TIDMIGG
RNS Number : 5092V
IG Group Holdings plc
24 July 2018
IG GROUP HOLDINGS PLC
Results for the year ended 31 May 2018
24 July 2018
LEI No: 2138003A5Q1M7ANOUD76
IG Group Holdings plc ("IG", "the Group", "the Company"), a
global leader in online trading, today announces results for the
year ended 31 May 2018 (FY18).
Financial Summary
-- Net trading revenue GBP569.0 million (FY17: GBP491.1 million) - up 16%
-- Operating expenses excluding variable remuneration GBP254.2
million (FY17: GBP252.5 million) - up 1%
-- Operating profit GBP281.1 million (FY17: GBP213.4 million) - up 32%
-- Operating profit margin 49.4% (FY17: 43.5%) - up 5.9% points
-- Own funds generated from operations GBP320.9 million - 114% of operating profit
-- Basic EPS 61.7 pence (FY17: 46.2 pence) - up 34%
-- Final dividend of 33.51 pence per share; full year dividend 43.2 pence per share - up 34%
Operating and Strategic Summary
-- Record revenue, operating profit and earnings driven by
strong growth across all regions and products
-- Action taken to position the business so that it will
continue to deliver for its shareholders and other stakeholders
under a more restrictive regulatory environment:
- Online process that allows clients to request to be
categorised as an elective professional launched in mid-November
2017. The proportion of IG's UK and EU revenue generated by clients
categorised as professional as at 30 June 2018, was over 40% in the
preceding 3 months and the Group continues to expect this
proportion to rise to 50%
- The Group allows appropriate retail clients affected by the
ESMA measures to apply to contract with other regulated Group
entities outside the EU
- New, alternative, OTC leveraged derivative products under
development that are compliant with regulations and that will be
attractive for retail clients.
-- Investing to deliver growth:
- Launch of a multi-lateral trading facility (MTF) for the
European market planned for the second half of FY19
- US OTC FX business expected to launch in the first half of FY19
- IG will continue to look to acquire licences to operate in additional jurisdictions.
FY19 Outlook
ESMA's measures relating to the provision of CFDs to retail
clients in the UK and EU will come into effect on 1 August 2018. As
previously disclosed:
-- The Company believes that the reduction in historic revenue
from the implementation of the measures announced by ESMA, taking
into account the expected proportion of revenue that will be
generated from clients categorised as professional, would have been
approximately 10%, assuming no benefit from further mitigating
action taken by the Company or its clients
-- The Company expects that its revenue in FY19 will be lower
than in FY18, reflecting the impact of the regulatory changes in
the UK and EU
-- Operating expenses excluding variable remuneration are
expected to increase in FY19 reflecting the Group's continued
investment in product and platform development and additional
headcount in sales and client service. Total operating costs
(operating expenses plus variable remuneration) in FY19 are
expected to be at a similar level to the GBP290 million total
operating costs in FY18, reflecting a lower expected charge for
variable remuneration
-- The Company expects to return to growth after FY19.
Peter Hetherington, Chief Executive, commented:
"The Company delivered record revenue, operating profit and
earnings in FY18, driven by strong growth across all regions and
products, and has continued to make good strategic and operational
progress. We will continue with the investments we are making to
deliver future growth and to position the business to benefit from
the strong demand for our products.
"We are pleased that there is now greater clarity around the
nature and extent of regulatory change in the UK and EU affecting
the CFD industry. As ESMA's product intervention measures are
focused on the CFD industry, they risk creating an unlevel playing
field by giving an advantage to other forms of leveraged trading
products which are offered to retail clients. IG has a long history
of successful innovation, and is committed to offering the widest
possible range of trading opportunities to appropriate clients that
are fully compliant with regulations.
"IG has delivered a sustainable business for more than 40 years
by placing good client outcomes at the heart of everything it does.
IG's business model ensures that its interests as a business are
aligned with the interests of its clients, which sets it apart from
most companies in the industry. IG will continue to lead the way in
the industry, and the business is well positioned to mitigate the
impact of regulatory change and to continue to deliver sustainable
growth and attractive shareholder returns.
"The Board expects to maintain the 43.2 pence per share annual
dividend until the Group's earnings allow the Board to resume
progressive dividends."
Further information
IG Group FTI Consulting
Liz Scorer Neil Doyle
020 7573 0727 Edward Berry
investors@iggroup.com 020 3727 1141 / 1046
Analyst presentation
There will be an analyst and investor presentation on the
results at 9:30am (UK Time) on Tuesday 24 July 2018 at IG Group,
Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA.
The presentation will also be accessible live via audio webcast
at www.iggroup.com and via a conference call on the following
number:
UK: +44 20 3059 5868 and all other locations: +44(0)20 3059 5868
when requested
The audio webcast of the presentation and a transcript will be
archived at: www.iggroup.com/investors
Disclaimer - forward-looking statements and market abuse
regulations
This preliminary statement, prepared by IG Group Holdings plc
(the "Company"), may contain forward-looking statements about IG
Group Holdings plc and its subsidiaries (the "Group").
Forward-looking statements involve uncertainties because they
relate to events, and depend on circumstances, that will, or may,
occur in the future. If the assumptions on which the Group bases
its forward-looking statements change, actual results may differ
from those expressed in such statements. Forward-looking statements
speak only as of the date they are made and the Company undertakes
no obligation to update these forward-looking statements. Nothing
in this statement should be construed as a profit forecast.
Some numbers and period on period percentages in this statement
have been rounded or adjusted in order to ensure consistency with
the financial statements.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public
domain.
About IG
IG empowers informed, decisive, adventurous people to access
opportunities in over 15,000 financial markets. With a strong focus
on innovation and technology, the company puts client needs at the
heart of everything it does.
IG's vision is to be a global leader in retail trading and
investments. Established in 1974 as the world's first financial
derivatives firm, it continued leading the way by launching the
world's first online and iPhone trading services.
IG is now an award-winning, multi-platform trading company, the
world's No.1 provider of CFDs* and a global leader in forex. It
provides leveraged services with the option of limited-risk
guarantees, and offers an execution-only share dealing service in
the UK, Australia, Germany, France, Ireland, Austria and the
Netherlands. IG has a range of affordable, fully managed investment
portfolios, to provide a comprehensive offering to investors and
active traders.
It is a member of the FTSE 250, with offices across Europe,
including a Swiss bank, Africa, Asia-Pacific, the Middle East and
the US, where it offers on-exchange limited risk derivatives via
the Nadex brand.
*Based on revenue excluding FX (from published financial
statements, February 2018)
Overview
The Company delivered record revenue, operating profit, and
earnings in FY18, driven by growth across all regions and products,
and has continued to make good strategic and operational progress.
The Group is taking action to mitigate the potential financial
impact of regulatory change, and to position the business so that
it will continue to deliver for its shareholders and other
stakeholders under a more restrictive regulatory environment.
Net trading revenue in FY18 was GBP569.0 million, 16% higher
than the prior year. Our clients trade in markets where there are
opportunities, and for a period during the year cryptocurrencies
provided such opportunities. The interest in cryptocurrencies has
now waned, and we look forward to facilitating client trading in
other interesting markets this year. Operating expenses excluding
variable remuneration were GBP254.2 million, 1% higher than in the
prior year and in line with prior guidance. Total operating costs,
including variable remuneration, were up 5%. Operating profit for
the year of GBP281.1 million was 32% higher than in FY17, with the
operating profit margin increasing to 49.4%.
Basic earnings per share for the year were 61.7 pence, 34%
higher than the prior year. The Board is recommending a final
dividend of 33.51 pence per share, taking the full year dividend to
43.2 pence per share, 34% higher than the 32.3 pence per share paid
for FY17, in line with the previously stated intention to pay out,
as ordinary dividends, around 70% of earnings.
