting processes by
comparing the forecast profit for the current year (from
the prior year forecast) to actual 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 have also agreed the tax rate used to calculate the
deferred tax asset to the substantively enacted rate, and tested
the mathematical accuracy of the forecast and 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.
Annual Report and Financial Statements 2019
91
Financial statements 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
The appropriateness of management’s judgements regarding going
concern – Group
The implementation of the new ESMA regulations and challenging
market conditions during the year have had a significant impact on
the Group’s financial performance.
To address the risk associated with the appropriateness of
management’s judgements regarding going concern, we have
reviewed management’s going concern assessment for the Group,
covering a period of twelve months following approval of the
financial statements. We have performed the following procedures:
While the implementation of the ANZ Bank white label stockbroking
partnership has the impact of diversifying the revenue base and
hence mitigating, to a degree, the risk of volatility in revenue streams,
the deterioration in trading results this year has caused an increased
focus on the going concern status of the Group.
• We have tested the base case monthly EBITDA forecast
performed by management by examining the underlying
revenue and cost forecasts. We tested the growth rates used,
taking into account future industry wide factors which could
impact the business and underlying assumptions used by
management in their forecasts.
• We also assessed the accuracy of forecasting processes
by comparing the forecast profits for the current year and
previous years to actual profits earned in those years.
• We have also tested the liquidity forecast which supports
management’s going concern assessment.
• We have evaluated the stress testing scenarios applied by
management by considering the key assumptions used in
their analyses and whether they appear reasonable.
• We have further challenged the severity of the stress testing
scenarios by comparing against industry wide factors impacting
the business and assessing whether management has taken
account of further potential downsides to the business.
• We have also considered the Group’s Individual Liquidity
Adequacy Assessment and management’s Contingent Funding
Plan which outlines management’s short and long term action
plan should minimum liquidity requirements be breached.
As a result of these procedures, we agreed that it was
appropriate to prepare the Financial Statements on a going
concern basis
The implementation of the ANZ Bank white label stockbroking
partnership – Group
The volume of stockbroking transactions being handled by CMC
Australia has increased significantly following implementation of the
ANZ Bank white label stockbroking partnership.
Additionally, local management has had to deal with an increased
level of complexity in the daily operational management of the
business. As a result, there is a heightened risk of weaknesses and
breakdown in internal control, which could in turn increases the risk
of material misstatements in the financial statements.
To address the risk to the control environment associated with
the implementation of the ANZ Bank white label stockbroking
partnership, we have performed the following procedures:
• We performed detailed end-to-end walkthroughs of the
stockbroking business processes to assess the design
effectiveness of key controls identified.
• We also recalculated the revenue accrued for a sample of
stockbroking transactions based on the terms agreed in the
revenue sharing agreement with ANZ.
Based on the procedures performed, we did not identify
any significant deterioration in the control environment as
a result of the implementation of the ANZ Bank white label
stockbroking partnership.
92
CMC Markets plc
Financial statements 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
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.
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.
How we tailored the audit scope
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 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 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 UK
Holdings Ltd, CMC Spreadbet plc and CMC Markets Overseas Holdings Ltd 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. Given the heightened risk around the implementation of the ANZ Bank white label stockbroking partnership and increased
share of stockbroking revenue, a full scope audit was also performed by PwC Australia on the following legal entities: CMC Markets
Stockbroking Ltd, CMC Markets Group Australia Pty Ltd and CMC Markets Asia Pacific Pty Ltd.
Annual Report and Financial Statements 2019
93
Financial statements INDEPENDENT AUDITORS’ REPORT continued
To the members of CMC Markets plc
Report on the audit of the Financial Statements continued
Our audit approach continued
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
£1.65m (2018: £3.0m)
£1.5m (2018: £1.65m)
How we determined it
1% of revenue
1% of net assets
Rationale for benchmark applied
We have used net assets as the materiality
benchmark as the parent company of the
Group primarily holds investments in its
underlying subsidiaries. This is consistent
with the benchmark used in the prior year.
Given the significant reduction in the Group’s
profits compared to the prior year, we considered
materiality in different ways, including:
• the methodology we used in the prior year,
namely 5% of profit before tax. This would have
resulted in an indicative overall materiality of
£315k; and
• our standard benchmark of 1% applied to total
revenue. This would result in an overall
materiality of £1.65m.
In our professional judgement, we concluded that
the operational gearing of the Group, with a high
level of costs fixed in the short term, means that
reported profits are highly sensitive to movements
in trading volumes. Consequently, we have
re-assessed our benchmark for materiality and
concluded that revenue, which is driven by the
volume of trading, is a better indicator of the
‘size’ of the business and is, therefore, a better
benchmark to determine materiality levels.
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 £33k and £1.5 million.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £82,500 (Group
audit) (2018: £150,000) and £75,000 (parent company audit) (2018: £82,500) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
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 a
going concern 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, in
addition to the key audit matter around the appropriateness of
management’s judgements regarding going concern. 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 a going concern. For example, the terms on
which the United Kingdom may withdraw from the European Union
are not clear, and it is difficult to evaluate all of the potential
implications on the Group’s trade, customers, suppliers and
the wider economy.
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.
94
CMC Markets plc
Financial statements Report on the audit of the Financial Statements continued
Our audit approach continued
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 2019 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)
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 37 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 80 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 87, 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 55 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)
Annual Report and Financial Statements 2019
95
Financial statements INDEPENDENT AUDITORS’ REPORT continued
To the members of CMC Markets plc
Report on the audit of the Financial Statements continued
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 86, 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 ten years,
covering the years ended 31 March 2010 to 31 March 2019.
Gilly Lord (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
5 June 2019
96
CMC Markets plc
Financial statements CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2019
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 2019
£’000
Year ended
31 March 2018
£’000
Note
162,569
3,444
166,013
(35,184)
130,829
(123,058)
7,771
(1,442)
6,329
(451)
5,878
2.0p
2.0p
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
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.
