Results for the financial year ended 31 May 2020

IG GROUP HOLDINGS PLC

Preliminary results for the financial year ended 31 May 2020

23 July 2020

 

LEI No: 2138003A5Q1M7ANOUD76

 

IG Group Holdings plc ("IG", "the Group", "the Company"), a global leader in online trading, today announces its results for the twelve months ended 31 May 2020 ("FY20").

            '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'

 

Highlights

-     Good performance in Q1-Q3 FY20 boosted by exceptional Q4 FY20 results:

o  Full year net trading revenue grew 36% to £649.2 million (FY19: £476.9 million) with profit before tax increasing 52% to £295.9 million (FY19: £194.3 million)

o  Net trading revenue in Q1-Q3 FY20 increased 9% to £389.7 million (Q1-Q3 FY19: £359.0 million) and Q4 FY20 revenue more than doubled year on year to £259.5 million (Q4 FY19: £117.9 million)

o  Active clients grew 34% to 239,600 (FY19:178,500), with 96,900 new clients onboarded in FY20

o  Full year dividend of 43.2 pence per share maintained for FY20 (FY19: 43.2 pence) consistent with previous guidance

-     Significant, tangible progress on the strategic initiatives:

o  Core Markets net trading revenue grew 3% to £325.5 million in Q1-Q3 FY20 (Q1-Q3 FY19: £316.1 million), accelerating in Q4, to deliver £540.8 million for the full year (FY19: £418.2 million)

o  Significant Opportunities revenue nearly doubled to £108.4 million (FY19: £58.7 million), also supported by the extraordinary Q4 trading conditions, as momentum builds in Asia, the US, and with new product launches in Europe

-     Successful navigation of the Covid-19 pandemic to date:

o  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 March 2020, versus an average daily trade volume of 336,000 in March 2019

o  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:

o  Donated £5 million to the IG Brighter Future Fund

o  Became a carbon-neutral company in July 2020[1]

Financial Summary  

For the year ended 31 May 2020	FY20	FY19	Change %
Net trading revenue (£ million)	649.2	476.9	36%
Operating costs (£ million)[2]	352.9	284.3	24%
Profit before tax (£ million)	295.9	194.3	52%
Profit after taxation (£ million)	240.4	158.3	52%
Basic earnings per share (pence)	65.3	43.1	52%
Total dividend per share (pence)	43.2	43.2	unchanged

[1] In line with PAS2060

[2] Operating costs includes net credit losses on financial assets of £11.0 million (FY19: £1.8 million) which are presented separately on the Consolidated Income Statement in the Group Financial Statements

Dividend

The Board recommends a final dividend of 30.24 pence per share, taking the full year dividend for FY20 to 43.2 pence per share (FY19: 43.2 pence), in line with previous guidance. The final dividend, if approved by shareholders, will be paid on 22 October 2020 to those members on the register at the close of business on 25 September 2020.

Capital, funding, and liquidity remain very strong, supporting further investment in growth and the dividend payment.  The Board reiterates its intention to maintain the 43.2 pence per share annual cash dividend until the Group's earnings allow for progressive dividends.

 

Outlook

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 £100 million of revenue by the end of FY22 relating to the Significant Opportunities portfolio.

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 £10 million investment in the year.  Variable remuneration in FY21 is anticipated to be around the midpoint of the FY19 and FY20 levels.  

 

June Felix, Chief Executive, commented:

"It's been a successful first year in our three-year growth strategy to become a more sustainable, diversified, and global business. We concluded FY20 well on track to deliver on our medium-term targets and are confident in achieving the goals we've set. I'm delighted with the tangible progress we've made, the resilience we've shown as a company, and the record results we've delivered.     

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 £5 million donation to the IG Brighter Future Fund, for children whose educational opportunities have been most impacted by Covid-19.

This year we have also welcomed Mike McTighe, Chairman of the Board, and Charlie Rozes, our new CFO, to IG Group. They both bring extensive international experience to the Company. I am looking forward to working closely with them as we continue to focus on delivering sustainable growth and attractive shareholder returns."

