A global leader in online trading

Transcription

1 CMC Markets Plc Annual Report 2008 A global leader in online trading CMC Markets Plc 66 Prescot Street London E1 8HG United Kingdom Registered Number A global leader in online trading Freephone T +44 (0) F +44 (0) E info@cmcmarkets.co.uk CMC Markets Plc Annual Report 2008

2 The CMC Markets Plc group ( CMC Markets ) is a market maker in online retail financial services and both a global leader in the provision of contracts for difference (CFDs) and one of the largest financial spread betting service providers in the UK. With a global footprint spanning four continents, CMC Markets international network of 23 strategically positioned offices supports clients from over 85 countries worldwide. The CMC Markets trading experience allows clients access to international financial markets by offering over 3,000 individual trading instruments, distributed in over 30 markets, covering equities, indices, commodities and foreign exchange, all via the award-winning Marketmaker trading platform. Contents 1 Highlights 2 Executive Chairman s statement 6 History of CMC Markets 8 Business overview 14 Our strategy Governance 16 Directors report 19 Corporate governance report Consolidated financial statements 21 Independent auditors report 22 Consolidated income statement for the year ended 31 March Consolidated income statement for the year ended 31 March Consolidated balance sheet 25 Consolidated statement of changes in equity 26 Consolidated cash flow statement 27 Index to notes to the financial statements 28 Notes to consolidated financial statements Parent company financial statements 47 Parent company financial statements 48 Notes to parent company financial statements 51 Global offices IBC Corporate information

3 Annual Report 31 March Financial highlights For the year ended 31 March % Revenue +42% Profit before tax adjusted (1) +45% Earnings per share basic adjusted (1) +209% Profit after tax statutory +210% Earnings per share basic m m m m p p m m p p (1) Before amortisation and impairment of intangibles arising on consolidation and exceptional items Other highlights Goldman Sachs becomes a strategic investor in CMC Markets Plc by acquiring 10% of its share capital. Acquisition of Andrew West & Co. Limited one of the last fully independent stockbrokers in Australia. Acquisition of Digital Look Limited a leading UK provider of financial research information. CMC Markets opens six offices Singapore, Tokyo (Japan), Stockholm (Sweden), Vienna (Austria), Edinburgh (Scotland) and Dublin (Ireland). Annual value of client trades USD 1.4 trillion (an increase of 47%). Annual number of client trades 20.1 million (an increase of 49%).

4 2 Annual Report 31 March 2008 Executive Chairman s statement Lots to report in this year s Executive Chairman s Statement with so many exciting things happening across the business from record profits, acquisitions, new office openings, more awards won and an investment in CMC Markets by Goldman Sachs. It was very good to win awards around the world. We won awards for our technology and service in Hong Kong, Germany and Australia, as well as many awards in the UK. A selection of these included: Best CFD Provider Investors Chronicle (UK). Best Online Trading Platform Shares Magazine (UK). Best Spread Betting Broker and Best CFD Broker awards Trade2Win (UK). Best CFD Provider award Brokerwahl (Germany). Best of the Best award and Best CFD Provider of the Year 2008 award Money Magazine (Australia). Outstanding Business Leadership award East Week (Hong Kong). Best FX Company Capital Weekly (Hong Kong). The financial year ending 31 March 2008 proved to be another record year with increases in business across the Group, including records being set by individual offices and departments. CMC Markets delivered record revenues of 181.4m representing a 64% increase on the prior year. Adjusted profit before tax was 66.4m, a 42% increase on the prior year. In addition we hit some very key milestones for the business this year: USD 1.4 trillion, the value of client trades (an annual increase of 47%) million total number of client trades (an annual increase of 49%). 1,064 employees working for CMC Markets globally at 31 March 2008 (an annual increase of 47%). The world s markets were very volatile with record prices in most major commodities, including oil and gold, and stock markets moving aggressively up and down throughout the year. Market volatility has had a strong effect on the business, generating lots of trades because clients will seek out any major asset class that they can invest in. If the stock markets are volatile, clients can trade commodities or currencies, treasuries and indices - we offer these in the efficient trading product structures of CFDs and financial spread bets. The big advantage that CMC Markets offers its clients is a fully integrated trading platform, allowing clients to trade over 3,000 different financial instruments in one account, in one currency and in real-time via the internet. The system takes care of front, middle and back office in real-time, and clears all trades immediately. All clients have to do is click to trade on any of the world s major financial markets. This is the bedrock of the growth of CMC Markets. In effect, by offering CFDs and financial spread betting, our clients have a generic financial product to trade the world s markets. In addition, by continuing to open overseas offices, we can further expand into new markets opening up more potential business opportunities. This business model has helped us to open 23 offices around the world todate and we are now seeing strong growth in most of our overseas offices. During the year, we opened six new offices Singapore, Tokyo (Japan), Stockholm (Sweden), Vienna (Austria), Edinburgh (Scotland) and Dublin (Ireland). These offices are already starting to show signs of strong growth, with half of them already being profitable. The other existing offices are performing well and have all contributed to a year of record profits. We expect to open several new offices this coming financial year. We underpin our superior client service proposition with market leading technology. We have understood technology and its value to the business since we launched our first internet trading platform in 1996 and we continue to invest in technology as the driver to further expand the business. We are confident that this technology, which we have developed entirely inhouse, will continue to meet our strong growth plans and enable us to continue to lead our chosen markets. In addition to organic growth, we acquired two companies during the year. Digital Look Limited, acquired in May 2007, is one of the UK s leading providers of financial information, market and company research, offering indepth analysis of a broad section of financial markets. In addition, Digital Look has a strong technology team offering outstanding solutions to our clients. We acquired Digital Look to enhance our Marketmaker trading platform through technology and content and to offer additional services to our clients, particularly our partners. In effect we want to offer our clients market research, analysis and execution, all from one platform. Digital Look was acquired to bring new services to areas of the business where we did not have existing coverage. Digital Look is a profitable business and growing significantly. In Australia, we acquired Andrew West & Co. Limited (AWS) in December AWS was one of the last remaining fully independent stockbrokers in Australia, with all others being owned by major banks.

