fxcm 2013 citi financial services conference
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FXCM slide deck for their presentation at the 2013 Citi Financial Services ConferenceTRANSCRIPT
Confidential
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Citi 2013 US Financial Services Conference
March 5, 2013
Confidential 1
This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties and a variety of important factors could cause results to differ materially from such statements. We believe these factors are noted in our filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2012. The forward-looking statements included herein represent FXCM Inc.’s views as of the date of this presentation and FXCM Inc. believes that forward-looking statements made by it are based on reasonable expectations. FXCM undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Non-GAAP Financial Measures: This presentation presents certain non-GAAP financial measures. These measures should not be considered in isolation from, or as a substitute for, measures prepared in accordance with generally accepted accounting principles. See the appendix to this presentation for reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP.
Disclaimer
Confidential
About FXCM
2
Founded in 1999 by 6 Partners ● One of the first retail FX firms in the US ● Immediately profitable – no outside investment ● IPO December 2010
● Partners still own 42% of company
Multi-asset class product offering ● Over-the-counter Spot FX ● Over-the-counter precious metals(1)
● Oil, commodity and equity-index CFD’s(1)(2)
Two main revenue streams – 75% retail and
25% institutional (Q3/12) ● Retail – www.fxcm.com ● Institutional – www.fxcmpro.com
Agency model aligns our interests with clients and reduces risk
Global reach – content and advertising in 180 countries and 16 languages
● Largest retail FX broker in Asia and US
(1) Only offered to non-US residents (2) CFD = Contracts-for-Difference
Confidential
FX is a $4.0 trillion dollar per day market (1)
Expected to grow to $10 trillion by 2020 (2)
Retail FX is 15 years old and is the fastest growing segment of this industry
Technology grants access to an increasing number of retail investors
Tighter retail FX regulations – resulting in reduced competition due to increased barriers to entry and more client confidence
Retail FX Average Daily Volume (1)
(1) Aite group; Leaprate-DowJones (2) UBS research estimates.
35% increase in daily retail FX volume since 2001 Over 70% reduction in the number of retail FX providers in the U.S. since 2006
3
Fast Growing Segment of a Large Established Marketplace
$10
$38
$125
$200
$-
$50
$100
$150
$200
2001 2004 2009 2012E
Confidential 4
Retail FX is a Global Market and FXCM has the Global Footprint to Deliver it
Confidential
From Broker
Broker, re-quotes on price changes, positive slippage kept by broker
Maintain open positions subject to market risk
Predominantly trading gains against client losses
Driven up and down by market volatility
Shorter client life, higher churn, rejects profitable traders
Principal
Best bid/offer from network of market makers, transparent
Back-to-back with market maker who made price; clients receive positive slippage; no re-quotes
All agency trades simultaneously offset with market maker; no market risk
Volume-based fees; not related to client profits/losses
Stable in low volatility, higher growth in volatile markets
Longer client life, actively pursues and caters to active, profitable traders
FXCM Agency
Pricing 1
Execution 2
Risk 3
Profits 4
Revenues 5
Client Profile 6
5
Our Agency Model Sets Us Apart
Confidential 6
Competitive Advantage From a Robust Trading Platform Robust Graphical User Interface
Our end-to-end trading platform gives us an asymmetrical competitive advantage versus:
− Our peers in the retail FX world
− Any new entrants from adjacent spaces
Single platform used for all markets (unlike other asset classes), leveraging global infrastructure
Difficult to replicate; significant barriers to entry
Multiple points where we add unique value
− Not plug-and-play like equities
− We do not compete solely on price
Little additional costs associated with adding White Label partners
− Even large, sophisticated broker choose to White Label our platform rather than build their own
Industry Leading Technology Platform Gives Us a Powerful Competitive Advantage
Confidential 7
50% of FXCM retail volume comes from White Labels
Well established presence in Asia • South Korea: Hyundai Futures, Korean Exchange Bank, Samsung Futures • Hong Kong / Singapore: Goutai Junan FX, Kim Eng
Growing European White Labels
• Bourse Direct announced October 2011 • Leading independent French online financial broker
• Patria Direct – a division of KBC Bank in Belgium • Leading retail securities dealer in Czech Republic
• Barclays Stockbrokers announced September 2012 • Over 350,000 UK execution only brokerage clients
Expanding on United States Opportunity
• E*Trade Financial launched white label with FXCM March 2012 • Leading independent online financial broker
• Another major financial institution expected to begin operations H1 2013 • Will be fully disclosed
White Label Opportunities
Confidential
5
10
15
20
25
30
2008 2009 2010 2011 2012 2013
Current Market Environment
8
CVIX(1)
Average 13.6 15.9 12.8 12.1 9.3
(1) DailyFX 3-month CVIX
Currency market has been experiencing an extended period of low volatility
• Impact of central bank intervention (Fed, ECB, BOJ, SNB, etc.)