 

Further information

IG Group Investor Relations                             IG Group Press                                    FTI Consulting

Liz Scorer                                                             Jon Laycock                                           Edward Berry

020 7573 0727                                                      07500 771 109                                      07703 330 199

[email protected]                                        [email protected]

 

 

Analyst presentation

There will be an analyst and investor presentation at 9:30am (UK Time) on Thursday 23 July.

The presentation will also be accessible live via audio webcast at https://pres.iggroup.com/ig052.  If you wish to listen via conference call, please use the following link https://pres.iggroup.com/ig052/vip_connect. The audio webcast of the presentation and a transcript will be archived at:  www.iggroup.com/investors

 

Disclaimer - forward-looking statements

This preliminary 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 Company's annual report for the financial year ended 31 May 2019. 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.  Acronyms used in this report are as defined in the Group's Annual Report.

 

About IG

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^[3]. IG is the world's No.1 provider of CFDs^[4] 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 UK, Australia, Germany, France, Ireland, Austria and the Netherlands. IG has a range of affordable, fully managed investment portfolios, which provide a comprehensive offering to investors and active traders.

IG is a member of the FTSE 250, with offices across Europe, including a Swiss bank, Africa, Asia-Pacific, the Middle East and North America. IG Group Holdings plc holds a long-term investment grade credit rating of BBB- with a stable outlook from Fitch Ratings.

 

 

[3] Excluding 10pm Friday (GMT) to 8am Saturday (GMT)

[4] Based on revenue excluding FX (from published financial statements, June 2020)

 

Group Performance Review

Overview

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 £649.2 million, 36% higher than the prior year.  This performance was underpinned by good growth in the first three quarters of the financial year, prior to the heightened market volatility in Q4. In the first three quarters, net trading revenue of £389.7 million was up 9% on the prior year period (Q1-Q3 FY19: £359.0 million). In Q4, net trading revenue accelerated to £259.5 million.  This reflected the unprecedented level of client trading activity from the sustained period of volatility across global financial markets triggered by the Covid-19 pandemic and other macro events.

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 £308.6 million,19% higher than the prior year (FY19: £259.6 million). This included investments of £35 million in prospect acquisition and development of the IG brand, and the launch of our new businesses in the US and Europe. In addition, there was an increase in certain revenue related costs, and a £5 million charitable donation.  Variable remuneration was £44.3 million, 79% higher than the prior year reflecting the exceptional performance against internal targets.

Profit before tax increased to £295.9 million (FY19: £194.3 million) with an operating profit margin of 45.6%.  Conversion of operating profit into cash was strong, with own funds generated from operations of £345.0 million (FY19: £198.1 million).

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 July 2020 IG is a carbon neutral company in line with PAS2060.  IG's role in the communities around the world in which it lives and works also led the Company to make a substantial charitable donation to those directly affected by the pandemic.  In terms of governance, the Group appointed Mike McTighe to the role of Chairman of the Board from 3 February 2020 and Charlie Rozes to the role of CFO from 1 June 2020, alongside other important changes to the PLC Board of Directors announced previously. 

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 June 2020, and an expansion in digital solutions to drive cost efficiency and improve scalability.

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 April 2020. The Group has not experienced any loss-making days since 2015.

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.   

 

Regulatory update

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 Asia, and where we design and launch new products.  IG has worked constructively with regulators and has adapted its products and businesses and will continue to anticipate the pace and direction of new regulation and its adaptation to those changes is a long-term success factor.  This adaptability can be evidenced by the return to growth in FY20 in the ESMA region Retail client base following a significant regulatory shift in FY19.  In the ESMA region, revenue increased 26% to £328.5 million year on year, accompanied by growth in the number of active clients and a small increase in the revenue per client.  In addition, during the period the Group successfully implemented new regulations in Singapore, an important Asian regional market for IG.

As previously indicated, further changes are possible in FY21 in some markets in which IG operates, including Australia.  The Australian Securities and Investments Commission has not yet confirmed its final proposals or timelines to implement new regulations for leveraged OTC products, although this is expected within the next financial year.