5 Annual Report 31 March The big advantage that CMC Markets offers its clients is a fully integrated trading platform, allowing clients to trade over 3,000 different financial instruments in one account, in one currency and in real-time via the internet. Peter Cruddas Executive Chairman

6 4 Annual Report 31 March 2008 Executive Chairman s statement continued This acquisition has enabled our Australian business to offer clients a fully integrated trading service that now encompasses CFDs, physical shares, education, research and analysis. The Australian market is slightly different to the UK market in that there are tax and pension planning incentives that encourage physical share ownership. Although our business is strong in Australia, some of our clients were trading CFDs with us and physical shares with other brokers. We have now filled this gap and the physical share business continues to grow. There is also the significant opportunity to cross sell our products to Digital Look and AWS existing client bases and jointly develop new products and services. The big news of the year for everybody was that the shareholders of CMC Markets decided to sell ten percent of the business to Goldman Sachs. The shares were sold by some members of staff but the bulk were sold by my wife and I as the major shareholders in CMC Markets Plc. Even after the share sale, we continue to hold around 86.8% of the shares in CMC Markets Plc so I am still very much committed to the onward growth and expansion of CMC Markets. The logic behind the sale was simple. Goldman Sachs approached us because they wanted access and exposure to the space in which we operate in the retail market. They demanded the best of breed and, being the market leader, they naturally came to CMC Markets. Goldman Sachs coming into our market place is a strong endorsement of our business model, our strategy and recognition of our excellent business, as well as a shared vision for the future of financial services to retail clients and the growth potential that exists. Investors from around the world want to trade our products on our Marketmaker platform. Goldman Sachs have recognised this and have invested in CMC Markets to help us develop our business and, at the same time, offer our products and our platform to their clients and partners around the world. This is a fantastic business opportunity for CMC Markets. It means that we have access to greater numbers of potential clients and the support and assistance of the world s leading investment bank. We have already begun the process of working with Goldman Sachs on various global projects. During the year, we also added two executive directors to our already strong Board and two non-executive directors. Jim Pettigrew joined us as CEO from Ashmore Group Plc (Jim was previously CFO at ICAP Plc) and Doug Richards became our new Global CFO (Doug was previously with Centrica Plc). We also appointed Simon Waugh as a non-executive director to replace Jim Pettigrew as a non-executive director on his appointment as CEO. Simon has previously held a number of senior positions in major retail financial services companies, including American Express. In addition, Jan Boomaars of Goldman Sachs was also appointed as a non-executive director. I felt that, being a global business with offices on four continents, we needed to continue to strengthen our management team. Jim, already a nonexecutive director, understood the business very well and I am pleased that he came on board to help further expand the business. All in all, this was another excellent year in the history of CMC Markets. Every year I seem to say the same! However, if you look back on the year, you have to say it has been our best yet for the following reasons: We grew revenue at 64%, of which almost 60% was organic. We acquired two companies. We opened six new offices. Goldman Sachs invested in CMC Markets. We strengthened our Board of Directors. Our robust technology continues to perform well in very volatile markets (which tend to generate increased trading volumes). So many things to be proud of and happy about but the job is still not done. There are still tremendous opportunities for CMC Markets around the world. We are constantly looking for acquisitions, opening new offices and expanding the business. It s all very exciting but there is no time to sit back and relax because everybody is motivated to push the business forward. Finally, I would like to thank very much our talented staff for their tremendous efforts in making this year such a great success. I fully expect next year s Executive Chairman s Statement to be just as exciting. Peter Cruddas Executive Chairman 3 June 2008

