|Real-time Estimate - 09/24 11:30:00 am|
IG : Results for the financial year ended 31 May 2020
|07/23/2020 | 10:41am|
'A successful year for IG, with a return to growth in Core Markets, and momentum building around the Significant Opportunities, all accompanied by record performance in Q4'
Good performance in Q1-Q3 FY20 boosted by exceptional Q4 FY20 results:
Full year net trading revenue grew 36% to
Net trading revenue in Q1-Q3 FY20 increased 9% to
Active clients grew 34% to 239,600 (FY19:178,500), with 96,900 new clients onboarded in FY20
Full year dividend of
Significant, tangible progress on the strategic initiatives: Core Markets net trading revenue grew 3% to
Successful navigation of the Covid-19 pandemic to date: Continued investment in technology infrastructure and systems enabled all of IG's workforce to transition quickly and smoothly to remote working, whilst handling exceptional trade volumes and client onboarding; average daily trade volume exceeded 1 million in
Capital, funding and liquidity of the Group remained very strong throughout the period, enabling the Group to continue supporting its clients during the extreme volatility experienced in Q4; effective risk management allowed the Group to remain within Board-approved market risk limits
Focused on supporting our broader communities through Group-wide environmental, social, and governance activities:
Became a carbon-neutral company in July 2020
The Board recommends a final dividend of
Capital, funding, and liquidity remain very strong, supporting further investment in growth and the dividend payment. The Board reiterates its intention to maintain the
The Group anticipates maintaining momentum around the Core Markets and the portfolio of Significant Opportunities, continuing the progress made in FY20, to deliver its medium-term financial targets. These targets remain unchanged; revenue growth in Core Markets of 3-5% over the medium term, and an incremental
The Group anticipates a reversion to more normalised levels of market volatility during the course of FY21. Although current trading has continued to reflect elevated levels of volatility, this has moderated since the peak seen in March.
In FY21 the Group expects to grow underlying operating expenses by 3%. Additionally, in order to support the planned next stage of development in the Significant Opportunities portfolio and to further increase scalability and resilience in its technology and operations, the Group plans to make a
Our focus is on providing a first-class service to sophisticated clients wanting to trade our products across a range of global financial markets. IG's continued investment in people and technology will further improve our platform and continue to deliver the new functionality and capabilities that our clients expect. Our clients are one of our most important stakeholders and our interests are aligned with theirs. Our success is built on their long-standing support and loyalty. In FY20, we experienced growing client demand across the world for IG's products and services even prior to the exceptional period in Q4, and delivered record results.
I am particularly proud of how our people have worked together through the Covid-19 pandemic to support our clients, their colleagues, and the broader communities in which we operate. Their performance during this extraordinary time has demonstrated that they are a credit to the business, and a key asset. We are aware that this is a difficult time for many, and this is why we have chosen to make a
This year we have also welcomed
Tel: 020 7573 0727 07500
There will be an analyst and investor presentation at
Disclaimer - forward-looking statements
This preliminary statement, prepared by
Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which are beyond the Company's control and are based on the Company's beliefs and expectations about future events as of the date the statements are made. If the assumptions on which the Group bases its forward-looking statements change, actual results may differ from those expressed in such statements. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including those set out under 'Principal Risks' in the Company's annual report for the financial year ended
Forward-looking statements speak only as of the date they are made. Except as required by applicable law and regulation, 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 to ensure consistency with the financial statements. This may lead to differences between subtotals and the sum of individual numbers as presented. Acronyms used in this report are as defined in the Group's Annual Report.
IG empowers informed, decisive, adventurous, people to access opportunities in over 17,000 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 provide the world's best trading experience. Established in 1974 as one of the world's first providers of financial derivatives to retail traders, it continued leading the way by launching the world's first online and iPhone trading services.
IG is an award-winning, multi-product trading company which allows retail, professional and institutional clients to trade 24 hours a day, 7 days a week. IG is 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 stock trading service in the
IG is a member of the
IG is a global financial technology and trading business, with a clear purpose to enable our clients access to unique opportunities in the financial markets. In FY20, IG delivered record revenues and profits, with growth across all regions and products. It also built momentum and achieved significant progress towards its medium-term financial targets and the broader diversification of the business.
Net trading revenue was
IG's track record of revenue growth over time has been driven by steady increases in both the size and quality of its client base. The Group maintained its strict standards and policies throughout the year for new client recruitment and screening, and in total, recruited 96,900 new clients in FY20, up over 100% on the prior year. The Group also continues to benefit from the loyalty and tenure of its established client base, with 55% of revenue in the financial year generated from clients who have traded with IG for more than three years. In the final quarter of the financial year IG onboarded 51,200 new clients across its product offering with 35,300 new OTC Leveraged clients placing a first trade in the period.