 

 

Delivering on the Group's strategy

 

Core Markets

 

The Group delivered good underlying OTC Leveraged revenue growth of 3% to £319.1 million in Q1-Q3 FY20 (Q1-Q3 FY19: £310.9 million) prior to the sharp increase in Q4. Highlights in the Core Markets included: 

-     A significant recovery in the ESMA region (EU and UK) OTC Leveraged Retail client base. The FY19 comparison included two months of trading 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 Q1-Q3 quarterly average revenue up 26% driven by an 8% increase in the number of active clients.  During the same period revenue from the Group's Professional client base in the ESMA region remained steady, with this group of clients contributing average quarterly revenue of £39.8 million in Q1-Q3 FY20 (Q2-Q4 FY19: £40.3 million)

 

-     In Singapore, where increased margin requirements for retail FX traders were introduced in October 2019, the business continued to perform well with an 8% growth in Q1-Q3 FY20 versus Q1-Q3 FY19. In Australia, revenue increased 10%, driven by an 8% growth in the number of active clients.

 

In Q4, revenue growth in the Core Markets from the OTC Leveraged business accelerated to deliver revenue of £208.1 million, an 83% quarter on quarter increase. The number of active clients was exceptionally high, with strong levels of reactivation in addition to record levels of acquisition leading to a 41% increase in the number of Core Markets OTC Leveraged active clients quarter on quarter. This was supported by a 30% quarter on quarter increase in the revenue per client, with clients identifying more opportunities to trade the financial markets.

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. 

 

Significant Opportunities

 

As previously set out in the May 2019 strategy launch, the Group is targeting an increase in revenue from its portfolio of Significant Opportunities by £100 million, from £60 million in FY19 to around £160 million in FY22. Revenue from this portfolio in FY20 was £108.4 million (FY19: £58.7 million), an increase of 85%, reflecting tangible progress of the initiatives and boosted by Q4 market volatility. The Group has now completed the first year of the three-year implementation programme designed to diversify the business and better position it for the long-term.  Noting that each initiative is at a different stage of development, there has been good progress made across all of the Significant Opportunities.

Growth in revenue and the number of active clients has been strong in both the Japan and the Emerging Markets businesses, resulting from a number of actions completed during the year.

In Japan, new leadership introduced a more localised product offering which has been well received, with the investment in marketing through an extensive brand campaign, supported by a high-profile brand ambassador, driving further success.  IG continues to innovate new products for this important market. Good progress has been made in partnership discussions and the Group will continue to focus on these opportunities in the year ahead to better reach the two million active FX traders who drive a £1 billion revenue pool in this market.

During the period the Group opened a new client-facing subsidiary, IG International. This better enables the Group to onboard new clients from many different parts of the world and simplifies its arrangements with existing international clients.  Revenue growth was driven by an increase in the number of active clients who were onboarded via reverse enquiry.  

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.  Nadex, our US retail exchange, has also continued to refine its product proposition, growing its revenues year on year. DailyFX, our US-based content provider, expanded its global reach through greater multi-lingual capability.  Given the lead generation potential of the DailyFX brand, with over 27 million new readers, of which 5.1 million are in the US, the website is becoming a more important marketing and acquisition engine for IG, as it looks to expand its content beyond FX.  The Group will continue to focus on the integration and alignment of its three US businesses to amplify the IG brand and increase the overall revenue opportunity.

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 March 2020.  FY20 revenue growth from this segment was encouraging and a further build out of IG Prime's product offering is planned in FY21 to provide additional opportunities for client acquisition. IG grew the number of active clients by 59% in this client segment in FY20.

While at an earlier stage, in Greater China, the Company recruited a new CEO with a strong network in Hong Kong and established a local office presence. The Group is advancing discussions with a number of banks and securities brokerage firms to distribute IG's suite of products. These partners, who recognise the Group's differentiated product and service capabilities, would provide more immediate market access for IG than a direct to consumer approach. Following completion, these partnerships would enable IG to begin accessing a market of more than 500,000 professional investors in Hong Kong, and better position the Group to reach the estimated 4 million high net worth individuals in Greater China.     