7 Annual Report 31 March Existing offices New offices Vancouver Toronto New York Stockholm Edinburgh Dusseldorf Dublin Berlin London Munich Frankfurt Vienna Beijing Tokyo Hong Kong Singapore Perth Melbourne Brisbane Sydney Auckland There are still tremendous opportunities for CMC Markets around the world. We are constantly looking for acquisitions, opening new offices and expanding the business. It s all very exciting but there is no time to sit back and relax because everybody is motivated to push the business forward. Peter Cruddas Executive Chairman

8 6 Annual Report 31 March 2008 History of CMC Markets CMC Markets is established as a foreign exchange market maker. 89 CMC Futures becomes authorised and regulated in the UK. 92 CMC Markets launches the world s first online, commission free, real-time FX trading platform and sets the standard for the industry. 96 CMC Markets receives the Millennium Product Award from the UK Government for innovation in the 1990s, honouring our trading technology CMC Markets launches CFDs, underlining its commitment to offering the most competitive and innovative trading products available in the global market place. 01 CMC Markets Marketmaker trading software receives the top award from Euromoney Magazine for the Best Independent Non-bank FX Platform globally. CMC Markets launches its online spread betting service and introduces the revolutionary Daily Rolling Cash bet it becomes a benchmark for the industry. 02 CMC Markets first Australian office opens in Sydney, regulated by the Australian Securities and Investments Commission. 03 CMC Markets Marketmaker trading software wins Shares Magazine 2003 award for Best Trading Platform and Best Spread Betting service. CMC Markets opens in New York and becomes a member of the National Futures Association. awards

9 CMC Markets wins Best Spread Betting Service from Shares Magazine and Best Spread Betting Firm from Investors Chronicle, for the third year in a row. CMC Markets also wins Best Spread Betting and Best CFD Provider from Trade2Win for the third year in a row, as well as Best FX Provider. CMC Markets opens New Zealand office in Auckland under the authority of the New Zealand Securities Commission. 06 The nineteenth CMC Markets office opens in Singapore. CMC Markets acquires Digital Look Limited, a leading UK provider of online investment market data and intelligence to the retail investor. CMC Markets opens its first Nordic office in Stockholm, Sweden and opens in Vienna, Austria. Jim Pettigrew, formally of ICAP, appointed Chief Executive Officer of CMC Markets. CMC Markets announces the launch of its Japanese subsidiary, CMC Markets Japan KK, after obtaining a licence to offer CFDs to retail clients. Goldman Sachs becomes a strategic investor in CMC Markets Plc by acquiring 10% of its share capital. CMC Markets successfully completes negotiations to acquire leading Australian non-advisory stockbroking group, Andrew West & Co. Limited. 07 CMC Markets Germany voted CFD Provider of the Year in the German Brokerwahl competition for the third year running. CMC Markets continues its rapid global expansion plan with new office openings in Scotland and Ireland. CMC Markets becomes the first CFD provider to join the Investment Industry Regulatory Organization of Canada (formerly the Investment Dealers Association of Canada (IDA)), the national self-regulatory organisation for the Canadian securities industry CMC Markets Market maker trading software wins Shares Magazine award for Best Trading Platform. Investors Chronicle and Trade2Win award CMC Markets Best CFD Provider and Best Spread Betting Provider awards. Incisive Media announces CMC Markets the winner of their Best Spread Betting Site award. awards 05 CMC Markets Market maker trading software wins Shares Magazine 2005 awards for Best Online Trading Platform (for the third year in a row) and Best Spread Betting Provider. Best CFD and Spread Betting Provider awards are presented to CMC Markets by Investors Chronicle and Trade2Win for the second year in a row. CMC Markets launches One-Click dealing and Market maker:mobile, further enhancing the quality of their trading platform. CMC Markets opens its Beijing Representative Office. Approval to operate the new office was granted by the China Banking and Regulatory Commission. CMC Markets Asia Pacific obtains a licence from Hong Kong s Securities and Futures Commission and opens its Hong Kong office. CMC Markets further expands its presence in the Americas with the establishment of an office in Toronto, Canada under the authority of the Ontario Securities Commission. CMC Markets opens in Frankfurt under the authority of the Federal Financial Supervisory Authority (BaFIN). In August 2005, the Group rebrands, simultaneously replacing all existing brands (including deal4free ) with one global brand, CMC Markets. In addition, the Group opens branch offices in Melbourne and Brisbane in Australia. CMC Markets Australia wins Best Multilingual Technology award from the National Multicultural Marketing Awards.