Annual Report and Financial Statements 2019
97
Financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
GROUP
Profit for the year
Other comprehensive (expense)/income:
Items that may be subsequently reclassified to income statement
(Loss)/gain on net investment hedges
Currency translation differences
Changes in the fair value of debt instruments at fair value through other
comprehensive income
Change in value of available-for-sale financial assets
Other comprehensive expense for the year
Total comprehensive income for the year attributable to owners of the parent
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
Note
5,878
49,685
25
25
25
25
(499)
38
84
—
(377)
5,501
1,755
(3,093)
—
(58)
(1,396)
48,289
98
CMC Markets plc
Financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 March 2019
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
Current tax recoverable
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 2019
£’000
31 March 2018
£’000
12
13
14
18
16
16
17
18
19
20
17
21
22
20
21
14
22
23
23
24
25
4,961
18,105
11,649
11,332
2,693
48,740
117,991
2,885
3,384
10,747
88,035
48,729
4,365
20,685
8,802
10,822
2,237
46,911
47,940
7,335
—
10,330
156,887
60,468
271,771
282,960
320,511
329,871
100,572
4,303
1,088
—
246
91,696
3,922
1,274
2,347
145
106,209
99,384
4,810
1,247
1,155
2,010
9,222
5,389
2,346
682
2,040
10,457
115,431
109,841
72,892
46,236
(604)
(49,829)
136,385
72,872
46,236
(567)
(49,452)
150,941
205,080
220,030
320,511
329,871
The Financial Statements on pages 97 to 139 were approved by the Board of Directors on 5 June 2019 and signed on its behalf by:
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
Annual Report and Financial Statements 2019
99
Financial statements
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
At 31 March 2019
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
Non-current liabilities
Borrowings
Total non-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 2019
£’000
31 March 2018
£’000
15
167,347
182,127
181,462
16
19
20
21
167,347
14,642
138
14,780
69
69
15,550
15,550
15,619
23
23
72,892
46,236
47,119
20,558
(20,297)
47,380
166,737
166,737
14,445
280
14,725
15,235
15,235
—
—
15,235
72,872
46,236
29,006
42,064
(23,951)
47,119
166,508
166,227
182,127
181,462
The Financial Statements on pages 97 to 139 were approved by the Board of Directors on 5 June 2019 and signed on its behalf by:
Peter Cruddas
Chief Executive Officer
Grant Foley
Chief Operating and Financial Officer
100
CMC Markets plc
Financial statements
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
For the year ended 31 March 2019
GROUP
At 1 April 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
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 2019
Share
capital
£’000
72,646
226
—
—
—
—
—
—
Share
premium
£’000
46,236
Own shares
held in trust
£’000
Other
reserves
£’000
(466)
(48,056)
—
—
—
—
—
—
—
—
—
(104)
3
—
—
—
—
(1,396)
—
—
—
—
—
Retained
earnings
£’000
125,413
—
49,685
—
—
1,505
57
Total
equity
£’000
195,773
226
48,289
(104)
3
1,505
57
(25,719)
(25,719)
72,872
46,236
(567)
(49,452)
150,941
220,030
20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(130)
93
—
—
—
—
(377)
—
—
—
—
—
—
5,878
—
—
715
(57)
20
5,501
(130)
93
715
(57)
(21,092)
(21,092)
72,892
46,236
(604)
(49,829)
136,385
205,080
Total equity is attributable to owners of the Company
COMPANY
At 1 April 2017
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2018
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2019
Share capital
£’000
Share premium
£’000
Retained earnings
£’000
Total equity
£’000
46,236
29,006
72,646
226
—
—
—
—
—
—
—
72,872
46,236
20
—
—
—
—
—
—
—
—
42,064
1,773
(25,724)
47,119
—
20,558
798
(21,095)
147,888
226
42,064
1,773
(25,724)
166,227
20
20,558
798
(21,095)
72,892
46,236
47,380
166,508
Annual Report and Financial Statements 2019
101
Financial statements
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CASH FLOWS
For the year ended 31 March 2019
GROUP
COMPANY
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
Cash flows from operating activities
Cash generated from/(used in) operations
Interest income
Tax paid
Note
26
24,036
3,444
(7,590)
64,242
2,114
(13,787)
Net cash generated from/(used in) operating activities
19,890
52,569
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Investment in intangible assets
Purchase of financial investments
Proceeds from maturity of financial investments
and coupon receipts
(Outflow)/inflow on net investment hedges
Net contribution from subsidiaries
Dividends received
(3,804)
—
(2,907)
(11,353)
10,613
(341)
—
—
(8,640)
42
(3,518)
(21,426)
20,512
2,206
—
—
Net cash (used in)/generated from investing activities
(7,792)
(10,824)
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
(110,785)
109,500
—
(110)
(21,092)
(1,442)
(171,686)
170,778
42
(104)
(25,719)
(1,173)
(252)
267
—
15
—
—
—
—
—
—
188
21,090
21,278
—
—
20
—
(3,859)
253
—
(3,606)
—
—
—
—
—
—
3,942
25,695
29,637
—
—
226
—
(21,095)
(360)
(25,724)
(402)
Net cash used in financing activities
(23,929)
(27,862)
(21,435)
(25,900)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
(11,831)
60,468
92
13,883
48,952
(2,367)
Cash and cash equivalents at the end of the year
48,729
60,468
(142)
280
—
138
131
149
—
280
102
CMC Markets plc
Financial statements
NOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
1. General information and basis of preparation
Corporate information
CMC Markets plc (the “Company”) is a public company incorporated in the United Kingdom and domiciled in England and Wales under
the Companies Act 2006. The nature of the operations and principal activities of 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 (“FVPL”)” and “Financial instruments at fair value through other
comprehensive income (“FVOCI”)”. 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
ended 31 March 2019 and 31 March 2018. Financial annual years are referred to as 2019 and 2018 in the Financial Statements.
Changes in accounting policy and disclosures
Application of new and revised accounting standards
A number of new or amended standards became applicable for the current reporting period and the Group changed its accounting
policies as a result of adopting:
•
IFRS 15 ‘Revenue from Contracts with Customers’
The adoption of IFRS 15 had no impact on the Group, as the way that the Group’s revenue from contracts with customers was
recognised under the previous accounting standard, IAS 18, satisfies the requirements of IFRS 15 with no changes required.
•
IFRS 9 ‘Financial Instruments’
IFRS 9 incorporates:
- new classification and measurement requirements for financial assets and liabilities;
-
the introduction of an expected credit loss impairment model;
- new hedge accounting requirements; and
- enhanced disclosures in the financial statements.
The Group adopted IFRS 9 on 1 April 2018. As a result:
- certain financial assets and liabilities were reclassified in the statement of financial position; and
-
the provisioning methodology for financial assets not held at fair value through profit and loss changed from an incurred loss to an
expected loss basis.
Financial assets and liabilities reclassifications
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Loans and receivables
Assets at amortised cost
Available for sale
Assets at FVOCI
Loans and receivables
Assets at amortised cost
Derivative financial instruments – net investment hedges
Derivatives held for hedging
Assets at FVOCI
Trade and other receivables
Loans and receivables
Assets at amortised cost
Financial liabilities
Derivative financial instruments – net investment hedges
Derivatives held for hedging
Liabilities at FVOCI
Annual Report and Financial Statements 2019
103
Financial statements
1. General information and basis of preparation continued
Financial assets and liabilities reclassifications continued
The derivative financial instruments designated as net investment hedges under IAS 39 at 31 March 2018 continue to qualify for hedge
accounting under IFRS 9 at 1 April 2018 and are therefore treated as continuing hedges.
There were no differences between previous carrying amounts and consequently no adjustment has been made to opening
retained earnings.
The accounting policies for financial assets and financial liabilities have been amended to reflect the classification requirements of IFRS 9.
However, upon transition to IFRS 9 there was no change to the underlying accounting treatment.
Impairment
Trade receivables do not contain a significant financing element and therefore expected credit losses are measured using the simplified
approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the initial recognition of the receivables.
The expected loss model for these trade receivables has been built based on the levels of loss experienced, with due consideration given
to forward-looking information. Upon transition to IFRS 9, the provision determined under the expected credit loss model was consistent
with the provision recognised under IAS 39 and, as such, no adjustment was made to the opening statement of financial position.
While cash and cash equivalents, amounts due from brokers and other receivables are also subject to the impairment requirements
of IFRS 9, the identified impairment loss was immaterial.
Thus, transition to IFRS 9 had no impact on the statement of financial position or the income statement.
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 16 ‘Leases’ is effective 1 April 2019 for the Group, replacing IAS 17 ‘Leases’. Whilst lessor accounting is similar to IAS 17, lessee
accounting is significantly different. Under IFRS 16, the Group will recognise within the balance sheet a right-of-use asset and a lease
liability for future lease payments in respect of all leases, unless the underlying assets are of low value or the lease term is 12 months
or less. Within the income statement, operating lease expense on the impacted leases will be replaced with depreciation on the
right-of-use asset and interest expense on the lease liability.
The Group will apply IFRS 16 on a modified retrospective basis without restating prior years and electing for the following
exemptions on transition at 1 April 2019. The Group will:
- apply IFRS 16 to contracts previously identified as leases by IAS 17;
- use the incremental borrowing rate as the discount rate; and
- not apply IFRS 16 to operating leases with a remaining lease term of less than 12 months or low value leases.
