XTB S.A. (XTB) Earnings Call Transcript & Summary

[Audio Gap] once again [indiscernible] the analysts with its financial results. What's next? We're going to talk about that today in today's program called [indiscernible] directly from [indiscernible]. I would welcome you cordially. My guest today is Omar Arnaout, CEO of XTB. Welcome. Welcome. We have to admit that the [indiscernible] index is highly predictive. When there are good results, you come up in person when you have worse results, then [ Philip ] is here. So this index works very well. We had a very good explanation because [ Philip ] just came back from vacation. So I'm not even sure he knows what the results are. Well, let's begin with the discussion about those results because I would admit that the results for Q2 made a bigger impression on me than the results in Q1, even though numerically, Q1 was better. But it seemed to me that in Q2, volatility and the market context were not so conducive, even so PLN 492 million in net profit. The question is once again, to what extent is this recurring result? To what extent should this can be considered some sort of extreme result? Well, it's a very difficult question to respond to whether or not this is recurring. Does that mean that I will expect that every quarter, we will generate PLN 0.5 billion in net profit? No, I believe that's clearly not the case. I've frequently spoken about that. Perhaps it's a little bit boring. Our results depend on factors that are controllable and factors that are not controllable by us. Certainly, the situation on the financial markets is not controllable by us. So if the market will return to a horizontal trend where nothing would be happening like last year, then it's clear that we wouldn't have results of this type. What contributed to these results being generated, I think the key word here is being steadfast and unwavering in every possible effect in terms of technology, in terms of a broad product offering, in terms of building a global -- strong global brand, had we not been so steadfast and unwavering, we would not have generated such results. What we should also take into consideration is that in 2 or 3 quarters, at the current pace of customer acquisition, we're going to be in a totally different position. So what's happening today where it seems that it was an outstanding interim period, PLN 0.5 billion in profit. So in a few years, this will be a market standard for a quarter. And then we can talk about like PLN 1 billion per quarter. So I believe that this is a standard. I would clearly not recognize this as being a standard. I think I said during our first conversation in February or March, I don't remember. Well, these are not forecasts. Having in mind the strength of our customer base, PLN 250 million quarterly was what I was thinking, but the strength of this customer base and the volatility were enormous. And that led to a situation in which we find ourselves. Of course, it was a wonderful quarter, not even just a quarter, but a wonderful interim period for 6 months. How strong does the customer base have to be, the extreme that we saw in the first half of the year, Q1, for this to be the standard that in a few quarters, as you said, that you're going to be able to generate PLN 1 billion of profit per quarter. I think the PLN 0.5 billion per quarter is going to be a standard more or less in 2 years. Basically, I'm guessing in terms of the date, having in mind the high number of customer acquisition, and this will just -- the pace will pick up. If we look at -- if we track that against last year, it was the first year in the history of the company that in a single month that we were able to attract more than 100,000 customers. We haven't had a single month this year where we wouldn't have at least 100,000 customers. So it's usually the case that the best results in a given year is sort of the minimum from the next year. So I think that's going to happen. So in the first half of the year, we had more than 700,000 new customers. So honestly, I wouldn't be surprised if we were to have more than 1 million new customers in the first half year of next year, and that will lead to a situation in which 0.5 million per quarter is going to be a standard sooner or later. That's something that's going to happen. I remember our conversation about customers when you acquired the first 1 million. And then you said it took us many years to get to that first million customers and the next 1 million is going to be acquired much more quickly. And it seems that, that next million will be this year. Of course, we're going to have that million. We had talked about the fact, I think the first 1 million, it took us roughly 20 years, a little bit more than 20 years to acquire million customers. This year, I think 1.2 million, 1.4 million we should acquire. So the customer acquisition pace will pick up. In terms of the markets where you're present, where are you attracting the highest pace. In terms of customer numbers, we have the highest pace in Romania, no doubt about that. I think the French market is also amongst the top pack in terms of a percentage increase in customer numbers. I would say it's Romania and France. But in terms of trading volume