IG Group Holdings plc

LEI No: 2138003A5Q1M7ANOUD76

Interim results for the six months ended 30 November 2022

 

26 January 2023

 

 

IG Group Holdings plc ("IG", "the Group", "the Company"), a purpose-led, global fintech, today announces its results for the six months ended 30 November 2022 ("H1 FY23").

                                                                                                                        

'IG Group achieves a record half of revenues through diversified growth, and delivers a sustainable return of capital to shareholders through an expanded share buyback and interim dividend'

 

Highlights

-     A strong performance in H1 FY23[1]:

-       Total revenue increased 10% to £519.1 million (H1 FY22: £471.5 million). Adjusted^[2] total revenue increased 11% (H1 FY22: £465.7 million).

-       Net trading revenue increased 5% to £494.9 million (H1 FY22: £471.9 million. Adjusted net trading revenue up 6% (H1 FY22: £466.1 million).

-       Net interest income of £24.2 million (H1 FY22: £(0.4) million) rose significantly across all businesses, reflecting higher interest rates and continued high levels of client money.

-       Strong growth in revenue per client and consistency in client retention rates reflected the continued unique, high quality of our client base.

-       Active clients reduced slightly 312,000 (H1 FY22: 320,400), while new clients acquired of 37,500 (H1 FY22: 53,600), moderated from the very high levels in the comparative period, as anticipated.

-       Total operating costs increased 25% to £279.9 million (H1 FY22: £223.3 million). Adjusted total operating costs of £256.8 million (H1 FY22: £205.7 million), up 25%, reflecting an additional month of tastytrade, FX headwinds, and increases in headcount.

-       Profit before tax decreased slightly by 2% to £240.5 million (H1 FY22: £245.2 million), while adjusted profit before tax increased 1% to £260.7 million (H1 FY22: £258.0 million)

-       High profit before tax margins of 46.3% (H1 FY22: 52.0%) maintained. Adjusted profit before tax margin was 50.2% (H1 FY22: 55.4%).

-       Basic EPS was 45.8 pence (H1 FY22: 48.1 pence). Adjusted basic EPS was 49.7p (H1 FY22: 50.6 pence).

-       Approved over £4 million in donations in line with our 1% of adjusted profit after tax commitment to charitable causes.

-       Additional return of capital to shareholders in line with new Capital Allocation Framework:

-       Bought back £114.1 million shares in the half under the £150 million share buyback scheme announced in July 2022. Shares repurchased as at 24 January 2023 total £126.6 million.

-       Extending the share buyback by £50 million, to a total of £200 million.

-       Increased the interim cash dividend to 13.26 pence per share (H1 FY22: 12.96 pence per share).

-     Portfolios continued to grow in line with guidance:

-       Core Markets+ total revenue growth of 6% to £424.3 million (H1 FY22: £400.3 million) reflected increased revenue per client from our high-quality active client base.

-       High Potential Markets total revenue growth of 28% on a pro forma^[3] basis to £94.8 million (H1 FY22: £74.1 million).

-       tastytrade pro forma total revenue growth of 26% to £77.9 million (H1 FY22: £61.8 million), which was a record half period. Performance was driven by significantly higher interest income as well as FX tailwinds. On a constant currency basis, pro forma total revenue growth was 8%. tastytrade maintained its market share throughout the period.

 

Financial Summary¹

	H1 FY23	H1 FY23 adjusted	H1 FY22	H1 FY22 adjusted	Change %	Adjusted change %
Total revenue (£m)	519.1	519.1	471.5	465.72	10%	11%
Total operating costs (£m)	279.9	256.8	223.3	205.73	25%	25%
Profit before tax (£m)	240.5	260.7	245.2	258.04	(2%)	1%
Profit after tax (£m)	194.9	211.3	202.6	213.2	(4%)	(1%)
Basic earnings per share (p)	45.8	49.7	48.1	50.6	(5%)	(2%)
Interim dividend per share (p)	13.26	-	12.96	-	2%	-

¹ From continuing operations

² H1 FY22 adjusted excludes £5.8 million foreign exchange hedging gain associated with the financing of the tastytrade acquisition

³ Adjusted operating costs excludes £20.2 million of costs and recurring non-cash costs associated with the tastytrade acquisition and integration (H1 FY22: £16.0 million) and £2.9 million relating to the sale of Nadex

 

⁴ H1 FY22 adjusted excludes £1.0 million of one-time financing expense associated with the debt issuance

 

June Felix, Chief Executive, commented:

 

"I'm extremely proud of our achievements in the period, having delivered on two critical elements of our strategy: diversified business growth and the return of excess capital to shareholders.  Non-OTC products now make a meaningful contribution of nearly 20% to our total revenue, and by the end of the half we had returned nearly £250 million to shareholders. We have also announced an extension to our share buyback today.

