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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, everyone, and welcome to the Plus500 Half Year 2022 Results. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, David Zruia, CEO of Plus500 to begin. David, please go ahead.
Good morning, everyone. I'm David Zruia, Plus500 CEO, and I'm joined by Elad Even-Chen, our Group CFO. Thank you for joining us today.
Turning to Slide 2. We chose the agenda for today. Once you run through the presentation, we will be happy to take your questions. I will start today with a brief overview of our business and our key growth opportunities. Firstly, I would like to outline the key drivers behind our outstanding operational and financial performance during H1 2022 on Slide 4.
From a customer perspective, our active customer base remained robust, and we continue to lead the way in a number of strategic markets in our OTC business. We have over 23 million customers registered on our platform, highlighting a significant monetization opportunity for Plus500 as we continue to deliver strong execution in attracting and onboarding new customers.
Our financial performance was again outstanding with substantial growth in revenue, EBITDA and EPS and our cash balance at the end of the period standing at nearly $1 billion. This was reflected in the further significant shareholder returns.
From a governance and sustainability perspective, our Board was further diversified, with the Board members continuing to add significant value in helping to guide and oversee the business. We continue to ensure that Plus500 remains a very attractive and rewarding place to work and replace additional emphasized on providing our customers various educational content and risk management tools.
Finally, on this slide, we made huge strategic progress during the period in further strengthening our position as a global multi-asset fintech group, particularly as we made significant headway in building our position in the U.S. futures market. This progress was driven by continued organic investment and targeted acquisitions and supported by a robust technology.
On to the next slide, our performance during the period further builds on our strong track record of operational and financial delivery. This is due to the strength and capability of our proprietary technology which drives our operational excellence, our market-leading product offering and our cutting-edge marketing approach. Our flexible and scalable business model ensures we have adopted to changes in the market environment and in customer behavior.
Our agility as a business and as a management team, supported by ongoing investment is also highlighted by our continued progress in diversifying our revenue base, geographic footprint and product portfolio. With a very robust financial foundation, these elements have ensured that we have been able to develop a high-volume, long-term and sizable customer base.
As a result, we have created a position as a global multi-asset fintech group with a number of substantial and accessible growth opportunities available to us.
On to the next slide. Our proprietary technology is Plus500's key enabler and competitive differentiator. It [indiscernible] Plus500's product base, consisting of our OTC product offering, which is how we define our CFD product, our futures offering in the U.S. and our recently launched share dealing product Plus500 Invest. We plan to launch more new products in the future.
Every element of our technology is seamlessly interconnected across operations, product and marketing capabilities, supported by robust systems architecture. Our technology delivers a broad range of specialist services within each of these areas, supporting the continued development of our product portfolio. The specialist services include search and data analytics capabilities in marketing payment processing and customer onboarding. In addition, the ability to rapidly add new tools, features and financial instruments to our product offering to speedily address evolving customers and market requirements. Those specialty services enable our business to remain agile and scalable as we continue to grow by catering for more customers across more products in more geographies.
Let's look in more detail at our excellent progress during the period against our key growth opportunities on the next slide. We continue to make headway in further diversifying our product portfolio and geographic footprint by entering and developing a new position with a new market and launching new products. This continues to be achieved through organic investment and targeted acquisitions.
In our OTC product offering, with substantial potential customer demand available outside of our already extensive geographic footprint, we continue to target a number of new markets. This is being achieved by obtaining new operating licenses either organically or via acquisition.
In February 22, we obtained a new license in Estonia which will act as an additional foundation of our business across Europe and our OTC product offering. In March '22, we completed the acquisition of a regulated entity, which offers OTC products in Japan and expanded our geographic footprint into the substantial retail trading market. We will apply our financial and technological strength to scale and develop this business over time.
Our proprietary share dealing platform, Plus500 Invest, was launched on Android and iOS mobile apps. This product helps to drive the expansion of our product trench and geographic footprint, improved customer retention and diversify our revenue base.
With ongoing investments in technology and our people, particularly at our R&D center in Israel, we'll continue leveraging the latent base of over 23 million customers registered at our platform since inception, through retention, activation and monetization initiatives.
I would now like to focus on our significant opportunity in the U.S. futures market on the next slide, where in just over 1 year we have already built a strong and growing position. Firstly, in the significant retail futures trading space, we expect to launch in the third quarter of the year an intuitive new trading platform, specifically designed and tailored for retail traders. This will enable us to benefit from the continued increase in accessibility to the futures market for the retail trading community.