Leading the Way
IG exists to empower informed, decisive, adventurous people to
access opportunities in financial markets. IG started this industry
over 40 years ago by providing clients with the opportunity to gain
exposure to the price of gold and now offers clients over 15,000
financial markets.
IG differentiates itself within the industry through its good
conduct, and the Company adheres to the highest regulatory
standards. Leveraged derivative instruments are not appropriate for
everyone. Through its focus on ensuring that its marketing and
advertising targets an appropriate audience, IG seeks to only
accept clients who understand its products and the risks
involved.
IG's brand is synonymous with high levels of client service,
excellent technology and strong risk management, all of which
contribute to the business's competitive advantage. IG's business
model ensures that its interests as a business are aligned with the
interests of its clients, which sets it apart from most companies
in the industry. IG's focus on championing the client provides the
basis for long lasting, high value client relationships, and in
FY18 52% of revenue was generated by clients who have traded with
IG for over 3 years. The business is well positioned to mitigate
the impact of regulatory change and to continue to deliver
sustainable growth and attractive shareholder returns.
Regulatory Developments
The Company, and the industry as a whole, has faced significant
uncertainty around the nature and extent of regulatory change in
the UK and EU since the Consultation Paper (CP16/40) issued by the
FCA in December 2016. This uncertainty was substantially removed at
the end of March 2018 when ESMA announced measures pursuant to its
new product intervention powers under Article 40 of MiFIR to
address investor protection risks. These measures apply only to
retail clients.
In accordance with MiFIR, ESMA can introduce temporary
intervention measures on a three monthly basis, and before the end
of the three months, ESMA will consider the need to extend the
intervention measures for a further three months. The FCA expects
to consult on whether to apply these measures on a permanent basis.
The Company is working on the basis that the temporary restrictions
will become permanent in the UK and across the EU.
The prohibition on the marketing, distribution or sale of binary
options to retail clients came into effect on 2 July 2018. IG
stopped offering its Sprint binary product to new retail clients in
January 2017, and has now ceased offering binary products to all
retail clients in the UK and EU.
The measures relating to the provision of contracts for
difference (CFDs) to retail clients will come into effect on 1
August 2018.
The restrictions to be applied to CFDs are:
-- Leverage limits on the opening of a position by a retail
client from 30:1 to 2:1, which vary according to the volatility of
the underlying asset:
- 30:1 for major currency pairs;
- 20:1 for non-major currency pairs, gold and major equity indices;
- 10:1 for commodities other than gold and non-major equity indices;
- 5:1 for individual equities and other reference values;
- 2:1 for cryptocurrencies;
-- A margin close-out rule on a per account basis;
-- Negative balance protection on a per account basis;
-- A restriction on the incentives offered to trade CFDs;
-- A standardised risk warning.
IG is supportive of the objectives of regulators to improve
client outcomes in the industry, and the Company supports ESMA in
its efforts to enhance consumer protection and achieve
harmonisation of regulation across the EU.
IG believes that enforcing consistent close-out procedures,
putting a negative balance protection per account, restricting
trading incentives such as bonus offers, and issuing standardised
risk warnings would all improve client outcomes if implemented
appropriately, and enforced effectively.
IG continues to believe, however, that the leverage restrictions
are disproportionate and go beyond what is needed to protect
consumers from poor outcomes associated with excessive
leverage.
In IG's experience, when proportionate regulation has been
applied consistently and appropriately, client outcomes have
improved, and compliant providers have benefitted over the longer
term. The Company will continue to engage fully with regulators, to
seek to achieve the best possible outcomes for current and future
clients of this industry, and the greatest long-term value for
shareholders.
Championing the Client
At the beginning of FY18 the business refined its on boarding of
new clients through the application of stringent appropriateness
testing and an increase in the wealth hurdles. In FY18, 39,179 new
clients traded OTC leveraged derivatives with IG for the first
time. The number of client 'first trades' is significantly lower
than the number of clients who applied for an account. There is
huge demand for the OTC leveraged derivative product, but IG seeks
to ensure that it only accepts appropriate clients who understand
the products and the associated risk. The rigorous processes the
business employs to assess applicants to ensure that they have
sufficient knowledge and experience, and sufficient wealth,
reflects IG's belief that leveraged derivative products are not
suitable for the vast majority of individuals.
IG believes that it leads the way in the industry in its
approach to appropriateness testing and its commitment to adhering
to the highest standards of KYC and AML requirements. The Company
believes that together with its culture of acting in clients' best
interests and providing excellent client service, this results in a
sustainable business, with industry leading client tenure and
client value metrics.
IG has three categories of clients; retail, professional and
institutional. Whilst IG has historically categorised the vast
majority of its clients as retail as a matter of course, IG's
client base is different from most in the industry due to the
Company's long term focus on high value and sophisticated clients.
Clients with a high level of understanding, significant trading
experience, large investment portfolios, or relevant experience
working in financial services, may elect to be categorised as
professional.
In mid-November 2017, IG launched an online process that allows
clients to request to be categorised as an elective professional.
These requests are assessed internally, and clients who meet the
requirements are now categorised as professional. To date, more
than three quarters of all requests by number have been rejected.
Clients who were categorised as professional on 30 June 2018,
generated over 40% of the Company's UK and EU revenue in the
preceding three months, and the Group continues to expect this
proportion to rise to 50%.
IG has a very clear target market. The Group operates through a
number of regulated legal entities in different jurisdictions, each
compliant with its local regulatory rules. The Group allows
appropriate retail clients affected by the ESMA measures to apply
to contract with other regulated Group entities based in
jurisdictions outside the EU.
As ESMA's product intervention measures are focused on the CFD
industry, they risk creating an unlevel playing field by giving an
advantage to other forms of leveraged trading products which are
offered to retail clients such as futures, options, turbos and
warrants. IG is developing new OTC leveraged derivative products
that are compliant with regulations that it believes will be
attractive to retail clients. The Company will also assess the
opportunity to expand further its range of financial trading
products to include exchange traded futures.
IG has a long history of successful innovation, and is committed
to offering the widest possible range of trading opportunities to
appropriate clients that are fully compliant with regulations.
Marketing Landscape
The Group seeks to ensure that its marketing and advertising
targets an appropriate audience. The Company utilises integrated
multi-channel marketing, fuelled by technology, data and insight
and optimisation to deliver results. IG focuses on both paid and
non-paid marketing activity in its regulated jurisdictions, with
the investment in non-paid SEO (search engine optimisation) driving
long term competitive advantage.
A number of large technology firms are taking action on
inappropriate advertising and marketing, and on unlicensed
operators in the industry. These actions include introducing bans
on the advertising and marketing of cryptocurrencies and binary
options, and the requirement that firms advertising and marketing
CFDs can demonstrate that they are appropriately licensed in those
jurisdictions in which the services are being promoted. The Group
also expects that some of the large payment and card providers will
soon introduce rules to ensure that these businesses only
facilitate payments from and to clients in jurisdictions in which
the firms are appropriately licensed.
As a compliant provider of its services with a model of
operating through local presence with local regulatory approvals,
and with its investment over many years in SEO, the Company does
not expect that the actions currently being taken, if applied
appropriately, will have any significant impact on its
business.
Growth Opportunities
As outlined at its recent Capital Markets Day, the Group
believes that the macro demographic and economic trends of
increasing wealth and financial awareness, combined with a move
towards self-direction, will continue to fuel growth in its
business. IG also believes that the business will benefit in the
medium term from the macro trend towards increasing regulation.
IG believes these changes represent a significant opportunity in
the medium term, and that the firms that are likely to succeed are
those that are properly licenced, adhere to regulations, and
operate a business model that develops long-term client
relationships. Businesses that rely on client churn will be harder
to sustain.
The Group is taking action to position the business to take
advantage of this environment.