 

"Despite a softening in trading demand due to the global economic environment, our high-quality clients have continued to find opportunities to trade, demonstrating the resilience of the business model. This is the result of our unwavering focus on investing in and prioritising the delivery of best-in-class technology and platforms, innovation, client service and marketing. All achieved while delivering significant profit margins and consistently generating healthy levels of cash and capital.

 

"Underpinning this strong performance are our ambitious, passionate and talented people around the world, who are driven by our purpose to create the pre-eminent solution for active traders."

 

Further information

 

IG Group Investor Relations	IG Group Press	FTI Consulting
Richard Heading	Angela Warburton	Edward Berry
020 7573 0742	020 7633 5382	07703 330 199
Simon Wright	Alayna Francis	Katherine Bell
020 7573 0099	020 7633 5395	079 7687 0961

 

           

Analyst presentation

There will be an analyst and investor presentation at 9:30am (UK Time) on Thursday 26 January 2023.

The presentation will also be accessible live via audio webcast at: Webcast. If you wish to listen via conference call, please use the following link: Conference Call. The audio webcast of the presentation and a transcript will be archived at:  IG Group - Financial Results.

 

Financial reporting calendar

IG regularly updates the market on financial performance and delivery against strategy. The next financial update will be the Third Quarter Revenue Update in March 2023.

 

Alternative performance measures

IG Group management believes that the alternative performance measures included in this document provide valuable information to the readers of the financial statements as they enable the reader to identify a more consistent basis for comparing business performance between financial periods and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by IG Group management. However, any alternative performance measures in this document are not a substitute for statutory measures and readers should consider the statutory measures as well. Refer to the appendix for further information and calculations of alternative performance measures included throughout this document, and the most directly comparable statutory measures.

 

Forward-looking statements

This interim statement, prepared by IG Group Holdings plc (the "Company"), may contain forward-looking statements about the Company and its subsidiaries (the "Group"). Such forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "projects", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology.  

 

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 FY22 Group Annual Report for the financial year ended 31 May 2022. The Annual Report can be found on the Company's website ( www.iggroup.com ).

 

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.

 

No offer or solicitation

This announcement is not intended to, and does not constitute or form any part of, an offer to sell, or an invitation to purchase or subscribe for any securities, or a solicitation of any vote or approval in any jurisdiction.

 

No profit forecasts or estimates

No statement in this announcement is intended as a profit forecast or estimate for any period.

 

About IG 

IG Group (LSEG:IGG) is an innovative, global fintech company that delivers dynamic online trading platforms and a robust educational ecosystem to power the pursuit of financial freedom for the ambitious. For nearly five decades, the Company has evolved its technology, risk management, financial products, content, and platforms to meet the needs of its retail and institutional clients. IG continues to innovate its offering for the new generation of tomorrow's investors through its IG.com, tastytrade, IG Prime, Spectrum, and DailyFX brands. 

 

Established in 1974, IG Group is a London-headquartered FTSE 250 company offering its clients access to ~19,000 financial markets through its offices spread across Europe, North America, Africa, Asia-Pacific and the Middle East.

 

CEO Update

We delivered record revenues in H1 FY23, emphasizing the resilience of our business during periods of geopolitical and economic uncertainty, and as we enter H2, remain confident in the outlook for IG.

We generated consistent and sustained growth as our strategy to diversify by geography and product continues to deliver. All of our regional offices and High Potential Markets grew from Q1 to Q2, demonstrating the momentum being built across the business. Just two of many highlights are that IG is now fifth by market share in Japan, while our US businesses posted a record second quarter for total revenue, as interest income becomes a larger contributor to the Group overall.

In terms of product mix, 19% of IG's total revenue is now derived from non-OTC products, up from just 3% as at FY19 when we launched our strategy.

Our story is not just one of business opportunity and growth; it's also about delivering a steady return of capital to our shareholders.  We're now executing the Capital Allocation Framework that we announced in the summer, and in the period we progressed with the current £150 million share buyback and have now extended that by a further £50 million, to a total of £200 million.  We also raised our interim cash dividend to 13.26 pence per share.  We will continue to carefully assess opportunities to allocate and deploy capital in line with our Framework, and our strong and steady operating performance affords us a range of options for capital.

Powering growth across our strategic initiatives

Spectrum, our pan-European trading venue for retail clients, celebrated its third anniversary with the onboarding of Societe Generale, which underscores the value of Spectrum's trading proposition, and will significantly increase both the trading product options and liquidity available to European investors.

In the US, both of our businesses in foreign exchange and options and futures continue to help us drive diversified growth. Our OTC foreign exchange derivatives business in the US had a record half for revenue, while our listed options and futures business through tastytrade continued with preparations for breakout growth over the medium term.