In this retail space, we aim to establish a new technology-based presence, utilizing our technological expertise and solutions as we have done historically with our OTC product offering. That will help us to offer an innovative, easy-to-use trading platform to enable the retail audience to trading futures and options and features.
Secondly, we have built a new strategic position as a market infrastructure provider for institutional clients, assisting them with brokerage execution and clearing services. This is supported by our success in becoming a full clearing premier member of the CME group exchanges and will be driven by our healthy balance sheet and our highly differentiated technological capabilities. Also, we are already making progress in further expanding our clearing capabilities with other exchanges in the global futures market.
I hope this gives you a better understanding of the opportunities for Plus500 in the U.S. Our plan is to continue to allocate substantial financial and personal resources to maximize these opportunities over time, and we will announce any further tangible progress accordingly.
I will now hand over to Elad who will discuss our operational performance during the period.
Thank you, David, and good morning, everyone. We produced another outstanding operational performance in the first half driven by our proprietary technology, our focused investment and our ongoing efforts to drive deeper engagement with higher value long-term customers.
Our strong performance delivered a number of important outputs with 82% of our OTC revenue in the first half of 2022 being derived from customers trading with us for more than a year and increased customer duration on our OTC platform. In addition, client deposits were $1.2 billion, highlighting consistently high customer loyalty and confidence in our products.
We continue to lead the mobile and tablet space. with 85% of our OTC revenue in the first half of 2022 being generated from customer trading on mobile or tablet device, an increase of 300 basis points from the previous period, highlighting the market leadership position and our continued focus on innovation in this area.
This operational performance drove excellent financial results as shown on Slide 11. Total revenue was up by 48% to $511 million, EBITDA increased by 63% to $305 million and EBITDA margin grew to 60%. This drove cash conversion in the first half of 2022 to 113%, helping us to end the period with cash balances of over $995 million.
With a lean and flexible cost base and the business remaining debt-free with no debt or loans, Plus500 continues to stay in an outstanding financial position from which to invest in sustainable growth and continue to deliver value for each holders.
Our active customer base remained robust at over 216,000 with more than 57,000 new customers onboarding during the period. This was driven by continued significant investment in our marketing technology and on initiatives to drive customer retention, monetization activation and was delivered despite lower volumes across the financial industry.
Additionally, we continue to attract and onboard a strong level of new customers with a substantial long-term value. Average revenue per user was strong at more than 2,300 thanks to our superior technology offering.
On the next slide, we maintain our market-leading position in key strategic markets for our OTC product offering. We were ranked as the #1 provider in the U.K., Germany and Spain by investing trends in their 2022 leverage trading report. We are also starting to develop a strategic market position in both the institutional and retail sectors in the U.S. future market as we seek to disrupt those sectors with our technology and financial strength.
On the next slide is evidence of the long-term value creation being delivered by our business model, the cumulative average revenue from active customers who first started trading during 2015 was approximately $5,300 as of the end of the first half of 2022. This highlights the long-term sustainable value of our customer base driven by efficient online marketing initiatives enabled by our proprietary technology.
In addition, as you can see on Slide 15, customer loyalty and longevity remains strong, with 82% of OTC revenue during the period being derived from customer trading on the group's OTC trading platform for more than a year, 36% for more than 3 years and 15% for more than 5 years.
Further highlighted on the following slides, which illustrate that we have continued to see an increase in customer activity, defined by the percentage of OTC customers who have traded with us for more than 1 year. This strong level of customer loyalty gives us huge confidence that our customers are trading with our platforms on a sustainable long-term basis. This is the consequence of our continuous investment in our product offering are consistently innovative mindset and our ongoing customer-focused approach.
I will now hand back to David.
Thank you, Elad. On the next slide, we cover marketing. We have a multidimensional and reverse approach to marketing, which is fundamentally driven by our technology. We operate multiple initiatives in performance marketing, driven by data and insights to drive ROI and we manage numerous content marketing and PR companies. In addition, during the period, in conjunction with our technological marketing capability, we launched our first major global advertising campaign featuring Hollywood actor Kiefer Sutherland to build brand awareness increased in key strategic markets. This campaign is fully embedded across our social media platforms and other marketing channels. The next slide shows the returns achieved from our investment in marketing technology in recent years with each bar chart showing cumulative returns from annual customer and cohorts. For example, the graph on the left shows that we have generated revenues of $435 million since the start of 2018 from the marketing investment of $125 million, made in that year. That is a return of around 3.5x, which gives you a sense of the level of returns we can generate from our marketing investment over time.
I will now hand over to Elad to take you through the financials for the period.