As announced in July 2017, the Company is developing a
multi-lateral trading facility (MTF) for the European market where
IG believes there is a significant opportunity in offering exchange
traded products. The on-exchange market in Europe is considerably
larger than the OTC market, providing the Company with an
opportunity to appeal to a wider client base, strengthen its brand
presence and potentially, over time, expand the adjacent OTC
market. IG plans to offer its own leveraged securities on its MTF.
These products are limited risk by nature, making the offering
suitable for less experienced clients. The launch of the MTF is
planned for the second half of FY19.
IG serves its clients through a strong online presence supported
by local offices, where the size of market or local regulatory
requirements, demand it. The company continually reviews new
geographic opportunities and has identified potential in the US OTC
FX market, where it believes the market is currently underserved.
IG filed its licence application at the end of November 2017 to
establish a new subsidiary based in Chicago, and has completed
hiring for key roles. The Company expects to launch this business
in the first half of FY19. IG will continue to look to acquire
licences to operate in jurisdictions in emerging markets that fit
within the Group's risk appetite.
IG has applied to BaFIN, the German regulator, to establish a
subsidiary in Dusseldorf as a response to the UK's decision to
leave the EU. This office will combine the existing German sales
office with key management and control positions and will serve as
a regional hub for the Group's well-established EU business. The
establishment of this subsidiary will not have any impact on the
Company's UK operations.
Outlook
IG has delivered a sustainable business for more than 40 years
by placing good client outcomes at the heart of everything it does.
IG will continue to lead the way in the industry, and the business
is well positioned to mitigate the impact of regulatory change and
to continue to deliver sustainable growth and attractive
shareholder returns.
The Company is pleased that there is now greater clarity around
the nature and extent of regulatory change in the UK and EU
affecting the CFD industry. ESMA's measures relating to the
provision of CFDs to retail clients in the UK and EU will come into
effect on 1 August 2018.
The Company will continue with the investments that it is making
to deliver future growth and to position the business to benefit
from the strong demand for its products.
As previously disclosed:
-- the Company believes that the reduction in historic revenue
from the implementation of the measures announced by ESMA, taking
into account the expected proportion of revenue that will be
generated from clients categorised as professional, would have been
approximately 10%, assuming no benefit from further mitigating
action taken by the Company or its clients
-- the Company expects that its revenue in FY19 will be lower
than in FY18, reflecting the impact of the regulatory changes in
the UK and EU
-- Operating expenses excluding variable remuneration are
expected to increase in FY19 reflecting the Group's continued
investment in product and platform development and additional
headcount in sales and client service. Total operating costs
(operating expenses plus variable remuneration) in FY19 are
expected to be at a similar level to the GBP290 million total
operating costs in FY18, reflecting a lower expected charge for
variable remuneration
-- the Company expects to return to growth after FY19
The Board expects to maintain the 43.2 pence per share annual
dividend until the Group's earnings allow the Board to resume
progressive dividends.
Operating and Financial Review
Summary Group Income Statement
FY18 FY17
GBPm GBPm Change
----------------------------- -------- -------- ---------
Net trading revenue 569.0 491.1 16%
Net interest on client
money 4.5 4.0
Betting duty and FTT (5.1) (7.5)
Other operating income 2.8 1.9
----------------------------- -------- -------- ---------
Net operating income 571.2 489.5 17%
----------------------------- -------- -------- ---------
Operating expenses (254.2) (252.5) 1%
Variable remuneration (35.9) (23.6)
----------------------------- -------- -------- ---------
Total operating costs (290.1) (276.1) 5%
----------------------------- -------- -------- ---------
Operating profit 281.1 213.4 32%
Net finance (cost) / income (0.3) 0.3
============================= ======== ======== =========
Profit before taxation 280.8 213.7
Taxation (54.4) (44.5)
============================= ======== ======== =========
Profit for the year 226.4 169.2 34%
----------------------------- -------- -------- ---------
Basic earnings per share 61.7p 46.2p 34%
----------------------------- -------- --------
Total dividend per share 43.2p 32.3p 34%
----------------------------- -------- -------- ---------
Net trading revenue
Reporting segment Revenue (GBPm) % Change
----------------- ---------
FY18 FY17
----------------------------- -------- ------- ---------
UK 249.5 223.0 12%
EMEA 162.1 137.5 18%
APAC 136.8 114.1 20%
----------------------------- -------- ------- ---------
OTC Leveraged 548.4 474.6 16%
----------------------------- -------- ------- ---------
US 16.6 14.1 18%
Share Dealing & Investments 4.0 2.4 67%
----------------------------- -------- ------- ---------
Group 569.0 491.1 16%
----------------------------- -------- ------- ---------
Client trends
Reporting segment Active clients Revenue per
('000s) client (GBP)
------------------- ----------------- -------- ---------------- --------
FY18 FY17 % FY18 FY17 %
Change Change
------------------- -------- ------- -------- ------- ------- --------
UK 59.9 64.7 (7%) 4,166 3,446 21%
EMEA 46.1 45.9 - 3,519 2,997 17%
APAC 38.6 37.4 3% 3,543 3,051 16%
------------------- -------- ------- -------- ------- ------- --------
OTC Leveraged 144.6 148.0 (2%) 3,794 3,207 18%
------------------- -------- ------- -------- ------- ------- --------
US 22.0 22.3 (1%) 756 630 20%
Share Dealing
& Investments 35.5 20.4 74% 113 115 (2%)
Multi-Product
Clients (6.9) (5.0) 38%
------------------- -------- ------- -------- ------- ------- --------
Group 195.2 185.8 5% 2,915 2,643 10%
------------------- -------- ------- -------- ------- ------- --------
IG delivered record revenue in FY18, with strong growth across
all regions and products. Record first half revenue of GBP268.4
million was followed by a new record quarter for revenue in Q3 of
GBP152.9 million, with Q4 revenue of GBP147.7 million, the Group's
second highest quarterly revenue performance.
OTC Leveraged
OTC leveraged revenue of GBP548.4 million was 16% higher than in
FY17. The 144,600 active clients in FY18 were 2% lower than in
FY17, which was more than offset by the 18% increase in average
revenue per client to just under GBP3,800.
The lower number of active clients in FY18 compared with the
prior year reflects the boost to client numbers in the first half
of FY17 as a result of the trading opportunities created by the EU
referendum in the UK in June 2016, and the US Presidential election
in November 2016. The number of active clients in the first half of
the year was 5% lower than in the comparative period. In the second
half of FY18 the number of active clients was 1% higher than in the
same period in the prior year.
In total, the number of new OTC leveraged clients who traded for
the first time in the year was 39,179, with 18,027 new clients in
the first half and 21,152 new clients in the second half. The
relatively low level of new client recruitment during the first
half reflects the introduction of the new appropriateness test for
prospective clients together with increased wealth hurdles, and a
lower level of advertising and marketing.
The cost per first trade for OTC leveraged equivalent accounts,
based on the external advertising and marketing spend in the year,
was GBP1,400 - the same as for the prior year.
The number of active clients in a quarter reached a new record
of 99,500 in Q3 FY18, including 12,500 new clients who traded for
the first time in that quarter. Interest in trading in that period
was heightened by the excitement around cryptocurrencies and by a
significant spike in financial market volatility in February.
Client trading in cryptocurrencies accounted for 7% of OTC
leveraged revenue in FY18. The level of client activity in
cryptocurrencies has slowed markedly since the end of January, and
accounted for 3% of revenue in Q4.
Financial market volatility was relatively subdued during the
year until February. The interest in cryptocurrencies during Q3 and
the increased level of volatility in Q4 created trading
opportunities for clients and the business experienced an increase
in client trades in the second half compared with the first
half.
Revenue per client has been strong throughout the year. In the
first half of the year, revenue per client was 15% higher than in
the prior year at GBP2,290. In the second half of the year revenue
per client of GBP2,497 was 21% higher than in the prior year, and
9% higher than in the first half. In addition to the factors which
drive client income, revenue per client is impacted by the
Company's hedging efficiency, which determines the extent to which
client income is converted into trading revenue. Hedging efficiency
has been good throughout the year.