The opening balance sheet at 1 April 2019 will be adjusted to create a right of use asset of approximately £15,152,000. A lease liability
will be recognised of £22,811,000. A lease receivable will be recognised of £1,310,000 in respect of office properties that have been
sub-let. Retained earnings will increase by £272,000.
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.
104
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019
1. General information and basis of preparation continued
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”), financial spread betting and stockbroking services.
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.
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 are 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.
Annual Report and Financial Statements 2019
105
Financial statements 2. Summary of significant accounting policies continued
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.
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.
106
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 or life of lease
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.
Premises in the course of construction are carried at cost, less any recognised impairment loss. Depreciation of these assets,
determined on the same basis as other leasehold assets, commences when the assets are ready for their intended use.
Annual Report and Financial Statements 2019
107
Financial statements 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 instruments
Classification
From 1 April 2018, the Group classifies its financial assets in the following measurement categories:
• those to be measured subsequently at fair value (either through other comprehensive income (“OCI”), or through profit or loss); and
• those to be measured at amortised cost.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not measured at fair value
through profit or loss or fair value through other comprehensive income, transaction costs that are directly attributable to the acquisition
of the financial asset.
The Group subsequently measures cash and cash equivalents, amounts due from brokers and trade and other receivables at amortised
cost. The Group subsequently measures derivative financial instruments and financial investments at fair value.
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.
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”.
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.
Trade receivables do not contain a significant financing element and therefore expected credit losses are measured using the simplified
approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the initial recognition of the receivables.
The expected loss model for these trade receivables has been built based on the levels of loss experienced, with due consideration
given to forward-looking information.
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 uncollectable, 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.
Financial investments
Financial investments are subsequently measured at fair value. Interest income is calculated using the effective interest method. Other
net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
108
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 2. Summary of significant accounting policies continued
Derivative financial instruments
Derivative 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 IFRS 9, 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 the 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 IFRS 9, no hedge accounting is applied and any gain or loss resulting from changes in fair value of the hedging instrument is
recognised in operating costs in the income statement.
Trade 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.
Provisions
A provision is a liability of uncertain timing or amount that is recognised when the Group has a present obligation (legal or constructive)
as a result of a past event where it is probable that the Group will be required to settle that obligation. Provisions are measured at the
Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present
value where the effect is material. The increase in the provision due to the unwind of the discount to present value over time is recognised
as an interest expense.
Share capital
Ordinary and Deferred Shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Own shares held in trusts
Shares held in trust by the Company for the purposes of employee share schemes are classified as a deduction from shareholders’
equity and are recognised at cost. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation
of equity shares.
Annual Report and Financial Statements 2019
109
Financial statements 2. Summary of significant accounting policies continued
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, is included in equity attributable to the Company’s equity owners.
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.
3. Segmental reporting
The Group’s principal business is online retail financial services including stockbroking and providing 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 business is generally managed on a
geographical basis and, for management purposes, the Group is organised into four segments:
• CFD and Spreadbet – UK and Ireland (“UK & IE”);
• CFD – Europe;
• CFD – Australia, New Zealand and Singapore (“APAC”) and Canada; and
• Stockbroking – Australia.
Stockbroking was previously reported within the APAC & Canada segment, however is now presented as an individual segment due to
the growing significance of the business to the Group’s performance. The comparative information for the year ended 31 March 2018
has been restated. 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, or where central costs are directly attributed to
specific segments.
Year ended 31 March 2019
CFD and Spreadbet
Stockbroking
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
UK & IE
£’000
Europe
£’000
48,170
1,558
49,728
(14,001)
35,727
(22,889)
12,838
(136)
(565)
27,090
1
27,091
(9,521)
(4,168)
(1)
(294)
Profit before taxation
12,137
(4,463)
APAC &
Canada
£’000
36,369
1,595
37,964
(13,599)
512
—
(446)
66
17,570
24,365
(21,738)
(23,853)
Australia
£’000
Central
£’000
Total
£’000
15,756
290
16,046
(4,875)
11,171
(12,582)
(1,411)
—
—
(1,411)
—
—
—
127,385
3,444
130,829
(81,062)
(123,058)
(81,062)
81,062
—
(1,305)
1,305
—
7,771
—
7,771
(1,442)
—
6,329
110
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 3. Segmental reporting continued
Year ended 31 March 2018
CFD and Spreadbet
Stockbroking
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
UK & IE
£’000
Europe
£’000
73,087
593
73,680
(16,001)
57,679
(25,603)
32,076
(62)
(484)
50,465
—
50,465
(9,840)
40,625
(26,734)
13,891
—
(320)
APAC
& Canada
£’000
52,906
1,359
54,265
(13,632)
40,633
(24,971)
15,662
—
(306)
Profit before taxation
31,530
13,571
15,356
Australia
£’000
Central
£’000
Total
£’000
8,528
162
8,690
(912)
7,778
(8,170)
(392)
(1)
—
(393)
—
—
—
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
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 and an allocation of central operating expenses.
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 2019
£’000
Year ended
31 March 2018
£’000
130,372
30,485
1,712
197,385
10,633
1,110
162,569
209,128
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
3,341
—
103
3,444
2,087
3
24
2,114
Annual Report and Financial Statements 2019
111
Financial statements 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.
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
51,659
20,017
16,320
7,312
4,612
2,925
7,325
13,122
123,292
(234)
57,936
16,949
20,558
6,224
4,027
2,951
6,810
10,645
126,100
(237)
123,058
125,863
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
41,293
5,494
1,465
817
49,069
5,068
54,137
(2,478)
51,659
46,106
6,677
1,354
3,003
57,140
3,475
60,615
(2,679)
57,936
Year ended
31 March 2019
Number
Year ended
31 March 2018
Number
7
343
146
149
645
36
681
7
278
133
148
566
26
592
112
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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
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 2019
£’000
Year ended
31 March 2018
£’000
1,336
106
1,442
1,020
153
1,173
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
5,989
1,336
160
3,948
1,165
5,628
1,182
(599)
2,794
1,105
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
350
487
837
263
—
65
328
1,165
324
397
721
328
38
18
384
1,105
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
2,069
(70)
1,999
(1,697)
136
13
(1,548)
10,769
201
10,970
(656)
(29)
94
(591)
451
10,379
Annual Report and Financial Statements 2019
113
Financial statements 9. Taxation continued
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 7.13% (year ended 31 March 2018: 17.28%) differs from the standard rate
of UK corporation tax of 19% (year ended 31 March 2018: 19%). 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 2018: 19%)
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 (charge)/credit on share-based payments
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
6,329
1,203
54
66
13
290
(9)
—
(1,594)
428
451
60,064
11,412
591
172
94
180
34
357
(2,262)
(199)
10,379
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
(57)
57
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 2019.
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 2019
Year ended
31 March 2018
5,878
49,685
288,353
3,184
287,556
2,629
Weighted average number of shares used in the calculation of diluted earnings per share (’000)
291,537
290,185
Basic earnings per share (p)
Diluted earnings per share (p)
2.0p
2.0p
17.3p
17.1p
For the year ended 31 March 2019, 3,184,000 (year ended 31 March 2018: 2,629,000) 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 2018 at 5.95p per share (2017: 5.95p)
Interim dividend for 2019 at 1.35p per share (2018: 2.98p)
Total
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
17,191
3,901
21,092
17,137
8,582
25,719
The final dividend for 2019 of 0.68 pence per share, amounting to £1,966,000, was proposed by the Board on 5 June 2019 and has not
been included as a liability at 31 March 2019. The dividend will be paid on 6 September 2019, following approval at the Company’s AGM,
to those members on the register at the close of business on 2 August 2019.
