CMC Markets PLC

LSE:CMCX

Earnings Call Transcript 2022-Q2

[Operator]

[Audio Gap] Casandra, and I will be the operator for this call this morning. [Operator Instructions] I will now hand over to Lord Cruddas, CEO. Please go ahead.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Thank you, and good morning, everybody, and thank you for dialing in to our results presentation for the 6 months ended 30th of September 2021. I'm Peter Cruddas, Founder and CEO of CMC Markets. And it is 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 and Canada, who is dialing in from Sydney, Australia. 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 regulation, and Matt will talk about our Australian business. I'll then finish on strategy before we open the lines for Q&A. So if you go to Slide 3, please. Last year was a truly exceptional year for CMC Markets with periods of extreme market volatility, leading to increased trading levels, especially in the first half of last year. So as expected, versus the same period last year, revenues from our leveraged and nonleveraged business were lower in the period, but up strongly against pre-COVID levels. In our leveraged business, total assets under management ended H1 2022 at GBP 557 million, which is a new record high. Our nonleveraged business now represents 19% of group net operating income and is becoming an ever increasingly important part of the business. We announced the acquisition of approximately 0.5 million share investment clients from ANZ Bank with total assets in excess of AUD 45 billion. The transaction is due to complete in the next 12 to 18 months and is another step towards the diversification of our earnings. In addition to this and as you already know, work is well underway on our new investment platform in the U.K., and I look forward to talking more about that later in the presentation. You will also have noticed the Board's announcement that it will evaluate the viability of separating the businesses in order to unlock the significant value within the current group structure, and I'll speak more about that in more detail later in the presentation. With that, I'll pass over to Euan, who will take you through the numbers in detail. Thank you.

[Euan William Marshall, CFO & Director]

Thank you, Peter, and good morning to everyone. Before moving into the results in more depth, I wanted to talk -- wanted to highlight the health of the business as we exit the pandemic versus how we entered it. This is illustrated through the material increase in the fundamentals that we monitor. This hopefully adds more further context to our September downgrade in net operating income expectations. In the regardless of that update, business performance has materially improved over the last 2 years. Our underlying leveraged business in H1 2020 was already performing well. As we fast forward 2 years to now, our active client base is 29% higher and our monthly client income is around the same amount higher. These levels are being maintained through quieter market conditions and demonstrate that our strategy of focusing on higher-value clients is vindicated through both our size of the clients' income generation, but also their ongoing longevity. Clients' enduring capacity to trade is also demonstrated through the large increase in client money or assets under management. The growth in our Australian nonleveraged business has been even more pleasing, where, again, using H1 2020 as a comparative, AUA is up 32% and active clients up 57%. Moving on to our KPIs on Slide 6. In our full year results in June, we unveiled our plans to develop a nonleveraged platform in the U.K. As a result, we have reviewed the most appropriate metrics to illustrate the performance of the business and we feel it is the right time to provide you with group level metrics, but also provide a split of KPIs for both the leveraged and nonleveraged businesses. Before reviewing the leveraged and nonleveraged KPIs though, let's look at the group KPIs. Firstly, net operating income in the top left chart, it is well below the levels achieved in both halves last year, but the important message here is that as we exit the pandemic, it is 24% higher than H1 2020, the last period not impacted by the pandemic. Moving to the top right chart, our nonleveraged share of net trading revenue has grown and again is higher than those seen prior to the pandemic. From a strategic perspective, we aim to grow the nonleveraged share of revenue over time particularly as the offering is rolled out beyond Australia. PBT is also 20% higher than H1 2020 during a period where we have increased our ongoing investments in our technology, which will grow revenue in the future. EPS was 9.6p for H1 2022. The similar figure in comparison to H1 2020 is due to the recognition of tax credits in that period, resulting in a low effective tax rate of 9% in H1 2020 versus 23% in H1 2022. ETR has ticked up a little since last year with our Australian business, which is our higher corporation tax rate, making a greater proportion of profits in the period. Moving on to the leveraged and nonleveraged KPIs on Slide 7. Let's look at the leveraged KPIs first along the top. As you can see, active clients on the top left have reduced against both H1 and H2 2021, which both saw a heightened trading appetite, including the meme stock trading boom in Q4 of the financial year. The more subdued markets in H1 2022 resulted in lower acquisition in recent periods but is still around 40% higher than pre-pandemic levels. In addition, lower client trading activity meant lower revenue per client. Encouragingly, despite the reduction, active clients remain in the region of 1/3 higher than pre-pandemic. On the second graph, following a similar trend, client income has reduced but again, has shown good net growth above the pre-pandemic levels. Client income retention was 80%, so at the lower end of our guidance. David will talk more about this later. Finally, on the leveraged KPIs, we have added client money AUM. We have referenced it in previous presentations, but clearly provides a good barometer of the health of the business. It has grown considerably since before the start of the pandemic and remains very healthy. Its growth has been supported by both the increase in the client base and the rise in global equity markets over the last 18 months, with many clients holding long equity positions over time -- over a period of time. Moving on to the nonleveraged KPIs, which relates to our Australian stockbroking business. On the bottom left graph, you will see active client figures, which have grown 57% since H1 2020 and have continued to grow as we exit the pandemic. Net trading revenue was down 8% against H1 2021, which demonstrates that this business line is more resilient to changes in market activity in comparison to the leveraged business. Peter will talk more about the longer-term historical growth of the nonleveraged business later that this graph demonstrates our ongoing focus on growing not only through B2C, but also through the B2B channel. Note, as we go through the next 12 to 18 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 be strong. Moving on to the income statement. I've explained revenue performance against the prior year comparative previously, and we'll run through the 6% increase in operating expenses on the next slide. As you can see on the bottom of the table and mentioned earlier, the share of profit of our nonleveraged business in Australia has increased in comparison to last year. This has resulted in a higher effective tax rate for the group, increasing to 23% in H1 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. If you look at the right-hand side of the graph, the big driver of the increase in costs has been the investment in additional personnel, particularly in our technology function. Moving to the left, there have been a number of offsetting cost increases and decreases. Of note, increasing IT costs due to higher market data and infrastructure costs; increasing professional fees as a result of tax and legal advice; lower irrecoverable VAT as a result of a one-off recovery and ongoing lower charges in the U.K.; lower marketing spend as we have not seen short-term return on investment during quieter market conditions. You will find our normal view of operating expenses in the appendix. Let me now talk you through liquidity and regulatory capital as at the 30th of September. Firstly, looking at regulatory capital in the top table. The group's balance sheet and overall regulatory capital remains strong with a capital ratio of 20% and our core equity Tier 1 capital increasing by GBP 13 million as a result of our profits after tax and foreseeable dividends. Note that on the 1st of January, the group is moving to a new regulatory regime, the IFPR. This will result in a small reduction in capital resources of around GBP 5 million. From a capital requirements perspective, the group will be subject to a transitional threshold requirements, meaning that there will be little impact on capital adequacy. Total available liquidity, which you can see in the bottom left, remains strong, but that was a little lower due to profits not offsetting the full year dividend, which was paid in September. Net available liquidity also decreased as a result of the lower total available liquidity. Note that the initial margin requirements continue to grow, mainly due to ongoing clients' interest in holding growing equity positions as the market continued to rise. Overall, this leaves us in a strong position to continue to invest in the large strategic projects, which we have ongoing. I'll now hand over to David.