Revenue in the UK of GBP249.5 million was 12% higher than FY17,
with the lower level of active clients offset by a 21% increase in
revenue per client to GBP4,166 (FY17: GBP3,446).
Revenue in EMEA, which comprises our branches in the EU and our
subsidiaries outside the EU in Switzerland, Dubai and South Africa,
increased 18% to GBP162.1 million (FY17: GBP137.5 million). The
number of active clients was broadly flat compared to the prior
period, with revenue per client up 17% to GBP3,519 (FY17:
GBP2,997). Growth in revenue of over 25% from our subsidiaries in
Switzerland and Dubai reflects our success in developing our
business through establishing a local presence in attractive
markets.
Revenue in APAC increased 20% to GBP136.8 million (FY17:
GBP114.1 million). The number of active clients increased 3%, with
revenue per client up 16% to GBP3,543 (FY17: GBP3,051). Our
businesses in Australia and Singapore both had a particularly
successful year.
OTC Leverage revenue by asset class
FY18 FY17 % Change
---------
GBPm GBPm
------------------ ------ ------ ---------
Indices 224.2 203.8 10%
Foreign Exchange 130.7 82.2 59%
Equities 95.4 76.4 25%
Commodities 55.0 68.2 (19%)
Options 43.1 44.0 (2%)
------------------ ------ ------ ---------
OTC Leveraged 548.4 474.6 16%
------------------ ------ ------ ---------
Revenue was higher in FY18 for indices, foreign exchange and
equities. The fall in commodities revenue can be largely attributed
to a particularly strong year in FY17, reflecting the trading
opportunities in the oil markets resulting from sustained high
levels of volatility.
Revenue from foreign exchange in FY18 includes GBP36.5 million
from cryptocurrencies (FY17: GBP5.9 million) with the growth in
revenue from conventional FX pairs up by 23%. Revenue from options
includes OTC binaries which are no longer offered to retail clients
in the UK and EU.
US
Revenue from Nadex, our exchange traded derivatives business in
the US, was up 18% to GBP16.6 million (FY17: GBP14.1 million). A 1%
drop in the number of active clients was offset by revenue per
client rising 20% to GBP756 (FY17: GBP630).
Share Dealing and Investments
Revenue from our share dealing and investments services
increased 67% to GBP4.0 million (FY17: GBP2.4 million). The number
of active clients increased by 74%. The share dealing and
investments products help to retain existing OTC leveraged clients,
and the share dealing product provides an acquisition channel to
attract new clients, for whom it is appropriate, to OTC leveraged
trading.
Multi-product clients (who trade both OTC leveraged products and
also hold stocks in a share dealing or investments account at the
end of the period) at the end of the year increased by nearly 40%
compared with the same time last year to just under 7,000. This is
an important metric for the Group, as it shows engagement of our
client base in our whole product set, with multi-product clients
having a higher value and lower rate of attrition than single
product clients.
Operating income
Net operating income increased 17% to GBP571.2 million,
primarily reflecting the 16% increase in trading revenue.
Net interest income on client money increased to GBP4.5 million,
driven by an increase in the amount of client money held.
Betting duties incurred by the Group decreased reflecting lower
client losses. The Group also bears Italian financial transaction
tax (FTT) costs, which have increased in line with activity.
The increase in other operating income primarily reflects the
full-year effect of the income from the sale of client leads
generated by DailyFX in the USA. This income has now ceased, as the
Group prepares to launch its US OTC FX business.
Operating expenses
Operating expenses by cost type
FY18 FY17 %
GBPm GBPm Change
--------------------------------------------- ------ ------ -------
Fixed remuneration 96.0 95.5 1%
Advertising and marketing 58.7 64.5 (9%)
IT maintenance and communications 13.3 14.2 (6%)
Premises 12.6 13.2 (5%)
Market data 9.7 9.7 -
Legal and professional fees 8.8 8.0 10%
Regulatory fees 7.1 2.3 209%
Irrecoverable VAT and other sales taxes 13.1 14.1 (7%)
Credit card and alternative payment charges 5.5 2.2 150%
Depreciation and amortisation 17.6 16.4 7%
Other 11.8 12.4 (5%)
--------------------------------------------- ------ ------ -------
Operating expenses 254.2 252.5 1%
--------------------------------------------- ------ ------ -------
Headcount at year end 1,677 1,546 8%
--------------------------------------------- ------ ------ -------
Operating expenses increased 1% to GBP254.2 million (FY17:
GBP252.5 million).
Fixed remuneration costs were little changed despite an 8%
increase in year-end headcount, reflecting a lower average cost per
head as a result of offshoring a number of roles to our non-UK
operational hubs.
Advertising and marketing spend reduced by 9% to GBP58.7
million. Expenditure at the start of the financial year was reduced
to allow the business to assess the impact of the revised
appropriateness tests and wealth hurdles on client applications.
Additionally, expenditure in the prior year was elevated,
reflecting the client recruitment opportunities around the EU
referendum and the US Election.
The Group is charged regulatory fees by the various regulators
in the jurisdictions in which it operates, and in addition is
required to make a contribution to the Financial Services
Compensation Scheme (FSCS) in the UK. The increase in regulatory
fees is due to the rebate of FSCS levies that the Group received in
the prior year. The GBP7.1 million charge in FY18 is more
indicative of the ongoing annual cost.
The Group does not recover all of the input VAT and other sales
taxes it incurs on costs. The decrease in irrecoverable VAT and
other sales taxes reflects the lower marketing and advertising
costs in FY18 compared with the prior year.
Credit card and alternative payment charges increased to GBP5.5
million reflecting the removal of charges to clients for credit
card payments in a number of jurisdictions and the introduction of
PayPal as a payment method in FY18.
Depreciation and amortisation was 7% higher at GBP17.6 million
(FY17: GBP16.4 million) reflecting a full year of amortisation of
DailyFX, which was acquired in October 2016.
Operating expenses by activity category
FY18 FY18 FY17 %
Year-end Headcount GBPm GBPm Change
--------------------------- ------------------- ------ ------ -------
Prospect acquisition 199 79.8 85.9 (7%)
Sales and client service 463 33.1 30.2 10%
Technology and innovation 762 88.5 90.6 (2%)
Business administration 253 52.8 45.8 15%
--------------------------- ------------------- ------ ------ -------
Operating expenses 1,677 254.2 252.5 1%
--------------------------- ------------------- ------ ------ -------
The four key areas of activity in the business are prospect
acquisition, sales and client service, technology and innovation,
and business administration. The analysis of operating expenses
into these four areas provides additional information on the
drivers of operating expenses.
Prospect acquisition
The purpose of this expenditure is to attract suitable prospects
for conversion into new clients. The majority of this expenditure
is discretionary, and can be flexed according to market conditions
and acquisition opportunities. Prospect acquisition costs decreased
by 7% to GBP79.8 million, primarily due to the lower advertising
and marketing expenditure in FY18.
Sales and client service
The majority of the expenditure in this area relates to the
costs of our client facing staff, 30% of whom are directly involved
in sales and conversion, with nearly two-thirds working in client
service roles. Sales and client service expenditure increased by
10% to GBP33.1 million. Staff costs remained flat, with the
increased cost reflecting the higher credit card and alternative
payment costs in FY18.
Technology and innovation
The expenditure in this area includes all the costs associated
with the provision of the platform that our clients use to trade,
and through which we manage our market risk. It also includes our
product and platform development costs, the costs of managing and
running our internalisation and hedging processes and the costs of
our office infrastructure. Technology and innovation costs
decreased 2% to GBP88.5 million. These costs are largely fixed in
nature, and do not directly flex with revenue.