Thank you, David. Now moving to the financial overview, starting on Slide 20 with the income statement for the period. Revenue was driven by consistent delivery of customer income and high levels of customer trading performance during the period. This resulted in another strong EBITDA performance, which was also supported by our lean and flexible cost base, which I cover on the next slide.
Marketing investment was elevated as planned as we look to capture opportunities to drive attractive returns on investment. Customer deposits were high at the level of $1.2 billion and accordingly, the commission to processing companies. Other costs include expenses related with the U.S. operations and onetime costs related to the brand campaign David mentioned earlier.
On the next slide, we demonstrated our cost base remains heavily weighted towards variable costs with 73% of our costs being variable during the period. This is a key financial strength for Plus500 in an uncertain and dynamic economic environment. These variable costs remain positively correlated to enhance performance and higher volumes including marketing investments and commission to processing companies.
Turning to the balance sheet on Slide 23. Our business has never incurred any debt or loans and our balance sheet remains in an extremely good shape. Plus500, therefore, remains in an excellent position to continue to invest in growth opportunities and business continuity.
Slide 24 covers the cash flow. With cash generated from operations of $344.9 million during the period and after investing $51.7 million as part of our share buyback program, cash and cash equivalent balances at the end of the period increased significantly to $995.5 million.
Plus500 remains highly cash generated supported by low levels of capital expenditure due to our automated processes and technological capabilities with 113% operating cash conversion achieved during the period.
I will now discuss our approach to capital allocation on Slide 25. The Board continues to assess the availability of excess capital going forward to ensure there remains an optimal balance between shareholder returns, investments in future growth and in driving business continuity over the long term. In particular, the Board aims to ensure that appropriate levels of available capital are maintained for required regulatory purposes, working capital, risk management and hedging and clearing activity.
We estimate that our current required capital is approximately at the level of $525 million. This cash-generative dynamics and the consequent capital capacity available to the business gives us high confidence that we can continue investing in future growth and make further healthy capital returns to our shareholders.
Our surplus capital, which reached to the level of around $470 million at the end of the period will continue to be used to invest in future growth and returns to shareholders through share buybacks and dividends. Clearly, both of our required capital and our surplus capital will develop over time and are subject to various internal and external factors.
On that note, I will cover shareholder returns on Slide 26. In the 9 years since the company's IPO, Plus500 returned approximately $1.6 billion to shareholders. And as you can see from the chart on the left, which represents approximately 73% of the cumulative net profit we have generated during the time.
Total shareholder returns announced today include an interim dividend in the amount of $60.2 million and a new buyback program in the amount of $60.2 million. The interim dividend of $60.2 million as an ex date of August 25, a record date of August 26, and a payment date of November 11. This new share buyback program is in addition to the current outstanding program, which were also announced earlier this year, which include a special share buyback program related to the first half of 2022 in the amount of $50 million. All in all, value to a distribution of $170.4 million related to the first half of 2022.
We have also announced today an updated shareholder returns policy in line with the preference for share buybacks highlighted by major Plus500 shareholders. From the current policy of returning at least 50% of net profits to shareholders, through dividend and share buyback program with at least 50% of this distribution being made by the way of dividends. With the updated policy, the company will continue to return at least 50% of net profit to shareholders through dividend and share buyback program. But from the second half of 2022 onwards, at least 50% of the share buyback returns distribution will be made by way of share buybacks instead of by dividend.
This policy will continue to apply to net profit on a half yearly basis and will continue to be based on a 23% corporate tax rate for both interim and final distribution. The board will also consider executing special share buybacks or other distribution on a half yearly basis, depending on fiscal year results as well as on investment and growth opportunities.
I will now hand back to David.
Thank you, Elad. Let's now look at the outlook on Slide 28. The Board remains confident about the outlook of Plus500. Following several positive upgrades to market expectations related to Plus500's financial performance, which took place earlier this year, the Board remains optimistic about the group's performance for 2022 and beyond. We will continue to pursue several major growth opportunities through organic investment and by actively targeting acquisitions. Therefore, Plus500 remains well positioned to deliver sustainable growth over the medium and long term as a global multi-asset fintech group. That's all from us. We will be happy to take your questions now. Feel free to ask us questions directly over the phone or post them on the webcast facility and Room, our Head of IR, will put your questions to us. Thank you.
[Operator Instructions] And our first question today comes from Ian White of Autonomous Research.