and profits, it's clearly the German market. And I'm pleased by that because we have talked about that several times. If we want to be the largest investment company in the EU, we have to be amongst the top 3 in France and Germany. And it seems that step by step, we're going to be able to achieve that. If we look at the numbers, Poland is still a leader in terms of the number of customers, that's clearly -- there's no other market that even comes close to Poland. I think there's a large number of reasons for that. And it would be easy to say that we could create another Poland. There are many reasons why we're the leader in Poland or why Poland is the leader in terms of revenue and accounts, number of accounts. We're the market leader in Poland from the very beginning in terms of CFD instruments. As of last year, we're the leader in terms of equities. I think 8 of 10 customers are setting up accounts in XTB, if I remember correctly. And the Polish Stock Exchange compared to other markets, well, it's very expanded developed comparing to the Czech or the Portuguese or the Romanian markets, there's no comparison. There's a large amount of interest in the pension products like IKE and IKZE, no comparison to other countries. So I could give a large number of reasons why Poland is still the leader in terms of the number of accounts and revenue we're able to create another Poland out of Portugal or Slovakia, and that's obvious. And that's why there's such a strong focus on the German and French market. And I think next year, the share of Polish markets and revenue with respect to the rest is going to decline, probably those markets along with the United Arab Emirates. So this will be a more equitable situation or spread up. You'd like to go drop below the 50% threshold. I think it's around 60%. So if we drop below 50%, 40% so I'm going to be very happy if we drop below 40%. What is the time period, roughly 2 years. So let's continue this theme about the international markets. You had mentioned this the last time we talked. You are focusing on Western Europe above all. What has changed? What's happened since our last talk? Because you've talked about that and analysts have talked about these are not easy markets. What's happened? Well, from the vantage point of our research on these markets, if we look at the French market, having in mind the growth rate this year, we're #2 amongst all companies in France. And I think that's an enormous achievement. We're starting to be perceived, let's say, as multi-asset broker by the mass customer. So if this trend is going to continue, probably at the end of this year or after Q1 2027, we'll be #2 or in the worst case, the third largest investment firm in France. And that's going to be a very decent result. Of course, next year, we're going to want to increase substantially our marketing budgets in France. We have a very good product. What will come with that if we won't talk about our products, our product to the same extent as the competition. So if we talk about the German market, this market has seen the largest percentage incremental growth in terms of trading volume at present. Just after Poland, we have Germany. And a few years ago, Germany was #5 or #6 compared to Poland. So this is an enormous success. The drawback of the German market is that up until now, we've not reached the masses. This will change. Just like in the French market, we have to substantially increase our marketing budgets, our marketing spend as we begin 1 January 2027. At the same time when OKI will be implemented, we'll have 2 new pension products being implemented in Germany. We have some plans which should assist us in reaching the masses. What about the U.K.? The U.K. is a test. If we're talking about enormous accomplishments or successes, I can't brag about anything right now. We had the biggest campaign in April and May, not so much time has transpired. But honestly, we don't have anything to brag about. You talked about France, about these numbers, about the accomplishments. You talked about the German market. are the businesses in France and business profitable? Are you still at the stage that you have to add some more money, and you'll see the results. These are very profitable markets. If I'm not mistaken, in H1, I think only the U.K. wasn't profitable. Everything else has been profitable, very profitable. Do you have ambitions for U.K. to penetrate. Of course, we have ambitions. The bigger priority is attached to the France and German markets because we're closer to being successful because we don't have to spend so much money in order to learn whether or not we'll be successful or not. The U.K. market is highly competitive, and it's not a matter of just the contemporary competition, but even the older competition, which has left recent years, has finally woken up and they're spending astronomical amounts of money. So the question is being posed whether or not it's worthwhile spending a lot of money to find out whether or not we might be successful. We'll wait and see. Is there a go/no-go period that we're not going to be successful in the U.K. I think October of this year, we're going to start the budget planning for next year. And certainly, we're going to