Total operating expenses, excluding variable remuneration, were
Profit before tax increased to
Underpinning a strong set of financial and operating results, IG also progressed a number of activities as part of a renewed focus around environmental, social, and governance matters. Following several years of carbon emissions reductions, relative to headcount, in FY20 the Group commenced a programme of activities, including carbon offsetting, to achieve full carbon neutrality. As of
Q4 FY20 Trading
While IG delivered good progress and results in the first three quarters of the year, the fourth quarter saw extraordinary market conditions driven by the Covid-19 pandemic and other macro events. During Q4, record levels of client onboarding saw 35,300 new OTC Leveraged clients, 17,900 new stock trading clients and 3,200 new on-exchange clients placing a first trade in the period. New clients onboarded in Q4 FY20 generated 14% of the total OTC Leveraged revenue in the quarter. The demographics of this Q4 client cohort are similar to that of IG's existing high quality client base, however it is too early to assess how their longer term trading patterns and behaviours will develop. Attrition has been slightly higher compared to historical cohorts, but the Group expects to see longer term value over time from an expanded client base. The Group continued to follow a multi-channel marketing approach throughout Q4, with organic search delivering a near threefold increase in applications compared to the Q1-Q3 quarterly average, a benefit of prior investment in brand and search engine optimisation. Further improvements in the Group's digital marketing capability are targeted for FY21, with additional investment in IG's brand following the new brand launch in
The Group's differentiated business model of internalising, or netting, client flows and hedging the residual risk in each market remained unchanged during this period, as did the Board-approved market risk limits. The Group's revenue does not benefit from client trading losses, nor is it exposed to client trading profits. This model has been an essential part of IG since it was founded almost 50 years ago, and demonstrated its value throughout the unprecedented activity levels in Q4 FY20. Market and credit risk were closely managed and clients were able to continue to trade, for example, when the market experienced a 30% gap in the price of oil in March and a brief move to negative oil price futures in
In response to the Covid-19 pandemic, the Group successfully implemented its comprehensive business continuity plans, enabling all of IG's 1,921 global employees to quickly transition to home-based working. Despite closure of IG offices around the world, the Group nonetheless conducted all of its operations successfully through the Q4 period of sustained levels of unprecedented client trading volumes. This highlighted the outstanding efforts of our people and the resilience, scalability, and agility of our communications and technology. In Q4, for example, the number of new client applications tripled from February to March, while client interactions doubled to approximately 190,000 for the same period. We intend to continue, and in FY21 increase, investment in this infrastructure as part of the continual improvement of our clients' experience trading with IG.
As a global company, the Group operates in many regulatory jurisdictions. IG differentiates itself in the industry through a track record of good conduct and maintaining open and transparent relationships with all its regulators.
The compliance requirements across the sector's products and services have continued to evolve and may change further over time, including areas where the Group is expanding and growing, such as
As previously indicated, further changes are possible in FY21 in some markets in which IG operates, including
Delivering on the Group's strategy
The Group delivered good underlying OTC Leveraged revenue growth of 3% to
A significant recovery in the ESMA region (EU and
In Q4, revenue growth in the Core Markets from the OTC Leveraged business accelerated to deliver revenue of
The Group's stock trading and investment products also performed strongly with an improved product offering and increased marketing spend coinciding with the higher levels of volatility seen in Q4. New client acquisition was almost double the prior year with 26,000 clients placing a first trade (FY19: 13,500) of which 69% were in Q4. Stock trading and investments continue to serve as a retention tool for existing OTC Leveraged clients as well as providing an acquisition channel to attract new active traders to the Group for whom leveraged trading products may be appropriate.
As previously set out in the
Growth in revenue and the number of active clients has been strong in both the
During the period the Group opened a new client-facing subsidiary,
In the US, the OTC FX business added new clients at a steady rate. The business provides clients with award winning service and leading technology.
The successful launch of Spectrum, the Group's multi-lateral trading facility, was a key milestone in the diversification of the Group's product range. Spectrum's differentiated offering has been well received by the market and volumes have grown steadily since the launch in 2019. Around 40% of trades on Spectrum in Q4 FY20 were made out of normal trading hours, showing the value of Spectrum's unique 24/5 trading capability. The Group is continuously improving its product offering to meet the needs of active turbo warrant traders and to facilitate further growth in this opportunity. Spectrum is currently integrating an additional broker, which will enable the exchange to offer its expanding product set to a wider array of potential clients and will mark further progress. Discussions are ongoing with additional issuers who have expressed a firm interest in issuing additional products on Spectrum.
