CMC Markets Plc (CMCX) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the CMC Markets Full Year 2020 Results Call. My name is Stuart, and I will be the operator for your call this morning. [Operator Instructions] I will now hand you over to Peter Cruddas, CEO and Founder. Please go ahead.

Thank you, Stuart. Good morning, everybody, and thank you for dialing into our results presentation for year ending 31st of March 2022. I'm Peter Cruddas, the Founder and CEO of CMC Markets. And it's my pleasure to talk you through the investor presentation that we published on the CMC Markets website this morning. With me today is Euan Marshall, our CFO; David Fineberg, Deputy CEO, and Matt Lewis, our Head of APAC in Canada. I'll run through some of the highlights from the period and then hand over to Euan to cover the financials. David will then cover trading and regulations, and Matt will talk about our APAC business. I'll then finish on strategy before we open up the lines for Q&A. If you could go to Slide 3, please. So I'm delighted to report another year of strong performance from both a strategic and financial standpoint. Outside of the COVID-19 impacted prior year, this is a record net operating income result for the company. The performance reflects the ongoing success of our B2B technology partnerships and focus across our leverage and non-leverage businesses. Our net operating income for the year was GBP 282 million, which is at the top end of our guidance, and our nonleverage business now represents circa 17% of this and is becoming an ever-increasing important part of the business. Today, we also launched our new 3-year strategy to grow net operating income by around 30% -- or by 30% over the next 3 years. And I'll talk more about this in more detail later on in the presentation. Operating costs increased by 2% to GBP 188 million, primarily due to higher personnel costs as we continue to invest in the business. As a business, we continue to generate cash, and we've seen a steady improvement in our net liquidity position. This allows us improved optionality in terms of how we return cash to shareholders. We announced our GBP 30 million share buyback on the 15th of March. And as of the 7th of June, we are comfortably more than 1/3 of the way through this process. The buyback demonstrates the financial strength of the business and our continued confidence in the long-term strategy delivering shareholder value. In line with our commitment to return cash to shareholders, the Board recommends a final dividend payment of GBP 26 million, which is 8.88p per share, resulting in a total dividend for the year of 12.38p per share. Slide 4, we're on now, please. The coming year will be a year of investment in our strategic initiatives which aim to deliver future revenue growth for the group and further diversification to accelerate growth over the medium term. We are aiming to invest particularly in the institutional and non-leveraged markets and also to diversify our client mix, including geographically, as we expand these businesses into new territories such as Singapore and the Middle East. These investments, we believe, will drive net operating income by 30% over the next 3 years based on 2022 conditions and grow PBT margin from 2024. Growth is expected to be broadly linear over that period. I'm excited about the future for us. There is significant opportunity and growth potential in the self-directed investment platform space, especially in the U.K., not just for improved technology, but also transaction costs and fees. We believe commissions, execution spreads and custodial fees are too high and too expensive for retail investors. We will utilize our platform technology, including pricing and execution to drive down the transaction costs of investments for retail clients, just like we did in Australia where we went from #40 to #2 investment platform for retail investors. So we'll get into more detail about that later. But for now, I'll hand over to Euan to take you through the financials.