At tastytrade, we've continued to attract highly talented and experienced people into the leadership and technology teams - people who want to disrupt the market and work in an innovative and nimble company.  One of our major milestones will be the upcoming rebranding of the business, which will be accompanied by our first significant national marketing campaign in H2 and FY24. We have also continued to build out our marketing analytics, comparable to what we've had at IG for some time, which will help drive growth in the US and activate a 'switcher' market from established firms. A focus on search engine optimisation, for example, has increased organic visibility scores on Google, lifting tastylive - the new name of our US content business - to the first page for searches on key terms such as 'options on futures'. tastylive's content viewership has consistently grown in comparison to a falling off amongst peers, supporting the attraction and retention of clients.                                                                                                                                 

High quality clients a defining feature

The wide range and variety of financial markets that we offer to clients has long been a hallmark of IG, and this continued to prove attractive to our unique client base.  Alongside superior trade execution, our active clients continued to trade consistently and steadily throughout the first half, despite the myriad of macro challenges in the period. This creates a strong foundation of recurring revenue for the business.

Client retention remained in line with previous client cohorts, despite the broader retail trading sector experiencing a slowdown. And importantly, OTC net trading revenue was up, reflecting a strong increase in revenue per client. 

Our high-quality and dedicated client base is a defining feature for IG and central to our purpose of powering the pursuit of financial freedom for the ambitious.  Despite cost-of-living and other challenges, our most recent survey shows that 92% of our clients expect their trading volumes to increase or remain the same in the next six months.

Our engaging content

Content plays an increasingly important role in our strategy, particularly in supporting client acquisition and retention. Our wide range and variety of content is designed to improve the knowledge of traders and investors, providing our clients with the tools to hone their skills and build the confidence needed to trade.

We know from direct feedback that this is meeting a clear need. Despite most coming to IG with considerable knowledge and experience already, our clients are voracious consumers of content, evidenced by more than 50 million unique views of IG video content across our brands during the half. Like our clients, we believe that you can always learn more about the markets to support responsible trading. When surveyed, 94% of our clients said the IG Academy helped build their confidence.

Our Brighter Future Framework

To help empower the communities in which we operate, we have committed to donate 1% of our post tax profit (the equivalent of £4.0 million in FY23) to charitable causes through our Brighter Future Fund. In line with our purpose of powering the pursuit of financial freedom, this focuses on empowering communities through education, emphasising financial literacy and science, technology, engineering, and mathematics  subjects. I have personally been delighted by the impact this is having through our partnerships with select charities and organisations.

During 2022, around one in three of our employees engaged with community outreach initiatives - something we're aiming to increase significantly this year.  We are enormously proud of the talent and expertise we have in the business, and thankful for our employees who continue to support each other, champion our clients, and give back to the communities in which we operate on a daily basis.

Outlook

Our fundamentals remain strong in the face of a continued uncertain economic and geopolitical outlook, further supported by the resilience of our more diversified business.

Therefore, we are reiterating our medium-term guidance for our business portfolios, targeting 5-7% growth in the Core Markets+ and 25-30% growth in the High Potential Markets per annum.

We are also maintaining our guidance for interest income in the US, which is a gearing ratio of approximately $4 million annually per 25 basis point increase in the federal funds rate. For FY23, due to the increase in interest rates which we have seen around the world, we are providing additional guidance. For interest income from client balances outside of the US, we expect to generate approximately £25 million in FY23. For net finance income, we expect to generate around £10 million of income in FY23, reflecting the increased returns on our corporate cash, more than offsetting our finance costs, which are fixed.

On costs, we are also reiterating our guidance, that we expect FY23 operating costs to drive off H2 FY22 run rate plus an inflationary impact of mid-single digits. Therefore, our adjusted profit before tax margin is expected to be in the mid-40s in FY23. We reiterate our effective tax rate to be around 19% in FY23.

Overall, we are optimistic about the outlook for FY23, and we anticipate full year performance to remain in line with our expectations.

Our focus remains on maximising the potential of our existing businesses and the continued execution of our strategy over the medium term.

June Felix

CEO

 

 

 

 

Business Performance Review

 

Summary Group Income Statement

 

£ million	H1 FY23	H1 FY23 adjusted	H1 FY22	H1 FY22 adjusted	Change %	Adjusted Change %
Net trading revenue1	494.9	494.9	471.9	466.1	5%	6%
Net interest income	24.2	24.2	(0.4)	(0.4)	Nm	Nm
Total revenue	519.1	519.1	471.5	465.7	10%	11%
Betting duty and other operating income2	-	(2.9)	2.8	2.8
Net operating income	519.1	516.2	474.3	468.5	9%	10%
Total operating costs3,4	(279.9)	(256.8)	(223.3)	(205.7)	25%	25%
Operating profit	239.2	259.4	251.0	262.8	(5%)	(1%)
Loss from associates	(1.1)	(1.1)	(1.0)	(1.0)
Net finance income / (cost)5	2.4	2.4	(4.8)	(3.8)
Profit before tax from continuing operations	240.5	260.7	245.2	258.0	(2%)	1%

 ¹ H1 FY22 adjusted excludes £5.8 million foreign exchange hedging gain associated with the financing of the tastytrade acquisition