[David Fineberg]

Thank you, Euan, and good morning, everyone. I would like to start by running through the leveraged results to help provide some additional color around performance in the period. Looking at Slide 12. The table in the chart show client income and net CFD trading revenue by half year. The top line of the table shows the gross leveraged client income. And as a reminder, this is the spreads, financing and commission clients pay to trade. Gross client income retention for the first half of the year was GBP 127 million, down circa 27% against the first half of last year. This fall was due to a strong prior year comparative, which was mainly driven by the heightened COVID-related volatility, where we saw existing clients reactivating their trading accounts and also an influx of new clients. This was up 23% on 2 years ago, showing strong growth since pre-COVID. Our successful business model aims to maximize the capture of client transaction costs by balancing internalization with hedging at an instrument level. This allows us to minimize the cost of hedging, whilst always operating within the Board-approved risk limits. Our approach to managing market risk is optimized using extensive back testing and sophisticated quant and data science analytics. This ensures we have no view on the future direction of the market, but focus only on analyzing the flow that we inherit. In terms of the leveraged net trading revenue, we saw a 50% decrease to GBP 101 million versus last year, driven by the normalization of risk management performance compared to the exceptional client income retention in H1 2021. We have seen strong growth since before COVID with leveraged net trading revenue up by 19% versus H1 2020. Moving on now to client trading trends. After periods of high volatility in the last financial year, gross client income per client has returned to more normalized levels during the first half of this year. The chart here illustrates the monthly trends in both gross client income per client and the number of active clients since the start of the pandemic. The data is rebated to show activity compared to FY '20 monthly averages, excluding March as this is when we first began to see the impact of the pandemic on client trading. Client income per client, the dark blue line, shows a spike in client income from March to June, which coincided with periods of extreme volatility as markets reacted to the coronavirus outbreak. This led to wider spreads in the underlying market, which in turn increased spreads paid by clients. As can be seen in the gray section of the chart, gross client income per client has since returned to more normalized levels, slightly lower than the pre-pandemic average due to the quieter market conditions seen during the half. Monthly active clients represented by the light blue line, have remained relatively consistent and remain at least 1/3 higher than before the pandemic, driving the increase in gross client income that we saw in the previous slide, compared to H1 2020. The consistency in monthly active clients mean that we continue to be confident that gross client income will remain at the new elevated levels. We continue to closely monitor the behavior and characteristics of the clients onboarded in the period shown and they continue to display similar characteristics to the historical cohorts, giving confidence in their quality and longevity with both attrition rates and gross client income per client remaining in line with the pre-pandemic cohorts. Moving now on to regulation. It's worth reiterating that we believe regulation is fundamentally important and a good thing for us as it provides protection for our clients and also provides a level playing field for all providers to operate on. As a reminder, on the 29th of March, the local regulator in Australia, ASIC, implemented intervention measures on the sale and distribution of CFDs. The measures included changes to leverage ratio limits, margin closeout, negative balance protection and promotional offers. Since the implementation of these leverage limits, monthly client activity from our Australian clients initially fell by 40% but has been recovering. The measures introduced are broadly in line with those imposed by ESMA in FY '19. The ESMA measures resulted in a decrease in client trading activity from nonprofessional clients and a short-term decrease in the number of active clients. As we expected, our nonprofessional clients in Australia have responded in a similar way to those in the ESMA region. 46% of FY '21 Australia gross client income has been protected by clients successfully applying the professional designation. This increases to 55% with the inclusion of institutional clients. Thank you all for your time. I will now hand you over to Matt.