Reflecting the Group's growing focus on the Institutional client segment, IG Prime, was launched in
While at an earlier stage, in
The Group's net trading revenue in FY20 increased by 36% to
The Group's net trading revenue reflects the transaction fees (i.e., spread, commission and overnight funding charges) paid by clients net of the Group's external hedging costs and clients' trading profits and losses, offset by our hedging profits and losses.
Operating expenses of
In FY20, the Group sold six minor entities, recognising a gain on sale of
Operating profit in the period was
Basic earnings per share of
OTC Leveraged Derivatives
In FY20, OTC Leveraged revenue in the year was
Changes in the composition of the Group's OTC Leveraged revenue by asset class reflects the differing levels of volatility in each asset class, which impacts the extent to which clients can identify trading opportunities.
The impact of elevated levels of market volatility was reflected in all asset classes. Revenue generated from clients trading on commodities showed the largest asset class increase of 106% on FY19, driven by the highly volatile price of oil during Q4.
 Total active clients have been adjusted to remove the clients who are active in more than one product category (multi-product clients) to give a unique client count. In FY20 there were 11,700 multi-product clients, compared with 6,600 in FY19.
Exchange Traded Derivatives
In FY20, the Group generated
Stock Trading and Investments
For FY20, Stock Trading and Investments revenue now includes the income derived from foreign exchange conversions, which was previously reported within the OTC Leveraged revenue; the comparative for FY19 has been restated. The Group's Stock Trading and Investments revenue was 57% higher in FY20, driven by a 45% increase in the number of clients served and an 8% increase in revenue per client.
Revenue Performance by Market
Consistent with the presentation of the Group's strategy and its financial targets, revenue performance has been segmented into Core Markets and Significant Opportunities.
Net trading revenue in the Core Markets was 29% higher in FY20 than the same period in the prior year, with all areas of the business benefiting significantly from increased client activity as a result of the high levels of market volatility in Q4.
ESMA region revenue increased 26% to
Other Core Markets comprise the Group's businesses in
Stock Trading and Investments revenue was 57% higher than FY19, at
Revenue from the Group's portfolio of Significant Opportunities was
Client activity and revenue in Q4 was exceptional, driven by the sustained levels of high volatility as a result of the Covid-19 global pandemic and other macro events.
In Q4 Group revenue was 86% higher than in Q3 FY20 and 120% higher than Q4 FY19. This sharp increase in revenue was driven by a significant rise in the number of active clients trading in the period with a higher average revenue per client, as the volatile markets provided more opportunities for clients to trade. Average OTC Leveraged revenue per client was 31% higher in Q4 than Q3.
Group active clients in Q4 reached 199,300 (Q4 FY19: 128,100), driven by more existing clients trading and a significant increase in the number of new clients onboarded in the period. In Q4 there were 51,200 new clients trading, 204% higher than Q3.
Prior to Q4, the Group delivered good performance across all businesses and products. Q1-Q3 FY20 net trading revenue was
OTC Leveraged products continue to generate the majority of the Group's net trading revenue and represented 95% of the Q1-Q3 FY20 revenue.
ESMA region OTC Leveraged revenue and active clients in Q1-Q3 FY20 were slightly lower than Q1-Q3 FY19. The FY19 comparison includes two months of trading in Q1 FY19 prior to the implementation of the ESMA product intervention measures. Comparing the Q1-Q3 FY20 quarterly average with the FY19 Q2-Q4 quarterly average shows the two periods on a more consistent basis, with an 8% increase in the average quarterly revenue, driven by a 7% increase in the average quarterly active clients. The recovery in the Retail client base was strong with 26% higher revenue and an 8% increase in the number of active clients within the Retail client segment. The number of active Retail clients has increased each quarter since the implementation of the ESMA product intervention measures in
Average quarterly active Professional clients and revenue per Professional client remained largely unchanged across the two comparative periods.
Other Core Markets OTC Leveraged revenue in Q1-Q3 FY20 was
The OTC Leveraged revenue in Q1-Q3 FY20 from the Significant Opportunities increased by
Operating Expenses (excluding Variable Remuneration) by Cost Type
Operating expenses were
Fixed remuneration increased by 9% in FY20 to
Advertising and marketing spend increased by 20% in FY20 to
The bad and doubtful debt provisions in the year were
Premises costs were
The Group is charged fees by the various regulators in the jurisdictions in which it operates, and in addition is required to make a contribution to the
Other structural costs were
Variable remuneration rose 79% to
Share based compensation costs relate to the long-term incentive plans for key employees and reflect the size of the awards and the extent to which they are expected to vest, which is driven predominantly by EPS and relative Total Shareholder Return performance. The increase of 72%, to
Sales bonuses increased by 50% reflecting higher commission payments to sales employees for the onboarding and management of their own-sourced high value clients.