114
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 11. Dividends continued
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
12. Intangible assets
GROUP
Cost
At 1 April 2017
Additions
Transfers
Foreign currency translation
At 31 March 2018
Additions
Transfers
Research and development grant
Foreign currency translation
1.35
0.68
2.03
Goodwill
£’000
Computer
software
£’000
Trademarks and
trading licences
£’000
Client
relationships
£’000
Assets under
development
£’000
11,500
120,028
1,455
3,303
—
—
—
11,500
—
—
—
—
602
273
(2,186)
118,717
130
5,239
(871)
(205)
—
—
(50)
—
—
(324)
1,405
2,979
55
—
—
(12)
—
—
—
(20)
At 31 March 2019
11,500
123,010
1,448
2,959
Accumulated amortisation
At 1 April 2017
Charge for the year
Foreign currency translation
At 31 March 2018
Charge for the year
Disposals
Foreign currency translation
At 31 March 2019
Carrying amount
At 1 April 2017
At 31 March 2018
At 31 March 2019
(11,500)
(118,377)
—
—
(11,500)
—
—
—
(1,132)
2,185
(117,324)
(1,284)
1
139
(991)
(50)
47
(994)
(52)
—
8
(3,303)
—
324
(2,979)
—
—
20
(11,500)
(118,468)
(1,038)
(2,959)
—
—
—
1,651
1,393
4,542
464
411
410
—
—
—
Year ended
31 March 2019
Pence
Year ended
31 March 2018
Pence
2.98
5.95
8.93
Total
£’000
136,286
3,518
—
(2,642)
137,162
2,907
—
(871)
(272)
138,926
(134,171)
(1,182)
2,556
(132,797)
(1,336)
1
167
(133,965)
2,115
4,365
4,961
—
2,916
(273)
(82)
2,561
2,722
(5,239)
—
(35)
9
—
—
—
—
—
—
—
—
—
2,561
9
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 2019 (year ended 31 March 2018: £nil).
At 31 March 2019, the Group had no material capital commitments in respect of intangible assets (at 31 March 2018: £2,200,000).
Annual Report and Financial Statements 2019
115
Financial statements 13. Property, plant and equipment
GROUP
Cost
At 1 April 2017
Additions
Disposals
Foreign currency translation
At 31 March 2018
Additions
Transfers
Disposals
Foreign currency translation
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
Disposals
Foreign currency translation
At 31 March 2018
Charge for the year
Disposals
Foreign currency translation
At 31 March 2019
Carrying amount
At 1 April 2017
At 31 March 2018
At 31 March 2019
Leasehold
improvements
£’000
Furniture,
fixtures and
equipment
£’000
Computer
hardware
£’000
Construction
in progress
£’000
16,460
10,207
1,924
(138)
(440)
17,806
1,363
2,576
(355)
(51)
573
(163)
(121)
10,496
293
673
(473)
(47)
32,433
2,834
(40)
(387)
34,840
2,148
—
(13)
(31)
21,339
10,942
36,944
(7,567)
(2,161)
138
205
(9,385)
(2,078)
2
37
(8,711)
(500)
120
84
(9,007)
(679)
474
36
(24,625)
(2,967)
15
253
(27,324)
(3,232)
13
23
(11,424)
(9,176)
(30,520)
8,893
8,421
9,915
1,496
1,489
1,766
7,808
7,516
6,424
Total
£’000
59,100
8,640
(341)
(998)
66,401
3,804
—
(841)
(139)
69,225
(40,903)
(5,628)
273
542
(45,716)
(5,989)
489
96
(51,120)
18,197
—
3,309
—
(50)
3,259
—
(3,249)
—
(10)
—
—
—
—
—
—
—
—
—
—
—
3,259
20,685
—
18,105
The net book value amount of property, plant and equipment on 31 March 2019 includes £1,763,000 (31 March 2018: £3,191,000)
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 2019
£’000
31 March 2018
£’000
6,651
4,998
11,649
(1)
(1,154)
(1,155)
10,494
4,634
4,168
8,802
(5)
(677)
(682)
8,120
116
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 to income for the year
(Charge)/credit to equity for the year
Change in tax rate
Research and development tax credit
Foreign currency translation
At 31 March
31 March 2019
£’000
31 March 2018
£’000
8,120
1,561
(57)
(13)
948
(65)
8,089
685
57
(94)
—
(617)
10,494
8,120
The following table details the deferred tax assets and liabilities recognised by the Group and movements thereon during the year:
GROUP
At 1 April 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
Credit to income for the year
Charge to equity for the year
Change in tax rate
Research and development tax credit
Foreign currency translation
At 31 March 2019
Tax losses
£’000
4,654
121
—
—
(475)
4,300
1,363
—
—
—
(74)
5,589
Accelerated
capital
allowances
£’000
Other timing
differences
£’000
2,067
(1,063)
—
(94)
56
966
162
—
(13)
—
—
1,115
1,368
1,627
57
—
(198)
2,854
36
(57)
—
948
9
Total
£’000
8,089
685
57
(94)
(617)
8,120
1,561
(57)
(13)
948
(65)
3,790
10,494
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 at 31 March 2019 the Group did not recognise deferred tax assets of £11,036,000 (year ended
31 March 2018: £12,922,000) in respect of losses amounting to £37,861,000 (year ended 31 March 2018: £43,513,000). In respect of these
losses, £36,818,000 (year ended 31 March 2018: £42,497,000) relates to the Group’s Australian subsidiaries and there are no time limits
on their utilisation. £1,043,000 (year ended 31 March 2018: £1,016,000) 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 £5,508,000 (year ended 31 March 2018: £4,268,000) in respect of losses of £18,363,000
(year ended 31 March 2018: £14,227,000) in the Group’s Australian subsidiaries as at 31 March 2019. The Group has recognised a deferred
tax asset of £81,000 (year ended 31 March 2018: £32,000) in respect of losses of £323,000 (year ended 31 March 2018: £172,000) in the
Group’s Information Internet Ltd subsidiary as at 31 March 2019.
A deferred tax asset of £948,000 (year ended 31 March 2018: £nil) has arisen for the Group in respect of Research and Development tax
credits arising in Australia which have not been used due to the existence of tax losses. The credits are expected to be utilised in future.
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.
Annual Report and Financial Statements 2019
117
Financial statements 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
The list below includes all of the Group’s direct and indirect subsidiaries as at 31 March 2019:
31 March 2019
£’000
31 March 2018
£’000
166,737
168,906
798
(337)
149
1,773
(4,234)
292
167,347
166,737
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 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
CMC Markets Germany GmbH
CMC Markets Middle East Management Ltd
Country of
incorporation
England
England
England
England
England
England
Australia
Australia
Australia
Australia
Australia
Australia
Canada
New Zealand
Singapore
China
Germany
UAE
Principal activities
Holding company
Holding company
Online trading
IT development
Financial spread betting
Holding company
Online trading
Holding company
Stockbroking
Employee services
Stockbroking nominee
Dormant
Client introducing office
Online trading
Online trading
Training and education
Dormant
Management office
Held
Directly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Please refer to page 144 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.
CMC Markets Pty Ltd was dissolved during the year ended 31 March 2019.
