XTB S A : financial results for the 1st quarter of 2024

The first quarter of 2024 was a consecutive period of dynamic business development and building a client base for XTB. Clear long trends in the stock and commodity markets made trading in financial instruments further strongly attractive to many investors. As a result, the Group acquired a record 129,7 thousand new clients, which is an increase by 24,5% y/y, while the number of active clients increased by 45,5% y/y from 260,1 thousand to 378,5 thousand.

XTB's dynamic operational growth and favourable market conditions translated into very strong financial results in the first quarter of 2024. Consolidated net profit amounted to PLN 302,7 million compared to PLN 302,8 million a year earlier. Consolidated revenues amounted to PLN 555,9 million (Q1 2023: PLN 537,6 million) with operating expenses of PLN 205,0 million (Q1 2023: PLN 184,2 million).

Operating income

In the first quarter of 2024, XTB reached a record level of revenues of PLN 555,9 million (increase by 3,4% y/y). Significant factors determining the level of revenues were high volatility in the financial and commodity markets and the constantly growing number of active clients (increase by 45,5% y/y), connected with their high transaction activity expressed in the number of CFD contracts concluded in lots (increase by 6,5% y/y). As a consequence the transaction volume in CFD instruments amounted to 1 964,9 thousand lots (Q1 2023: 1 845,2 thousand lots), a profitability per lot amounted to PLN 283 (Q1 2023: PLN 291).

Looking at XTB's revenues in terms of the classes of instruments responsible for their creation, it can be seen that in the first quarter of 2024 CFDs based on commodities leaded. Their share of the revenue structure in the first quarter of 2024 was 48,7% (Q1 2023: 48,8%). This is due in part to the high profitability of CFD instruments based on natural gas, gold and cocoa prices. The second most profitable asset class was CFD based on index. Their share of the revenue structure on financial instruments reached 41,9%, compared to 45,3% a year earlier. This is a consequence of the high yield on CFDs based on the German DAX (DE30) stock index, the US 100 index or the US 500 index. Revenue on currency-based CFD instruments accounted for 6,7% of total revenue, compared to 4,2% a year earlier. The most profitable financial instruments in this class were CFDs based on the bitcoin cryptocurrency and the USDJPY currency pair.

XTB places great importance on the geographical diversification of revenues, consistently implementing the strategy of building a global brand. The country from which the Group derives more than 20% of revenues each time is Poland, with a share of 51,8% (Q1 2023: 52,1%). Due to the overall share in the Group's revenues, Poland was separated for presentation purposes as the largest market in terms of revenues in the Group. The Group breaks down its revenues by geographic area according to the country of the XTB office in which the client was acquired. The exception is the Middle East region, which also presents revenues from clients from this market acquired by the subsidiary XTB International Ltd. based in Belize.

XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub brand, under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from period to period, analogically to the retail segment, which is typical for the business model adopted by the Group.

Expenses

The operating costs in the first quarter of 2024 amounted to PLN 205,0 million and were PLN 20,7 million higher compared to the same period a year earlier (Q1 2023: PLN 184,2 million). The most important changes occurred in:

• costs of remuneration and employee benefits, an increase by PLN 9,5 million, mainly due to an increase in employment;

• commission costs, an increase by PLN 6,2 million resulting from higher amounts paid to payment service providers through which clients deposit their funds in transaction accounts;

• other external services, an increase by PLN 2,9 million as a result of mainly higher expenditure on support database systems (increase by PLN 3,1 y/y).

In q/q terms, operating costs increased by PLN 17,3 million, mainly due to higher online and offline marketing expenses by PLN 12,0 million, higher commission expenses by PLN 3,1 million resulting from higher amounts paid to payment service providers through which customers deposit their funds in transaction accounts.

Due to the dynamic development of XTB, the Management Board estimates that in 2024 the total costs of operating activities may be even higher by about a one-fourth to the level we observed in 2023. The priority of the Management Board is to further increase the client base and build a global brand. As a consequence of the implemented activities, expenditures on marketing may increase by about one-fifth compared to the previous year.

The final level of operating costs will depend on employment growth rate and the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors on the level of revenues generated by the Group.

The level of marketing expenditures depends on their impact on the Group's results and profitability, the rate of foreign expansion and the degree of client responsiveness to the actions taken. The employment growth in the Group will be driven by its dynamic development, both on the existing and new markets. The amount of variable remuneration components is influenced by the Group's results.

Clients

XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the first quarter of 2024 Group reported another record in this area, acquiring 129 747 new clients compared to 104 206 a year earlier, which means an increase of 24,5%. Similarly to the number of new clients, the number of active clients was also record high. It increased from 260 095 to 378 476, i.e. by 45,5% y/y.

The Board's priority is to continue to grow the client base, which will strengthen XTB's position in the global marketplace by reaching the mass client with its product offering. These activities are and will be supported by a number of initiatives, including the introduction of new products or promotional campaigns. The Management Board's objective for 2024 is to acquire, on average, at least 65-90 thousand new clients per quarter. As a result of the implemented activities, the Group acquired in the first quarter of this year 129,7 thousand new clients, while in April 2024 35,6 thousand new clients were acquired.

Marketing is XTB's second engine. To strengthen its market position and global visibility, the Group works with successful athletes who are XTB brand ambassadors, such as Conor McGregor and Iker Casillas. A new brand ambassador is planned for 2024.

All-in-One Investment App

The Management Board's ambition is for XTB to become the leading all-in-one investment application in Europe, offering its clients easy, smart and efficient ways to trade, invest and save, while giving them instant access to their money.