The charge for the general bonus pool was
Net Finance Costs
The Group recognised net finance costs of
The effective tax rate (ETR) for the year was 18.8% (FY19: 18.5%).
The majority of the Group's taxable profit arises in the
The Group's ETR is dependent on a mix of factors including taxable profit by geography, tax rates levied in those geographies, and the availability and use of taxable losses. The Group's future ETR may also be impacted by changes in the Group's business activities, client composition, and regulatory status, which could affect the Group's exemption from the
The Group's current estimate of the ETR for FY21 is 19%.
The Board recommends a final dividend of
The final dividend, if approved by shareholders at the Company's Annual General Meeting (AGM), will be paid on
As a result of an internal Group review of historical distributable reserves, three dividends were identified where the determination of distributable reserves was incorrect. The relevant dividends were interim FY18, final FY17, and interim FY10. Whilst sufficient distributable reserves existed in the Group at the times of all the payments, the Company itself did not have sufficient distributable reserves.
At the September AGM, resolutions will be proposed to rectify the historical positions.
The Group uses own funds, and net own funds generated from operations, as its key measures of cash generation. Cash generation remained strong in FY20 with own funds generated from operations of
Cash tax payments of
Tax payments in FY20 were significantly higher than in FY19 due to increased profits during the year and the acceleration of
Movement in own funds
Capital expenditure in the year of
Dividend payments during the year reflect the final dividend for FY19 of
The operating lease net asset of
The Group's liquid assets have increased by
Own funds are the Group's liquid assets, reduced by borrowings and client money held on balance sheet. Client deposits and title transfer funds increased relative to the prior year, reflecting high levels of account funding by clients.
The change in the Group's working capital requirement reflected the relative size of the bonus pool accrual and other accruals which relate to variable costs.
The Group's total liquid assets at the end of year were
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 regulatory and working capital of its subsidiaries, and to fund adequate buffers in client money accounts. Despite the unprecedented levels of financial market volatility, no issues were encountered with the management of liquidity during the period, reflecting the Group's resilient business model and prudent financial and risk management.
The level of broker margin is driven by the notional value of the Group's open hedging positions which vary with client trading activity and the extent to which client trades can be offset against each other. At
For liquidity management and planning purposes, the Group conservatively treats cash held by subsidiaries outside the
Regulatory capital resources
The Group's Capital Ratio at
For FY20, in line with the EU CRR Regulations Article 48, the deferred tax assets meet the threshold requirements to allow them to be risk weighted as part of the Credit Risk Requirement and are not deducted in full from
Segregated client funds
Basis of preparation
The financial information in this announcement is derived from
The Group has applied, for the first time, IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments. The adoption of these standards did not require restatement of prior year Financial Statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
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
The Group's auditors,
Copies of full Group Financial Statements will be posted to all shareholders in
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 CODM consider business performance based on geographical location. This geographical split reflects the location of the office that manages the underlying client relationship. Net trading revenue represents an allocation of the total net trading revenue that the Group generates from client trading activity.
The CODM continue to consider business performance from a product perspective, split into OTC leveraged derivatives, exchange traded derivatives and stock trading and investments. The revenue from exchange traded derivatives derives from
During the year ended
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. Additionally, the Group's assets and liabilities are not allocated to individual segments and not reported as such for decision making purposes to the CODM.
The segmental analysis shown below therefore does not include a measure of profitability, nor a segmented balance sheet, as this would not reflect the information which is received by the CODM on a regular basis.
Earnings per 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 the Group's Employee Benefit Trusts.
Dividends paid and proposed
The final dividend for the year ended
Property, plant and equipment
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 amounts due from brokers, the Group posts
Own funds in client money represents the Group's own cash held in segregated client funds, in accordance with the
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.
Other assets are cryptocurrencies and rights to cryptocurrencies, which are owned and controlled by the Group for the purpose of hedging the Group's exposure to clients' cryptocurrency trading positions.
Following the adoption of IFRS 16 Leases from
Client funds comprise title transfer funds and client deposits with the Group's Swiss banking subsidiary. These amounts are included within cash and cash equivalents. Client funds also includes financial liabilities relating to issued turbo warrants.
Amounts due to clients represent balances that will be transferred from the Group's own cash into segregated client funds on the following business day in accordance with the
In the year ended
This placing was facilitated through
(C) 2020 Electronic News Publishing, source