  

Operating and Financial Review

Summary Group Income Statement

	FY20 £m	FY19 £m	Change  %
Net trading revenue	649.2	476.9	36%
Net interest on client money	5.0	6.3
Betting duty and FTT	(7.4)	(7.9)
Other operating income	1.4	1.9
Net operating income	648.2	477.2	36%
Operating expenses	(308.6)	(259.6)
Variable remuneration	(44.3)	(24.7)
Total operating costs[5]	(352.9)	(284.3)	24%
Gain/loss on sale of subsidiaries	0.7	-
Operating profit	296.0	192.9	53%
Net finance (expense)/income	(0.1)	1.4
Profit before taxation	295.9	194.3	52%
Taxation	(55.5)	(36.0)
Profit for the period	240.4	158.3	52%
Basic earnings per share	65.3p	43.1p	52%

 

The Group's net trading revenue in FY20 increased by 36% to £649.2 million, compared with £476.9 million in FY19, driven by a period of sustained high market volatility in Q4, related to the Covid-19 pandemic and other macro events.

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 £308.6 million increased by 19%. This included investments of £35 million in prospect acquisition and development of the IG brand, in the launch of our new businesses in the US and Europe, and an increase in certain costs directly related to the significant increase in revenue and active client numbers. Operating expenses also included a £5 million charitable donation.  Variable remuneration of £44.3 million reflected a higher level of headcount and the outperformance of the Group against its internal targets.

In FY20, the Group sold six minor entities, recognising a gain on sale of £0.7 million. These entities owned generic top-level domain names, which were acquired by the Group in FY15.

Operating profit in the period was £296.0 million, 53% higher than FY19.  After net finance costs of £0.1 million, profit before taxation was £295.9 million. The effective tax rate for the year was 18.8% (FY19: 18.5%), with profit after tax of £240.4 million.

Basic earnings per share of 65.3 pence was 52% higher than in FY19.

 

[5] Operating costs includes net credit losses on financial assets of £11.0 million (FY19: £1.8 million) which are presented separately on the Consolidated Income Statement in the Group Financial Statements

 

Revenue Performance by Product

		Net Trading Revenue (£m)					Change %
		FY20		FY19
OTC Leveraged		617.2		451.4			37%
Exchange Traded Derivatives		18.4		16.8			9%
Stock Trading and Investments		13.6		8.7			57%
Group		649.2		476.9			36%
Revenue Drivers	Active Clients (000s)6					Revenue per Client (£)
	FY20		FY19		Change %		FY20	FY19		Change %
OTC Leveraged	176.6		129.7		36%		3,496	3,481		-
Exchange Traded Derivatives	19.8		17.5		13%		927	958		(3%)
Stock Trading and Investments	54.9		37.9		45%		248	229		8%
Group[6]	239.6		178.5		34%

 

OTC Leveraged Derivatives

In FY20, OTC Leveraged revenue in the year was £617.2 million, an increase of 37% on FY19. The Group served 36% more OTC Leveraged active clients in FY20 whilst revenue per client was consistent with prior year. The increase in OTC Leveraged revenue was primarily driven by market conditions in Q4 where high levels of market volatility were observed throughout the period.

Asset Class	OTC Leveraged Revenue (£m)
	FY20	FY19	Change %
Indices	287.2	213.8	34%
Equities	88.6	85.7	3%
Foreign Exchange	113.3	79.6	42%
Commodities	86.2	41.8	106%
Options	24.4	20.3	20%
Cryptocurrencies	17.5	10.2	72%
OTC Leveraged	617.2	451.4	37%

 

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.

 

[6] 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 £18.4 million of revenue from Exchange Traded Derivatives, traded on the two exchanges that the Group operates: Nadex, the US retail focused exchange, and Spectrum, the European multi-lateral trading facility, which was launched in October 2019.  Active clients in FY20 increased 13% reflecting the acquisition of new clients trading on Spectrum.  This also resulted in a 3% reduction in the  average revenue per client, driven by new Spectrum clients, which were of a lower average value than the Nadex clients.