The list below includes all of the Group’s employee benefit trusts as at 31 March 2019:
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
118
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 2019
£’000
31 March 2018
£’000
31 March 2019
£’000
31 March 2018
£’000
8,185
(3,528)
4,657
—
12,391
82,510
18,433
117,991
2,693
120,684
7,455
(2,964)
4,491
—
8,065
19,386
15,998
47,940
2,237
50,177
—
—
—
870
162
—
13,610
14,642
—
—
—
505
237
—
13,703
14,445
—
—
14,642
14,445
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 deposited AUD 25,000,000 (£13,610,000) 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 2019
Notional
amount
£m
31 March 2019
Carrying
amount
£’000
31 March 2018
Notional
amount
£m
31 March 2018
Carrying
amount
£’000
87.6
98.4
16.8
—
627
1,902
356
—
202.8
2,885
98.6
270.2
19.9
—
388.7
3,275
3,218
842
—
7,335
31 March 2019
Notional
amount
£m
31 March 2019
Carrying
amount
£’000
31 March 2018
Notional
amount
£m
31 March 2018
Carrying
amount
£’000
94.5
149.6
25.0
21.8
(1,624)
(2,189)
(173)
(317)
120.6
415.8
2.2
23.6
(1,401)
(2,356)
(6)
(159)
290.9
(4,303)
562.2
(3,922)
The fair value of derivative contracts is based on the market price of comparable instruments at the balance sheet date. All derivative
financial instruments have a maturity date of less than one year.
Held for trading
As described in note 28, the Group enters derivative contracts in order to hedge its market price risk exposure arising from open
client positions.
Annual Report and Financial Statements 2019
119
Financial statements 17. Derivative financial instruments continued
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 2019, £48,000 of losses net of revaluation
gains or losses relating to economic hedges were recognised in the income statement (year ended 31 March 2018: gains £311,000).
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 2019, £7,383,000 (31 March 2018: £6,884,000) of fair value losses were recorded in net investment hedging reserve
within other reserves. At 31 March 2019, £5,331,000 (31 March 2018: £5,293,000) of fair value gains were recorded in translation reserve
within other reserves.
During the year ended 31 March 2019, £499,000 (year ended 31 March 2018: gains £1,755,000) of fair value losses relating to net investment
hedges were recognised in other comprehensive income. All changes in the fair value were treated as being effective under IFRS 9
‘Financial Instruments’; as a result there was no amount reclassified from the net investment hedging reserve or translation reserve into
the income statement.
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
Equity securities
At 1 April
Purchase of securities
At 31 March
Total
31 March 2019
£’000
31 March 2018
£’000
21,152
11,287
(10,613)
103
84
20,272
21,426
(20,512)
24
(58)
22,013
21,152
—
66
66
—
—
—
22,079
21,152
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 UK government securities held at the year end range from 0.68% to 1.93%.
GROUP
Analysis of financial investments
Non-current
Current
Total
31 March 2019
£’000
31 March 2018
£’000
11,332
10,747
22,079
10,822
10,330
21,152
Financial investments are shown as current assets when they have a maturity of less than one year and as non-current when they have
a maturity of more than one year.
120
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 2019
£’000
31 March 2018
£’000
31 March 2019
£’000
31 March 2018
£’000
381,139
365,271
(332,410)
(304,803)
48,729
60,468
48,729
—
60,468
—
138
—
138
138
—
280
—
280
280
—
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.
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
Deferred income
Total
GROUP
COMPANY
31 March 2019
£’000
31 March 2018
£’000
31 March 2019
£’000
31 March 2018
£’000
340,042
(332,410)
352,826
(304,803)
7,632
48,023
—
27
75,752
17,161
100,572
4,810
105,382
—
272
16,992
26,409
91,696
5,389
97,085
11
—
11
—
—
—
58
69
—
69
—
—
—
15,160
—
—
75
15,235
—
15,235
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).
21. Borrowings
Current
Finance lease liabilities
Other liabilities
Non-current
Finance lease liabilities
Other liabilities
Amount due to Group companies
Total
The fair value of financial liabilities is approximate to the book value shown above.
Annual Report and Financial Statements 2019
GROUP
COMPANY
31 March 2019
£’000
31 March 2018
£’000
31 March 2019
£’000
31 March 2018
£’000
663
425
1,088
952
295
—
1,247
2,335
839
435
1,274
1,615
731
—
2,346
3,620
—
—
—
—
—
15,550
15,550
15,550
—
—
—
—
—
—
—
—
121
Financial statements 21. Borrowings continued
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 2019
£’000
31 March 2018
£’000
702
975
—
1,677
(62)
1,615
904
1,677
—
2,581
(127)
2,454
31 March 2019
£’000
31 March 2018
£’000
663
952
—
1,615
839
1,615
—
2,454
31 March 2019
%
31 March 2018
%
2.93
3.21
Bank loans
In March 2019, the syndicated revolving credit facility was renewed at a level of £40,000,000 (31 March 2018: £65,000,000) where
£20,000,000 had a maturity date of March 2020 and £20,000,000 had a maturity date of March 2022. 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).
Analysis of net cash
GROUP
Cash and cash equivalents
Borrowings
Net cash
GROUP
At 1 April
(Decrease)/increase in cash and cash equivalents
Proceeds from borrowings
Repayment of borrowings
Change in net cash resulting from cash flows
Effect of foreign exchange rate changes
At 31 March
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
48,729
(2,335)
46,394
60,468
(3,620)
56,848
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
56,848
(11,831)
(109,500)
110,785
46,302
92
46,394
44,424
13,883
(170,778)
171,686
59,215
(2,367)
56,848
122
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 22. Provisions
GROUP
At 1 April 2017
Additional provision
Utilisation of provision
Currency translation
At 31 March 2018
Additional provision
Utilisation of provision
Currency translation
At 31 March 2019
EBT
commitments
£’000
Property
related
£’000
160
—
(15)
—
145
—
(14)
—
131
1,575
494
—
(29)
2,040
330
(354)
(6)
2,010
Other
£’000
208
—
(208)
—
—
114
—
1
115
Total
£’000
1,943
494
(223)
(29)
2,185
444
(368)
(5)
2,256
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 2019 relates to provision for client compensation.
GROUP
Analysis of total provisions
Current
Non-current
Total
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
31 March 2019
£’000
31 March 2018
£’000
246
2,010
2,256
145
2,040
2,185
Number
£’000
31 March 2019
31 March 2018
31 March 2019
31 March 2018
400,000,000 400,000,000
100,000
100,000
289,091,700 289,008,354
2,478,086
2,478,086
291,569,786
291,486,440
72,272
620
72,892
72,252
620
72,872
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 2017
New shares issued
At 31 March 2018
New shares issued
At 31 March 2019
Ordinary Shares
Number
Deferred Shares
Number
Total
Number
288,103,959
2,478,086
290,582,045
904,395
—
904,395
289,008,354
2,478,086
291,486,440
83,346
—
83,346
289,091,700
2,478,086
291,569,786
Annual Report and Financial Statements 2019
123
Financial statements 23. Share capital and premium continued
Share class rights continued
GROUP AND COMPANY
At 1 April 2017
New shares issued
At 31 March 2018
New shares issued
At 31 March 2019
Ordinary Shares
£’000
Deferred Shares
£’000
Share premium
£’000
72,026
226
72,252
20
72,272
620
—
620
—
620
46,236
—
46,236
—
46,236
Total
£’000
118,882
226
119,108
20
119,128
Movements in share capital and premium
During the year ended 31 March 2019, 83,346 (year ended 31 March 2018: 904,395) shares with nominal value of 25 pence were issued
to employee benefit trusts.
During the year ended 31 March 2019, 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 2018: nil).