Thank you, Peter, and good morning to everyone. As discussed with you at the half year in November, we reviewed our KPIs and now as well as providing group level metrics, we also disclosed the split of the performance of both the leveraged and non-leveraged businesses. Starting with our group KPIs on Slide 6, the top left chart. Excluding the pandemic affected 2021, net operating income was a record GBP 282 million. This was 12% higher than 2020, which was also positively impacted by pandemic volatility at the latter end of that year. Moving on to the top right chart. The non-leveraged share of net trading revenue has grown and now stands at 17%. Diversification remains a focus of the group. And over time, we want the share of non-leveraged and B2B revenue to increase. Peter will talk more about how we intend to achieve this later. PBT is GBP 92 million and margin has reduced to 33% given our operational leverage and ongoing heightened investments in our technology. EPS was 24.8p for 2022. And given our 50% profit after-tax dividend policy, the total dividend per share is half that at 12.38p per share. Moving on to Slide 7. Let's look at the leverage KPIs first along the top. As you can see, active clients on the top left have reduced against the highs seen in 2021, but again, remain above pre-pandemic levels. Importantly, revenue per active clients remains strong with an indication for the quality of the clients that we continue to attract and retain. We continue to focus on quality rather than quantity of clients. On the second graph, you will see here that gross client income has dropped 14% against 2021, but again, has shown good growth, net growth above the pre-pandemic levels supported by an enlarged client base. Client income retention was 80%, so at the lower end of our guidance. This was the biggest driver of the reduction in leverage trading revenue. David will talk more about this later. Finally, on the leverage KPIs, we have client money AUM. This provides a good barometer of the health of the leveraged business. This has shown great resilience over the last year despite drops in the equity markets in the final quarter of the financial year. Moving on to the non-leverage KPIs, which relate to our Australian Stock Broking, or CMC Invest business, and from FY '23 we'll also include the CMC Invest U.K. figures. On the bottom left graph, you will see active clients, which have grown 36% since 2020 and also grew 6% during the year. Net trading revenue is down 12% against 2021, but it's also up 51% against 2020. Peter and Matt will talk more about the plans to grow the non-leveraged business later across various geographies. And the second graph demonstrates our ongoing focus on growing not only through B2C, but also through B2B channel. Note that as we go through the next 12 months, the splits will materially change to be weighted towards B2C revenue due to the transition of ANZ Bank clients to CMC. Finally, assets under administration continue to go from strength to strength, growing 16% during the year. Moving on to the income statement on Slide 8. I've explained revenue performance against the prior year. Comparative previously, and we'll run through the 3% increase in operating expenses excluding variable remuneration on the next slide. As you can see at the bottom of the table, the share of profits of our non-leveraged business in Australia has increased in comparison to last year. This has resulted in a higher effective tax rate for the group increasing to 22% in 2022. Moving on to operating expenses on Slide 9. For today's presentation, we've again presented an alternative view of operating expenses growth in comparison to our usual view of operating expenses. This gives you a good view of the fundamental drivers of the increasing cost of the business to give you a flavor of cost increases between BAU and investment spend. If you look at on the right-hand side of the graph, the big driver of the increase in net staff costs has been the investment in personnel in our technology and trading and product functions. We have also expanded other functions to ensure technology and product delivery can be supported adequately across the whole business. Capitalization of staff costs increased by GBP 2 million year-on-year as a result of the development of our U.K. investment platform. Moving to the left on the BAU costs. There have been a number of offsetting increases and decreases. Of note, these include increasing IT costs due to higher market data and infrastructure costs and lower irrecoverable VAT as a result of a one-off recovery and ongoing lower charges in the U.K. You will find our normal view of operating expenses in the appendix. Let me now talk you through the liquidity and regulatory capital position as at the 31st of March. First, you will see our regulatory capital in the top table. We have previously presented our regulatory capital calculations under the CRD IV regime. From the 1st of January 2022, the group became subject to the investment firm credential regime, the IFPR. And therefore, these figures are presented based on the new regime. The group's balance sheet and overall regulatory capital remains strong with a capital ratio of 489%. Our capital resources decreased due to the dividends and our GBP 30 million share buyback more than offsetting profits for the year. The intangibles deduction has mainly increased due to the acquisition of the ANZ share investing client base. Next, turning to liquidity in the bottom 2 tables. Total available liquidity has increased a little during the year to GBP 469 million. Net available liquidity increased by GBP 35 million during the year, ending at GBP 246 million. At the end of the prior year, margin requirements at brokers were high, relatively speaking. Given that they're heavily influenced by client equity positions, the Q4 equity market selloff caused margin requirements to drop materially. This was offset partly by an increase in blocked cash, mainly resulting from cash committed to the share buyback and also capital injections made to satisfy requirements for our new U.K. subsidiary that will onboard investment product clients. So in summary, the group continues to be in a strong position to invest in our large ongoing strategic projects whilst maintaining a buffer for the highs and lows in the broker margin requirement. I'll now hand over to David.

Thank you, Euan, and hello, everyone. Turning to Slide 12. We have our usual bridge between gross client income and net trading revenue, which helps us break down the performance of our leverage business. This year, we saw a 34% decrease in leverage net trading revenue to GBP 229.6 million. Although like operating income, this was a record outside of the COVID-related periods, so still represents a very strong year. Starting at the top of the table, leverage gross client income is the spreads, financing and commissions that clients pay us to trade. This has fallen 14% year-on-year to GBP 288.5 million. Although the 2021 comparative was an exceptional year in terms of client trading and market volatility due to the outbreak of the pandemic. Importantly, gross client income remains elevated compared to the pre-COVID levels. Before the pandemic, we typically saw client income reaching between GBP 100 million to GBP 110 million for half year. This has been driven by a large active client base, which I'll talk more about shortly. Risk management performance has been more normalized this year, although it's also in comparison to an exceptionally strong prior period. The decrease was largely driven by a significant risk management gains in H1 2021 that were not repeated as well as a shift in the asset class mix traded by clients and a lower internalization of index flow. In addition to this, hedging costs have increased by circa GBP 3 million. This was largely driven by increased trading from our institutional or B2B clients in the second half of the year. These 2 factors led to a gross client income retention of 80%. This remains within our guided range. With increased focus on growing our B2B revenues, it is expected that client income retention will trend towards the lower end of guidance due to the increased hedging costs associated with managing this type of flow. However, this will come with an increase in client income and a larger, more consistent flows which will form one of our key pillars for the group's leverage revenue in the coming years. Turning to the next slide. The chart shows the monthly trend in both gross client income per client, and the number of active clients over the past couple of years. The data has been rebased to show activity compared to FY '20 monthly averages excluding the March outlie to help us show how client behavior has changed since the start of the pandemic with the shaded portion on the right highlighting the FY '22 performance. The blue line shows gross client income per client, which has returned to more normalized levels during the year. As you can see from the chart, client trading was more subdued at the start of the financial year, where we saw very quiet markets. This has steadily risen throughout the year, culminating with an increase in Q4, coincided with the Russian invasion of the Ukraine. The green line shows the trend in monthly active clients. As previously communicated, monthly active client numbers remain roughly 1/3 higher than those seen before the pandemic and have stayed at this level throughout FY '22 regardless of market volatility. It is this same increase in the active clients, which has driven the increase in gross client income that I mentioned on the previous slide. We continue to monitor the behavior and characteristics of the new clients to be onboard and especially so with the large influx of new clients that came onboard during FY '21. These clients continue to be of similar quality to those of our existing base with attrition rates and income per client broadly in line with historical cohorts. Lastly, as previously highlighted, the Australian body -- regulatory body, ASIC, introduced intervention measures at the start of the financial year. We have subsequently been monitoring the impact of the measures on trading activity of our Australian clients. As you can see from the graph, the changes have not had a material impact on the group's gross client income or monthly active clients. Client behavior has been in line with our expectations, having experienced the introduction of similar measures in the ESMA region during FY '19. I I'll now hand you over to Matt Lewis, our Head of APAC and Canada, to cover the APAC nonleverage update.