 

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 (£m)
		FY20	FY19	Change %
ESMA Region - OTC Leveraged	328.5		260.4	26%
Other Core Markets - OTC Leveraged	198.7		149.1	33%
Stock Trading and Investments	13.6		8.7	57%
Total Core Markets	540.8		418.2	29%
Significant Opportunities - OTC Leveraged	90.0		41.9	115%
Significant Opportunities - ETDs	18.4		16.8	9%
Total Significant Opportunities	108.4		58.7	85%
Group	649.2		476.9	36%

 

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 £328.5 million, with a 49% increase in Retail client revenue and a 12% increase in Professional client revenue.  The number of active Retail clients and revenue per Retail client increased throughout the year, and was further boosted by 34,000 new clients onboarded and increased activity of our existing clients.  The number of active Professional clients trading and the revenue per Professional client remained steady in the Q1-Q3 period, with an increase in activity and revenue per client in Q4.

Other Core Markets comprise the Group's businesses in Australia, Singapore, Switzerland, Dubai and South Africa.  Other Core markets revenue increased 33% to £198.7 million, driven by a 30% increase in the number of active clients. 

Stock Trading and Investments revenue was 57% higher than FY19, at £13.6 million, driven by a 45% increase in the number of clients served and an 8% increase in revenue per client.

Revenue from the Group's portfolio of Significant Opportunities was £108.4 million in FY20, £49.7 million higher than in FY19, with a 115% increase in OTC Leveraged revenue and a 9% increase in Exchange Traded Derivatives revenue.  Similar to the Core Markets, these revenues benefitted from the extraordinary trading conditions experienced across the Group in the fourth quarter.

Q4 Performance

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.

Whilst Group revenue was significantly boosted by the exceptional client activity in Q4, we do not expect this level of activity to be sustained as we anticipate market volatility returning to more normalised levels in the course of FY21.  However, the Group anticipates some ongoing benefit from the record number of new active clients acquired in Q4. While preliminary indications are that these clients are of a similar profile to previous new client cohorts, it is too early to conclude how they will trade over time. 

 

Q1-Q3 performance

Prior to Q4, the Group delivered good performance across all businesses and products.  Q1-Q3 FY20 net trading revenue was £389.7 million, 9% higher than Q1-Q3 FY19 which was £359.0 million.  The Q1-Q3 FY20 Core Markets net trading revenue was 3% higher and the Significant Opportunities net trading revenue was 50% higher than Q1-Q3 FY19.

OTC Leveraged products continue to generate the majority of the Group's net trading revenue and represented 95% of the Q1-Q3 FY20 revenue.

	OTC Leveraged Revenue (£m)			Active Clients (000)
	Q1-Q3 FY20	Q1-Q3 FY19	% Change	Q1-Q3 FY20	Q1-Q3 FY19	% Change
ESMA region	197.0	200.3	(2%)	73.1	74.1	(1%)
Other Core Markets	122.1	110.6	10%	34.0	31.6	7%
Core Markets	319.1	310.9	3%	107.1	105.7	1%
Significant Opportunities	52.5	30.5	72%	23.1	11.2	106%
Group OTC Leveraged	371.6	341.4	9%	130.2	116.9	11%

 

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 August 2018 (Q1 FY19).  

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 £122.1 million, 10% higher than Q1-Q3 FY19.  The number of active clients in the period increased by 7% on Q1-Q3 FY19, with a 3% increase in the revenue per client.

Australia and Singapore were the largest contributors to the Group's Other Core Markets representing 72% of the revenue in the Q1-Q3 FY20 period.  Australia's Q1-Q3 FY20 net trading revenue increased by 10% on Q1-Q3 FY19.  In Singapore, where increased margin requirements for FX trading came into effect in October 2019, revenue increased by 8%.  

The OTC Leveraged revenue in Q1-Q3 FY20 from the Significant Opportunities increased by £22.0 million, to £52.5 million, 72% higher than Q1-Q3 FY19, with each of the businesses within the Significant Opportunities portfolio reporting growth in revenue in this period.  The increased revenue is driven by growth in the client base, with the Q1-Q3 FY20 active clients increasing 106% on Q1-Q3 FY19.  The average revenue per client in the Significant Opportunities reduced by 16% due to changes in the mix of the revenue.  For example, clients of IG US, the Group's OTC FX business which went live in January 2019, have a lower revenue per client than the more established business units in the portfolio.