[Matthew David Lewis, Head of Asia Pacific & Canada and Director]

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. So if I can focus your attention to Slide 16. First, to highlight the strength of the business, which during the first half has delivered record assets under administration and record levels of active clients, now contributing circa 50% of the Australian office revenues. In revenue terms, following a record performance in FY '21, net trading revenue is marginally down 8% or GBP 2.1 million year-on-year. However, pleasingly, is 67% above pre-pandemic normalized levels. The continued strength and resilience of our nonleveraged trading business through H1 saw it contribute a greater share towards group performance, making up 19% of total group net trading revenue, up from 12% in the previous year. The underlying health metrics of the business continue to perform extremely well with active client numbers up 10% and over 185,000 clients, a new record for the business. Turning your attention to our foreign exchange revenue. We've previously identified our international offering as a key area of growth for the business, providing our clients with the most comprehensive offering in Australia with an ability to access and trade 41 exchanges across 15 countries. Not surprisingly, the business has experienced continued growth in this area, resulting in a 20% increase in FX revenue versus prior year. This has been aided by the launch of our 0 brokerage initiative, where we've seen a 40% increase in turnover since inception. We expect this growth to continue with further product enhancements in the pipeline. If I now focus on the graph at the top left-hand side, you can see Q2 FY '22 was our third best performing quarter-to-date, driven by our record cohort of active clients and strong net cash inflows. In September, we announced the acquisition of over 500,000 share investing clients from ANZ. Following their transition in the next financial year, our business will be split into 3 key distribution channels. First, CMC Retail, which will be made up of both CMC and the transition to ANZ Retail customers. This represents our direct-to-customer business and makes up approximately 75% of net trading revenues. Second, white labels. These represent all existing white label relationships, including the majority of Tier 2 banks in Australia as well as Tier 1 St. George Bank, which came across as part of the original ANZ arrangement. And lastly, CMC Partners, which includes partner relationships onboarded as part of the original ANZ arrangement and our existing legacy CMC Partners. Both for white label and partners form our institutional B2B. This offering powers banks, fintechs, financial planners and boutique investment houses in Australia. Most recently, we have onboarded New Zealand's largest and fastest-growing retail broker Sharesies, which we power from Australia. All 3 channels have achieved record or near-record levels of activity in H1. Moving on to Slide 17. The graph on the top left provides a breakdown of the evolution in the client assets we manage. As of the end of H1, total client assets under administration, or AUA, sit at GBP 40.1 billion, again, a record for the business. This represents an 8% or GBP 1.9 billion growth over the half with net cash inflow accounting for around GBP 900 million of this increase. Note that AUA is comprised of GBP 34.7 billion in domestic shares holdings, GBP 1.1 billion in international holdings and GBP 4.3 billion in cash. In addition to our strong health metrics, we've maintained our position as the second largest retail stockbroker and the largest white label provider in Australia. Earlier in the year, we made a strategic decision to rebrand the Australian stock broking business to CMC Invest to better align the products we offer to our clients and to the whole of wallet investment approach we are 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 new wave of millennial traders, who represent the fastest-growing segment of the Australian market. Initial results from the rebrand have been positive, with land and page conversions improving by 33% and digital advert engagement increasing to almost double the prior engagement rate. Apart from a number of business metric records, the business also gained external recognition in H1 with a number of key award wins. These included the Finder Award for best overall Share Trading Platform and Canstar International Share Trading 5-star rating, both of which are great testament to the team's ongoing efforts and highlights the strength of our overall proposition and global pedigree. At year-end, we discussed the launch of our new mobile app. Since launch, mobile usage has increased over 30%. We recognize that strong mobile offering is a key selection driver and therefore, a channel that we're expecting to drive greater acquisition and retention as we ensure a focus on being best in market. Core to the CMC Invest is our continuous drive to innovate and to disrupt. Looking forward, we continue to focus on this through new and enhanced product offerings including model portfolios, extended pre and post market U.S. trading, while also investigating crypto offering. Cryptos have the potential to be an important product for us given the ongoing legitimization of the industry over the last 12 to 18 months and the 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 owned. Lastly, moving now on to Slide 18. As mentioned earlier, in September, we announced the acquisition of over 500,000 share investing clients from ANZ with total assets in excess of AUD 45 billion. This transition is due to complete in the next 12 to 18 months. It is important to note that these clients trade on our platform now, however, under the ANZ branding. The predominant reason for the length of the transition is due to the complexities around decoupling from a Tier 1 major bank. Post transition, our client teams will have end-to-end control of the customer journey, ensuring a seamless experience for our new cohort of clients, and therefore, total control over the activation and reactivation efforts currently managed by ANZ. Clients will also have access to a greater suite of products and features, which will include our market-leading mobile app, training strategies and education. It will also include any future enhancements, including those mentioned in the previous slide. 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. I'll now hand you back to Euan to cover our financial outlook.