24. Own shares held in trust
GROUP
Ordinary Shares of 25p
At 1 April 2017
Acquisition
Utilisation
At 31 March 2018
Acquisition
Utilisation
At 31 March 2019
Number
£’000
614,167
77,840
(18,637)
673,370
164,054
(329,831)
507,593
466
104
(3)
567
130
(93)
604
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 2017
Currency translation differences
Gains on net investment hedges
Losses on financial investments
At 31 March 2018
Reclassification
Currency translation differences
Losses on net investment hedges
Gains on financial investments
Translation
reserve
£’000
Net investment
hedging reserve
£’000
Available-for-sale
reserve
£’000
FVOCI
reserve
£’000
8,386
(3,093)
—
—
(8,639)
—
1,755
—
5,293
(6,884)
—
38
—
—
—
—
(499)
—
(3)
—
—
(58)
(61)
61
—
—
—
—
—
—
—
—
—
(61)
—
—
84
23
Merger
reserve
£’000
(47,800)
—
—
—
Total
£’000
(48,056)
(3,093)
1,755
(58)
(47,800)
(49,452)
—
—
—
—
—
38
(499)
84
(47,800)
(49,829)
At 31 March 2019
5,331
(7,383)
Translation reserve
The translation reserve is comprised of translation differences on foreign currency net investments held by the Group.
124
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 25. Other reserves continued
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 IFRS 9 ‘Financial Instruments’.
Available-for-sale reserve – until 31 March 2018
Changes in the fair value and exchange differences arising on translation of investments that were classified as available-for-sale financial
assets (such as debt investments) were recognised in OCI and accumulated in a separate reserve within other reserves. Amounts were
reclassified to profit or loss when the associated assets were sold or impaired.
FVOCI reserve
The Group has certain debt investments measured at FVOCI. For these investments, changes in fair value are accumulated within the
FVOCI reserve within other reserves. The accumulated changes in fair value are transferred to profit or loss when the investments are
derecognised or impaired.
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.
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
Decrease/(increase) in amounts due from brokers
Increase/(decrease) in trade and other payables
Increase/(decrease) in net derivative financial instruments
Increase in provisions
GROUP
COMPANY
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
6,329
60,064
20,558
42,064
(3,444)
—
1,442
5,989
1,336
(233)
179
800
(70,610)
68,852
8,297
4,673
426
(2,114)
—
1,173
5,628
1,182
(333)
357
1,773
(18,659)
(37,497)
57,666
(5,269)
271
(267)
(21,090)
750
(253)
(42,168)
402
—
—
—
—
—
(197)
—
(6)
—
—
—
—
—
—
—
(14,249)
—
10,345
—
—
Cash generated from/(used in) operations
24,036
64,242
(252)
(3,859)
The movement in trade and other receivables for the year ended 31 March 2019 also includes £310,000 (31 March 2018: £310,000)
of exceptional litigation income received during the year. This exceptional income was recognised in the year ended 31 March 2016.
Annual Report and Financial Statements 2019
125
Financial statements 27. Financial instruments
Analysis of financial instruments by category
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9 basis
at 31 March 2019 and on an IAS 39 basis at 31 March 2018.
GROUP
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables excluding
non-financial assets
Assets
at FVOCI
£’000
—
22,013
—
—
—
31 March 2019
Assets
at FVPL
£’000
Assets at
amortised cost
£’000
—
66
—
2,885
48,729
—
88,035
—
Total
£’000
48,729
22,079
88,035
2,885
—
108,777
108,777
22,013
2,951
245,541
270,505
31 March 2019
Liabilities
at FVOCI
£’000
Liabilities
at FVPL
£’000
Lliabilities at
amortised cost
£’000
Financial liabilities
Trade and other payables excluding non-financial liabilities
Derivative financial instruments
Borrowings excluding finance lease liabilities
Finance lease liabilities
—
(317)
—
—
(317)
—
(99,485)
(3,986)
—
—
—
(720)
(1,615)
(3,986)
(101,820)
(106,123)
GROUP
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables excluding
non-financial assets
31 March 2018
Available
for sale
£’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
42,112
259,467
287,954
Total
£’000
(99,485)
(4,303)
(720)
(1,615)
Total
£’000
60,468
21,152
156,887
7,335
Financial liabilities
Trade and other payables excluding non-financial liabilities
Derivative financial instruments
Borrowings excluding finance lease liabilities
Finance lease liabilities
31 March 2018
Liabilities
at FVPL
£’000
Derivatives held
for hedging
£’000
Financial
liabilities at
amortised cost
£’000
—
(3,763)
—
—
—
(159)
—
—
(90,419)
—
(1,166)
(2,454)
Total
£’000
(90,419)
(3,922)
(1,166)
(2,454)
(3,763)
(159)
(94,039)
(97,961)
126
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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
31 March 2019
On demand
£’000
Less than
three months
£’000
Three months
to one year
£’000
After
one year
£’000
48,729
—
88,035
—
91,290
228,054
(99,485)
—
—
—
—
66
—
2,885
945
3,896
—
(4,303)
(67)
(214)
(99,485)
(4,584)
—
10,260
—
—
13,849
24,109
—
—
(377)
(488)
(865)
Total
£’000
48,729
21,421
88,035
2,885
108,777
—
11,095
—
—
2,693
13,788
269,847
—
—
(301)
(975)
(99,485)
(4,303)
(745)
(1,677)
(1,276)
(106,210)
Net liquidity gap
128,569
(688)
23,244
12,512
163,637
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
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
—
9,950
—
—
14,203
24,153
—
—
(404)
(641)
(1,045)
23,108
—
10,500
—
—
2,237
12,737
—
—
(746)
(1,677)
(2,423)
10,314
Total
£’000
60,468
20,450
156,887
7,335
42,112
287,252
(90,419)
(3,922)
(1,222)
(2,581)
(98,144)
189,108
Annual Report and Financial Statements 2019
127
Financial statements 27. Financial instruments continued
Fair value estimation
The Group’s assets and liabilities that are measured at fair value are derivative financial instruments, financial investments in UK
government securities and Equity 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
22,013
—
—
22,013
Level 1
£’000
21,152
—
—
21,152
31 March 2019
Level 2
£’000
—
2,885
(4,303)
(1,418)
31 March 2018
Level 2
£’000
—
7,335
(3,922)
3,413
Level 3
£’000
66
—
—
66
Level 3
£’000
—
—
—
—
Total
£’000
22,079
2,885
(4,303)
20,661
Total
£’000
21,152
7,335
(3,922)
24,565
28. Financial risk management
The Group’s day-to-day business activities naturally expose it to strategic, financial (including credit, counterparty, 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 Risk Management Committee, which in turn reports to the Group Risk Committee.
The Group’s ICAAP review document is prepared under the requirements set out in the Financial Conduct Authority (“FCA”) Rulebook
in accordance with CRD IV1. A key purpose of an ICAAP review document 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 to hold against those risks.
This is achieved by considering potential stresses as well as mitigating factors.
Financial risks arising from financial instruments are categorised into market, credit, counterparty 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”.
128
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 instruments, specifically equities, equity indices, commodities, treasuries, foreign
exchange and cryptocurrencies. Due to the high level of notional turnover there is a high level of internal crossing and natural aggregation
across instruments and asset classes to mitigate significant single instrument concentration risk within the portfolio.
• Natural aggregation
In the year ended 31 March 2019, the Group traded with around 53,000 clients. This large international client base has a diverse
range of trading strategies resulting in the Group enjoying a high degree of natural aggregation 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 within
the Board-approved risk appetite.
GROUP OFR
Asset class
Consolidated equities
Commodities
Fixed income and interest rates
Foreign exchange
Countdowns and Digital 100s
Cryptocurrencies
31 March 2019
£’000
31 March 2018
£’000
26,530
4,388
1,740
15,139
—
109
3,974
3,569
533
3,882
7
—
47,906
11,965
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 behaviour to ensure the most suitable stress testing model is used. For example longer/shorter holding periods,
intraday movements or end-of-day positions, historical 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,
where the stress factors simulate almost ‘black swan’ type events to ensure capital adequacy would be maintained.