10 8 Annual Report 31 March 2008 Business overview Products and services CMC Markets offers a wide range of financial products and services to a global client base. This section explains in further detail what these are and details the market growth drivers relevant to CMC Markets. Contracts for difference (CFDs) CMC Markets is the leading global provider of retail contracts for difference (CFDs). Originally used by large institutions to cost effectively cover their equity exposures, CFDs are now a common place trading tool used by retail investors around the world and remain one of the fastest growing forms of financial trading worldwide. The success and growing popularity of CFDs is due to some of the powerful benefits that CFDs offer investors. A contract for difference is the settling of a contract (between a buyer and seller) for the difference between the purchase price and sale price of a financial instrument. Without having to physically own the underlying financial instrument, an owner of a CFD is allowed to participate in the performance of that instrument. CFDs are offered on a wide range of underlying asset classes such as equities, commodities and treasuries. The major benefits of trading CFDs are that they offer the active investor both leverage and short selling, benefits which are not easily available to retail investors trading the underlying instrument through traditional brokers. CMC Markets has been at the forefront of revolutionising the use of CFDs across the globe, taking this institutional trading tool and making its advantages widely available to a retail audience. Financial spread betting CMC Markets is one of the largest financial spread betting companies operating in the UK. Primarily a UK focused product, financial spread betting offers the UK private investor a fully tax free alternative to trading on the world s financial markets. Foreign exchange CMC Markets is one of the largest foreign exchange market makers globally via its CFD and foreign exchange spread betting businesses. The foreign exchange market is the world s largest financial market. Traditionally an institutional or inter-bank market, in 1996 CMC Markets launched the world s first online retail FX trading service. The retail FX investor is now commonplace with access to the FX markets made easy through online trading services such as the one launched by CMC Markets more than a decade ago. Foreign exchange trading is popular as it is a true 24 hour market and often extremely liquid. This means clients have access to larger trading volumes, tighter dealing spreads and lower margin rates than other financial markets. It also means foreign exchange markets are less prone to severe market movement than less liquid markets such as equities. Stockbroking With the acquisition of Andrew West & Co. Limited, CMC Markets was able to offer, from the financial year ending 31 March 2008, physical share trading in Australia to complement its wide-ranging CFD trading offering. Financial information services The acquisition of Digital Look Limited enables CMC Markets to offer its existing clients enhanced financial research and analytical tools on its Marketmaker trading platform. In addition to the favourable tax treatment surrounding financial spread betting, the main strength and popularity of this product is its ability to leverage the initial investment and to allow an investor to sell short thereby allowing opportunity to make profits in falling markets. A financial spread bet allows an investor to bet on whether the price quoted for a given financial instrument is likely to go up in value or go down in value. The client s profit or loss is the difference between the price at which they bought and the price at which they sold, less commissions paid. Spread betting means that investors do not own the physical share or underlying asset, but trade solely on price movements.

11 Annual Report 31 March CMC Markets vision is to become a global leader in retail financial services, leveraging off the generic contract for difference (CFD) financial product structure. CMC Markets will become the first choice venue and liquidity provider in these global markets through best-in-class product, execution, pricing, technology and client service.