 

 

Operating Expenses (excluding Variable Remuneration) by Cost Type

	£m
	FY20	FY19	Change %
Fixed remuneration	116.4	106.3	9%
Advertising and marketing	61.8	51.7	20%
Bad debts	11.0	1.8	n/m
Premises	7.3	13.1	(45%)
Regulatory fees	6.8	3.6	88%
Other structural costs	79.7	65.8	21%
Depreciation and amortisation	25.6	17.3	48%
Operating expenses	308.6	259.6	19%
Headcount at end of period	1,921	1,788	7%

Operating expenses were £308.6 million, £49.0 million higher than FY19.  The increase reflects the planned investment to support growth in the Significant Opportunities portfolio, and an increase in certain costs directly related to the increased revenue and trading activity in Q4, including a higher bad debt provision, and increased credit card charges.  The FY20 operating expenses also included a £5 million charitable donation.  

Fixed remuneration increased by 9% in FY20 to £116.4 million, driven by planned growth in headcount during the year. Included in fixed remuneration was an increase of £1.6 million for holiday accrual, as the employee holiday balance carried into the next financial year was significantly higher due to the Covid-19 pandemic.

Advertising and marketing spend increased by 20% in FY20 to £61.8 million (FY19: £51.7 million).  The mix of external advertising and marketing spend changed compared with the prior year, with a reduction in centrally managed online spend reflecting improved efficiency, investment in the Group's search engine optimisation capability, and an increase in locally managed and brand related spend, to enable a more localised marketing approach.

The bad and doubtful debt provisions in the year were £11.0 million (FY19: £1.8 million), the majority of which relates to provisions for client debts which arose during the highly volatile markets in Q4.  

Premises costs were £7.3 million (FY19: £13.1 million). The decrease of £5.8 million was due to the majority of building rent now being recognised as depreciation, following the adoption of the IFRS16, Leases accounting standard; this also contributed to the £8.3 million increase in depreciation and amortisation. The remaining increase in depreciation and amortisation reflects the increase in the amortisation of internally developed assets, following high levels of capitalisation in FY19, and higher lease costs due to new premises.

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 Financial Services Compensation Scheme in the UK.  The charge for the Group is dependent on the size of the compensation fund required by the FCA for the scheme. This requirement increased from FY19, which drove the increase of £3.2 million in regulatory fees.

Other structural costs were £79.7 million, an increase of 21% on FY19.  The increase reflects higher credit card charges, linked to an increase in the number of payment transactions in Q4, and the £5 million charitable donation.

 

 

Variable Remuneration

	£m
	FY20	FY19	Change %
Share based compensation	11.3	6.6	72%
Sales bonuses	8.2	5.4	50%
General bonuses	24.8	12.7	95%
Variable remuneration	44.3	24.7	79%

 

Variable remuneration rose 79% to £44.3 million; this was 15% of operating profit, versus 13% in the prior year.  Average monthly headcount in the Group increased to 1,887 at the end of FY20 from 1,780 at the end of FY19.

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 £11.3 million, reflects the higher accounting charge as a result of the outperformance in FY20 against internal targets as well as a higher level of headcount.

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 £24.8 million, an increase over the prior year period reflecting the Group's outperformance against internal targets as well as a higher headcount.

 

Net Finance Costs

The Group recognised net finance costs of £0.1 million during FY20, comprising finance income of £5.8 million (FY19: £5.4 million) and finance costs of £5.9 million (FY19: £4.0 million). The increase in finance costs is attributable to higher fees and interest relating to its debt facilities and the adoption of IFRS 16, Leases from 1 June 2019, which resulted in a £0.6 million interest charge for the financing element of operating leases.

 

Taxation

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 UK. The ETR is lower than the 19% statutory rate of UK corporation tax due to the benefit of the UK 'Patent Box' incentive as a result of UK and European patents held, and the recognition of previously unrecognised tax losses for deferred tax purposes relating to the US and Japan.

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 UK Bank Corporation Tax Surcharge.

The Group's current estimate of the ETR for FY21 is 19%.