None of the stress tests run through the year implied any significant risk to the capital adequacy or ongoing profitability of the Group.
Annual Report and Financial Statements 2019
129
Financial statements
28. Financial risk management continued
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; and 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 2018.
This is summarised in the below table and reflects the Group’s view that in the current economic environment, interest rate volatility
is unlikely to have a significant impact on the profits of the Group.
Changes in interest rate variables result in a decrease/increase in the fair value of fixed rate financial assets classified as available for
sale. This has no material impact on the Group’s equity.
GROUP
Impact of
Profit after tax
Equity
GROUP
Impact of
Profit after tax
Equity
31 March 2019
Absolute increase
£’000
Absolute decrease
£’000
0.50% change
0.25% change
905
905
31 March 2018
(570)
(570)
Absolute increase
£’000
Absolute decrease
£’000
0.50% change
0.25% change
863
863
(523)
(523)
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 programme (Income statement impact in year
ended 31 March 2019: loss of £48,000; year ended 31 March 2018: gain of £311,000), 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 of losses arising from a borrower or counterparty failing to meet its obligations as they fall due. Credit risk is divided
into Credit and Counterparty risk. Below are the channels of credit risk the Group is exposed through:
•
Institutions (Credit institution (“CIs”) and Cryptocurrency counterparties); and
• 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).
130
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 28. Financial risk management continued
Credit risk continued
Cryptocurrency counterparties credit risk
The Group began to offer cryptocurrency CFDs in 2018 and as a result has opened relationships with cryptocurrency providers in order
to hedge client exposures. The Group considers these counterparties as institutions as defined in Article 4 (1) of the CRR.
CIs and cryptocurrency counterparties credit risk can be felt in the following ways:
• For CIs used as a bank and those as a broker, the Group does not receive the funds the CIs hold on the Group’s account.
• For CIs used as a prime broker, a default will result in a loss of any unrealised profits and could causes the need to re-hedge
at a different broker at a different price.
• For Cryptocurrency counterparties, the loss of physical assets (cryptocurrencies).
Mitigation of CIs 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.
In order to manage both Credit Risk and Counterparty Credit Risk within appetite the Group sets a limit, articulated in a policy, against
the total balance that can be held with each rated institution. The limit is expressed as a maximum percentage of capital. Liquidity Risk
Management monitors the credit quality of all CIs, by tracking the credit ratings issued by Standard & Poor’s and Fitch rating agencies
and the credit default swap (“CDS”) 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.
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. Should an institution’s credit rating falls below investment grade, the Risk Management Committee will be called
and options discussed. 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
31 March 2019
Cash and cash
equivalents
(net of bank
overdraft)
£’000
Amounts due
from brokers
£’000
Net derivative
financial
instruments
£’000
33,151
13,721
1,838
19
48,729
—
40,633
43,416
3,986
88,035
Total
£’000
33,151
53,286
44,904
4,005
—
(1,068)
(350)
—
(1,418)
135,346
Annual Report and Financial Statements 2019
131
Financial statements 28. Financial risk management continued
Credit risk continued
Mitigation of CIs credit risk continued
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
—
3,413
Total
£’000
22,979
122,698
72,368
2,723
220,768
60,468
156,887
No cash balances or deposits with institutions were considered past due but not impaired or impaired (year ended 31 March 2018: £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 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.
‘Negative balance protection’ accounts do not pose Credit Risk to the Group as the maximum loss for this account type is limited to
their account value.
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.
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 or asset class.
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.
132
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019
28. Financial risk management continued
Credit risk continued
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 client’s agreements. Net debt provided for in the year
ended 31 March 2019 amounted to £1,126,000 (year ended 31 March 2018: £323,000), the provision representing 0.7% of total revenue
(year ended 31 March 2018: 0.2%). Bad debt written off during the year ended 31 March 2019 was £562,000 or 0.3% of revenue
(year ended 31 March 2018: £850,000, 0.4% 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 2019
£’000
31 March 2018
£’000
2,964
1,126
(562)
3,528
3,491
323
(850)
2,964
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 2019
Debt
£’000
1,406
286
294
6,199
8,185
31 March 2018
Debt
£’000
3,178
1,166
241
2,870
7,455
Provision
£’000
34
171
232
3,091
3,528
Provision
£’000
2
481
192
2,289
2,964
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 meet 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.
Annual Report and Financial Statements 2019
133
Financial statements 28. Financial risk management continued
Liquidity risk continued
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 £40.0 million to meet short-term liquidity obligations to PBs in the event
that it does not have sufficient access to own cash and to leave a sufficient liquidity buffer to cope with a stress event.
The Group does not actively engage in maturity transformation as part of its underlying business model and therefore maturity
mismatch of assets and liabilities does not represent a material liquidity risk.
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 2019
£’000
31 March 2018
£’000
48,729
88,035
22,079
2,885
161,728
(7,632)
(4,303)
60,468
156,887
21,152
7,335
245,842
(48,023)
(3,922)
149,793
193,897
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.
Liquidity risk
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 (outflow)/inflow from investing activities
Outflow from financing activities
Interest paid
Dividends paid
Other outflow from financing activities
Total outflow from investing and financing activities
(Decrease)/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 2019
£’000
31 March 2018
£’000
6,329
60,064
1,442
7,325
672
1,173
6,810
1,288
(7,590)
(13,787)
8,178
55,548
(21,393)
(4,882)
(6,711)
—
(341)
(1,442)
(21,092)
(1,395)
(30,981)
(44,196)
193,897
92
(12,116)
42
2,206
(1,173)
(25,719)
(1,012)
(37,772)
12,894
183,370
(2,367)
149,793
193,897
134
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 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 2019 totalled £205,080,000 (31 March 2018: £220,030,000).
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 Markets’ risks and risk mitigation strategies, to ensure that adequate capital is maintained against risks that the Group wishes
to take to achieve its business objectives.
The outcome of the ICAAP is presented as an Internal Capital Assessment document covering the Group. It is reviewed and approved
by the Board on an annual basis.
Further information on the Group’s management of regulatory capital is provided in the “Pillar 3 Disclosure” report, which is available
on the CMC Markets plc website (www.cmcmarkets.com/group). The Group’s country-by-country reporting disclosure is also available
in the same location on the website.
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 2019 was £817,000 (year ended 31 March 2018: £3,003,000).
For the year ended 31 March 2019 the charge relating to equity-settled share-based payments was £800,000 (year ended 31 March 2018:
£1,773,000) and the charge relating to cash-settled share-based payments was £17,000 (year ended 31 March 2018: £1,230,000).
No shares were gifted to employees during the year (year ended 31 March 2018: 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, July 2017 and July 2018 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, March 2018 and July 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.
Annual Report and Financial Statements 2019
135
Financial statements 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, 27.9 pence per option for the July 2017 scheme and 37.8 pence per option
for the July 2018 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, 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 and share price at grant date of 204.7 pence, volatility of 44%, and an
expected option life of three years for the July 2018 scheme.
Number
Scheme
Share
price
at award
Vesting date
Executive Retention Scheme
192.5p 13 September 2019
Executive Retention Scheme
147.3p
27 July 2020
At the start
of the year
306,147
871,565
Executive Retention Scheme
204.7p
5 July 2021
— 369,442
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Total
192.5p 13 September 2019
339,566
27 July 2020 2,059,663
338,430
1 April 2020
1 April 2021
338,430
147.3p
154.3p
154.3p
204.7p
5 July 2021
— 637,290
(58,622)
Awarded
during the
year
Forfeited
during the
year
—
—
—
—
—
— (49,271)
— (91,768)
—
—
—
—
Dividend
equivalent
awarded
during the
year
16,422
46,751
19,817
12,409
88,108
5,450
5,450
27,317
Exercised
during the
year
At the end
of the year
— 322,569
—
918,316
— 389,259
— 302,704
— 2,056,003
— 343,880
— 343,880
— 605,985
4,253,801
1,006,732
(199,661)
221,724
— 5,282,596
No awards for the Executive Retention Scheme and the Long Term Incentive Plans in the above table vested during the year.