have to make that type of decision. And this decision would be made about Indonesia. Have you made that decision? Well, in terms of Indonesia, several things have changed. The first thing when we talked recently, I mentioned that the interest in terms of the numbers of new customers is amazing. We haven't so quickly on any other market achieved the 10,000 new customers per month as in Indonesia. And so the brand is not so strong in Indonesia. The difficulty is with the amount of the deposits that is no longer -- is no longer a problem. We would like to have higher deposits, but those deposit amounts are not problematic anymore. So I think we'll receive a license to offer some CFD instruments. It won't be for all CFD instruments. It will be [indiscernible] and commodities. So realistically, having in mind that the interest in these accounts is enormous, that the deposits are growing and that we won't have any other product groups. So I'm not thinking about us closing Indonesia at all. I think that I'm very positively surprised how the last 2, 3 months have gone in Indonesia. So we have France, Germany, the U.K. as a question mark. Indonesia will stay around for now. What about international expansion? That's it. That's it. You're not planning a budget. And then you think, well, let's see -- I see another country. Maybe we should give a try here. No, having in mind the fact that we run transporter activity without having a branch in Hungary or in Italy. The only thing that could show up, we might decide that we should try to focus on the XYZ market without a license. So this is not a project that's too demanding. It's not too costly, and then that could be done. But in terms of obtaining a new license, setting up new structures, clearly, we want to hit. I recently heard about Lithuania. Well, Lithuania is a different subject. There are 2 aspects that I would -- that are worth mentioning in my opinion. When we talk about Lithuania. We have a license in Cyprus. And I will talk about that in a moment for an obvious reason. Well, initially, Lithuania is probably the largest fintech center in the EU. I think that's astonishing to most people, especially when it comes to payments. Second thing that's worth mentioning, some of the largest global companies are regulated in Lithuania like Robinhood and Revolut. Why then? Why Lithuanian? I think I've already responded to that question because it's a fintech center, a lot of competition. But generally speaking, why do we need Lithuania? I think for a very similar reason why we need Cyprus -- why Cyprus -- was needed Cyprus. Having in mind that a large amount of the coding in our tech department is linked to AI. If it's linked to AI, that means in time, we're going to be able to roll out products much more quickly than in recent months and years, so on and so forth. So if product creation in terms of coding will not be a major challenge, the most important thing for us will be the opportunity to offer those products. And some of these products, additional licenses will be needed, and that's obvious. We need to be able to get those licenses very quickly as quickly as possible. One good example, that's why I mentioned Cyprus because we still don't have [indiscernible] and we have the crypto assets licensed in Cyprus. We have the opportunity to offer options in Cyprus earlier than in Poland. And so I think Lithuania is a great spot in the future to be able to implement products more quickly. I think it's noteworthy. I don't want this to be misunderstood. We, as a company, I thought you were trying to make some sort of accusations or allocations against the Polish government. We're a Polish company, nothing is changing in terms of our head office. We have too many wonderful experts for suddenly to say that it's now time to change and relocate our place of residence. We don't have plans for that at all. If we're going to be able to get a license in one location more quickly, we want to offer that product from that place more quickly. It doesn't matter if Lithuania, Cyprus or Poland. A few themes have shown up. Let's talk about marketing budgets and costs related to marketing. PLN 200 million in Q2, a little bit less than in Q1, PLN 235 million. Is this a seasonal impact having in mind the theme you discussed October decisions in terms of what's going to happen with Germany, a stronger marketing campaign in Poland, the discussion about OKI probably. I'll leave OKI to the end. Let me begin with marketing. From the point of view of marketing, this year, we've increased -- speaking from memory, I think we increased our marketing spend by some 50%. Our operating expense is up by 30% and marketing spend is up by 50% in subsequent years. Regardless if we're talking about 2027 or any other subsequent year, this will probably range from 30% to 50% more. There are places where we're reaching the ceiling, maybe that's not the right word. We can always spend more. But from the point of view of the knock-on effect, we're reaching the ceiling and there's not much sense to spend a lot more like in Poland. If we think about Poland, if I should consider whether I wanted to spend more in Poland on social media, on Google and so on and so forth, no. Of course, I