Thank you, David, and good morning, everyone. Today, I'm going to walk you through the performance of our Australian nonleveraged trading business, CMC Invest Australia. So if you can focus your attention to Slide 15. First, to highlight the continued strength of the business, which has delivered a record performance in a number of key metrics, including assets under administration and the number of active clients in what was a more normalized year in terms of market conditions. The continued strength and resilience saw the business contribute circa 17% of total group net trading revenue, up from 14% the previous year. Continuing on the momentum from a record revenue year in 2021, the business delivered strong top line performance. While headline revenue fell 12% to GBP 48 million due to more normalized market conditions, this is still pleasingly 51% above pre-pandemic FY '20 levels. The underlying health metrics of the business continue to perform extremely well, with active client numbers up 6%, coming in at just over 246,000 clients, a new record for the business. As you can see in the graph on the bottom left, importantly, all channels across both retail and B2B have achieved record levels of activity. Assets under administration also hit all-time highs, finishing the year at AUD 80.2 billion, a new record for the business. We believe our position as the second largest retail stockbroker and the largest white label provider in Australia, combined with the breadth of features, functionality, industry-leading pricing and products we offer set us apart from our competitors. Moving on to Slide 16. The graph on the top left provides a breakdown of the evolution in the client assets we manage. As previously mentioned, we finished the financial year with record AuA coming in at AUD 80.2 billion. This represents a 16% growth over the year with net cash inflows accounting for around AUD 4.4 billion. AuA is comprised of AUD 70.8 billion in equity holdings and AUD 9.4 billion in cash. It's also worth noting that this growth was achieved against the backdrop of falling asset prices towards the end of the financial year. I spoke about our strategic decision to rebrand the Australian stock broking business to CMC Invest. This was to ensure better alignment with the products we offer, our clients, and to the whole of wallet investment approach we're targeting. We want to empower people to make smarter decisions and to think about their future. Our new proposition reflects who we are today and importantly, where we want to be tomorrow. It also ensures our brand appeals to a broader audience, including the next wave millennial traders, who represent the fastest-growing segment of the Australian market. We also spoke about the launch of our new mobile apps across both iOS and Android as this is a key selection driver for our clients. Pleasingly, mobile usage has increased 40% year-on-year as a result. Continuing on the innovative momentum seen in H1, our international offering, which is already one of the most comprehensive in Australia, has expanded to include extended hours U.S. trading. We are the first major broker in Australia to offer clients the ability to trade pre- and post-market hours. This is especially important for Australian clients as it provides a more favorable time zone for trading the increasingly popular U.S. markets. In February this year, we launched our new retail pricing, adopting a simplified and competitive model. We are the first broker in Australia to offer $0 investing across both domestic and major international markets. This is a strategic decision to ensure we capture a larger percentage of the millennial segment with a major growth demographic in order to position the business for future success and also to increase the competition to any new entrant neo brokers. Outside of our strong financial metrics, in H2, we were named Canstar's Online Share Trading Broker of the Year for the 12th consecutive year. This is in addition to a number of awards we won in H1, which included Finder Award for best overall share trading platform and Canstar International share trading 5-star rating. This is a great testament to the team's ongoing efforts, which see continuous improvement required to win the awards as well as highlights the strength of our overall proposition and global pedigree. Core to the CMC Ethos is our continuous drive to innovate and to disrupt. Looking forward, we remain committed to delivering on new and enhanced product offerings, including customer journey upgrades and the complete UX redesign aimed at simplifying common activities on the platform and also enhancing the overall client experience. We are also expanding geographically into Singapore, on which I'll elaborate later in the presentation. In H1, I mentioned we're investigating a crypto offering. This has now progressed to build stage, which will see us offer clients the ability to invest in physical crypto assets towards the end of FY '23. This is an important product for us given the ongoing maturation of the industry over the last 12 to 18 months with total addressable market in Australia, where 25% of Australians hold or have held digital currencies, which is among the highest rates in the developed world. This is especially prevalent across the millennial new wave traders where 42% have or currently own digital currency products. Moving now on to Slide 17. I'll provide a brief update on the ANZ transition. As mentioned in H1, we are acquiring over 500,000 share investing clients from ANZ Bank, with total assets in excess of AUD 43 billion. Pleasingly, client transition is on track and expected to finish by the end of Q4 this financial year. Post transition, our client teams will have end-to-end control of the customer journey, ensuring a seamless experience for this cohort of clients and control over the activation and reactivation efforts currently managed by ANZ. These clients will also have access to a greater suite of products and features than they do today, which include significantly better pricing, our market-leading CMC mobile app, trading strategies, education and the opportunity to trade a wider range of products. Also worth noting is that any future enhancements will be seamlessly rolled out to this cohort in line with the release to retail customers. Moving on to Slide 18. As you're aware, we recently launched our U.K. non-leveraged platform, CMC Invest. Continuing with the strategy of geographical expansion in the nonleverage space, we've made the strategic decision to launch nonleveraged trading in Singapore. We see this as a huge opportunity with 52% of the population over 16, already having an investment in equities. This equates to roughly 1.5 million people. The online share investing market currently stands at 340,000 unique active traders. And with the right platform and the global shift to online investing that we've seen over the past few years, we expect this market to continue to grow. B2B has been a fundamental part of our Australian invest business. Leveraging off this expertise and experience, we see a significant potential for white label and partner opportunities. Singapore has circa 20,000 financial advisers and a large number of family offices. CMC Invest Singapore will utilize the existing Australian feature-rich web platform, iOS and Android apps. Clients will have access to all markets currently available to Australian clients. and the client journey will be optimized with branding and enhancements aimed at fulfilling the investment needs of all Singaporeans. We anticipate go live to be the back end of this financial year. With our client base expanding and our innovative product offering continuously growing, we're excited about the value we can keep adding to our clients' financial future across different geographies. I'll now hand you back to Peter. to provide a strategic update.