[Euan William Marshall, CFO & Director]

Thanks, Matt. Let's turn to look at the outlook for the remainder of 2022 on Slide 20. Current trading conditions at the start of H2 remained stable with clients' income tracking at similar levels to H1. The fundamentals of the business, as I highlighted earlier, remains strong. As a result, net operating income expectations remain in the range of GBP 250 million to GBP 280 million. Operating costs, excluding variable remuneration, remain aligned with analyst consensus meaning that they are likely to rise in the region of 10% against H1 with continuing investment in personnel and higher marketing spend driving that rise. Our effective tax rate should be around 23% with the U.K. and Australia being the regions of our main profit-generating entities in the group. Finally, the group continues to maintain a strong liquidity profile, providing the group with the ability to invest in order to organically grow the business through opportunities such as the U.K. investment platform and the integration of the ANZ Bank client base into the Australian nonleveraged business. As a result, the Board continue -- remains committed to paying a total dividend of 50% of profit after tax. That concludes the financial outlook. I'll hand over to Peter now, who will cover our strategic update.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Thank you, Euan. Just before I begin my last lap, I would just say to you, if you want any reasons why we're launching a U.K. investment platform, just play back Matt Lewis' tape again. And that's the reason why we've got all of that knowledge of intellectual property within the company. So I felt like applauding Matt Lewis, actually, but anyway, let's carry on. Thank you, Euan. As you've already heard -- we're on the right slide here. As you've already heard, the business continues to go from strength to strength and is operating well above pre-pandemic levels across all of our business lines. This is a testament to the resilience and quality of our platforms. Moreover, we're seeing increasingly -- increasing opportunity in the growth outlook for our nonleveraged business as well as our existing leveraged business. Both businesses have benefited from significant investment and each has strong growth prospects in sizable markets and excellent competitive positions. In this context, you would have seen earlier this week, we announced the Board intends to undertake an exploratory review to consider the viability of a managed separation of the group's nonleveraged and leveraged businesses. This is being done in the interest of maximizing shareholder value. The Board is expected to start its review before year-end, and that's calendar year-end and completed by mid-next year, June 2022. Next slide, please. So repositioning CMC towards nonleveraged income brings a wide range of benefits to us. These include reducing operational risk with lower regulatory uncertainty, enhancing the opportunity for greater geographical reach. We lead with technology in our own platform, technology enhances our ability to disrupt. Diversification will also reduce our earnings volatility. The move also extends the life cycle of our clients. It's also very clear that growth in nonleveraged assets under administration is growing at greater than 2x the growth rates being seen in our leveraged business leading to enhanced earnings growth potential. Next slide, I think, yes. So turning to Slide 24. The opportunity in the U.K's. D2C market is particularly exciting. Putting the pandemic aside, the secular growth rates being seen have been in place for more than a decade with the market standing now just shy of GBP 300 billion. Since 2008, it's been growing at 16% per annum. Sustained growth on that basis will mean it will exceed GBP 1 trillion by 2030. We are already seeing a significant shift to self-manage wealth through mobile delivery with new investors looking to trade a wide range of products and asset classes. There's already been consolidation and M&A in the sector. Abrdn's proposed acquisition of Interactive Investor. And we expect this to continue. CMC is in possession of a tried and tested CFD platform, and our new offering will be run with CMC owned technology. This is a huge advantage that sets us apart from most of the competition. Next slide. Our new platform is built with the same fundamental core values we offer in our existing leveraged platform. It's very clear that investors in the nonleveraged will demand a diverse product offering, all of which we will be able to offer in due course. This will be provided with frictionless onboarding and transferring capabilities as well as competitive and transparent trading costs. As always, all of this will be provided with the normal CMC platform resilience and first-class user experience. Should just point in there as well, there'll be no risk management in the new company. It will be execution with primary exchanges and prime brokers and banks. So next slide, we've got 2, yes. As to the timing, we're on track for the new nonleveraged platform launch by the middle of next calendar year. The building blocks to launch have been integral to CMC's existing business for some time and the additional nonleveraged features will allow us to become a leading provider of both leveraged and nonleveraged products across multiple geographies. We expect additional features to be continually rolled out post our initial launch next year, in line with the demand of our clients. Next page. So this is the evolution of CMC in Australia. And in respect of our targeted growth plans, I'd like to draw your attention to the success we've had in building a nonleveraged business in Australia. With the ANZ transaction, we are now comfortably positioned as the second largest retail stock broker in Australia. Call to this success has been our ability in white label partnerships with over 160 existing agreements that now leave us with over 1 million clients across the platforms. We also expect our B2B capability in the U.K. to show similar potential, and once launched, we will be able to offer bespoke offerings to existing market players looking to grow into the D2C market. This B2B opportunity will undoubtedly allow us to grow both our client base and assets under administration at higher levels than a single client acquisition strategy would. And I think this is the last slide, and then we're on to Q&A. So we will shortly be launching our waiting list for the new platform. As you can see, the offering will allow our clients to make informed investment decisions based on the future they want to see, offering a choice of responsibly based investments as well as investments based on family wealth creation and goals setting. So with that, I'll end the presentation, and we'll go over to Q&A.