could spend 5%, 10%, 15% more. Is that highly sensible? I don't think so. You've already taken the Polish Internet. Of course, there are other places in Poland where I would like to be present. I would like to talk about that. But I can't say anything about it in terms of a prospective dream in terms of branding. There is still room, but not from a performance point of view. So when we think about Germany or France, we're spending 40%, 50% of what the biggest local competition is spending. There's an enormous amount of room to spend more and to do it efficiently and to get a return on that. So if we're going to have 30% to 50% increase in marketing spend in subsequent years, so 56%, I'm just guessing right now. This will be linked to the German budget, the French budget and probably the United Arab Emirates. Do you want to spend as much as the local German competition? I think ultimately, we're going to have to equal their spend. You can say we're going to have a better product and so on and so forth. But if you don't speak about something loudly, you can't reach the masses. We were successful in Poland, Portugal, Slovakia and so on and so forth. We're always the leader in terms of our marketing budgets. We're amongst the leaders, at least in the Czech Republic, we're amongst the leaders. We're not the leader there. It's very difficult to be successful if you're not amongst the major market spenders. The marketing spend, marketing costs are higher in Germany than in Poland. If you think about per activity, specific activity, they are more expensive. I will say one thing before I give a remark on that. What's interesting here that in 2026, this is the first year in the history of XTB when Poland doesn't have the highest marketing budget. And this is something that partially illustrates why we're the leader. So in such a big market and competitive market like Germany, France, England, we spent less than in Poland. Why should we anticipate that we can be the leader in those markets? Well, the German market has the largest budget -- marketing budget, and it's certainly more expensive. In terms of Google activities, things are a little bit different. But if we're thinking about placements, sponsoring contracts, branding activities, there's no doubt whatsoever that they're more expensive. They're more expensive in the Czech market. So Poland is not so expensive as a large portion of Europe. The next thing that we should say about the German market, the customer acquisition cost is larger, not because basically, the customer acquisition cost is higher because it is. How should I phrase this? You don't have that snowball effect in Poland if somebody wakes up this morning and says, I would like to start investing. Probably. I'm not saying that in every case, it would be this way. Probably they would choose XTB. So if I would like to drink a cola or Pepsi, so my first choice will probably be Coca-Cola or McDonald's. So we're a little bit like that McDonald's. But in German market, we're not that McDonald's yet. So we have to [indiscernible] a situation in which we're going to be the company first choice. Are you not afraid that in the German market, you're going to burn a large amount of your money? So I would be fearful had I not had the experience from last year and this year. So our marketing department is taking great pains to make sure that they're actually call to account based on the numbers. Everybody is capable of spending money, but to do that and get a return and do that better than the competition, I think this is the key. So if this were to depend on the marketing budget amount, let's not fool ourselves. There are companies in Poland after all, amongst our competitors. I don't want to speak of those competitions, but they had higher marketing budgets than we do. They're no longer around because marketing isn't just about spending more because every company in the world would be successful because everybody spend a lot of money. This is what I'm least careful about because if something doesn't work, we stop doing, but we're doing what is successful. If we're thinking about Q3, Q4, you're going to spend more than PLN 200 million than what we saw in Q2. It would be hard for me to say exactly what's going to happen in Q3 because it's in part of vacation period. I would say it's going to be close to Q2. Q4, as usual, is going to have the biggest marketing campaign. Preparations are underway to do that campaign. It will probably begin in mid-September as usually is the case. And I would say that's going to be the most expensive campaign. New faces, I can't say anything about that at this point for various reasons. The next time when we meet, I'm going to be able to speak to that subject. New faces, I don't know. We're certainly have new cooperation arrangements. Last time, we talked about Naples and FIBA and the falls in Paris. The marketing department is acting very actively about various cooperation arrangements, maybe at our next meeting or even before that, we're going to be able to brag about some very nice collaboration contracts. So marketing, it depends on your decisions about the spend. So the increase will be in Q4, probably, unless you have a plan in order to cut those