Thank you, Matt. I always enjoy your presentations, and thanks for flying over from Sydney to be here. What I should say as well is that CMC Invest in Australia has completely transformed this company. Our whole focus going forward is on investing products B2B technology. Matt is helping us not just in Australia, and he covers Singapore as well, but he's also helping us in the U.K. where his expertise and his team are really helping with the whole invest platform. So anyway, we're now on to Slide 20, and I'd like to -- before we get started, I'd like to remind you all about CMC's resilience and how despite the economic turbulence we have seen over the past year. CMC continues to go from strength to strength, and it continues to operate well above pre-pandemic levels across all business lines. As I mentioned earlier, the coming year will be a year of investment in our strategic initiatives to accelerate growth over the medium term and effectively completely transform this business more akin to the Australian model. Here, we have outlined our 7 core strategic initiatives and their expected completed -- completion time frames to support our 3-year growth plan. Within the leverage part of the business, we are looking to deliver upgrades to our products and technology offering to improve market access and the overall customer experience. This is supported by our enhanced pricing initiatives, which we hope will increase the value we offer our high-valued client base. Moving on to non-leverage, CMC Invest is the brand name for our U.K. investment business. Our new U.K. investment platform has already been launched internally, and I'm trading on it myself to test it, but I've actually done a few trades. I won't tell you who I've shorted and who I've gone long on, but I'll leave that to your imagination. So that's been launched internally. And throughout the course of 2023, we will be launching new products and tax wrappers to our clients. During 2021, we signed an agreement to transition the ANZ share invest client base across to us, which we aim to complete by the end of the financial year, following on from this white label partnership, which was coming to an end. And this brings 0.5 million clients to directly transact with CMC and many more opportunities to offer them wider services. And it's actually a reflection of how technology and B2B business brings on mass amounts of clients as opposed to direct marketing to retail. In addition, as you can see from the chart, we have an exciting new stockbroking platform being launched in Singapore. We are also developing our physical equity product offering across all platforms as well as physical cryptos in Australia to be offered on our stock broking platform. We believe that these initiatives place us in a great position for growth through 2023 and beyond. 21 please. Moving to Slide 21. We expect investments to drive steady diversification and margin expansion from full year -- financial year '24 -- 2024, particularly from the higher growth segment of B2B institutional and non-leverage markets. The benefits are numerous and include reducing operational risk with lower regulatory uncertainty, enhancing the opportunity for greater geographical reach, our differentiated position in owning our own platform technology and the expertise we have built after years of development enhances our ability to disrupt and we love to disrupt by the way, just ask Matt Lewis in Australia. Delivery will reduce earnings volatility as well as increase the life cycle and lifetime value of our clients by attracting stickier assets. It is also very clear that growth in non-leveraged assets under management is growing at greater than twice the growth rates being seen in our leverage business. That will make sense, that last bit. Yes, I think so yes. Slide 22, please, which is our 3-year targets. The main areas of growth over the next 3 years will be the leveraged B2B and non-leveraged businesses as we continue to diversify the group. We look to do so by institutional B2B expansion where we aim to unify all asset classes across our platforms, developing our marketing to focus on increasing product offering across both institutional and retail platforms, increasing our geographical footprint via additional platforms in Singapore and Dubai, providing physical shares on all platforms and cryptocurrencies -- physical cryptos in Australia. We believe this will further enhance our growth, driving net operating income growth over the next 3 years by 30%. This will also be supported by an uptick in PBT margins from 2024 as we begin to leverage scale. 23, please, Slide 23. This slide highlights the significant growth we see in our B2B institutional growth. So our institution volumes -- our institutional volumes are up 60% year-on-year, purely from our existing products. We, therefore, expect 20% growth to continue. There is a significant growth opportunity ahead of us. And you can see, we have set ourselves objectives for the forthcoming years to ensure that the business continues to excel and provide our clients with the best possible experience. Across our B2B business next year, we will focus on positioning ourselves as a full-service fintech solution as we develop new products and enhance our existing offering. Slide 24, please. The chart on the right illustrates how the U.K. D2C platform assets under administration have increased significantly over time, particularly since September 2020. The trends in the market are clear. We're seeing investors turn to self-manage investment platforms away from traditional higher cost managers. The main challenge is converting first-time investors into longstanding clients, but we feel like we are in a good position to tackle this with our core strategic initiatives and product offering. Technology becomes ever more important. And for us, our own in-house development is a market-leading differentiator. Slide 25, please. So this is -- finally here are some initial concepts for the new U.K. Invest platform. The build is progressing well, and we have successfully tested and launched the platform internally, and we will be rolling it out to existing clients shortly. We are pressing ahead with further enhancements, including ISAs and SIPPs and other tax wrappers, user experience upgrades, more products and a newer and simplified onboarding journey. It's very exciting about how the platform has progressed, and we are looking forward to a wider launch later this summer as we invest in marketing to build up the brand. So with that, I'll hand back to Euan to take you through the financial outlook as well as the launch of our new sustainability pillars in detail.