12 10 Annual Report 31 March 2008 Business overview continued Markets Market growth and scale CMC Markets is a growth business in a growing market. Many factors continue to support this growth: Significant growth in adoption of CFDs and financial spread betting by retail clients, primarily via electronic means, as a far more attractive alternative to more traditional trading, for instance via physical shares. Immediate accessibility and transparency to pricing and execution, clearing and settlement, including longer opening hours than traditional exchange products. The growth, trust and acceptance of non-exchange traded products. An integrated account offering access to a multiple range of products and asset classes in a single underlying currency, giving clients accessibility and significantly greater trading opportunities. Increasing acceptance and understanding of, and subsequent regulatory provision for, CFD products in our core and emerging markets. Market drivers and outlook CMC Markets is experiencing high growth in the take-up and use of CFDs across the world. This expansion is dependent on: Global markets and regulators acceptance of CFDs as a core retail financial services offering. Client education and acceptance of new, non-exchange traded products. Competitive pricing and margin structures to attract retail business. Continued technology innovation giving retail investors a wider choice of products and services as well as very high quality service availability. Increasing economies of scale driven by electronic trading and straight through processing for increasing transaction and client volumes. We believe that these factors will continue to drive the significant growth rates that CMC Markets has experienced in recent years and that our leadership in our chosen markets will secure our position and create significant future value.

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14 12 Annual Report 31 March 2008 Business overview continued Technology Maintaining a market leading position requires a strong alliance between service, performance and technology. Since its launch in 1996 as the world s first real-time FX online trading platform, Marketmaker has been the catalyst for CMC Markets growth and success. The structure of the trading software enables operational costs to be kept low, allowing clients to benefit from our highly competitive and cost-focused trading service. Building on this technical foundation, CMC Markets trading platform provides clients with unparalleled and intuitive access to trade the world s financial markets. CMC Markets industry-leading position, achieved through this fusion of service, performance and technology, means that, on average, someone around the world places an order through Marketmaker every 1.2 seconds. It is this constant effort to perfect the mix of first-class service and superior technology that will allow CMC Markets to maintain this position in the future. In addition, clients are also able to trade on Marketmaker using the Marketmaker:Mobile service. This enables trading and monitoring of positions on the move, as well as enabling clients to view real-time market prices 24 hours a day.

15 Annual Report 31 March On average, someone around the world places an order through Marketmaker every 1.2 seconds. It is this constant effort to perfect the mix of first-class service and superior technology that will allow CMC Markets to maintain this market leading position in the future.

16 14 Annual Report 31 March 2008 Our strategy CMC Markets vision is to become a global leader in retail financial services, leveraging off the generic contract for difference (CFD) financial product structure. CMC Markets will become the first choice venue and liquidity provider in these global markets through best-in-class product, execution, pricing, technology and client service. CMC Markets success in the past has been due to its unique business model, retaining ownership and control over product creation, distribution, management, pricing, execution and risk management. This model will underpin our continued success in the future for the following reasons: CMC Markets will be the liquidity provider, providing enhanced liquidity and pricing for clients. CMC Markets will continue to add products that are attractive and liquid, allowing clients to trade on global markets. The key success factors to our strategy are: Continued successful opening of global offices, expanding CMC Markets distribution and leveraging economies of scale. Significant investment in further distribution of products and services. New and innovative product offerings using the CFD product structure. Highly targeted client offerings of relevant products and services to meet the needs of each key client segment. To become the retail centre for liquidity in these products. To grow and develop CMC Markets as a global brand in retail financial services. Continued development of our internally owned and developed Marketmaker trading software, as well as continued investment in the development and retention of high-quality staff globally. In the financial year ending 31 March 2008, the key achievements in delivering our strategy were: Significant expansion of our distribution with the value of client trades reaching USD 1.4 trillion and 20.1 million client trades executed. Successful opening of six new offices, all of which are delivering to set targets of client growth and profitability. Acquisition of Digital Look Limited and Andrew West & Co. Limited to provide new content, expertise and products in expanding our services. Continued significant investment in technology and core support areas. Purchase of a strategic interest in CMC Markets by Goldman Sachs. New investment in CMC Markets as a global brand. Strengthened management team in key areas including a new CEO, CFO and two non-executive directors. The key strategic priorities for the financial year ending 31 March 2009 are: Accelerating organic growth in our existing offices. Opening further new offices in Europe to take advantage of the European Union s Markets in Financial Instruments Directive (MiFID). Continued product evolution to further extend and diversify our product offering. Successful global expansion of our CMC Markets partners business. Continued strategic investment in: Sales, marketing and client service capability. Brand awareness in core locations such as the UK, Germany and Australia. Development of client proposition and core selling points including pricing, technology and execution. Enhancement of global infrastructure by investment in IT, legal, compliance and finance global services and systems. To keep under review further acquisitions and developments to enhance CMC Markets global distribution capability.