Business administration
The costs of this area includes our finance teams, our risk and
compliance function, HR, legal and other corporate functions, and
the legal, professional and regulatory fees we incur in
administering and managing the Group. Business administration costs
increased 15% to GBP52.8 million reflecting the higher cost of
regulatory fees in the period, and an increase in fixed
remuneration costs as we invested in our control and support
functions.
Variable remuneration
FY18 FY17 %
GBPm GBPm Change
-------------------------- ----- ----- -------
Share based compensation 8.8 7.5 17%
Sales bonuses 4.5 3.6 25%
General bonuses 22.6 12.5 81%
Variable remuneration 35.9 23.6 52%
-------------------------- ----- ----- -------
Variable remuneration costs increased by 52% to GBP35.9
million.
Share-based compensation costs relate to the long-term incentive
plans for senior management. The costs reflect the size of these
awards and the extent to which they are expected to vest, which is
driven predominantly by EPS and relative TSR performance.
Sales bonuses increased by 25% reflecting increased bonuses paid
to sales staff based on new accounts opened and funded, and to some
of our client service staff who manage our high-value client
relationships.
The general bonus pool increased by 81% to GBP22.6 million. The
size of the general bonus pool is dependent upon the Group's annual
performance against internal targets, which reflect both financial
and non-financial measures. It is not based on financial
performance compared with the prior year.
Net finance (costs)/income
The Group earns interest income on its cash balances and on its
holdings of gilts, which in FY18 totalled GBP1.6 million, GBP0.3
million higher than in the prior year (FY17: GBP1.3 million)
reflecting the higher average cash balances during the year.
The Group pays fees and interest relating to its revolving
credit facility, which in FY18 totalled GBP1.8 million, GBP0.3
million higher than in the prior year (FY17: GBP1.5 million)
reflecting the higher average utilisation of the facility during
FY18.
The Group earns and pays interest on its cash balances at
hedging brokers. Interest is earned on positive balances in each
currency, and is paid on any negative balances in each currency,
which occur as the Group frequently deposits GBP to cover margin
requirements in USD and EUR. In FY18 the Group earned nil net
interest income on its balances at hedging brokers (FY17: net
charge GBP0.2 million).
In FY17 the Group's net finance (costs)/income benefitted from
the release of a provision related to interest payable on unpaid
withholding tax in Australia. The interest cost was settled at a
lower rate than had been provided for, and the GBP0.7 million
balance of the provision was released.
Taxation
The effective tax rate for the year is 19.4%, 1.4% points lower
than the prior year (FY17: 20.8%).
The vast majority of the Group's taxable profit arises in the
UK. The reduction in the effective tax rate reflects the full-year
benefit of the reduction in the standard rate of UK corporation tax
to 19% from 20% with effect from 1 April 2017. In addition, the
rate benefits from the recognition of a 'patent box' claim that
will be made in the UK tax filings for FY18. These benefits have
been partly offset by the GBP1.4 million reduction in the value of
the Group's deferred tax assets relating to its tax losses in the
USA, as a result of the reduction in the US corporation tax rate
enacted in the second half of FY18.
The patent box claim relates to the grant of a patent by the UK
Patent Office for the Group's invention in measuring latency.
Further patents are expected to be granted by the European patent
office for inventions relating to automatic pricing and for the
synchronisation of independent systems. The recognition of this
claim has reduced the effective tax rate for FY18 by 1.2% points.
Half of that benefit relates to FY17, the year in which the patent
box election first has effect.
The Group's effective rate of tax remains dependent on the mix
of taxable profit by geography, the tax rates levied in those
geographies and the availability and use of taxable losses. The
Group's current estimate of the effective rate of tax for FY19 is
19.5%.
Dividend
The Board is recommending a final dividend of 33.51 pence per
share, giving a full year dividend of 43.2 pence per share, 34%
higher than the 32.3 pence per share paid for FY17.
If approved at the Company's AGM, the final dividend will be
paid on 26 October 2018 to those members on the register at the
close of business on 28 September 2018.
Cash generation and movement in own funds
The Group uses own funds, and net own funds, generated from
operations as its key measures of cash generation.
Own funds flow
FY18 FY17
GBPm GBPm
----------------------------------------- ------- -------
Operating profit 281.1 213.4
Depreciation and amortisation 17.6 16.4
Share based compensation 7.0 7.7
Change in working capital 15.2 (8.3)
----------------------------------------- ------- -------
Own funds generated from operations 320.9 229.2
----------------------------------------- ------- -------
as % of operating profit 114% 107%
Taxes paid (48.9) (45.3)
----------------------------------------- ------- -------
Net own funds generated from operations 272.0 183.9
----------------------------------------- ------- -------
Cash generation remains strong, with own funds generated from
operations of GBP320.9 million, 40% higher than in the prior year.
The high level of conversion of profit into cash reflects the
non-cash charges in operating profit and the increase in the net
credit balance in working capital due to the higher level of the
bonus accrual at the end of FY18, compared with the prior year.
Tax payments of GBP48.9 million reflect the payment of the
GBP20.0m balance of the UK corporation tax liability for FY17
outstanding at the start of the year, GBP24.8 million representing
around half of the estimated UK corporation tax liability for FY18,
and GBP4.1 million of overseas tax.
Movement in own funds
FY18 FY17
GBPm GBPm
----------------------------------------- -------- --------
Net own funds generated from operations 272.0 183.9
Net financing payments / receipts (0.6) 0.6
Investments
- Purchase of DailyFX (3.0) (29.8)
- Capital expenditure (11.0) (17.1)
- Purchase of own shares (4.3) (1.1)
----------------------------------------- -------- --------
Pre-dividend increase in own funds 253.1 136.5
Dividends paid in the year (119.6) (118.7)
----------------------------------------- -------- --------
Increase in own funds 133.5 17.8
Own funds at start of the year 614.3 587.7
Impact of movement in exchange rates (1.7) 8.8
----------------------------------------- -------- --------
Own funds at the end of period 746.1 614.3
----------------------------------------- -------- --------
The Group paid the final consideration of GBP3.0 million
relating to the purchase of the assets of DailyFX, a leading global
news and research portal, which the Group purchased in October
2016.
Capital expenditure in the year of GBP11.0 million relates
primarily to internal IT development, third-party software, and IT
equipment. In FY17 capital expenditure also included amounts
related to the refurbishment of the London office.
Dividend payments to shareholders during FY18 of GBP119.6
million comprise the final dividend for FY17 of GBP84.0 million and
the interim dividend for FY18 of GBP35.6 million.
The final dividend FY18 of GBP123.1 million will, if approved,
be paid on 26 October 2018.
The Group's own funds of GBP746.1 million at the end of the year
are GBP131.8 million higher than at the end of the prior year,
reflecting the GBP133.5 million own funds cash flow after
investments and dividends, and GBP1.7 million of FX retranslation
of own funds in non-UK businesses.
Summary Group balance sheet
31 May 2018 31 May 2017
GBPm GBPm
------------------------------- ------------ ------------
Goodwill 108.0 108.1
Intangible assets 43.4 48.6
Property, plant and equipment 15.5 17.4
------------------------------- ------------ ------------
Fixed assets 166.9 174.1
------------------------------- ------------ ------------
Liquid asset buffer 83.1 81.2
Amounts at brokers 450.0 376.1
Cash in IG bank accounts 289.7 230.9
Own funds in client money 49.5 43.2
------------------------------- ------------ ------------
Liquid assets 872.3 731.4
Client deposits IG Bank SA (37.0) (57.1)
Title transfer funds (89.2) (60.0)
------------------------------- ------------ ------------
Own funds 746.1 614.3
------------------------------- ------------ ------------
Working capital (62.4) (49.1)
Tax payable (17.6) (13.1)
Deferred tax assets 9.1 9.1
------------------------------- ------------ ------------
Capital employed 842.1 735.3
------------------------------- ------------ ------------
Shareholders' funds 842.1 735.3
------------------------------- ------------ ------------
As at 31 May 2018 the Group's capital employed was GBP842.1
million (31 May 2017: GBP735.3 million), all of which was provided
by shareholders' funds. The Group's capital is employed to fund the
Group's operations.