Now that you've had a good overview of the group's exciting ongoing initiatives, let's turn to look at the financial outlook for 2023 on Slide 27. I'll start by looking specifically at costs. In order to achieve the ambitions that Peter has just set out, you will naturally appreciate that material investment is required. We're in a great position to make this investment, given our strong balance sheet and liquidity profile. We are expecting operating costs, excluding variable remuneration, to rise by just over GBP 30 million to around GBP 205 million in FY '23. Increase in costs can be broadly split into 3 categories of roughly equal value with 2 of the 3 categories focused on supporting the delivery of strategic initiatives. Firstly, increased marketing spend during the year will retain and grow retail client numbers in our existing leveraged and non-leveraged businesses, and start to build a new client base with the launch of our new U.K. non-leveraged platforms. Secondly, we will continue to grow headcount to deliver on the initiatives that Peter has set out. This includes headcount required to expand our institutional offering and our U.K. and Singapore non-leveraged businesses. Thirdly and finally, the remainder of the increase is due to increasing BAU costs as a result of the global inflationary environment that we are currently in and also due to a temporary uplift in regulatory fees, which we expect to subside in FY '24. Now with the reasons for the cost increases explained, let me summarize what this looks like for the business going forward from a performance perspective on the next slide. First, looking at net operating income. We have proven value in our underlying client base in both our leveraged and non-leveraged businesses, and this provides us with an ongoing solid platform for growth. We have a good phasing of the delivery of initiatives, which will start to deliver additional revenue from this year and beyond. As a result, we expect net operating income to increase year-on-year over the next 3 years with a total growth of 30% expected by FY '25. This importantly will give us diversified revenue growth in our retail leveraged, institutional and retail non-leveraged businesses with higher growth rates expected in our institutional and non-leveraged businesses. It will yield PBT margin improvement from FY '24 onwards, with revenue continuing to increase over the period at a faster rate than any incremental cost increases. The effective tax rate is likely to be in the region of 21% for FY '23, and the Board continues to maintain a dividend policy of paying 50% of profit after tax. Moving on to our final slide. I'm aware we've been through a lot of content today, but before we move on to Q&A, I wanted to confirm progress on another important matter. We launched our sustainability strategy externally today in our annual report, and we engage regularly with staff during the year during the formulation of this strategy. It has the headline, Our Tomorrow: Taking a positive position. This is a culmination of a lot of research, including discussions with stakeholders regarding their priorities on environmental, social and governance matters and identification of material risks and opportunities for our business. We have 5 pillars, which you can see on this slide. Next steps for the group include the selection of metrics and targets to focus on in order to illustrate progress being made against these pillars. There's more detail available in our annual report, and we look forward to updating you regularly on the progress in the future. Thank you, everyone, for listening. We'll now move on to Q&A.

[Operator Instructions] The first telephone question today is from Kim Bergoe from Numis.

I think you just actually answered some of my questions. But I guess what we are all trying to do today is sort of trying to figure out in terms of the cost for next year, how much is sort of -- where is it between investments and sort of cost creep, sorry for that expression. But so if you could elaborate a little bit on, again, that where you're saying 2/3 of it sort of people, products and marketing. How precise you can be about sort of where it's going to fall? And also, if you could talk maybe more qualitatively about how you make those decisions? I mean, in terms of whether you should be making these investments or not? So that's my first question. My second question is, what you can say about the evaluation of the separation between leveraged and non-leveraged business? I know that this is something the Board is looking at and they will be announcing something later. But anything you can shed -- any light you can shed on that would be very welcomed.

Kim, thanks very much for the questions. So on the cost elements, what we're looking at really is broadly 1/3, 1/3, 1/3 on the cost increases that I went through earlier. So we are investing heavily in personnel in the year ahead, and we'll be seeing cost increases come through there. Marketing, again, it's around 1/3 of the cost because if you think about it, we have to sustain that higher client base in our existing leveraged and non-leveraged businesses, but we have a brand-new client base that we're going to be looking to build in the U.K. naturally. We're going to need to invest significantly in marketing for that. On your wording of cost creep or cost inflation, that's not really the other 1/3 because there is also a fairly material hit from regulatory fees that I highlighted as well. So you've got a little bit of cost inflation and also an increase in regulatory fees kind of roughly evenly split between those 2 for that final 1/3 of costs. Hopefully, that gives you a bit more flavor on those cost increases. And so...

On -- sorry, I lost the line.