costs. No, I think it's going to be exactly the way you put it. The next topic, which has showed up in our discussion, these are new products, options, credit assets, OKI. Let's begin with options. You're waiting for a green light for the Polish market. [ Mhowski ] from Noble Securities suggested that there's a chance that options could show up this year in [indiscernible]. Do you see that opportunity? Yes. Honestly, I would be surprised had were options not to show up this year. In most cases, we have options across the European markets. I think for Poland, it's going to happen this year. We're up to date in terms of the discussions with the Polish FSA. So I think it will happen this year. What is the market reception like in other countries? Well, up until now, let's say, we haven't spoken too loudly about them. There's a limited number of customers who have access. In other words, if we were merely to analyze the customers who are trading options at present, even without spending any money on marketing and communication, this would be a surprisingly large take-up from the perspective of revenue in next year. We're talking about too small of a group. It's only a few thousand customers. It's not a very small number, but it's not a very large number, but it is already looking quite better -- much better than I thought it would. This is not a simple product. I think this is the most complicated product from among all the products we offer. So if the interest is so extensive at present, and I think this could be a pretty good contributor to revenue crypto currencies. We're waiting for regulations in Poland. And here, we have the Ciprian theme. Well, it's supreme and non-supreme. Two weeks ago, we started to offer crypto currencies in Chile. Again, it's a test group that doesn't alter the fact that in 2 or 3 weeks, we will start advertisements more extensively. Everything is working very well. We're happy. In Q3, based on the Ciprian license, we'd like to offer crypto currencies in the Spanish market. So this is something that's getting started. So in Q4, I hope other European markets will be added. Of course, we keep our fingers crossed for NIC and Poland. We would much prefer to do that here. I understand this pains you hit pains me greatly, quite honestly. If I could change anything or if I could remove any point of pain, it would be Mia in Poland. This is the biggest pain point for us in Poland. Another product which is supposed to be implemented. This is okay. This is where the President is supposed to say. Can you make a bold statement how quickly we have 1 million customers? And what sort of impact will that have on your business? Let me speak about this differently. Every product has a bigger or a smaller impact on the budget, on the revenue. We most certainly -- I think -- at one point in time, I've talked about that. Our approach is that every product should be profitable. It's not our mindset that thanks to OKI, we're going to bring through the doors a large number of customers, and they'll start then to trade equities, ETFs or CFD instruments that will start earning money. That is not our intention at all. We're earning more and more on equities and ETFs. So I think the expectations are similar. We don't have targets for the team that are setting up OKI product. It's too early for that. It's premature. Once it's implemented, the team is dealing with that. If they're listening to me, they know perfectly well that they will have targets for OKI. This has to be a product that will be profitable. We can't take into consideration that we'll be late. It has to be ready. If the implementation date is the 1st of January, we have to be ready. Well, another 2 German products are in the works. What's the most important thing to us from the product side of things, no pressure whatsoever, of course. This is the German product and the OKI product. Are you not fearful that when it's implemented the OKI products that as a matter of paradox, this might draw the attention of the Polish FSA because you're going to want to encourage customers to move over into CFDs. Well, maybe let me speak to a few topics. We are in constant contact with the Polish FSA. We have meetings this week. We don't want this to be a matter of surprise for the commission or for ourselves. That's why we have a constant contact -- so what's important from the point of view of the commission, they want access to less risky products of equities and ETFs. What's important for the commission, if the access is easier for those products, the suitability of products who want to utilize or trade CFDs, it has to be tested well. So it seems to me that's not at all the case. I don't want this to sound arrogant or anything like that. But if anybody in Poland is to be successful in promoting OKI, we will be the parties who are successful as if 8 of 10 customers who make investments in Poland select XTB, the same will be true of OKI or perhaps it will be even better. So I think our interest quite the contrary to the appearances are aligned with KNF and ourselves, but it's very important for us who are customers who are not suitable to utilize CFD instruments for them not to have access to those instruments. Right now, I may not be