I had a few, please. First of all, on the capital -- risk appetite point, this increased to $525 million. Could you just talk us through what's changed there relative to sort of a year ago, and I think you were talking about $450 million of net cash in terms of your internal risk appetite. I guess looking at it, sort of customer income has sort of peaked in 2020 or during the pandemic. So maybe sort of that risk appetite might have been coming down a bit in terms of the amount you so you have to hold. So can you maybe just explain what's gone to the thinking there, please? Secondly, just on the tax rate, the effective tax rate for the half looks like it's somewhere around 22%. Obviously, with the PTE recognition, group's tax rate. I think you've been guiding to more like 12%. So again, can you just kind of unpack what's going on there? And when should we expect to see 12% as a fully effective rate, please?
Just lastly, on the sort of near-term outlook for trading volumes, I hear what you're saying on the gross deposit flows, which have been very robust in the half. But the spot client assets at the half year, I think, are down about 20% from the year-end. Why should we not be worried about that as an indicator of sort of near-term trading activity, please?
So thanks for the questions, and very much we'll follow one by one. And so as far as the capital allocation, very much, you are familiar with acquisitions that we conducted in the U.S. and our entrance into the U.S. market. One obviously bring also the additional need for additional resources. If you are looking for the institutional vertical and also the retail one, very much you do need to bring additional resources in order to cater the maintenance market requirements and so on.
So it's very much being supported by the growth and by the expansion of Plus500 into new products, new verticals, new geographies and it's a positive kind of increase because the one very much enables the business to expand and take the business forward. So this is from a capital point of view.
As for the tax perspective, also there, very much if you are looking at the numbers of the full year numbers of 2021 the tax rate was 20%, wasn't 12%. So I don't know where the 12% comes from, very much, we were very specific with our reference point also historically, the 12% number is very much applicable for the [indiscernible] solo base, okay? Let's also take into consideration that Plus500, as a whole, as a group, has its own group subsidiaries, each one is having a different level of tax ratio.
For example, Australia, of course, it has the corporate tax rate of 30%. If it's in the U.K., very much, it's 19%. So altogether, the mixture is not 12%. And we are reporting on a consolidated basis, not just a solid basis, one ofcourse impact the other. And more specifically at the upper level of the additional amount also within that period of the first half was attributed to the FX movements, i.e., on a solo base, you do have a certain level of movement and other requirements when you consolidate them, it can because as that level of result. So this is from a capital and tax perspective.
And as for the trading volume, I believe you are familiar with our performance over the years, and we were always in the position to outperform and also be in line with the market expectation. Very much, Plus500 delivered an outstanding level of results within the first half of 2022. And we do believe we have the capability to build the market and also to bring better results in our peer group also onwards. And we don't have any concern to that regard. But very much we are always affected as well by the market. And I think you are familiar with our performance that we do know, through our marketing initiatives and also the retention initiatives and the great level of the technology solution, to bring better amount of new customers and more specifically, active customers to trade. And we do see as well the churn in a great position, also the higher value of the customer, which is their ARPU is in a record level. Deposit has increased as well from client money perspective. So we're very much confident within our business.
Just can I sneak in 2 follow-ups, please? In terms of the tax rate, if I understood your comment correctly, this is not an unusual rate basically somewhere around 20%, perhaps is what we should expect for the group on an ongoing basis...
With some 5% -- we didn't guide differently value
Okay, fine. And the comment around the capital requirement. Are you able to give us a sense at all of how sort of fixed versus variable that is if you do gain significant further traction, for example, with institutions. Is that capital requirement likely to scale quite closely with incremental revenues, for example? Or should we think of that as a relatively fixed requirements, at least with the exception of sort of very substantial growth. Are you able to help us with that, please?
Of course, the vast majority is variable, okay? The vast majority includes, of course, the component that we are referring to this morning within the investor deck. And you could see that you do have the regulatory capital as the first pillar, and then you are going the working capital, which is variable, of course, and the other component of the risk management, clearing [ inflow ]. With those additional components, you have the ability to be flexible and they are subject to increased level of revenue and actual performance.
The first one is the one to be fixed. So we are being dependent on variable. As with the cost, 72% of the cost of Plus500 are variable, it's a great level of another kind of strength of the Plus operation, but also here from the capital allocation, we can allocate it according to the needs.
[Operator Instructions] And our next question comes from Shailesh Raikundlia of Liberum.
Just a couple of questions from my end. Just on the U.S. opportunity, obviously, there's quite a lot going on there. And I was just wondering that whether you could sort of quantify what the contribution of revenues were in the first half. Has that been a big contributor to the sort of strong performance that you've seen in the first half? And also just then sort of tying into that, obviously, we've seen quite a big slowdown with some of the competitors in the U.S. space. So just wondering if you could articulate what the U.S. opportunity you think is for the next year to 18 months?