That's all right. And then from how we make decisions on where to invest, I think the important takeaway here is that we've looked at where -- we want to diversify the business, and we've been talking about this for a number of years anyway. And we have some key focus areas where we will see revenue growth. We've clearly identified what is short, medium and long term. So in the short term, we're going to be seeing good revenue growth in our institutional business, where we've already had a number of initiatives on track, and they're starting to come through now. Again, in the short term, our retail leveraged business, we are -- we do continue to invest in, but it's got a lower growth rate, but it does have the ramp of our revenue. And we do appreciate the massive opportunity we have in the non-leveraged market. However, that is a longer-term strategic play for us. Finally, on your question on the evaluation of the managed separation, which was announced back in November, that review is still ongoing. And in the coming months, we do intend to announce to the market when that review has been completed the outcome.

Can I just add a couple of points to what Euan said. I mean it's a bit of a no-brainer for us to build an investment platform when we've got a whole big investment business on the other side of the world in Australia. And effectively, we can leverage off of our existing technology to build new platforms, which we're doing with the expertise and help of our Australian colleagues. I mean if we want to build a new platform, it's bums on seats. We don't -- we can build everything we want. All of our plans for the next 3, 5, 7 years can all be built internally. And the cost of building an investment platform for us is truly minimal, definitely less than GBP 10 million, more than GBP 3 million or GBP 4 million because we've already got the technology within the group. So when we looked at the investment space, we didn't go into it just because we can go into it easily with technology. If you look across the self-directed investment space, there's a crying need from our clients telling us, please reduce the costs on self-investing because they're too expensive or where they're dealing now. I don't know where they're dealing, but we've looked at the market and the costs are horrendously higher. And we think we can disrupt that market. We think we can make it profitable for us. And we think we can grab a large market share as Matt Lewis and his team demonstrated in Australia. But alongside retail offering, we're going to build our B2B offering. If you look at the assets under management that Matt presented, half from our normal business are retail stockbrokers and half come from B2B offering. So we're going to run a parallel B2B here. Why? Because we can. We will partner with people. We will partner with anybody. So it's a bit of a no-brainer. Also just back on the point about the separation of the business, I mean if you look at the way the business is evolving now and developing, it's not just actually about trying to increase shareholder value, although my wife and I always like to see shareholder value increased. It's actually a practical matter. If you look at how much intellectual property we have in technology and if you look at the diversity of the business, everything seems to get valued in spread bet world. But also, it's just practical as well for us to separate out these businesses, which we're doing internally, not structurally through governance, but actually through operational procedures here, the way the business is evolving forward. We can't have the head of -- this is not a good example. You can't have the Head of Legal and Compliance advising us on investing. We need separation from the different issues. They are different clients, there are different regulations. So it's happening by de facto anyway and the Board are looking at the governance side of it.

That's very helpful. If I may just follow-up on the cost question, maybe ask it slightly differently. One of the things I'm sure you're hearing that as well as one of the sort of devil's advocate is that it's the cost of doing business is going off. So I'm thinking something like you're saying you're doing more marketing. Is the client acquisition cost within your business? And I'm talking mainly the leveraged business. Is that going on? The product development -- because I think it spills over into other parts of the financial world. I'm sure Hargreaves Lansdown and AJ Bell will agree. And people are just saying, well, the cost of doing business in these is just higher. So that's another -- it's not inflationary cost as such, but it's just more expensive to be doing business. What do you see in that? Is that a correct observation? Or what's your impression?

Well, look, one thing that's different with this company is that we offer a B2B service. I mean we've got just under 300 B2B clients. If you look at the number of clients, and I don't want to misquote the numbers, but Matt talked about 0.5 million clients. That was a technology transaction. Where we differentiate -- there's a lot of crossovers between us and some of the companies that you've mentioned. But none of those companies offer B2B partnerships. Our thrust going forward is to work with people going forward. And we're doing it in Australia, where we have, I think, 250 partner deals, banks, brokers, investment advisers, banks. So we're really keen on this. And let's be clear, to offer B2B isn't a commercial decision. You need a whole technology stack state of the art, which we've been building here for 10 years. It's not enough to say we're going to partner with people. You need the infrastructure. When we pitch to ANZ for their whole E-Trade, their old E-Trade business, the stockbroking business, there were none of our competitors around the table. We were able to do that because of the superior technology that we have in Australia. And we're light years ahead of competitors when it comes to technology and technology infrastructure. I don't think the market understands the position we're in. The fact that in the last year, just stopping thinking about it for a second, in the last year, we've launched an investment platform, and that will roll out, and we've migrated 0.5 million clients from ANZ. Yet people are talking about costs for the next year, which I understand. But look at what we're doing here. Some -- one day the market will wake up, and I look forward to that. That's why I'm not selling any of my shares, and I'll say it publicly now. It's why the company is buying back shares. We think we're undervalued. We would say that, but there you go.

Next question is from the line of Martin Price from Jefferies.

I have 2 questions, if I may. First, I was just wondering if you could provide some more detail on the earnings sensitivity to rising interest rates and what you're assuming in terms of the potential benefit within your revenue growth guidance? Secondly, I also wonder if you could share some thoughts on how you're thinking about the revenue outlook for the retail leveraged trading business this year, given what I guess is still quite a tough prior year comp? Are you confident you can grow the retail part this year? Or is growth really likely to come through from the B2B offering?