17 Annual Report 31 March The next frontier for CMC Markets is to continue our overseas expansion; to continue adding products; to continue developing the technology. I m very, very excited about our future it means good things for our clients in that they will be receiving great pricing and the continuation of our world-class service. Peter Cruddas Executive Chairman

18 16 Annual Report 31 March 2008 Directors report The Directors present their report and the audited financial statements of the Group for the year ended 31 March The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and the Parent Company ( the Company ) Financial Statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP). Principal activities The Group is an online trading group and acts as principal and market maker to its clients in foreign exchange, derivatives (including share and index CFD trading and options) and financial spread betting. The Group also offers an internet white-label trading platform through its CMC Partners Program. In addition, following the acquisition of Digital Look Limited and Andrew West & Co. Limited in the financial year ending 31 March 2008, the Group also provides financial information and stockbroking services. The Directors regard these activities as three classes of business for the financial year ended 31 March 2008 but do not designate financial information and stockbroking services as reportable segments as they do not currently account for more than 10 percent of the Group s revenue. Business review and future developments A detailed review of the business is contained in the Executive Chairman s Statement on pages 2 to 4, the History of CMC Markets on pages 6 and 7, the Business Overview on pages 8 to 12 and Our Strategy on page 14. Results and dividends The results for the year are shown in the Consolidated Income Statement on page 22. An interim dividend of 10.0m was declared on 31 March 2008 (2007: 20.0m) and paid on 1 April No final dividend is payable for the year ended 31 March 2008 (2007: nil). Capital structure Details of the authorised and issued share capital are disclosed in Note 26. During the year, the CMC Markets 2007 Employee Benefit Trust purchased 100,082 shares from the CMC Employee Share Scheme Trust and also purchased 1,393,062 shares from CMC Markets employees. 170,649 of these shares were subsequently transferred to an employee of CMC Markets UK Plc (see Note 26 Share Capital and Note 27 Share-based Payment). The remaining 1,322,495 held by the CMC Markets 2007 Employee Benefit Trust are treated as own shares held in trust and represent shares held to satisfy options to be granted under future employee long-term incentive schemes. In addition, on 31 March 2008, two employees were granted shares totalling 49,994 in CMC Markets Plc (see Note 27). Directors The Directors, who served throughout the year, except as noted, were as follows: Date of Name Appointment Position Peter Cruddas (7) Jim Pettigrew (3), (4), (6) Chief John Ersser (4) Roger Hynes (4) Geoffrey Langham (3), (4) Director Executive Chairman Executive Officer (CEO) Chief Operating Officer Managing Director Western Region of Trading Doug Richards (3), (4) Chief Financial Officer David Trew (4) Managing Director Eastern Region Jan Boomaars Non-executive Director John Jackson (1), (2), (5) Non-executive Director Simon Waugh (1), (2), (5) Non-executive Director Barry Bicknell Executive Director (resigned ) (1) Member of the Audit Committee (2) Member of the Remuneration Committee (3) Member of the Group Risk Committee (4) Member of the Executive Committee (5) Member of the Nominations Committee (6) Non-executive Director prior to appointment as CEO on (7) CEO until During the year, one Director received shares under a long-term incentive scheme (2007: nil). Charitable and political donations Charitable donations of 3.1m (2007: 1.4m) were made during the year to the Peter Cruddas Foundation. The aim of the foundation is to help young people from disadvantaged backgrounds. The Group made no political donations during the year (2007: nil). Research and development The Group maintains a development department to further develop its Marketmaker trading platform. This department has a staff of 175 (2007: 82). In the opinion of the Directors, continued investment in Marketmaker is essential for the maintenance of the Group s market position and for future growth.