able to say this, but let me give you an estimate. What's crucial, there is no cross-sell in our case. we don't have communications directed to customers who are investing in equities and ETFs. We don't talk about why don't you start investing in gold. That's not something that's done because that's not permitted. So if we were to think right now, what large -- what's the number of customers who start with equities and ETFs and then move on to CFD instruments. How large that number is? I would say that many people would be very surprised at how small a number that is. I'm only speaking from memory. I might be in air, but people who move from equities and ETFs to CFD instruments, I would say that's less than 15%, 20%. That's not the case that XTB is encouraging people to invest in safer investments and then for customers to be moved over to CFDs. That's not at all the case. These are very small percentages of customers. So there's no cross-sell, but those guardrails between customers in equities and ETFs, people who are utilizing OKI and the CFD instruments, you could continue to have those guardrails because in your app, if we look for specific positions, we see CFD instruments, we see equities. So beginners might have a difficulty in terms of understanding what is what. I think the biggest challenge is in terms of communication and UX. There's no doubt that everything should be in a single app. It's enough to look at the global standard. Let's take a look at Revolut Trade Republic, Robinhood, European competition, [indiscernible], so on and so forth. There is no modern investment firm in the United States or in Europe, the least company that I would think about that would say, let's create 5 different apps per product. What's important to us is to check the suitability for instruments for customers and having a 2-stage onboarding process. Usually, you onboard customers for equities and ETFs if they're interested in CFD, and there's a very onerous onboarding process for that product. This is where I think we should focus, plus the communication UX topic. This should be very transparent. Even in the current state, as I mentioned, where customers have started with safer products and are moving over to CFD, I would say this is less than 15%, 20%. So it's not a massive scale as some people thought. Okay. You mentioned many times about relations -- your relationships with the Polish FSA. Well, paper, of course, can accept any point of view. But does this have a real practical angle? Let me speak about that a little bit from a diplomatic angle and a little bit wrong. I'm actually a very good mind. Our recent meetings look very good. My feeling is that we are and will be supported for an important element of the economy and in the investment industry. On the other hand, that's why we have additional licenses like in Cyprus or Lithuania to have options A, B and C if something were to be unsuccessful. But I'm a very good mind. It's not the case that paper can embrace any point of view, then we wouldn't have to think about Lithuania or Cyprus in terms of offering other products, we could set up a Ciprian company or a Lithuanian company, not the Polish company. And so do you have a pool of money for additional penalties? Well, we don't set aside money for penalties. From our point of view, the word always is a strong word. I do believe that what we're doing is being done well. We have a large number of specialists, experts. So when we think about products, new license, we ask for external opinions to make sure that a large bulk of what we are doing. It's not only a matter of what we think, it's how things should be done. I think it's worthwhile to mention one thing here. If we were to take a look at our offering and compare with what we're doing in terms of systems, all of the international competition, we're not doing anything exceptional. I think you can say a large number of good things about XTB. I wouldn't say that we're an innovator. We have a standard in terms of what the standard products that the competition is offering. Well, I would like to come to work. We've really thought up a totally new nice product. Well, there's no time to do that. There's a group of products and services that are available in the world, and we want to offer them with the best possible technology in the best possible way. So when we talk about products, I was supposed to ask you twice, and it escaped my attention. So when it is going to be possible to transfer IKE and IKZE? I think you're talking about a web app because that was possible. But I think that's something that it's already possible. So let's again be [indiscernible]. The competition doesn't make it easier to transfer IKE and IKZE contracts or accounts. I think the bulk of the accounts we have, those are the first accounts for those people in IK and IKZE. I don't think it will change drastic. It doesn't matter if we're talking about Poland or France or any other market. Well, the competition doesn't make it easy to switch suppliers. One question about [indiscernible]. After the first quarter, you mentioned the extended spreads. As a result of the higher volatility, has that remained in place? Again, there are 2 themes here. Well, the [Audio Gap]