Available liquidity
31 May 2018 31 May 2017
GBPm GBPm
-------------------------------------- ------------ ------------
Liquid assets 872.3 731.4
Broker margin requirement (386.8) (356.3)
Non-UK cash balances (154.1) (134.6)
Own funds in client money (49.5) (43.2)
-------------------------------------- ------------ ------------
Available liquidity at end of period 281.9 197.3
-------------------------------------- ------------ ------------
of which:
Held as liquid asset buffer 83.1 81.2
Final dividend due 123.1 83.9
The Group's liquidity is primarily provided by its own funds,
supplemented by clients' deposits at IG Bank in Switzerland and
client funds which have been transferred to the Group under title
transfer arrangements. The Group has access to additional liquidity
through a committed revolving credit facility.
The Group's total liquid assets at the end of year were GBP872.3
million (31 May 2017: GBP731.4 million). The increase in liquid
assets primarily reflects the increase in own funds.
The Group requires liquidity to fund its day-to-day operations,
primarily to fund the margin that its hedging brokers require to
support the Group's hedging positions, the capital that its
subsidiaries are required to maintain, and to fund the requirement
to maintain adequate buffers in client money accounts.
The average broker margin requirement in FY18 was GBP372
million, GBP87 million higher than in FY17, with a peak broker
margin requirement of GBP453 million during the year. At 31 May
2018, the actual broker margin requirement was GBP387 million.
Throughout the year, the Group had access to a committed
revolving credit facility (RCF) of GBP160 million to assist its
liquidity risk management. The Group seeks to manage its liquidity
so that it will be able to meet all liquidity requirements without
delay. The Group's practice has been to draw down on its RCF during
periods when broker margin is at elevated levels, and in advance of
events that could result in an elevated broker margin requirement,
in order to reduce liquidity risk, particularly during periods when
the Group's available liquidity has been reduced as a result of the
payment of the final dividend. During FY18, reflecting the increase
in the peak and general level of broker margin requirement, the
revolving credit facility was at least partly drawn for the period
from the end of October 2017 through to the beginning of April
2018.
Subsequent to the year end the Group cancelled the existing
GBP160 million bank facility agreement and entered into a new
GBP200m agreement consisting of a GBP100 million revolving credit
facility and a GBP100 million three-year term loan.
Group consolidated capital resources and requirements
31 May
31 May 2018 2017
GBPm GBPm
------------------------ ------------ --------
Shareholders' funds 842.1 735.3
Less foreseeable
declared dividends (123.1) (83.9)
Less acquisition
intangibles (108.0) (108.1)
Less intangible
assets (43.4) (48.6)
Less deferred tax
assets (9.1) (9.1)
------------------------- ------------ --------
Capital resources 558.5 485.6
Pillar 1 Risk Exposure
Amounts (REA)
------------------------ ------------ --------
Total Pillar 1 REA 2,037.7 1,817.3
------------------------- ------------ --------
Capital ratio 27.4% 26.7%
Required capital
ratio
------------------------ ------------ --------
Pillar 1 minimum 8.0% 8.0%
Individual Capital
Guidance (ICG) 9.4% 9.4%
------------------------- ------------ --------
ICG requirement 17.4% 17.4%
plus combined buffer
requirement 2.2% 1.3%
------------------------- ------------ --------
Total requirement
% 19.6% 18.7%
========================= ============ ========
Total requirement
- GBPm 399.4 339.8
Capital headroom
- GBPm 159.1 145.7
========================= ============ ========
The Group's Total Capital Ratio using the balance sheet of the
Group as at 31 May 2018 including the profit for the financial
year, was 27.4% (31 May 2017: 26.7%).
The Group is required to hold a minimum amount of regulatory
capital in accordance with the Individual Capital Guidance ('ICG'),
periodically determined by the FCA based on their supervisory
review and evaluation process ('SREP') of the Group, plus an amount
equal to the higher of the internally calculated Capital Planning
Buffer and the combination of the Conservation and Countercyclical
buffers. The FCA determine the ICG following review of the Group's
Internal Capital Adequacy Assessment Process, through which the
Group calculates the amount of capital that should be held against
specific firm risks, in addition to the Pillar 1 requirements.
The FCA last undertook a SREP of IG Group in the first half of
calendar year 2016, and advised the Board of the level of capital
the Group is required to hold in August 2016. The ICG advised in
August 2016 replaced the ICG advised to the Board in May 2013.
The ICG advised by the FCA in August 2016 requires the Group to
hold capital in addition to the Pillar 1 minimum equal to 9.4% of
the Pillar 1 Risk Exposure Amounts.
The required minimum capital ratio at 31 May 2018 was 19.6%,
including the effect of the Combined Buffers, being the Capital
Conservation Buffer, which the Bank of England raised on 1 January
2018 to 1.875% in line with the transitional provisions laid out by
the FCA in IFPRU TP 7, and the Countercyclical Buffer.
Segregated client funds
At 31 May 2018, the Group held GBP1,386.9 million (31 May 2017:
GBP1,215.3 million) of client money in segregated trust bank
accounts, and GBP945.0 million (31 May 2017: GBP499.8 million) of
client assets in third-party custodian accounts. These amounts are
segregated client money and assets, and are therefore excluded from
the balance sheet.
Consolidated income statement
for the year ended 31 May 2018
Year ended Year ended
31 May 2018 31 May 2017
Note GBPm GBPm
---------------------------------------------------------- ----- ------------- -------------
Trading revenue 590.2 518.7
Introducing partner commissions (21.2) (27.6)
Net trading revenue 2 569.0 491.1
Betting duty and financial transaction taxes (5.1) (7.5)
Interest income on segregated client funds 5.2 4.6
Interest expense on segregated client funds (0.7) (0.6)
Other operating income 2.8 1.9
------------- -------------
Net operating income 571.2 489.5
Operating expenses (290.1) (276.1)
Operating profit 281.1 213.4
Finance income 2.9 1.7
Finance costs (3.2) (1.4)
---------------------------------------------------------- ----- ------------- -------------
Profit before taxation 280.8 213.7
Taxation 3 (54.4) (44.5)
---------------------------------------------------------- ----- ------------- -------------
Profit for the year attributable to owners of the parent 226.4 169.2
========================================================== ===== ============= =============
Earnings per ordinary share:
* basic 4 61.7p 46.2p
* diluted 4 61.2p 45.9p
Consolidated statement of comprehensive income
for the year ended 31 May 2018
Year ended Year ended
31 May 2018 31 May 2017
GBPm GBPm GBPm GBPm
-------------------------------------------------------------------- -------
Profit for the year attributable to owners of the parent 226.4 169.2
Other comprehensive income/(expense):
Items that may be reclassified to the income statement:
Change in value of available-for-sale financial assets, net of tax (0.2) (0.2)
Foreign currency translation (loss)/gain (3.0) 14.7
-------------------------------------------------------------------- ------- ------ -------- --------
Other comprehensive (expense)/income for the year (3.2) 14.5
-------------------------------------------------------------------- ------- ------ -------- --------
Total comprehensive income attributable to owners of the parent 223.2 183.7
==================================================================== ======= ====== ======== ========
Consolidated statement of financial position
at 31 May 2018
31 May 31 May
2018 2017
Note GBPm GBPm
--------------------------- ----- -------- -------
Assets
Non-current assets
Property, plant
and equipment 15.5 17.4
Intangible assets 151.4 156.7
Financial investments 10 111.6 52.4
Deferred income
tax assets 9.1 9.1
--------------------------- ----- -------- -------
287.6 235.6
--------------------------- ----- -------- -------
Current assets
Trade receivables 7 382.8 345.6
Other assets 8 27.2 11.9
Prepayments and
other receivables 11.8 12.2
Cash and cash equivalents 289.7 230.9
Financial investments 10 62.0 92.0
773.5 692.6
--------------------------- ----- -------- -------
TOTAL ASSETS 1,061.1 928.2
=========================== ===== ======== =======
Liabilities