• Blinded people’s perception of issues
• Banks taking less risk due to balance sheet restrictions
Encouraging market conditions in January 2013
Confidential
Opportunities for Growth without Changes in Volatility
9
Core EBITDA
Cost Reductions
Institutional Migration
Small Client Initiative
China Opportunity
Expand Business Through
White Labels
Acquisitions
Confidential
Institutional Business Growth
10
$93
$277
$486 $525
$752
$1,171 $1,179
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
2006 2007 2008 2009 2010 2011 2012
Institutional Trading Volume ($Bn) Business started mid-2005
● ECN for banks, hedge funds, asset managers and proprietary traders
● Main competitors: CME, EBS, FX Alliance, Hotspot, Reuters
● FXCM currently 7th/8th in order book due to 3rd party costs
Migrating from 3rd party product to proprietary software
● Projected to cut pricing in half, but increase volume much more
● Have only moved a few clients, and the impact on volume has been material
Volume growth of 53% CAGR since 2006
● 2012 impacted by low volumes in institutional FX
Launched JV with Credit Suisse to offer FastMatch platform for HFT’s
● Deploys leading Crossfinder equity technology to institutional FX
Confidential
Accretive Acquisitions
11
Four accretive acquisitions since October 2010 ● ODL Limited – October 2010
● #3 player in the UK ● Strong CFD business ● Purchased for approx. $54MM; < 4X EBITDA
● FXCM Japan – March 2011 ● Long-time White Label of FXCM ● Purchased for $5MM in cash; < 2X EBITDA
● Foreland FX – October 2011 ● Japanese business with loyal customer base ● Purchased for $17MM in cash; 2x Projected 2012 EBITDA
● Lucid Markets – June 2012 ● Leading non-bank market maker to institutional FX markets ● 50.1% purchased for $187MM ($100MM in stock & $87MM in cash); <3.5x 2011 EBITDA
Need for scale and regulatory changes continue to drive consolidation in key geographies
Market conditions are creating M&A opportunities as small/mid sized firms struggle to keep up
Confidential 12
($ in millions)
Customer Cash Balance Total Active Accounts(1)
(1) An account that has traded at least once in the previous twelve months.
86,149
116,919
136,427
163,094 170,930
175,011
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2008 2009 2010 2011 2012 Jan-13
$253 $354
$464 $547
$739
$178 $138
$151 $362
$388
$200
$400
$600
$800
$1,000
$1,200
$1,400
2008 2009 2010 2011 Q3/12
FXCM ODL Japan
$1,278
$1,047
Strong Growth in Customer Equity
$641
FXCM has over 5 times the client equity today than in 2008 when it achieved record results
Confidential
Superior Financial Track Record
13
$151
$258 $246
$279
$320
$235 $250
$-
$50
$100
$150
$200
$250
$300
$350
2007 2008 2009 2010 2011 9M2011
9M2012
Revenue Less Referring Broker Fees
($ in Millions)
Adjusted Pro-Forma EBITDA(1)
$34
$135
$104
$120 $112
$85 $83
$-
$20
$40
$60
$80
$100
$120
$140
$160
2007 2008 2009 2010 2011 9M2011
9M2012
($ in Millions)
(1) Adjusted Pro Forma results assume the conversion and exchange of all FXCM Holdings, LLC units into FXCM Inc. Class A shares, resulting in the elimination of the non-controlling interest and the corresponding adjustment to the entity’s tax provision. In addition, Adjusted Pro Forma results eliminate certain non-recurring charges relating to FXCM Inc.’s initial public offering.
Solid Performance Given Significant Declines in FX Volatility Over Period
Confidential 14
($ in billions)
Average Daily Volume Average Monthly Volume ($ in billions)
$274
$313
$347 $324 $328
$290 $287 $295
$363
$-
$50
$100
$150
$200
$250
$300
$350
$400
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Jan-13
$12.8
$14.4
$15.8
$15.0 $15.2
$13.4 $13.2 $13.2
$16.5
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Jan-13
Significant Increase in Retail Volumes in January 2013
Retail Customer Trading Volume
Confidential 15
($ in billions)
Average Daily Volume Average Monthly Volume ($ in billions)
$73 $72
$103
$143
$133 $134
$52 $52
$116
$-
$20
$40
$60
$80
$100
$120
$140
$160
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Jan-13
$3.4 $3.3
$4.7
$6.6
$6.1 $6.2
$2.4 $2.4
$5.3
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Jan-13
Significant Increase in Institutional Volumes in January 2013
Institutional Customer Trading Volume
Confidential
63% 64% 64% 69% 70% 72%
74% 75% 75% 75%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Standard Micro
-
0.5
1.0
1.5
2.0
2.5
3.0
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Jan-13
16
Active Accounts Trades per Day per Active Account
Equity per Active Account
$2,500
$3,500
$4,500
$5,500
$6,500
$7,500
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Increased proportion of Standard Accounts in customer mix
Growing Account Mix, Activity and Equity
Confidential 17
Summary
Agency model sets FXCM apart
Strong performance in challenging market conditions
Well positioned for international growth
M&A pipeline looks strong, but only at attractive prices
White Label partnerships increasing
Institutional business gaining traction