XTB's transformation from a CFD broker to a universal investment application has progressed over the past few years. This will continue into 2024 and beyond.

Product pipeline

In 2024, XTB will continue to focus on acquiring new clients and expanding it by those interested not only in investing but also in widely understood financial products.

In order to achieve it, XTB plans to strengthen its product offer and implement enhancements aimed at improving customer experience of both - the desktop platform as well as the mobile app. All those changes and improvements have been carefully planned, which is reflected in the continuous growth of the Product and Technology department and the ongoing works and developments in the research & development area, including those related to the implementation of AI-driven solutions.

The first quarter of 2024 was marked with broadening of the passive product portfolio. Investment Plans, the ETF-based product allowing to invest in 350 ETFs, was enhanced with the autoinvest feature enabling clients to decide how often and how much money they want to invest regularly in their individual portfolios. As a result, the product has become even more attractive for clients looking for mid- and long-term investment opportunities when compared to solutions provided by XTB competitors.

In addition, at the end of March 2024, the Company launched a new social service, XTB Social, which allows users to receive trade alerts from selected traders. Clients also receive insights into their portfolios and key statistics on the trades of those they observe. Within XTB Social, client data is fully anonymised and classified based solely on the investment return achieved or the level of risk accepted.

In the upcoming quarters, passive investment offering will be supplemented by bonds. XTB clients will gain access to another asset class: government bonds (i.e. issued by Poland, the US or Germany) and corporate bonds issued by renowned, global companies with a relatively stable rating (from AAA to BBB-). Thanks to leveraging the same mechanism as in the case of fractional shares, investing in bonds will be possible with only a small amount of money. The third quarter of 2024 should see the launch of a product long awaited by clients in the Polish market - IKE and IKZE accounts. Currently, only a fraction of adults in Poland use it but the interest is growing every year. As XTB sees potential in the further growth of long-term investment products, this offer will be implemented also in other global markets, including the UK, where the company plans to act as ISA Manager.

At the end of 2024, XTB plans to launch a product that will accelerate its transformation towards the everyday platform for managing personal finance. Virtual wallet and a multi-currency card will enable XTB clients to make instant local payments, transfers, card transactions and currency exchange. Thanks to this product, clients will be able to make payments between their XTB accounts instantly. Real-time notifications will support finance control and expense management. In 2025 and in the following years, XTB plans to add other new products to its offer.

The above product plan is based on the current knowledge and resources. Therefore, it can be modified and changed, including due to the reasons resulting from XTB's cooperation with third parties.

Basically FinTech

XTB as a technology entity operating in the financial sector, conducts continuous work involving the design and development of highly innovative, comprehensive solutions in the field of transactions and online investments in financial instruments ("research and development"). This makes the Company a FinTech organization. The purpose of the aforementioned work is to develop innovative technologies and solutions to further develop the product offering in particular. XTB owns of a number of proprietary technological solutions, including the modern xStation trading platform.

The work realised in Q1 2024 was aimed at developing the tools necessary for the efficient functioning of XTB's trading systems, effective execution of orders, efficient onboarding of new clients and further development of tools to support the company's internal processes as a result of identified development needs. The research areas focused on functionalities and operational security of systems, processes and databases. There was also research and development work focused on the development of new electronic trading systems.

In view of the business strategy adopted, which is based on the development of new technologies, an IT Development Department has been separated within the structure of XTB, in which a significant part of the staff is made up of people performing research and development work. The work has a significant, almost strategic impact on the business activities conducted by XTB. This not only translates into the level of revenue generated by XTB but is also crucial in the process of building and maintaining a highly competitive position of the Company on the global capital market.

The table below presents the number of people employed in the IT Development Department and the costs incurred by the department:

Dividend

XTB's dividend policy assumes that the Management Board recommends to the General Meeting of Shareholders the payment of dividend in the amount which takes into account the level of net profit presented in the Company's standalone annual financial statements and a number of various factors concerning to the Company, including the prospects for further operations, future profits, cash requirements, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this respect as well as FSA guidelines. In particular, the Management Board will be guided by the need to ensure an adequate level of the Company's capital adequacy ratios and the capital required for the Group's growth when making its dividends payment proposals.

The Management Board maintains that its intention is to recommend to the General Meeting in the future to adopt resolutions on the payment of dividends, taking into account the factors indicated above, in the amount ranging from 50% to 100% of the Company's standalone net profit for a given financial year. The unit net profit for the first quarter of 2024 amounted to PLN 300,1 million.

On 23 April 2024, the Management Board of XTB S.A. adopted a resolution pursuant to which it recommended to the Supervisory Board and the General Meeting of the Company that the standalone net profit for 2023 in the amount of PLN 787,1 million be distributed as follows:

• by paying a dividend of PLN 590,2 million, i.e. PLN 5,02 per share;

• retention of the remaining part of the profit in the amount of PLN 196,9 million at the disposal of the Company, allocating it to reserve capital.

The levels of the total capital ratio (IFR) of XTB on individual days in Q1 2024 are presented in the chart below.

The total capital ratio informs about the ratio of own funds to risk-weighted assets, in other words, it shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds. At the end of the first quarter 2024 the total capital ratio in the Company was 139,0%.

Cash and cash equivalents

XTB invests part of its cash in bank deposits and financial instruments, i.e. government bonds, bonds guaranteed by the State Treasury and corporate bonds guaranteed by the banks. As of March 31, 2024 the total value of own cash and bonds in the XTB Group was PLN 2 128,4 million, out of which PLN 1 332,3 million was cash and PLN 796,1 million was bonds.