² H1 FY23 adjusted betting duty and other operating income excludes £2.9 million income for the reimbursement of costs relating to the sale of Nadex

³ Operating costs include net credit losses on financial assets

⁴ Adjusted operating costs excludes £20.2 million of costs and recurring non-cash costs associated with the tastytrade acquisition and integration (H1 FY22: £16.0 million) and £2.9 million relating to the sale of Nadex (H1 FY22: £1.6 million)

⁵ H1 FY22 adjusted net finance cost excludes £1.0 million of one-time financing expense associated with the debt issuance

 

Statutory results

 

On a statutory basis, net trading revenue from continuing operations was £494.9 million, up 5% on H1 FY22. The Group's total revenue, which includes interest income, was £519.1 million, up 10%, reflecting the increasing interest rates during the period.

 

Statutory operating costs were £279.9 million, 25% higher than H1 FY22. The Group's statutory profit before tax for H1 FY23 was £240.5 million, down 2% on H1 FY22.

 

The results are presented on a continuing operations basis due to the disposal of the Nadex operations which completed in H2 FY22 and was classified as discontinued operations. In H1 FY23, the Group subsequently disposed of assets related to disposal of Nadex operations.

 

Adjusted results

 

The following analysis is of results from continuing operations on an adjusted basis. It excludes a £5.8 million foreign exchange gain in H1 FY22 related to the tastytrade acquisition. Also excluded are operating costs of £2.9 million (H1 FY22: £1.6 million) in relation to the sale of Nadex, and the offsetting reimbursement of these costs from the buyer within operating income. As these items relate to supporting the transition of Nadex, rather than the disposal, they are recognised within continuing operations.

 

The remainder of the £23.1m adjustment to operating costs are £18.5 million recurring non-cash costs associated with the tastytrade acquisition (H1 FY22: £14.8 million) and £1.7 million of tastytrade one off integration costs (H1 FY22: £1.2 million). Financing costs exclude £1.0 million in H1 FY22 related to the new debt issuance. These items are excluded in order to present a more accurate view of underlying performance. A reconciliation of non-GAAP measures used in this report is contained in appendix 1.

 

Adjusted net trading revenue was £494.9 million, 6% higher than H1 FY22 reflecting the continued strength of our high quality, active client base who continued to trade despite a challenging macroeconomic environment.  Net trading revenue reflects a strong second quarter, up 11% on Q1.

 

Adjusted total revenue in H1 FY23 was £519.1 million, an increase of 11% on H1 FY22 reflecting the higher net trading revenue, and the increasing contribution of net interest income.

 

Adjusted H1 FY23 operating costs from continuing operations were £256.8 million, 25% higher than H1 FY22 reflecting increased headcount, higher salary costs, and less favourable foreign exchange rates on the translation of non-Sterling costs, compared with the comparative period.

 

Adjusted operating profit from continuing operations of £259.4 million was 1% lower than H1 FY22. 

The Group's adjusted profit before tax from continuing operations was £260.7 million, 1% higher than H1 FY22. 

 

 

Net trading revenue performance by product

		Adjusted net trading revenue from continuing operations (£m)
		H1 FY23			H1 FY22			Change %
OTC derivatives		416.5			392.6			6%
Exchange traded derivatives		67.1			57.6			16%
Stock trading and investments		11.3			15.9			(30%)
Group		494.9			466.1			6%
	Active clients (000)								Net trading revenue per client (£)
	H1 FY23		H1 FY22			Change %			H1 FY23		H1 FY22	Change %
OTC derivatives	159.1		158.8			-			2,618		2,472	6%
Exchange traded derivatives1	72.2		82.6			(13%)			922		685	35%
Stock trading and investments	92.2		92.5			-			122		172	(29%)
Group2	312.0		320.4			(3%)
1 Exchange traded derivatives revenue per client calculation excludes revenue generated from the Group's market maker on Nadex 2 Total Group 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 H1 FY23 there were 11,500 multi-product clients, compared with 13,500 in H1 FY22

OTC derivatives

 

Net trading revenue from OTC derivatives in H1 FY23 was £416.5 million and increased by 6% on H1 FY22. Within the half, Q2 revenue increased 11% on Q1.  Active clients remained in line with H1 FY22, with 159,100 clients trading in the period, while average revenue per client increased by 6% to £2,618 reflecting the continued strength and quality of our client base.  In the period an additional 24,300 new clients were onboarded and active, down 17% on H1 FY22.

 

UK and EU OTC derivatives revenue was £209.3 million, in line with H1 FY22 (H1 FY22: £208.3 million).  Active clients reduced by 3%, offset by a 3% increase in the average revenue per client.  Revenue in Q2 was 9% higher than Q1, due to a higher revenue per client in the second quarter.