19 Annual Report 31 March Disabled persons The Group will employ disabled persons where they appear to be suitable for a particular vacancy and every effort is made to ensure that they are given full and fair consideration when such vacancies arise. The number of disabled persons employed by CMC Markets during the year was one (2007: nil). Employee involvement The Group encourages the involvement of its staff through regular meetings between managers and employees for the dissemination of information of particular concern to employees and receiving their views on important matters of policy. The Group operates an employee share scheme (see Note 27). Key performance indicators The Group uses a number of performance indicators to measure progress towards achieving the Group s strategies and objectives. These include the number of active trading clients, average revenue per client, the number of new client accounts opened and earnings before interest, tax, depreciation and amortisation (EBITDA). The Directors receive key performance indicator information at least monthly. These performance indicators are also integral to the performance evaluation process for Directors and other senior executives. Risks and uncertainties a) Financial risk The Group s activities expose it to market, credit and liquidity risk from its global operations. These are defined and reviewed in Note 24 Financial Instruments. b) Regulation The Group s products are regulated in a number of jurisdictions (see Corporate Governance Report pages 19 and 20). The Group is also subject to regulation and legislation relating to technology and the provision and use of internet services. These regulatory frameworks place restrictions on certain activities of the Group and require resources, which, in turn, place constraints on the operations and development of the Group. The regulatory environment changes regularly and the Group continuously monitors it for these changes. As the Group continues to expand and become more complex, regulatory demands are expected to increase. The Group plans its recruitment, training and development to meet these demands. c) Technology and other operational risks The Group is highly dependent upon the availability of its technology and information systems. The ability to provide clients with reliable, real-time access to its systems is core to the success of the business. Interruption to services or system failures therefore expose the Group to significant risk. The Group has established business continuity and disaster recovery procedures designed to allow it to continue trading activities and mitigate this risk. Furthermore, the Group s key systems are designed to mitigate the failure of any single component of the system. Where the Group is dependent upon providers of data, market information and systems connectivity, it mitigates these risks by engaging multiple providers and data routes where possible. The performance, functionality, accessibility and other features of the Marketmaker trading platform and network are key to the competitive advantage of the Group. Policy on payment of creditors It is Group policy to agree and clearly communicate the terms of payment as part of the commercial arrangements negotiated with suppliers and then to pay according to those terms based on the timely receipt of an accurate invoice. Trade creditor days for the Group, based on creditors as at 31 March 2008, were 45 days (2007: 37 days). Statement of directors responsibilities The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. UK Company Law requires the Directors to prepare group and company financial statements for each financial year. Under that law, the Directors have elected to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the EU and have elected to prepare the Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The Group Financial Statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view, are references to their achieving a fair presentation. The Company Financial Statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing each of the Group and Company Financial Statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state, for the Group Financial Statements, whether they have been prepared in accordance with IFRS adopted by the EU; and for the Company Financial Statements state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Company s Financial Statements; and prepare the accounts on the going concern basis, unless it is inappropriate to presume that the Group and the Company will continue in business.

20 18 Annual Report 31 March 2008 Directors report continued The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Qualifying indemnity insurance The Group has Directors and Officers Liability insurance coverage. Directors statement on information provided to auditors At the time this report was approved, the Directors believe that all relevant information has been provided to the Group s auditors, and that all necessary steps have been taken to make Directors aware of any such relevant information. Auditors Baker Tilly UK Audit LLP have indicated their willingness to continue in office. On behalf of the Board of Directors, Doug Richards Chief Financial Officer 3 June 2008 Registered Office: 66 Prescot Street London E1 8HG United Kingdom

21 Annual Report 31 March Corporate governance report CMC Markets status as an unlisted company means it is not required to comply with the Combined Code on Corporate Governance. However, the Directors support best practice in corporate governance and its practical application as appropriate with regard to CMC Markets size and current stage of development. Board meetings The Board of Directors ( the Board ) meets at least ten times per annum with several meetings devoted to strategic issues. Board membership The Board consists of seven executive and three non-executive directors. Currently, none of the Directors are required to retire by rotation. The roles of the Executive Chairman, Peter Cruddas, and the Chief Executive, Jim Pettigrew, are clearly defined in writing and approved by the Board. The Executive Chairman is responsible for the working of the Board and the Chief Executive for the implementation of Board strategy and policy. The Board is responsible for: Internal control The Group Risk Committee reports to the Board and comprises members of the Executive Committee and various heads of department. It meets at least ten times per annum and submits reports to each Board meeting. Other committees include: the Group ICAAP Committee, which manages the Internal Capital Adequacy Assessment Process (ICAAP) and reviews the requirements of the Capital Requirements Directive; the Group Credit Risk Committee, which examines all issues relating to credit risk; and the Group Treasury Committee which reviews treasury operations, policies and procedures. The Group Risk Management Structure is illustrated in the following table: Nominations Committee Global Risk Management Structure CMC Markets Plc Board Remuneration Committee Audit Committee governing CMC Markets strategic direction and defining and monitoring acceptable risk parameters for CMC Markets; Executive Committee Group Risk Committee ensuring that the necessary financial and human resources are in place for CMC Markets to meet its objectives; and monitoring the operating and financial results against plans and budgets. The Non-executive Directors participate fully with the Executive Directors in Board meetings, with access to all information they need to perform their role. The Board has an agreed set of delegated authorities granted to individuals and committees while having a formal schedule of matters reserved for its attention. All Directors have access to the advice and services of the Company Secretary. The Company Secretary also assists the Executive Chairman in facilitating the Directors training. The Directors are also able to take independent professional advice at CMC Markets expense. Global Risk Team Business Risk Coordinators Committees External Audit and Risk Group Credit Risk Group ICAAP Group Market Risk Group Treasury Internal Audit External Audit Principal Board committees The principal Board committees are the Audit, Remuneration, Nominations, Group Risk and Executive Committees whose terms of reference, duties and responsibilities have been agreed and adopted by the Board. The Audit Committee examines the effectiveness of CMC Markets internal controls and approves the appointment of external auditors and advisors, as well as reviewing the internal audit scope for the year and monitoring its progress. The Remuneration Committee reviews all remuneration issues relating to directors and senior executives and the Nominations Committee reviews all director and senior appointments. The Group Risk Committee examines all issues relating to financial and other operational risks affecting CMC Markets while the Executive Committee meets monthly to manage the key operating issues affecting the Group. The Business On behalf of the Board, the Audit Committee confirms that it has reviewed the effectiveness of internal controls for the year ended 31 March 2008 and concluded that there exists a satisfactory process to identify and manage risks affecting CMC Markets.