Current liabilities
Trade payables 126.7 117.3
Other payables 74.7 62.5
Income tax payable 17.6 13.1
--------------------------- ----- -------- -------
Total liabilities 219.0 192.9
--------------------------- ----- -------- -------
Equity
Share capital and
share premium 206.8 206.8
Other reserves 71.6 123.1
Retained earnings 563.7 405.4
--------------------------- ----- -------- -------
Total equity 842.1 735.3
--------------------------- ----- --------
TOTAL EQUITY AND
LIABILITIES 1,061.1 928.2
=========================== ===== ======== =======
This preliminary announcement was approved by the Board of
Directors on 24 July 2018 and signed on its behalf by:
Paul Mainwaring
Chief Financial Officer
Registered Company number: 04677092
Consolidated statement of changes in equity
for the year ended 31 May 2018
Share Share
capital premium Other reserves Retained earnings Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ---------- --------- --------------- ------------------ --------
At 1 June 2016 - 206.8 102.2 354.0 663.0
Profit for the year and attributable to owners
of the parent - - - 169.2 169.2
Other comprehensive income for the year - - 14.5 - 14.5
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Total comprehensive income - - 14.5 169.2 183.7
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Equity-settled employee share-based payments - - 7.7 - 7.7
Tax recognised directly in equity on
share-based payments - - 0.7 - 0.7
Purchase of own shares - - (1.1) - (1.1)
Equity dividends paid - - - (118.7) (118.7)
Dividends paid on own shares held in trust - - (0.9) 0.9 -
------------------------------------------------ ---------- ---------
Movement in equity - - 20.9 51.4 72.3
------------------------------------------------ ---------- --------- --------------- ------------------ --------
At 31 May 2017 - 206.8 123.1 405.4 735.3
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Profit for the year and attributable to owners
of the parent - - - 226.4 226.4
Other comprehensive expense for the year - - (3.2) - (3.2)
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Total comprehensive income - - (3.2) 226.4 223.2
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Equity-settled employee share-based payments - - 7.0 - 7.0
Tax recognised directly in equity on
share-based payments - - - 0.5 0.5
Purchase of own shares - - (4.3) - (4.3)
Equity dividends paid - - - (119.6) (119.6)
Transfer of share based payment reserve - - (51.0) 51.0 -
------------------------------------------------ ---------- --------- --------------- ------------------ --------
Movement in equity - - (51.5) 158.3 106.8
------------------------------------------------ ---------- --------- --------------- ------------------ --------
At 31 May 2018 - 206.8 71.6 563.7 842.1
================================================ ========== ========= =============== ================== ========
Consolidated cash flow statement
for the year ended 31 May 2018
Year ended Year ended
31 May 31 May
2018 2017
------------------------------------ ---- ----------- -----------
GBPm GBPm
------------------------------------ ---- ----------- -----------
Operating activities
Cash generated from operations 276.6 224.1
Income taxes paid (48.9) (45.3)
Net cash flow generated from
operating activities 227.7 178.8
------------------------------------------ ----------- -----------
Investing activities
Interest received 2.6 2.0
Purchase of property, plant
and equipment (4.4) (10.6)
Payments to acquire and develop
intangible assets (9.6) (36.3)
Net cash flow from (purchase)/sale
of financial investments (28.9) (8.8)
Net cash flow used in investing
activities (40.3) (53.7)
------------------------------------------ ----------- -----------
Financing activities
Interest paid (3.2) (1.4)
Equity dividends paid to owners
of the parent (119.6) (118.7)
Purchase of own shares (4.3) (1.1)
------------------------------------------ ----------- -----------
Net cash flow used in financing
activities (127.1) (121.2)
------------------------------------------ ----------- -----------
Net increase in cash and cash
equivalents 60.3 3.9
Cash and cash equivalents
at the beginning of the year 230.9 218.8
Impact of movement in foreign
exchange rates (1.5) 8.2
Cash and cash equivalents
at the end of the year 289.7 230.9
========================================== =========== ===========
1. Basis of preparation
The financial information in this announcement is derived from
IG Group Holdings plc's group financial statements but does not,
within the meaning of Section 435 of the Companies Act 2006,
constitute statutory accounts for the years ended 31 May 2017 or 31
May 2018. The financial statements are prepared on a going concern
basis and the accounting policies are consistent with the Group's
2017 Annual Report, except for the accounting policy for
cryptocurrencies.
The Group recognised GBP27.2 million of cryptocurrency assets on
its statement of financial position as at 31 May 2018 (2017:
GBP11.9 million). During the year the Group changed the accounting
policy it applies to these assets, which is considered to be a
critical accounting judgement, as the change reclassified these
assets from trade receivables and into other assets. There was no
impact on the income statement as a result of this change in
judgement.
Although the financial information has been prepared in
accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRS), this
preliminary statement does not itself contain sufficient
information to comply with IFRS. The Group will publish full IFRS
compliant group financial statements in August 2018 and statutory
accounts for 2018 will be delivered to the Registrar of Companies
following the company's Annual General Meeting on 20 September
2018.
The Group's auditors, PricewaterhouseCoopers LLP, have reported
on those financial statements and the report was unqualified, did
not emphasise any matters, and it did not contain any statements
under Section 498(2) or (3) of the Companies Act 2006.
Copies of full group financial statements will be posted to all
shareholders in August 2018. Further copies will be available, from
the date of posting, from the Group's Headquarters, Cannon Bridge
House, 25 Dowgate Hill, London, EC4R 2YA, by telephone on 020 7896
0011 or via the Group's corporate website at www.iggroup.com.
2. Net trading revenue
Net trading revenue represents trading revenue after deducting
introducing partner commissions.
Net trading revenue by operating segment
The Executive Directors are the Group's chief operating
decision-maker (CODM). Management has determined the operating
segments based on the information reviewed by the Executive
Directors for the purposes of allocating resources and assessing
performance.
The Executive Directors continue to consider the business
performance principally from a product perspective, split into OTC
leveraged derivatives, exchange traded derivatives and share
dealing and investments. Segment net trading revenue is stated
after deducting introducing partner commissions, as this is
consistent with the management information received by the
Executive Directors.
The income from OTC leveraged derivatives is split by
geographical location into the United Kingdom (UK), Europe, Middle
East and Africa (EMEA) and Asia Pacific (APAC).
- EMEA comprises the Group's activities in Ireland, France,
Germany, Italy, Spain, Sweden, Switzerland, United Arab Emirates
and South Africa.
- APAC comprises the Group's activities in Australia, Singapore and Japan.
Net trading revenue from OTC leveraged derivatives is reported
geographically, reflecting the location of the office that manages
the underlying client relationship and represents an allocation of
the net trading revenue that the Group generates from clients'
trading activity.
The income from exchange traded derivatives derives wholly from
the United States.
The income from share dealing derives from the UK, EMEA and
APAC, whilst the income from investments derives wholly from the
UK. In the year ended 31 May 2018, GBP3.0 million of share dealing
and investment income was generated in the UK (FY17: GBP2.0
million), GBP0.8 million was generated in APAC (FY17: GBP0.2
million) and GBP0.2 million was generated in EMEA (FY17: GBP0.2
million).
The Group manages market risk and a number of other activities
on a group-wide portfolio basis and accordingly a large proportion
of costs are incurred centrally. These central costs are not
allocated to individual segments for decision making purposes for
the CODM and accordingly these costs have not been allocated to
segments.