Japan revenue increased by 25% to £55.8 million, with active clients increasing 28%, and average revenue per client down 2%.  H1 FY23 represented a record half for revenue and active clients for Japan, with Q2 revenue being 6% higher than Q1.  Client onboarding continues to be strong, however first trades in the period reduced 18% from the exceptionally high levels experienced in H1 FY22

Australia revenue of £49.3 million increased 9% on H1 FY22, with Q2 revenue increasing 15% on Q1, the highest revenue quarter since the Australian Securities & Investments Commission (ASIC) leverage restrictions were introduced in Q4 FY21.  A 12% reduction in active clients in the half was more than offset by a 24% increase in revenue per client.

Exchange traded derivatives

 

Net trading revenue from exchange traded derivatives was £67.1 million and increased 16% on H1 FY22, and was 1% higher on a pro forma basis, which includes a full 6 months of tastytrade revenue in the comparative period.

 

tastytrade net trading revenue was £61.2 million, up 16% on H1 FY22, and in line with the comparative period on a pro forma basis. Pro forma active clients reduced by 18%, reflecting normalisation from the high levels of activity seen in the comparative period, offset by a 23% increase in revenue per client due to the benefit of more favourable foreign-exchange rates on the conversion of USD revenue as well as changes in the client mix.

Spectrum revenue of £5.4 million increased by 44% on H1 FY22, driven by a 9% increase in the active client base and a 32% increase in average revenue per client as we continue to see an evolution of the client base. The ongoing expansion of the Spectrum network has seen additional 3^rd parties added to the exchange in the period, with Societe Generale and iBroker coming onboard.

 

Stock trading and investments

 

Revenue from stock trading and investments was £11.3 million, a 30% reduction on H1 FY22.  The client base remains in line with the comparative period, with 92,200 active clients, however the average revenue per client has reduced by 29%, due to a reduction in client trading and a change in equity mix, with clients trading fewer US equities.

 

Assets under administration at the end of the period were £3.2 billion, compared with £3.6 billion at the end of H1 FY22.

 

Net interest income

Net interest income on client balances was £24.2 million, increasing from a £0.4 million cost in H1 FY22 reflecting the strong client money balances across the period and the rising interest rate environment. At the end of the period the total client money balance was £4.5 billion, down 8% on H1 FY22. This includes £0.5 billion of client funds on balance sheet for which the interest is recognised within the net finance income line. Interest income made up 5% of the Group's total revenue and adds a further valuable revenue stream to the Group. 

In our US businesses our clients had £1.6 billion on account, though held at third parties, which resulted in interest income in the period of £16.7 million (H1 FY22: £0.4 million).  In this market we benefit directly when rates rise.  In our non-US businesses in total, our clients had £2.4 billion on account, excluding client funds on balance sheet, and interest income was £7.5 million in the half, compared with a £0.8 million cost in the comparative period. In these markets the relationship between interest income and client money is less direct than in the US, depending on the bank where we hold the deposits and the corresponding interest terms.

Total revenue

Total revenue includes both net trading revenue and net interest income. OTC derivatives total revenue was £422.9 million, up 8% on H1 FY22.  Exchange traded derivatives total revenue was £83.8 million, up 45% on H1 FY22.  Within this tastytrade total revenue was £77.9 million, up 47% on H1 FY22, and up 26% on a pro forma basis. tastytrade total revenue benefitted from the rising US fed funds rate and more favourable FX rates on the translation of USD revenue. Stock trading and investments total revenue was £12.4 million, down 23% on H1 FY22.

Non-OTC total revenue represented 19% of the Group's revenue, up 3% points on H1 FY22, demonstrating the increasingly diversified revenue mix.

 

Operating costs

Total adjusted operating costs for  H1 FY23 were £256.8 million, 25% higher than H1 FY22 and in line with H2 FY22. The year on year increase reflects an additional month of tastytrade costs, an estimated £10 million of translational FX headwinds across the cost base, the full £4.0 million accrual for charitable donations and increases in technology related costs, both in the fixed remuneration line, and in the other structural cost lines.

 

Adjusted operating costs from continuing operations

 

£m	H1 FY23	H1 FY22	Change %
Fixed remuneration	93.1	69.0	35%
Advertising and marketing	43.7	38.0	15%
Revenue related costs	26.6	19.0	40%
IT, structural market data and comms	20.9	15.7	33%
Depreciation and amortisation	14.8	13.9	6%
Other costs	33.4	25.4	32%
Variable remuneration	24.3	24.7	(2%)
Total operating costs	256.8	205.7	25%
Headcount at period end	2,602	2,424	7%

 

H1 FY23 fixed remuneration was £93.1 million, an increase of 35% on H1 FY22, reflecting the increase in headcount during FY22 and H1 FY23, less favourable FX translation on non-GBP salaries, and salary increases, which due to high inflation, were more material than in recent years.  Headcount growth was largely technology related, reflecting the continued investment in new development projects, and the running of our platforms and infrastructure.  Around 80% of the new headcount was added in our lower cost global service centres in Poland, India and South Africa.