 

Dividend

The Board recommends a final dividend of 30.24 pence per share, taking the full-year dividend for FY20 to 43.2 pence per share (FY19: 43.2 pence per share), in line with previous guidance.

The final dividend, if approved by shareholders at the Company's Annual General Meeting (AGM), will be paid on 22 October 2020 to those members on the register at the close of business on 25 September 2020.

 

Distributable Reserves

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's current and historical capital positions are unaffected.

 

 

Own funds flow

£m	FY20	FY19
Operating profit	296.0	192.9
Depreciation and amortisation - other	18.9	17.3
Lease asset depreciation	6.7	-
Lease liability payments	(7.3)	-
Share based compensation	9.7	7.2
Gain on sale of subsidiaries	(0.7)	-
Change in working capital	21.7	(19.3)
Own funds generated from operations	345.0	198.1
as % of operating profit	117%	103%
Taxes paid	(57.1)	(38.4)
Net own funds generated from operations	287.9	159.7

 

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 £345.0 million (FY19: £198.1 million). The cash conversion rate, calculated as own funds generated from operations divided by operating profit, increased to 117% (FY19: 103%). The high level of conversion of profit into cash reflects the non-cash charges in operating profit and the movement in working capital due to the higher level of the bonus accrual at the end of FY20, compared with the prior year.

Cash tax payments of £57.1 million consisted of £13.8 million in respect of the UK corporation tax liability for FY19, £41.2 million of tax in respect of the UK FY20 liability, and the payment of £4.6 million of overseas taxes, partly offset by the receipt of £2.5 million of UK tax overpaid in earlier periods.

Tax payments in FY20 were significantly higher than in FY19 due to increased profits during the year and the acceleration of UK Corporation Tax quarterly instalment payments. The Group was required to make six instalment payments in FY20, versus four payments previously required in a twelve-month period, due to a change in UK tax legislation. This is expected to normalise back to four instalment payments in FY21.

 

 

Movement in own funds

£m	FY20	FY19
Net own funds generated from operations	287.9	159.7
Net financing (costs)/receipts	(0.8)	0.5
Capital expenditure	(16.3)	(14.3)
Proceeds from sale of subsidiaries	0.6	-
Purchase of own shares	(1.5)	(2.0)
Pre-dividend increase in own funds	269.9	143.9
Dividends paid	(159.2)	(171.1)
Increase/(decrease) in own funds	110.7	(27.2)
Own funds at start of the year	720.8	746.1
Impact of movement in exchange rates	1.0	1.9
Own funds at the end of year	832.5	720.8

 

Capital expenditure in the year of £16.3 million primarily related to internally developed software, and the purchase of third-party software and IT equipment.

Dividend payments during the year reflect the final dividend for FY19 of £111.4 million and the interim dividend for FY20 of £47.8 million.

 

 

Summary Group balance sheet

£m	31 May 2020	31 May 2019
Goodwill	108.1	108.1
Intangible assets	39.1	43.4
Property, plant and equipment	17.0	14.4
Operating lease net asset	0.1	-
Fixed assets	164.3	165.9
Liquid asset buffer	83.8	84.4
Amounts at brokers	437.4	419.3
Cash in IG bank accounts	486.2	373.3
Own funds in client money	66.5	51.1
Liquid assets	1,073.9	928.1
Long term bank borrowings	(100.0)	(100.0)
Client deposits IG Bank SA	(58.9)	(31.6)
Title transfer funds	(82.5)	(75.7)
Own funds	832.5	720.8
Working capital	(61.8)	(43.1)
Tax payable	(9.9)	(10.4)
Deferred tax net asset	10.8	8.6
Net assets	935.9	841.8

 

The operating lease net asset of £0.1 million at 31 May 2020 reflected the adoption of IFRS16, Leases, with effect from 1 June 2019. The balance comprised a £29.3 million right of use asset offset by a £29.2 million lease liability.

The Group's liquid assets have increased by £145.8 million to £1,073.9 million during the year. This was driven by an increase in the Group's cash, after taking into account dividends of £159.2 million (FY19: £171.1 million) tax payments of £57.1 million during the year, and an increase in amounts held at brokers.  The increase in amounts at brokers reflected increased margin requirements at 31 May 2020 relative to 31 May 2019. Own funds in client money represents the Group's cash which is in segregated client money pools.