Thanks, Martin. I'll take the first question, and I'll hand over to the others on revenue outlook for retail leverage. So on interest rate sensitivity, there's going to be upside based on -- from an interest income perspective. But that's a very narrow view of how to look at what happens in a changing interest rate environment because, obviously, that in itself will also across geographies bring trading opportunities in the leveraged market as well because it brings more uncertainty there. But when it comes to interest income, specifically, yes, it will increase. But from an outlook perspective, not materially at a group level. We're talking low single-digit millions at the most this year.

And then -- so it's David here. So regarding the growth you're mentioning, so for us, it's not about growth either in the B2B or the B2C. Ultimately, for us, we're focused on growing all channels of the business. In terms of the B2C side, that's obviously more akin to market conditions. So as we look forward, I don't think it's going to be a quiet year, but obviously, we'll have to see how that pans out. And then the B2B is more about the product suite. So we've seen some fantastic growth in that area. And that's why we're sort of doubling down and investing more, rolling out further product enhancements. But yes, they complement each other. And that's why ultimately, we take the learnings across both fields when we look at our product offering.

The next question is from the line of Portia Patel from Canaccord.

I've got 3, please. The first 2 on the leveraged B2C business. So in terms of the churn for leveraged business, I noticed it was 37%, so noticeably above the historical average of 30%. I wondered if you could provide some color on why that was, given your comments around the nature of the customer being very similar to price cohorts. So how you expect this to trend going forward? And secondly, on leverage B2C, in terms of client acquisition, could you provide some color on the prospects for acquiring new clients, and I think in particularly given pressures on sizeable income band? And then the third question on leveraged B2B, you mentioned that leverage B2B volumes were up, but leveraged B2B net revenue was only up 5%. So I wonder if you could just explain why that was forming?

Portia, thanks very much for those questions. I'll take the churn one first. So I think what -- how you should look at that when you're looking at your forecasting is the fact that we had a bumper year for acquisition in FY '21. So if you look at that in absolute numbers in comparison to the total number of clients we have, that's why the total churn went up year-on-year. So you should expect that to normalize as the acquisition levels normalize year-on-year as well. So I think we had 26,000, 27,000 acquisition in leveraged business in 2021, and that's come back down to a more normalized 14,000 or so in FY '22. So as a proportion that will come back down again and percentage churn will normalize again. And from a client acquisition perspective, we -- it is getting a little bit more expensive now. We've been seeing that in the second half of the last financial year. But as Peter accentuated as well, there's a lot more to this business than B2C and direct marketing in order to acquire clients. And we've highlighted that in a number of presentations historically as well. That's one of the key reasons we do have a focus on institutions as well because we're less sensitive and less needful of increasing marketing spend. Hope that's useful on the first couple of questions, and I'll...

And then Portia, regarding, obviously, the leverage B2B. So yes, it's good volume growth over the year in line with what we saw in the underlying market. Obviously, the volumes themselves, when you look at the commercials, the spreads are far tighter, and there is a need. It's obviously hedge a lot more of the business as well. So it's costly from a hedge perspective. But that is an area of huge market potential and that's why, obviously, the focus is on us growing out that product and growing that line of the business. But that will give you the sort of background as to the disparity between the 2.

[Operator Instructions] Next question is from Vivek Raja from Shore Capital.

I had a few questions. The first one, Euan, thanks for your sort of setting of where the costs are going in, as you said, so roughly third in terms of BAU marketing and the last bucket was -- but anyway I was just wondering if you could give us a sense of which part of the business geographically those costs are going into, and particularly with reference to your sort of 7 new strategic initiatives? And associated with the sort of new guidance, what are you expecting -- in terms of your revenue growth targets, how much is sort of penciled in there for CMC Invest U.K.? On CMC Invest U.K., can you just give us an update in terms of what sort of partnerships you've -- discussions you've had? Or if not, when you maybe tell us about something there? And then I had a couple of questions on the CFD business. So could I start with those first, please?

Of course, Vivek, thanks for the questions. So ongoing costs geographically, so -- and by business line, naturally, you'd assume that we are building the CMC Invest U.K. business from scratch. So you are going to see higher costs in that business in the U.K and associated marketing. We -- like I was saying earlier, with the launch of a new brand and trying to appeal to a brand-new client base as well. So you're going to see investment there. You've also got in the non-leveraged area a fairly material investment in growing that Singapore Invest business as we'd be able to launch towards the end of this financial year as well. And then from an institutional perspective, that's where you get some more costs coming through as well. But that's not more kind of people again on the development area and our pricing and dealing functions in order to facilitate the new products and services that we'll be offering those clients. So that kind of hopefully gives you a geographical glimpse, which is a bit better for you. And then from a CMC Invest U.K. revenue guidance perspective, like we were talking about earlier around short-, medium- and long-term revenue potential, this is going from a standing start in the U.K. aside from we do have that existing leverage base that we would market to as well. So that in the short to medium term, we're not seeing a massive improvement in revenue from that specific area. But the B2C area does offer a shop window for future B2B relationships as well. So you've got to have that great offering that's out there so that our B2B partnerships will understand how we're different and hopefully perceived as better than the competition out there for a B2B perspective.