 

Advertising and marketing spend increased by 15% in H1 FY23 to £43.7 million, reflecting increased marketing spend in our US region, UK and Europe.

 

Revenue related costs include variable market data charges, client payment and funding charges, provisions for client and counterparty credit losses and brokerage trading fees. Revenue related costs in total increased by 40% to £26.6 million as tastytrade brokerage trading fees were higher due to an increase in the proportion of index options traded. Additionally in the comparative period stock trading transaction fees were reported as an offset to revenue rather than an operating cost.

 

IT maintenance, structural market data charges and communications costs were £20.9 million in H1 FY23, an increase of 33% on H1 FY22 reflecting the increased investment in technology to support a number of operational projects, to support the larger active client base and ensure adequate capacity for the continued growth of the Group.

 

Depreciation and amortisation costs increased 6% to £14.8 million.  Other costs, which includes staff related costs (such as travel, and staff entertainment), legal and professional fees, regulatory fees and irrecoverable VAT, increased by 32%. Included within other costs is the £4.0 million charitable donation, representing 1% of FY22 adjusted profit after tax, which was approved by the board in September 2022.  Additionally other costs increased due to higher professional fees linked to strategic and operational projects, and higher staff entertainment and travel as staff return to the office and travel restrictions have been lifted.

 

Within variable remuneration is the general bonus accrual, share schemes and sales bonuses. The charge for the general bonus pool was £12.3 million, down 12% on H1 FY22, reflecting a smaller outperformance to internal targets compared to the comparative period.  Share schemes costs relate to the long-term incentive plans for senior management, and were £9.4 million (H1 FY22: £7.4 million), reflecting higher NI costs and some one-off adjustments. Sales bonuses decreased by 28% to £2.5 million reflecting lower commission payments to sales staff for the onboarding and management of their own-sourced high-value clients.

 

Net finance income

Net finance income in the period was £2.4 million, up from a £3.8 million cost in the comparative period.  Within this finance income was £10.5 million (H1 FY22: £1.0 million), offset by finance costs of £8.1 million (H1 FY22: £4.8 million). Our financing costs are fixed, however the finance income, which reflects the interest earned on our corporate balances including client funds on balance sheet, has benefitted from the rising interest rates in the period.

 

Earnings Per Share

 

£m (unless stated)	H1 FY23	H1 FY23 adjusted	H1 FY22	H1 FY22 adjusted	Change %	Adjusted change %
Profit before taxation from continuing operations	240.5	260.7	245.2	258.0	(2%)	1%
Taxation	(45.6)	(49.4)	(42.6)	(44.8)	7%	10%
Profit after taxation from continuing operations	194.9	211.3	202.6	213.2	(4%)	(1%)
Loss after taxation from discontinued operations	(0.2)	(0.2)	-	-	Nm	Nm
Profit after tax for the period	194.7	211.1	202.6	213.2	(4%)	(1%)
Weighted average number of shares for the calculation of EPS (millions)	425.0	425.0	421.7	421.7	1%	1%
Basic earnings per share (pence per share)	45.8	49.7	48.1	50.6	(5%)	(2%)

 

Profit before tax was £240.5 million in H1 FY23, and £260.7 million on an adjusted basis, 1% higher than H1 FY22.

The effective tax rate (ETR) applied to the Group's H1 FY23 profit was 18.9% (H1 FY22: 17.4%). The ETR for the Group has increased due to the planned increase in UK corporation tax rate from 19% to 25%. The 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 future ETR may also be impacted by changes in our business activities, client composition and regulatory status, which could affect our exemption from the UK Bank Corporation Tax surcharge.

 

Profit after tax was 4% lower than H1 FY22 and 1% lower on an adjusted basis. Basic EPS was 5% lower than H1 FY22 and 2% lower on an adjusted basis due to lower profits.

 

Dividend

The proposed interim dividend for FY23 of 13.26 pence per share totalling £55.1 million was approved by the Board on 25 January 2023 and has not been included as a liability at 30 November 2022. This dividend will be paid on 3 March 2023 to those members on the register at the close of business on 3 February 2023.

 

Summary Group Balance Sheet

The balance sheet is presented on a management basis which reflects the Group's use of alternative performance measures to monitor its financial position, with particular focus on own funds and liquid assets which provide a broader and more stable position of the Group's balance sheet than cash. These alternative performance measures are reconciled to the corresponding IFRS balances in the appendix.