[Operator]

[Operator Instructions] First question comes from Kim Bergoe from Numis.

[Kim Bergoe, Research Analyst]

I've got 3 questions. And one, I think, is fairly technical and probably to Euan, or not technical, but just more specific to Euan. Euan, so you're guiding the tax rate to be 23% this year. How should we be thinking about that going forward? Is that sort of the level that we should be expecting? Obviously, it depends a bit on your product mix, but what will be a good normalized level? And that's the first question. And then second question probably for David and maybe Peter as well, about regulation going forward. How should we think about regulatory uncertainty going forward? How much is that what could be -- what might be in the pipeline both good and bad? And then my third question, in terms of the new platform investments in that, for instance, marketing spend, what should we be expecting in terms of that going forward?

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Do you want to kick off, Euan, with the...

[Euan William Marshall, CFO & Director]

Sure, will take. Thanks very much for the questions, Kim. So on the 23% -- so on the 23%, what you'd expect to see is similar levels going forward. The impact that you will see will be that if the nonleveraged business in Australia continues grow faster than the leveraged business overall, you'd expect to see a slight tick up in that. But the other thing to keep your eye out for is you probably already have this in your modeling, Kim, anyway is the U.K. corporation tax rate is due to increase to 25% in a couple of years' time as well. So that would need to be factored in there. And therefore, the relative difference between the U.K. and Australian tax rates will be only 5% difference, i.e., 25% and 30%. Hopefully, that answers the question.

[Kim Bergoe, Research Analyst]

It does.

[David Fineberg]

So it's David here. So what I'll pick up the second question regarding regulatory uncertainty. So from our side, obviously, it's been a journey with ESMA and then whilst we waited the asset clarity. So from our perspective, it's good that we've now got that out and we've now got alignment across all our main offices. As we sit here today, there is nothing immediately on the horizon that we're concerned about. Obviously, there's a lot of ongoing almost thematic reviews and looking at different areas, for example, vulnerable customers seems to get quite lot of airtime. But from our side, no, there is nothing specific on the horizon which we are concerned about.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Matt, do you want to talk about new platform spend or do you want me to do that?

[Matthew David Lewis, Head of Asia Pacific & Canada and Director]

Look, I think the question is directly related to the planned marketing spend of the U.K. investment platform, if I've heard that correctly, Kim.

[Kim Bergoe, Research Analyst]

Yes, you did. I think you said more broadly what should we expect in terms of getting to where you are at. But marketing spend, obviously being a key component of that.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Euan, you want to do that?

[Euan William Marshall, CFO & Director]

Yes, sure. I'll take that. So from the perspective of general increases in costs, a lot of them already abate into the analyst forecast that we see out there at the moment. We do expect an increase in marketing costs in the U.K. investment as a result of the launch of the U.K. investment platform. So you will see higher marketing costs there, probably mid-single-digit pounds millions of marketing spend there.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Just one other point to add to what Euan has said, is that we've got all the plumbing, the technology, there won't be any heavy lifting regarding the technology spend because we've already got a lot of the plumbing and pipe work there already. We're leveraging off of some of the technology that we've used in Spreadbet wells. So we're not expecting a big spend on technology, where we know it's not going to happen. So...