The segmental analysis shown below therefore does not include a
measure of profitability, nor a segmented statement of financial
position, as this would not reflect the information which is
received by the CODM on a regular basis. The segmental breakdown of
net trading revenue is as follows:
Year ended Year ended
31 May 31 May
2018 2017
GBPm GBPm
OTC leveraged derivatives
UK 249.5 223.0
EMEA 162.1 137.5
APAC 136.8 114.1
548.4 474.6
Exchange traded
derivatives 16.6 14.1
Share dealing and
investments 4.0 2.4
----------- -----------
Total net trading
revenue 569.0 491.1
=========== ===========
Net trading revenue by product
The income from OTC leveraged derivatives can also be split by
the nature of the underlying asset:
Year ended Year ended
31 May 31 May
2018 2017
GBPm GBPm
OTC leveraged derivatives:
Indices 224.2 203.8
Foreign exchange 130.7 82.2
Equities 95.4 76.4
Commodities 55.0 68.2
Options 43.1 44.0
548.4 474.6
=========== ===========
3. Taxation
Tax on profit on ordinary activities
Tax charged/(credited) in the income statement:
Year Year
ended ended
31 May 31 May
2018 2017
Current income tax: GBPm GBPm
UK Corporation tax 48.4 40.5
Non-UK Corporation tax 4.3 3.2
Adjustment in respect of prior
years 1.3 2.0
-------- --------
Total current income tax 54.0 45.7
Deferred income tax:
Origination and reversal of
temporary differences (0.6) (0.8)
Adjustment in respect of prior (0.9) -
years
Impact of change in tax rates
on deferred tax balances 1.9 (0.4)
Total deferred income tax 0.4 (1.2)
Tax expense in the income statement 54.4 44.5
======== ========
Tax not credited to income
statement:
------ ------
Tax recognised directly in
equity on share-based payments (0.5) (0.7)
====== ======
Reconciliation of the total tax charge
The standard rate of corporation tax in the UK changed from 20%
to 19% with effect from 1 April 2017. Accordingly, the rate of
corporation tax for the year ended 31 May 2018 is 19.0% (year ended
31 May 2017: 19.83%). Taxation outside the UK is calculated at the
rates prevailing in the relevant jurisdictions. The tax expense in
the income statement for the year can be reconciled as set out
below:
Year Year
ended ended
31 May 31 May
2018 2017
GBPm GBPm
Profit before taxation 280.8 213.7
======== ========
Profit multiplied by the UK
standard rate of corporation
tax
of 19.0% (FY17: 19.83%) 53.4 42.4
Higher taxes on overseas earnings 0.4 0.5
Adjustment in respect of prior
years 0.4 2.0
Expenses not deductible for
tax purposes 1.8 0.4
Patent Box deduction (3.5) -
Temporary differences not yet
recognised in respect of share
schemes - 1.0
Impact of change in tax rates
on deferred tax balances 1.9 (0.4)
Recognition of deferred tax
assets - (1.8)
Deferred tax not recognised
on current year tax losses - 0.4
Total tax expense reported
in the income statement 54.4 44.5
======== ========
The effective tax rate for the year is 19.4% (FY17: 20.8%).
4. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares in issue during
the year, excluding shares held as own shares in Employee Benefit
Trusts. Diluted earnings per share is calculated using the same
profit figure as that used in basic earnings per share and by
adjusting the weighted average number of ordinary shares assuming
the vesting of all outstanding share scheme awards and that vesting
is satisfied by the issue of new ordinary shares.
The following reflects the income and share data used in the
earnings per share computation:
Year Year
ended ended
31 May 31 May
2018 2017
GBPm GBPm
Earnings attributable to owners
of the parent 226.4 169.2
============ ============
Weighted average number of
shares:
Basic 366,780,442 366,441,640
Dilutive effect of share-based
payments 3,162,903 2,442,663
------------ ------------
Diluted 369,943,345 368,884,303
============ ============
Year Year
ended ended
31 May 31 May
2018 2017
Basic earnings per share 61.7p 46.2p
Diluted earnings per share 61.2p 45.9p
======== ==================
5. Dividends paid and proposed
Year Year
ended ended
31 May 31 May
2018 2017
GBPm GBPm
Proposed final dividend for
FY18 at 33.51p per share (FY17
final paid: 22.88p) 123.1 83.9
Interim dividend for FY18 at
9.69p per share (FY17: 9.42p) 35.6 34.6
-------- --------
158.7 118.5
======== ========
The final dividend for FY18 of 33.51p per share amounting to
GBP123.1 million was proposed by the Board on 24 July 2018 and has
not been included as a liability at 31 May 2018. This dividend will
be paid on 26 October 2018, following approval at the Company's
AGM, to those members on the register at the close of business on
28 September 2018.
6. Intangible assets
Software
Domain Development and
Goodwill names costs licences Total
GBPm GBPm GBPm GBPm GBPm
Net book value
- 31 May 2018 108.0 27.5 13.6 2.3 151.4
========= ======= ============ ========== ==========
Net book value
- 31 May 2017 108.1 32.5 12.9 3.2 156.7
========= ======= ============ ========== ==========
7. Trade receivables
31 May 31 May
2018 2017
GBPm GBPm
Amounts due from brokers 332.3 301.1
Own funds in client money 50.0 43.4
Amounts due from clients 0.5 1.1
------- ---------
382.8 345.6
======= =========
Amounts due from brokers represent balances with brokers where
the combination of cash held on account and the valuation of
financial derivative open positions results in an amount due to the
Group. In addition to the GBP332.3 million (31 May 2017: GBP301.1
million) the Group had GBP90.5 million (31 May 2017: GBP63.2
million) of UK Government Securities held as collateral at brokers
which are classified as financial investments in the Group's
statement of financial position.
Own funds in client money represents the Group's own cash held
in segregated client funds, in accordance with the UK's Financial
Conduct Authority (FCA) 'CASS' rules and similar rules of other
regulators in whose jurisdiction the Group operates and includes
GBP11.9 million (31 May 2017: GBP12.7 million) to be transferred to
the Group on the following business day.
Amounts due from clients arise when a client's total funds
deposited with the Group are insufficient to cover any trading
losses incurred or when a client utilises a trading credit limit
and is stated net of an allowance for impairment.
8. Other assets
Other assets of GBP27.2 million at 31 May 2018 (31 May 2017:
GBP11.9 million) are cryptocurrency assets owned and controlled by
the Group for the purpose of hedging the Group's exposure to
clients' cryptocurrency trading positions. Classifying these assets
as other assets in the Group's statement of financial position at
31 May 2018, and retrospectively applying this change at 31 May
2017, is a voluntary change in accounting policy.
9. Financial investments
Financial investments are UK Government securities:
31 May 31 May
Held as: 2018 2017
GBPm GBPm
Liquid asset buffer 83.1 81.2
Collateral at brokers 90.5 63.2
------- -------
173.6 144.4
======= =======
Of which:
Non-current portion 111.6 52.4
Current portion 62.0 92.0
------- -------
173.6 144.4
======= =======
During the year ended 31 May 2018 the Group purchased UK
Government Gilts for GBP122.1 million (year ended 31 May 2017:
GBP120.4 million) and gilts with a nominal value of GBP90.0 million
matured (year ended 31 May 2017: GBP112.4 million).
The effective interest rates of securities held at the year-end
range from 0.08% to 0.87% (31 May 2017: 0.03% to 0.59%).
Financial investments are shown as current assets when they have
a maturity of less than one year and as non-current assets when
they have a maturity of more than one year. The fair value of
securities held is based on closing market prices at the year
end.
10. Subsequent events
In June 2018 the Group replaced its credit agreement with four
UK banks. The overall size of the new credit facility is GBP200.0
million, of which GBP100.0 million is a three year term loan
repayable in full in 2021 and GBP100.0 million is a one year
revolving credit facility that can be extended by one year.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KMGZNRFNGRZM
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