£m	30 Nov 2022	31 May 2022	% change
Goodwill	627.2	604.7	4%
Intangible assets	288.0	292.1	(1%)
Property, plant and equipment1	17.6	16.7	5%
Operating lease net asset	(1.9)	(2.0)	(5%)
Other Investments	1.2	-	100%
Investments in associates	14.4	14.8	(3%)
Fixed assets	946.5	926.3	2%
Own cash	786.4	1,245.9	(37%)
Issued debt	(299.3)	(299.2)	-
Client funds held on balance sheet	(454.0)	(520.9)	(13%)
Net amounts due from brokers	749.3	657.1	14%
Own funds in client money	37.3	64.2	(42%)
Financial investments	258.1	-	nm
Liquid asset threshold requirement	72.5	106.7	(32%)
Own funds	1,150.3	1,253.8	(8%)
Working capital	(59.6)	(82.5)	(28%)
Net current assets held for sale	-	0.4	(100%)
Tax payable	(3.1)	(20.5)	(85%)
Net deferred tax liability	(46.7)	(49.7)	(6%)
Net assets	1,987.4	2,027.8	(2%)

¹ Excludes right-of-use assets

 

The majority of the Group's fixed assets are held in US dollars following the acquisition of tastytrade in H1 FY22. This includes goodwill of £525.4 million attributed to the tastytrade business. As a result, the Group has recognised a £20.2 million increase in fixed assets during the period which predominately relates to foreign exchange movements.

Liquidity

The Group maintains a strong liquidity position, ensuring that it has sufficient liquidity under both normal circumstances and stressed conditions to meet its working capital and other liquidity requirements, which include broker margin requirements, the regulatory and working capital needs of its subsidiaries, and the funding of adequate buffers in client money accounts.

The Group's available liquidity comprises assets that are available at short notice to meet additional liquidity requirements, which are typically increases in broker margin.

 

 

£m	30 Nov 2022	31 May 2022	% change
Own cash	786.4	1,245.9	(37%)
Net amounts due from brokers	749.3	657.1	14%
Own funds in client money	37.3	64.2	(42%)
Financial investments	258.1	-	100%
Liquid asset threshold requirement	72.5	106.7	(32%)
Liquid assets	1,903.6	2,073.9	(8%)
Broker margin requirement	(639.3)	(629.5)	2%
Cash balances in non-UK subsidiaries	(343.2)	(342.9)	-
Own funds in client money	(37.3)	(64.2)	(42%)
Available liquidity	883.8	1,037.3	(15%)
of which:
Held to meet regulatory liquidity requirements	72.5	106.7	(32%)
Dividend due	55.1	134.8	(59%)

 

The composition of the Group's liquid assets has changed during the period, with more liquid assets being held as financial investments (UK government securities) rather than cash. This is a result of recent changes in regulations that require the Group to post securities into segregated accounts instead of cash to meet initial margin requirements at certain brokers. The impact on the Group's liquid assets is that the UK government securities held by the Group increased by £223.9 million, with a corresponding reduction in the cash balance at 30 November 2022. The Group's cash balance also reduced as a result of the FY22 final dividend payment of £133.2 million and the £113.9 million paid to buy back shares, offset by cash generated by operations of £115.5 million.

The amounts due from brokers increased by £92.2 million during the period. The balance comprises open derivative positions, physical cryptocurrency assets, cash and UK government securities held on account by the Group's hedging and execution counterparties. The broker margin requirement at 30 November 2022 was consistent with the requirement at 31 May 2022. The maximum margin requirement during the period was £757.5 million in August 2022, lower than the Group's highest broker margin requirement of £774.7 million which occurred in H1 FY22.

The Group's available liquidity reduced by £153.5 million during the period, which is less than the overall fall in liquid assets of £170.3 million. This is a result of the Group holding less of its own cash as buffers in client money accounts, with own funds in client money £26.9 million lower than at 31 May 2022 as a result of trading conditions on the last day of the month. These funds are the Group's own cash held in segregated client funds in accordance with regulatory requirements, including the UK's Financial Conduct Authority (FCA) Client Asset Sourcebook (CASS) rules.

The Group regularly repatriates cash from its overseas subsidiaries, and for liquidity management and planning purposes the Group conservatively excludes cash held by subsidiaries outside the UK from available liquidity. The amount of cash held in entities outside the UK was £343.2 million as at 30 November 2022 (31 May 2022: £342.9 million), £0.3 million higher than as at 31 May 2022.

The Group's available liquidity is subject to meeting other requirements which include the FY23 interim dividend and regulatory liquidity requirement within the Investment Firm Prudential Regime (IFPR) rules. The IFPR requirements includes basic liquid assets requirement and a liquid assets threshold requirement, which can be met with both cash and certain financial investments. At 30 November 2022, this requirement was £72.5 million, 32% lower than 31 May 2022 due to removal of the transitional IFPR arrangement.

In addition to the cash recognised on the balance sheet, as at 30 November 2022, the Group held £2,449.9 million (31 May 2022: £2,577.9 million) of client money in segregated bank accounts, which is not recognised on the Group's balance sheet. These client funds are held separately from the Group's own cash balances and are excluded from the Group's liquid assets.

 

Own Funds

The Group measures the strength of its liquidity position using an 'own funds' measure, instead of just cash, as it is a broader and more stable measure than cash. Own funds include liquid assets, less debt and client funds on its balance sheet. As at 30 November 2022, the Group had an own cash balance of £786.4 million (31 May 2022: £1,245.9 million) compared with an own funds balance of £1,150.3 million (31 May 2022: £1,253.8 million).