[Operator]

The next question comes from Ben Bathurst from RBC.

[Benjamin Edward Bathurst, Research Analyst]

I've got a few questions, if I may. Starting with some on the nonleveraged platform side. I wondered if you could sort of explain what your current intentions are in terms of branding for the U.K. investment platform? Should we expect to see the CMC name and the proposition that you're going to come to market with, which I think is the case in Australia based on your presentation? And then sticking with nonleveraged and more particularly in Australia, with ANZ stepping away from the client base there, are there any opportunities for CMC to generate any extra revenues that potentially previously captured by ANZ from those clients, be they platform fees or anything else? And likewise, are there any extra costs that you now expect to incur following this kind of transition? Or is it just the economics of delivering that service sort of fundamentally unaltered to CMC? And I also had sort of third question around the leveraged business. And just looking at the active client numbers, they were particularly robust in the APAC and Canada region, looking year-on-year, which I found slightly surprising given the new regulations being introduced in that region. I just wondered if you could give some more color on the picture there and what has sort of offset the lower client numbers that have been described in Australia on Slide 14. Are you seeing some of the Australian clients perhaps trading elsewhere in Asia now? Or is it explained by strong performance in other country?

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

So Matt, why don't you kick off, and then I'll finish with the branding piece.

[Matthew David Lewis, Head of Asia Pacific & Canada and Director]

Yes, perfect. I can cover probably the second and the third question, to be honest. So directly on the ANZ piece. So we do see upside revenue potential through a few channels. Firstly, given that we control and own or will control and own the activation and reactivation which we do for some of the other brands and obviously for our own business, we know what we achieve in that space and what percentage uplift we may expect to see, which should generate extra trading revenue. In terms of high level, any future developments in terms of products, and we talked to crypto in the presentation, anything that we drive down the product pipeline will no longer be a revenue share. So all of that revenue will go to CMC, which we'd see as upside. There are a small degree of, I guess, account keeping fees that we currently share with ANZ that we would stop and just simply go into the CMC. On the cost line, we would expect a small uplift from a marketing perspective just to further support that brand given that ANZ will no longer be driving that. That will be CMC. So we would expect to have a small uplift in marketing in that sense. In terms of the question around actives around the APAC business, the drop-off in actives in the Australian market has been fairly muted, really sort of single-digit fall year-on-year. But what we have seen is particular strength in some of the wider APAC and Canada regions, particularly Canada, where we've seen a degree of strength in that active business. It's a large and, I guess, growing emerging market for us, and we are seeing continued strength there.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

So getting back to the branding. This is something we discussed a lot internally here. I mean, the logical thinking is we need to really distance ourselves from Spreadbet, CFD leveraged world because that gets a lower rating, and we need to separate ourselves out. It's too early to tell. I mean it's worked very well in Australia, where we are considered now to be a stock brokering investor type business with a CFD business. But sort of back of the envelope thinking is that we are going to put all of the Australian business, the technology and the new U.K. platforms, the B2B, D2C, into this new company and we'll probably canvass our bankers and our investors to get feedback from them and also some outside agencies. But it's too early to tell, but the logical thinking is that we should come up with a new name. But we'll think about that. Let's get the platforms launched first. And we're really excited about the platform. We think there's a lot of low-hanging fruit for disruption. We think the industry at the moment is very expensive. We've done this sort of thing before. But -- and we think there's a lot of opportunity for us with the way that we can build technology, the way we can deliver technology, the way we can price and execute and make sure that the platforms are resilient. I mean it's much easier technically to build an investment platform where you do not manage risk, where you do not have margin costs and liquidations. It's much easier to build a platform like that than it is our existing technology. So we've done the hard stuff. This next stuff is -- I don't want to say it easy because it's not, the IT guys will not thank me for it. But technically, it's a lot easier to build this platform. We're not worried about the technology and looking forward to -- actually looking forward to the disruption, we love a good disruption around here, and it's going to be fun.

[Benjamin Edward Bathurst, Research Analyst]

If I may just sort of ask one follow-up. Can I infer from your comments there, Peter, the sort of the early-stage idea is to be very competitive on price versus the sort of established players in that D2C market.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