And slightly on the technical question on the client deposits. I was just wondering whether you earn interest on that, obviously, with interest rates going up. Is that all passed on to customers? Or do you keep some of that? Do you have some benefit coming from that as well?
Perfect. So I'll take the first one, and David will take the second one. So as for the element of -- you're asking from a U.S. perspective, just the line was in [indiscernible]?
Yes. Yes. U.S. perspective in terms of the opportunity there, yes.
Okay. So overall, when you're looking at the greater level of the opportunity, we're very much looking to the business not just from the retail point of view, but also from the institutional part, and we're in the position currently as we are also -- we announced this morning to launch the new trading platform which will include all the components of Plus500 as you're usually familiar with from the OTC product also for the future market. So that will go and be live towards the end of Q3 and very much simultaneously, we're going to launch the institutional. Vertical, soon to come. So you can see that being reflected through the numbers.
Then you asked about the numbers of H1 from the U.S. side. So we didn't break how much was from the U.S. and so on, but we can very much already say that also within that component, there is an increase, okay, if it's x-percent or why we didn't provided so I can't go into the specific numbers, but I can say it's already a good increase. And onwards, we expect the magnitude to be much, much higher.
Great. And yes, just on the sort of whether you're earning interest on client deposits or not yourselves?
So as for the interest level associated with the client deposit very much the answer is Yes It's associated, of course, with the amount to be with you with the maintenance margin as well. And are, of course, all the macroeconomic changes that have increased, the ratio, and we do expect to see also that revenue stream to be increased over time. .
And our next question comes from Ben Williams of Shore Capital.
If I could just ask a couple of questions on the U.S. specifically, for the retail opportunity in the U.S., what sort of marketing spend do you think you anticipate putting behind the U.S. business in 2023? So that's question one. And then secondly, for the clearing opportunity, you put more capital into Cunningham. How much capital do you think you want to put into Cunningham, I mean, just broad ballpark because that will give us a sense of what you think the institutional opportunity is there, please? .
Sure. It's David here. Ben -- Elad, a I'll take it. Yes. So marketing wise, as we always do when we market, we do not have a dedicated specific budget that we now set for the 2022. However, we did budgeted roughly a few million dollars for the ramp-up for the initial stages of the marketing. So what you plan to do is already this year, not in '23, start marketing the platform -- the new platform for retail customers. And according to the results, and while we do the optimization, as we are doing with the OTC over the years, we will ramp up and increase the marketing budget. And we hope to increase it to the level of a few millions over the next few months already.
With this, as to the capital, I think that it's quite the same. The capital in the U.S. is basically a part of the risk management. And as we will grow the base of customers, both institutionals, [indiscernible] is retail, we will need to increase the capital there. It's just too soon to determine and share the exact numbers. But as we go, we will show your numbers. .
Okay. And if I could just follow on with -- from Shailesh's question on interest revenue. Obviously, this isn't what your business is about, but you have significant capital sitting around, whether it's regulatory or other trading requirements. And then you've got client funds, which is another $0.5 billion or something and interest -- and I know you need short-term liquidity on that. But it's still -- it's not insignificant. I mean, maybe it's 1% or 2% in the short term. But are we correct to assume that you will try to get a risk-free 1%, 2% return on the spare capital that you have around?
Sure. So obviously, you had the opportunity to see our financials also this morning, and you did see that the financial income includes $9 million as an income [indiscernible]. I think it's a great level of results due to the fluctuations. Also to remind us all that Plus500 generates its vast majority of the revenues in euro or in sterling, okay, and also dollar. And very much those currencies have been in a less effective position over the last 6 months compared to the U.S. dollar.
And while seeing that, our actual results have been even much stronger than that level of the result that we reflected today. Because obviously, the 511 are being presented in U.S. dollar. So take into consideration that the movements are out there, we still came to a great position to have the income of the [ 9 million ] although the other side of the coin. And I completely agree with you that we shall continue to generate, increased level of also interest level if it's through fixed depot or other vehicles, which are playing vanilla without any risk.
We currently have no further questions. I will now hand back over to David for any closing remarks.
Yes. So thank you, everyone, for your questions. Just to sum up. Plus500 delivered another outstanding performance during the first half of 2022 and supported by our very strong balance sheet and continued investment in growth opportunities, we remain extremely well positioned for the future. We'd like to thank you once again for taking the time to be with us today. Thank you very much.