In addition, cash settled awards were granted on listing of which 105,000 vested on 5 February 2019. Four further tranches of cash settled
awards have been granted and vest in periods from April 2020 to July 2021. Balances of 40,035 awards, 152,338 awards, 121,510 awards
and 59,187 awards in each of the four tranches remained at the end of the period. 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 vested in February 2019, three years after listing
should the employees have remained employed by the Group as at the vest date. 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, 5 April 2018 and 5 April 2019 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, 5 April 2017 and
5 April 2018 with the Company matching on a one-for-one basis. Matching shares for each scheme vest on 5 April 2019, 5 April 2020
and 5 April 2021 should the employee remain employed by the Group for the term of the award.
136
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 29. Share-based payment continued
Current schemes continued
UK and Australia SIP Awards continued
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
Number
UK
UK
UK
UK
Australia
Australia
Australia
Australia
Total
11 February 2016
240.0p
10 February 2019
330,000
— (69,000)
(261,000)
—
April 2016 to
March 2017
285.3p to
112.6p
April 2017 to
March 2018
April 2018 to
March 2019
10 May 2016
5 July 2016
5 April 2017
5 April 2018
171.4p to
115.3p
85.5p to
204.5p
250.5p
266.3p
118.0p
178.2p
April 2019 to
March 2020
April 2020 to
March 2021
April 2021 to
March 2022
163,878
— (17,795)
(1,450)
144,633
126,840
— (12,313)
(1,037)
113,490
— 113,462
(3,721)
— 109,741
10 February 2019
102,027
— (18,681)
(83,346)
6 April 2019
5 April 2020
5 April 2021
12,618
15,219
—
—
—
6,049
—
—
—
(2,704)
(3,333)
—
—
9,914
11,886
6,049
750,582
119,511
(121,510)
(352,870)
395,713
The weighted share price at the exercise date of options exercised during the year ended 31 March 2019 was 117.6 pence (2018: 150.3 pence).
The fair value of SIP awards is determined to be the share price at grant date without making adjustments for dividends as awardees
are entitled to dividend equivalents over the vesting period.
Movement in share options
1,347,967 new share options were granted in the year ended 31 March 2019 (2018: 4,048,933) 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 2019
Number
31 March 2018
Number
5,004,383
1,347,967
2,934,850
4,048,933
(321,171)
(445,174)
(352,870)
(1,534,226)
5,678,309
5,004,383
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 2019 was £1,465,000 (year ended 31 March 2018: £1,354,000).
Annual Report and Financial Statements 2019
137
Financial statements 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
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.
31 March 2019
£’000
31 March 2018
£’000
870
(15,550)
505
(15,160)
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
1,434
62
121
1,617
434
2,434
59
536
3,029
903
Directors’ transactions
As at 31 March 2019, an amount was owed to CMC Markets UK plc by Peter Cruddas in relation to payments made to a third party
supplier for services provided to Peter Cruddas in a personal capacity. Our best estimate of the amount due to be repaid to
CMC Markets UK plc during the year ended 31 March 2020 is £158,244. No interest has been charged on this payment.
32. Operating lease commitments
GROUP
Year ended
31 March 2019
£’000
Year ended
31 March 2018
£’000
Minimum lease payments under operating leases recognised in expense for the year
3,948
2,794
Operating lease payments represent rentals payable by the Group for office space. As on 31 March 2019, leases are negotiated for
an average term of 2.7 years (31 March 2018: 4.0 years) and rentals are fixed for an average of 2.5 years (31 March 2018: 3.6 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
31 March 2019
£’000
31 March 2018
£’000
5,392
16,464
3,289
25,145
4,825
17,498
7,003
29,326
138
CMC Markets plc
Financial statementsNOTES TO THE CONSOLIDATED AND PARENT COMPANY FINANCIAL STATEMENTS continuedFor the year ended 31 March 2019 32. Operating lease commitments continued
Sub-lease payments:
GROUP
31 March 2019
£000
31 March 2018
£000
Future minimum lease payments expected to be received in relation to non-cancellable sub-leases
of operating leases
1,367
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. Sometimes these claims can have a financially significant face value, but the Group’s experience
is that such claims are usually resolved without any material loss. One potentially financially significant claim has been received after
the balance sheet date. The Group provides for claims where costs are likely to be incurred and there are no contingent liabilities
where the Group considers any material adverse financial impact to be probable.
34. Ultimate controlling party
The Group’s ultimate controlling party is Peter Cruddas by virtue of his majority shareholding in CMC Markets plc.
Annual Report and Financial Statements 2019
139
Financial statements Shareholder information
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 29 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
2018 – CMC Markets (Australia) completes the ANZ white label stockbroking transaction
140
CMC 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
2019
£m
130.8
—
(123.1)
7.7
7.7
—
7.7
(1.4)
6.3
6.3
—
6.3
(0.5)
5.8
2019
8.2
4.8%
4.8%
2.0
2.0
1.35
0.68
2.03
—
2.03
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
2019
2,068
53,308
2,259
64.5
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
2,716
50,303
1,626
44.6
Annual Report and Financial Statements 2019
141
Shareholder information
SHAREHOLDER INFORMATION continued
Five-year summary continued
Statement of financial position
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
Current tax recoverable
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
2019
£m
5.0
18.1
11.6
11.3
2.7
48.7
118.0
2.9
3.4
10.7
88.1
48.7
271.8
320.5
100.6
4.3
1.1
—
0.2
106.2
4.8
1.2
1.2
2.0
9.2
115.4
205.1
320.5
As at 31 March
2017
£m
2.1
18.2
8.1
—
—
28.4
31.6
1.9
—
20.3
119.4
53.2
2016
£m
2.6
16.4
7.7
—
—
26.7
20.9
0.8
—
20.4
84.2
78.3
226.4
254.8
204.6
231.3
36.3
3.3
5.8
5.5
0.4
51.3
3.1
3.0
—
1.6
7.7
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
59.0
55.0
56.7
195.8
254.8
176.3
231.3
142.3
199.0
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
142
CMC Markets plc
Proposed final dividend
for the year ended 31 March 2019
Ex-dividend date: Thursday 1 August 2019
Record date: Friday 2 August 2019
Dividend payment date: Friday 6 September 2019
Annual General Meeting
The 2019 AGM is to be held at 133 Houndsditch,
London EC3A 7BX, at 10.00am on Thursday 25 July 2019
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
enquiries@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
9.00am–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
Annual Report and Financial Statements 2019
143
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
UAE
CMC Markets Middle East Management Ltd
Unit GD-GB-00-15-BC-36-0 Level 15,
Gate Building
Dubai
PO Box 506873
T +97143742818
Shareholder information
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 Stockbroking Nominees
Pty Ltd, CMC Markets Stockbroking
Nominees (No. 2 Account) Pty Ltd,
CMC Markets Stockbroking Services
Pty Ltd
Level 20, Tower 3
International Towers
300 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
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 Germany GmbH
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 Spółka Akcyjna
Oddział w Polsce
Emilii Plater 53
00-113 Warsaw
T +48 22 160 5600
E biuro@cmcmarkets.pl
www.cmcmarkets.pl
144
CMC 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.
C
M
C
M
a
r
k
e
t
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2
0
1
9
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