So well, first of all, -- so there's a lot of ways we can look at the industry. For example, we think we're going to have the best top technology. Others may disagree with that. We can drive down. We're not per se -- we haven't decided yet the pricing. We've had a lot of discussions. We will be very, very competitive on pricing. But there's a few other levers we can pull. For example, we are going to offer multicurrency accounts. Now with most of the providers now that offer foreign shares, what you do is you send them sterling, you're a U.K. client. When you buy Facebook on day 1, they convert the sterling into U.S. dollars, very expensive costs to do foreign exchange. Day 2, you decide to convert -- sell Facebook, and they automatically convert you back into sterling. What we are going to do is allow you to hold different currencies. So when you convert to buy Facebook. If you sell the Facebook day 2, you can keep the dollars just in case on day 3, you want to buy Tesla. So it's not just about being competitive and attacking the market on commissions and stuff like that, it's also driving down the transactional cost by eliminating some transactions that do not need to happen. And if you don't want them to. We're also going to offer omnibus accounts, so you can trade Japanese shares and overseas shares. There's a lot of talent in this company and a lot of knowledge. We've recruited Global Head of Capital Markets that came from a Tier 1 bank, a bulge bracket bank. He understands all of this he is going to manage our prime broker relationships and so on. So we've got a lot of levers to pull. We're not just going to go out on we are the cheapest. We did deal for free 20 years ago. We were 20 years ahead of Robin Hood but we know what we're going to do, but -- and it will be very price competitive but there'll also be a driving down of transaction costs and unnecessary transaction costs as well if you're a client, you can choose. You can convert your whole sterling account into euros, U.S. dollars, Aussie dollars and whatever currency you want. It's up to you and we can facilitate that the way we've done it in Australia. Matt's built a brilliant business in Australia. We are going to contemplate the Australian business model. And Matt has been very helpful in this whole process. He knows the roadblocks, the speed bumps. He's really helped us a lot on this. And -- so we've got a lot of talent and a lot of knowledge in-house already. It's exciting, very exciting. Can I just add one other point. The process this review about dividing the company into 2, is being led by our Chairman, James Richards. James Richards was a senior lawyer partner -- a senior partner at various law firms around the city. And his speciality was mergers and demergers. So we think we've got the right person to head this up. So I just wanted to sort of mention that to you because he's not a sort of put your finger in the ear type approach. We've got very talented Chairman with a forensic mind about how these things should be done in a lot of in-depth knowledge. So just that about James.

[Operator]

The next question comes from Martin Price from Jefferies.

[Martin Gerald Price, Equity Analyst]

Just a couple of questions, if I may. First, I was just wondering if you could comment on recent trading in the leveraged business. I guess in the pre-close update, you had flagged improved client trading activity exiting September. It looks like the cyclical backdrop has probably improved a bit since then in October and November month-to-date. So any thoughts on the trajectory sort of exiting the first half would be great? And then secondly, just to follow up on the investment platform and specifically on pricing. I just suspect it's probably too early to say, but should we be thinking more about a flat platform fee versus the sort of traditional of the lowering tariffs that are typically being used by market leaders in addition to just attractive sort of transaction costs. Any thoughts on that would also be great?

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Euan, do you want to kick off with the -- where we are today?

[Euan William Marshall, CFO & Director]

Yes, sure. Thanks, Martin, for those questions. So I think from the perspective of improved client trading that we mentioned at the end of September, I have had said this morning as well that trading is broadly the same as it was in H1. We have seen a bit of an uptick, but I wouldn't say anything material to shout about at the moment. But the monthly active client numbers remain very strong and our AUM remains very strong so we're still very positive about the future. So this isn't just about the short term, the medium term looks very good in the business as well.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

And just to add to what Euan said, we're very confident about the outlook and where we'll be at financial year end. So I don't -- I'm a bit nervous about saying too much because I don't want to give too much away. We'll be launching our waiting list website soon. I mean the plan is not to be aggressive on commissions per se across the board. The plan is to offer a subscription type service. We've already had a couple of workshops on this. We know what we're going to do. We know roughly what the details will be. There's no rush for us to sort of tell the world about it at this stage, that it will definitely be cheaper per se, we believe, to trade with us than any of the competition, but it won't be a sort of a price war per se. It will be about service, user experience, flexibility, transparency, resilience in the platform. I mean I think that we would be very powerful competitors to anybody in the space. And part of the logic about separating out the businesses is in the fog of this company's business plans, with everything seems to come back to CFDs and leveraged. And it's not fair because we've built a really good business, fantastic technology. If you should -- if you could see our order management system with the traders and the way they manage risk, if you could see the way Matt and the team in Australia transitioned 1 million clients over 2 weekends from -- on the ANZ white label. There's an awful lot of locked up value in this company. And one day, you will see it for yourself. At the moment, I'm a little bit tired about talking about the brilliance of the company. I get a bit tired about trying to convince the world -- tell the world about what we've got here. So we think the best way to do that is to separate the businesses out; show you the resilience; signed some really good partner deals in the U.K.; undercut the market with service, technology and commissions. And one day, I won't have to talk like this anymore, and I'm looking forward to it. And I look forward to saying I told you so.

[Operator]

The next question comes from Raja Vivek from Shore Capital.