£m	30 Nov 2022	31 May 2022	% change
Liquid assets	1,903.6	2,073.9	(8%)
Client funds on balance sheet	(454.0)	(520.9)	(13%)
Issued debt	(299.3)	(299.2)	-
Own funds	1,150.3	1,253.8	(8%)

 

Client funds on balance sheet are funds which are deposited with the Group's Swiss banking subsidiary, IG Bank SA, and client funds held by other subsidiaries which are not subject to the same legal or regulatory protections as client money held off balance sheet, including funds held by the Group under title transfer arrangements.

In H1 FY22 the Group issued £300.0 million 3.125% senior unsecured bonds which mature in 2028. The Group also has access to a £350.0 million revolving credit facility (31 May 2022: £300.0 million), which has increased as a result of two accordions to the existing revolving credit facility being signed in H1 FY23. The £350.0 million committed revolving credit facility was undrawn at 30 November 2022 (31 May 2022: undrawn).

Own Funds Flow

£m	H1 FY23	H1 FY22
Own funds generated from operations	232.2	247.6
as % of operating profit	97%	99%
Taxes paid	(65.6)	(33.9)
Net own funds generated from operations	166.6	213.7
Net interest and fees paid	(3.6)	(5.6)
Capitalised development costs	(2.1)	(2.6)
Capital expenditure	(8.4)	(7.3)
Cash consideration of tastytrade	-	(216.1)
Own funds recognised from acquisition	-	38.2
Investments in associates	-	(1.9)
Purchase of own shares held in employee benefit trusts	(14.6)	(6.7)
Cash proceeds from settlement of acquisition of subsidiary	3.2	-
Cash proceeds from settlement of disposal of subsidiary	1.0	-
Pre-dividend increase in own funds	142.1	11.7
Cash paid for share buyback	(113.9)	-
Dividends paid	(133.2)	(130.3)
Decrease in own funds	(105.0)	(118.6)
Own funds at the start of the period	1,253.8	1,058.5
Decrease in own funds	(105.0)	(118.6)
Impact of movement in exchange rates	1.5	-
Own funds at the end of the period	1,150.3	939.9
Own funds at the end of the period from discontinued operations	-	(18.4)
Own funds at the end of the period from continuing operations	1,150.3	921.5

 

The Group's own funds generated from operations of £232.2 million was £15.4 million lower than own funds generated from operations in H1 FY22 primarily due to lower operating profit and movement in the fair value in the UK Government securities. These funds were further reduced by £65.6 million of taxes paid in H1 FY23 of which £22.3 million relate to FY22 profits and £43.0 million of advance tax payments for FY23.

 

The pre-dividend own funds have increased as the tastytrade transaction completed in H1 FY22 which resulted in a net own funds outflow of £177.9 million.

 

The Group recognised an overall decrease in own funds as a result of the share buyback of £113.9 million and the final FY22 dividend.

 

Regulatory Capital

 

The Group is supervised on a consolidated basis by the FCA, which requires it to hold sufficient regulatory capital at both Group and individual entity levels to cover risk exposures, valued according to applicable rules, and any additional regulatory financial obligations imposed.

The Group's regulatory capital resources, which totalled £1,000.7 million at 30 November 2022 (31 May 2022: £1,025.6 million) are an adjusted measure of shareholders' funds. Shareholders' funds comprise share capital, share premium, retained earnings and other reserves.

The Group's regulatory capital requirement as at 30 November 2022 was £497.4 million (31 May 2022: £497.4 million). The Group's capital headroom, once interim profits have been approved for use by the FCA, was £503.3 million (31 May 2022: £528.2 million), demonstrating the Group's solid capital base.

 

£m	30 Nov 2022	31 May 2022
Shareholders' funds	1,987.4	2,027.8
Less foreseeable / declared dividends	(97.3)	(134.8)
Less goodwill and intangible assets	(853.1)	(833.7)
Less Deferred tax assets and significant investments in financial sector entities	(35.4)	(32.3)
Less value adjustment for prudent valuation	(0.9)	(1.4)
Regulatory capital resources	1,000.7	1,025.6
Total requirement	497.4	497.4
Capital headroom	503.3	528.2

 

Principal risks and uncertainties

IG's Risk Taxonomy categorises the principal risks faced by the Group into four areas: the risks inherent in the regulatory environment, commercial risk, business model risk, and conduct and operational risk.

 

The principal risks and uncertainties which could impact the Group for the remainder of the current financial year remain consistent with those detailed on pages 48 to 53 of the FY22 Group Annual Report, which is available on the Group's website. There have been no significant changes in the Group's risk management framework in H1 FY23 and up to the date of this announcement. 

 

 

Consolidated Interim Income Statement

for the six months ended 30 November 2022 (unaudited)