Vivek, it's David. Regarding obviously, conversations, you've got to remember, I think we spoke before that, when you look at these B2B relationships, something like the ANZ, wasn't an overnight chat. That's obviously can take years in the making. The conversations we've been having at the moment is pretty much through the existing relationships we have about us broadening out our product suite. So just like with the rollout to retail, right now it's about getting greater share of wallet. And then with our B2B relationships, we know what volumes we're currently receiving and then it's a case of how we broaden that as well. So we've become the one-stop provider of choice for them. So very early chats, no one specific, and time will tell.

I mean I think the gaps in the market for us on the investment platform space are, first of all, the cost, that's the opportunity, maybe not the gaps, but the opportunity is the cost, they're far too high with the incumbents. But also I mean, I can't think of any company that would offer a B2B platform or a white label or a great platform in the U.K. I mean there is nobody there. You can go and get technology bill. But don't forget the advantage we have as well is that if a potential partner comes to us, we can add their products to our platform, we can add our products to their platform. So if they wanted to offer their clients foreign exchange, if they wanted to offer them a crypto, that's all available as part of the B2B package. Matt Lewis in Australia has added options. He's adding cryptos. He does the foreign exchange when they do foreign shares. I mean I don't know the market that. I can't think of any firm that you would go to where you could get a white label to do -- invest in. But I think that's the big gap in the market, and we love that stuff. Matt's all over it. He's been banging on to us to get this platform done for a while. And the opportunity is the cost structure is far too high in the U.K. and the incumbents have been charging a lot of money for too long, and we're going to disrupt that. So he's excited. We always think of the income. We never think of the costs. I mean, we do think of the cost, sorry, that was quite a radical statement. But we get excited about the opportunity and then we -- and then Euan cracks the whip on the costs.

I always like your radical statements, Peter. I had a couple of questions on the CFD business.

Some of them get me in trouble. Sorry about that, yes.

That's right. So on the CFD business, David, when you talking through your slides, you sort of nuanced the client income retention guidance, obviously that came at 80% last year versus guidance of above 80%. I'm just wondering what you're thinking on that is you sort of referenced mix of flows. And then associated with -- well, on the same business, the volumes are quite different H1 and H2. So just trying to get a sense of what you think the normalized gross client income is whatever normalized means? And then I had a final question on the buyback. You've obviously worked through that program quite quickly. Just wondered when you might relook that GBP 30 million?

Yes. So in terms of the client income retention, I think when we first went out with it, we were talking around the 80% mark. So for us, we saw 80% in both halves, so you could say towards the lower end. But given the mix of flows that I was talking about, that's because of the growing proportion of institutional flow. So as you well know, we're not solely a retail provider. If -- with those flows, obviously, they could potentially generate a slightly higher income retention number, but we have got institutional flows within that. There is a greater propensity to be able to hedge that flow as well. So that's why it flows through to the increase in the hedging costs. As we look forward, I think we are still sticking with 80%. But what I was trying to earmark is that as you start changing the mix, where there's growing B2B and B2C stays as it is, that's why it may be towards the lower end at 80%.

Regarding the share buyback, I'll say a few comments on that. Did you finish, David, or not?

Yes. And then obviously, the only other outstanding point was regarding the gross client income. So I pointed to historical levels of how much it was per half. It really depicts what is deemed to be a normalized year. So I think obviously, we'll continue to look at the various halves. But from our side, it's about -- the flow will react to that -- of the market. So if we do see the year ahead with some volatility akin to what we saw before, then I think we can use the prior half as a good sense check.

Yes. Just on the share buyback, I mean, it's the first share buyback we've done. We've been public since 2016. It's all controlled by the Board. But I'm very supportive. I think that it's a growing frustration around here that whatever we say or do, we always get valued as a spread back company despite the fact that we're launching a new investment platform at minimal cost. Obviously, some people would say we need to prove that concept. But just look at what we've done in Australia. AUD 80 billion worth of assets. We transferred 1 million accounts over 2 weekends. We've got scale in the business. So we can launch an investment platform easily. We can do B2B. So if the investors don't believe in the story, we do. And I'm very supportive of further share buybacks for the company. But ultimately, that would be up to the Chairman and the Board. But I would be very supportive of doing more of this stuff going forward. Whilst the share price is depressed, and we're trading at less than 10x forward earnings on a business that since 2016 when we IPO-ed at GBP 2.40, we've had approximately GBP 200 million in cash to the balance sheet. We've paid out approximately GBP 200 million in dividend. We've added 1 million clients to our company, and we signed over 100 partner deals, including the ANZ and others. So there is a sense of frustration that the market doesn't understand us as a company, doesn't really want to understand the story. We keep banging on about it. But -- so if investors don't want to buy the shares, I'm sure this Board would love to buy the shares, especially me.

In summary, we see a share buyback as part of the balanced capital distribution policy alongside our current dividend policy as well. And as Peter was saying, this is a Board decision, and the Board will regularly review how we distribute our capital.

In the interest of time, that concludes the Q&A session. If you have any unanswered questions, please e-mail the Investor Relations inbox. I'll now hand back to Peter Cruddas for any closing remarks. Please go ahead.

Well, just to say thank you, everybody, for your interest, and we look forward to updating you on all these new initiatives. We're very, very excited about them. We have a lot of empirical evidence within the group, especially in Australia and why we're going into new markets. Looking forward to disrupt the investment market, really looking forward to that. I love business. I love a challenge. I'm not selling any of my shares. In fact, I'm getting more in directly through the share buyback. So I'm still here, still around, going to be here for another 10 years. See you all soon. Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.