Fourth quarter 2017 results from Flow Traders N.V. reveal that ETP value traded rose to EUR164 billion (+1 per cent quarter on quarter), which led to an increase in ETP Value Traded by 7 per cent year on year, whereas the market ETP Value Traded declined 13 per cent year on year.
The fourth quarter’s net trading income (NTI) was EUR39.3 million (+24 per cent quarter on quarter). EBITDA margin for the period was 34 per cent, leading to an EPS of EUR0.17 (+43 per cent Q-o-Q).
Flow Traders proposes a final FY17 dividend of EUR0.35. This implies a total dividend for FY17 of EUR0.65, which is a 76 per cent dividend pay-out ratio. The firm reports that FTEs grew 16 per cent to 394 by the end of 2017 and Flow Traders incurred a small loss day in 4Q17. The firm expects to comply with CRR capital requirements under the standardised method as of 31 March 2018 and reports that MiFID II implementation went according to plan for the firm.
FY18 cost growth guidance was reiterated at a maximum of 15 per cent annually, and the firm reports that key growth initiatives are on schedule and confirm their longer-term growth strategy.
The firm also writes that year-to-date NTI is already more than considerably above the record quarter level of 3Q15 of EUR92.8 million, driven by a strong start of the year in combination with exceptional market circumstances.
The strong growth trend that was witnessed in the ETP industry in 2017, is expected to continue in 2018 and beyond, Flow Traders writes.
The shift in assets from actively managed funds towards the passive industry drives ETP growth across all asset classes. Regulation, such as MiFID II is expected to support further transparency and a level playing field, which already is starting to be beneficial to the ETP market.
On top of an already strong start of the year, the recent significant uptick in market activity contributes to an exceptional trading result for Flow Traders, the firm says. “This drives our NTI year-to-date already more than considerably above the record quarter level of 3Q15. This also shows the strength of our business model as well as Flow Traders’ ability to provide liquidity whilst managing appropriately the associated risks in all market circumstances.”
Co-CEO Dennis Dijkstra says: “The underlying growth drivers were strong in the ETP market in 2017, resulting in further growth in ETP AuM. Trading volumes however showed a decline, resulting in lower velocity which as such reflected a decrease in investor activity. In these market circumstances, Flow Traders managed to grow its traded volumes, as our growth initiatives developed as expected.
“Looking at the regulatory developments in 2017, CRR and MiFID II were the main focus points. The implementation of MiFID II went as planned. The preliminary MiFID II impact on the ETP market seems beneficial for us, as we see an increase in volumes traded on MTFs that we are connected to. Flow Traders also launched its employee incentive plan in 4Q17, to further align the interests of our employees with all stakeholders, in line with the philosophy of Flow Traders.
“So all in all, 2017 was a challenging trading year, in which Flow Traders was able to maintain and expand its position as the global liquidity provider in ETPs. The return on the investments made in 2017 is already visible.”
Co-CEO Sjoerd Rietberg adds: “When looking a bit closer at our performance, Flow Traders’ NTI had a strong recovery in 4Q17. Regionally, Europe stood out in 4Q17, with higher market share, improved revenue capture and internally we saw the first benefits from the FX setup. In the US, Flow Traders focused on improving its trading quality. This had a temporary impact on volumes traded and on profitability, which have already improved this year-to-date.
“US OTC trading grew in 2017, something that we expect to continue in 2018. In Asia, the increase in market activity was not immediately visible in the volumes we traded, but was very visible in our trading margins as we realised a strong increase in NTI. The Hong Kong office is officially established now and as a result we expanded our senior management team in APAC.
“Going forward we will have two offices in the region, working closely together. Looking back, 2017 was a year where many growth initiatives and improvements started to show impact towards the end of the year, which is testament to the contributions delivered by our employees.
“Flow Traders remained committed to its organic growth strategy and was able to implement improvements that already began to contribute to our performance in 2017. So far, 2018 has started off well, and we have also benefitted from some exceptional market circumstances. We expect to report strong results in 1Q18 based on those recent developments.”
CFO Marcel Jongmans says: “2017 was a year where we struck the right balance between growing our firm and controlling our costs. Further internal optimisation led to a growth in cost by 16 per cent, which is at the bottom end of the guided 15-20 per cent range for cost growth. We reiterate the cost growth guidance of maximum 15 per cent annually going forward, without limiting our growth efforts.
“Flow Traders was faced with several important financial developments in 4Q17, which were CRR, the US tax reform and the incentive plan. As stated in the press release issued on 5 February 2018 we expect to comply with CRR capital requirements. Flow Traders proposes a total dividend over 2017 of EUR0.65, which is a 76 per cent dividend pay-out ratio.
“The opportunity for Flow Traders employees to buy shares under the employee incentive plan will start this open period and will have no dilutive impact on our shareholders. Regarding the US tax reform, we incurred a relatively small additional tax charge in 4Q17, but going forward our EPS growth will be supported by a lower overall expected tax rate of 18 per cent from previously 20 per cent. We are convinced that Flow Traders will continue to optimise its NTI and returns for its shareholders in 2018 and beyond.”