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.

 

 

Available liquidity

£m	31 May 2020	31 May 2019
Liquid assets	1,073.9	928.1
Broker margin requirement	(326.0)	(314.0)
Cash balances in non-UK subsidiaries	(177.4)	(187.5)
Own funds in client money	(66.5)	(51.1)
Available liquidity at end of year	504.0	375.5
of which:
Held as Liquid Asset Buffer	83.8	84.4
Dividend due	111.7	111.3

 

The Group's total liquid assets at the end of year were £1,073.9 million (31 May 2019: £928.1 million). The Group's liquidity is provided by shareholders' funds supplemented by a £100 million bank term loan, client 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 £100 million committed revolving credit facility.

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 31 May 2020, the broker margin requirement was £326.0 million (31 May 2019: £314.0 million). The peak broker margin during FY20 was £380.8 million.

For liquidity management and planning purposes, the Group conservatively treats cash held by subsidiaries outside the UK as not immediately available. The amount of cash held in entities outside the UK was £177.4 million at 31 May 2020 (31 May 2019: £187.5 million). Balances in excess of capital and operating requirements are regularly repatriated to the UK by these entities to ensure efficient management of liquidity.   

 

 

 Regulatory capital resources 

£m	31 May 2020	31 May 2019
Shareholders' funds	935.9	841.8
Less interim profit/ declared dividends	(111.7)	(111.3)
Less goodwill	(108.1)	(108.1)
Less intangible assets	(39.0)	(43.4)
Less deferred tax assets[7]	-	(9.0)
Less value adjustment for prudent valuation	(1.6)	(1.1)
Regulatory Capital resources	675.5	568.9

 

Pillar 1 Risk Exposure Amounts (REA)

£m	31 May 2020	31 May 2019
Total Pillar 1 REA	2,018.6	1,875.9
Capital ratio	33.5%	30.3%
Required capital ratio
Pillar 1 minimum	8.0%	8.0%
Individual Capital Guidance (ICG)	9.4%	9.4%
ICG requirement	17.4%	17.4%
Combined buffer requirement	2.5%	3.1%
Total requirement %	19.9%	20.5%
Total requirement - £m	401.7	385.0
Capital headroom - £m	273.8	183.8

 

The Group's Capital Ratio at 31 May 2020 was 33.5% (31 May 2019: 30.3%), well above the required minimum capital ratio, including the combined buffer requirement, of 19.9% (31 May 2019: 20.5%), demonstrating the Group's solid capital base.

 

[7] 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 Regulatory Capital resources.

 

 

Segregated client funds

At 31 May 2020 the Group held £1,964.1 million (31 May 2019: £1,349.2 million) of client money in segregated bank accounts, and £1,509.8 million (31 May 2019: £1,096.8 million) of client assets in third party custodian accounts. These amounts are classified as segregated client money and assets, and therefore excluded from the Group balance sheet.

 

  

Consolidated Income Statement

for the year ended 31 May 2020

 

		Year ended 31 May 2020	Year ended 31 May 2019
	Note	£m	£m
Trading revenue		657.7	488.0
Introducing partner commissions		(8.5)	(11.1)
Net trading revenue	2	649.2	476.9
Betting duty and financial transaction taxes		(7.4)	(7.9)
Interest income on segregated client funds		6.0	6.9
Interest expense on segregated client funds		(1.0)	(0.6)
Other operating income		1.4	1.9
Net operating income		648.2	477.2
Operating costs		(341.9)	(282.5)
Net credit losses on financial assets		(11.0)	(1.8)
Gain on sale of subsidiaries		0.7	-
Operating profit		296.0	192.9
Finance income		5.8	5.4
Finance costs		(5.9)	(4.0)
Profit before taxation		295.9	194.3
Taxation	3	(55.5)	(36.0)
Profit for the year and attributable to owners of the parent		240.4	158.3
Earnings per share:
Basic	4	65.3p	43.1p
Diluted	4	64.9p	42.8p