22 20 Annual Report 31 March 2008 Corporate governance report continued Regulation CMC Markets worldwide regulated entities and the relevant regulatory authorities are listed in the following table: CMC Markets Entity: CMC Markets UK Plc Regulated by: Financial Services Authority (FSA), Ontario Securities Commission (OSC). Austria Branch FSA, Finanzmarktaufsicht. Beijing Representative China Banking and Regulatory Commission. Office Germany Branch FSA, Bundesanstalt für Finanzdienstleistungsaufsicht. Ireland Branch FSA, Financial Regulator. Sweden Branch FSA, Finansinspektionen. CMC Spreadbet Plc FSA. Ireland Branch FSA, Financial Regulator. CMC Markets Canada Inc. CMC Markets (US) LLC CMC Markets Asia Pacific Pty Ltd CMC Markets Pty Ltd Andrew West & Co. Ltd CMC Markets NZ Ltd CMC Markets Asia Ltd CMC Markets Singapore Pte Ltd CMC Markets Japan KK Investment Dealers Association of Canada, OSC, British Columbia Securities Commission. US Commodity Futures Trading Commission, National Futures Association. Australian Securities and Investments Commission (ASIC), OSC. ASIC. ASIC, Australian Stock Exchange. New Zealand Securities Commission. Securities and Futures Commission (Hong Kong). Monetary Authority of Singapore. Financial Services Agency, Financial Futures Association of Japan, Japanese Securities Dealers Association.

23 Annual Report 31 March Independent auditors report to the shareholders of CMC Markets Plc We have audited the Group and Parent Company Financial Statements on pages 22 to 50. This report is made solely to the Company s members, as a body, in accordance with section 235 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The Directors responsibilities for preparing the Annual Report and the Group Financial Statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union, and for preparing the Parent Company Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), are set out in the Statement of Directors Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act We also report to you whether, in our opinion, the information given in the Directors Report is consistent with the financial statements. The information given in the Directors Report includes that specific information presented in the Executive Chairman s Statement that is cross referenced from the Business Review and Future Developments section of the Directors Report. In addition, we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit or if information specified by law regarding directors remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Highlights, the Executive Chairman s Statement, the History of CMC Markets, the Business Overview, Our Strategy, the Directors Report and the Corporate Governance Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s and Company s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the Group Financial Statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the Group s affairs as at 31 March 2008 and of its profit for the year then ended; the Parent Company Financial Statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Parent Company s affairs as at 31 March 2008; the financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors Report is consistent with the financial statements. BAKER TILLY UK AUDIT LLP Registered Auditors Chartered Accountants 2 Bloomsbury Street London WC1B 3ST United Kingdom 3 June 2008

24 22 Annual Report 31 March 2008 Consolidated income statement For the year ended 31 March 2008 Before amortisation Amortisation and impairment of and impairment of intangibles arising intangibles arising on consolidation and on consolidation Exceptional items exceptional items (Note 15) (Note 7) Total Continuing operations Notes Revenue Operating expenses (116.7) (1.3) (7.9) (125.9) Operating profit (1.3) (7.9) 55.5 Finance income Finance costs 10 (0.6) (0.6) Profit before taxation 66.4 (1.3) (7.9) 57.2 Taxation 11 (20.1) (17.4) Profit for the year attributable to equity holders of the parent company 46.3 (1.0) (5.5) 39.8 Earnings per share Basic (p) p Diluted (p) p