[Vivek Raja, Analyst]

Vivek Raja from Shore Capital. I had a few questions, if I could. First one, on the platform, when do you think you'll be in a position to spell out the sort of go-to-market strategy and give us a sense of what the revenue potential from the platform business could be? And then sorry, Peter, I just want to go back to the leveraged business. Trying to get a sense of what the sort of normalized revenue baseline post-pandemic is? The sense I have is that I mean just looking at, I suppose, gross client income per client, it is below the H1 2020 level. So how would you encourage us to think about that? Do you think the sort of normalized level is that sort of number, the gross client income per client in H1 2020 as a sort of normalized baseline? Or do you think it's higher than that? Just trying to get a sense of, obviously, last year [indiscernible] this year. Feels like it's more subdued than you expected in terms of the normalized baseline, trying to have a think about what normalized means for next year? And then on the slide deck, the Slide 12, I'm going to have a go here. I wonder if you could split out the risk management gains and losses for us. How much of that was the hedging P&L? How much of that was with the client P&L? And the last question, I don't know if you can answer this. But when you think about the process you've just started in terms of separating the businesses, what might cost allocation look like in that, particularly within the leveraged business?

[David Fineberg]

Okay. So Vivek, what I do is there's 4 questions there. So First of all, what I'll do is I'll take the leveraged business, and then Euan can talk as well to that one. So when we're saying about obviously normalized markets, et cetera, what you do have to remember is this year, we have seen an influx to -- and the sort of trading change to more of equities as well as cryptos. And historically, most of the interest did reside in terms of indices. So where you're seeing that shift, obviously, that then flows through to the other metrics that we've spoken about today, which is some of the broker margin growth in the client base. So it's normalized. But in that period, also growing the cash and accounts, the size of the positions. But as indices start to pick up, then obviously, that would be additional lines for the gross client income because that's where you would derive more value from the spread in the 2-way trading. So I would say that sort of H1 is more of the baseline for -- base case for normalized. Then in terms of the hedging risk management. So from our side, in terms of Slide 12, the important thing to call out is obviously hedging costs as well. So you will see each half as well, we were in similar levels. So GBP 8.7 million in hedging costs, slightly lower versus the prior half. But then as seen the turnover was also lower for that first half. And the losses that you may be alluding to in terms of the risk management, most of that was predominantly in indices, which is, as we know, a fluid 24-hour market. But on the whole, still a solid performance versus the first half of 2020. And as we keep reiterating, you've got a growing client base and growing interest.

[Vivek Raja, Analyst]

David, just to pick up on that question -- sorry, on your answer there. Within the indices that risk management gain also, was that on the client P&L or the hedging P&L?

[David Fineberg]

Split equally.

[Euan William Marshall, CFO & Director]

On the -- I can take the Vivek's question on the cost allocations of any split business. I think the important thing here is, Vivek, that we're at the very early stages of a review here. And therefore, that -- all of that is in the detail should it happen and around the viability analysis.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

I think it's around cost wasn't it on the platform? I mean we're on track to launch the platform by mid next year. So the costs -- did you want to know about the cost, Vivek, or stay applied on the platform?

[Vivek Raja, Analyst]

No, the question -- Peter, the question was because I think Euan sort of answered that in the sense of what the cost allocation. Well, I guess that's to do with the business, but isn't it? I'm not really asking about the cost of the platform. I'm actually asking -- a lot of the questions today have been about what is your go-to-market strategy. And I appreciate there are competitive reasons as to why you're holding back there. But when do you think you'll be in a position to tell us about that in view of obviously the launch of this business halfway through next year. When do you think you guys tell us what the go-to-market strategy will be and what the revenue potential from the platform business could be?

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Well, mostly it's time of the Christmas. But I think we're going through a big technology build now, and we've got sort of milestones that we're hitting. And then -- and I think if we're going to launch the new platform mid next year, we have to get something into Apple to the App Store by March, the latest. So I think around sort of the early first quarter next year, we're going to start building up. We start doing road shows and talking about our platform, have role a bit more around the commercials and so on. So we just got our heads down at the moment in putting the platform together. But I'd say sort of Feb next year will come out with something.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I will now hand back to Lord Cruddas for any final remarks.

[Peter Andrew Cruddas, Founder, CEO & Executive Director]

Nothing really. I haven't got anything prepared other than to say if you look at the business and ignore the pandemic period, we're on for a record year. We think things are going well here. Of course, there was always going to be that sort of period when people got back to the office and the income was going to drop off. I mean, not enough has been said about our acquisition of -- in the press, not internally, but the eTrade business in Australia, which we paid AUD 25 million for. We think it's a very good deal for us and also a very good deal for the bank. Because we're going to do all the technology now and certainly they don't have to worry about that. So look, it's heads down here. We're working hard. There's lots of opportunities, restructuring of the business, the launch of our U.K. investment platform, and continually just improving on what we're already doing. And so thanks for your interest and look forward to update you at the next update.