24th Jul 2006 07:01
IG Group Holdings plc24 July 2006 24 July 2006 IG GROUP HOLDINGS PLC Preliminary Results for the year ended 31 May 2006 IG Group Holdings plc ("IG" or "the Group") today announces preliminary resultsfor the year ended 31 May 2006. Highlights Turnover up 44% at £89.4 million EBITDA* up 51% at £52.6 million Strong EBITDA margin* of 58.8% Normalised earnings per share up 61% at 10.88p Final dividend of 4.0p per share - total dividend of 5.5p per share Current trading is strong Tim Howkins, Chief Executive Designate "IG has again delivered excellent growth. This is a continuation of a longtrack record and we have achieved a compound annual revenue growth rate inrevenue of 40% over the past eight years. We have spent the last few yearsexpanding our product range, enhancing our technology and developing IG into amulti-national operation, and I believe we are well positioned for furthergrowth" Jonathan Davie, Chairman "2006 has been another highly successful year for the business. The significantincrease in revenue and profits has resulted in further strong cash generationby the group and the board has recommended a maiden final dividend of 4p pershare, making a total distribution for the year of 5.5p per share." Financial Highlights Year ended Year ended Growth 31 May 2006 31 May 2005 Turnover £89.4m £62.2m +44%EBITDA* £52.6m £34.9m +51%Profit before taxation £51.1m £16.6m +208%Profit after taxation £35.7m £12.1m +194%Basic earnings per share 10.92p 5.83p +87%Diluted earnings per share 10.88p 5.41p +101%Normalised earnings per share** 10.88p 6.75p +61%Final dividend per share 4.0p - -Total dividend per share 5.5p - - *.EBITDA represents earnings before exceptional administrative costs,depreciation, amortisation charges, taxation, interest payable on debt andinterest receivable on corporate cash balances and includes interest receivableon clients' money net of interest payable to clients **As set out in note 8 to the interim financial report, normalised earnings pershare represents earnings adjusted for normalising items, divided by the numberof ordinary shares in issue and to be issued, adjusted for normalising items.Normalising adjustments to earnings comprise the impact, net of tax, ofexceptional administrative costs, debt interest, dividends on redeemablepreference shares and tax items relating to financing structure. Normalisingadjustments to the number of shares comprise the impact of restating theweighted average number of A ordinary shares to the equivalent number ofordinary shares in issue in the period and treating the issue of new ordinaryshares at the time of the company's flotation as if it had taken place prior to1 June 2004. The calculation is not intended to comply with IAS33. Chief executive designate's report for the year ended 31 May 2006 IG has a track record of reporting good growth levels. Over the past eightyears revenues have grown at a compound annual rate of approximately 40%. Evenagainst this strong historic performance, growth rates this year were excellentwith revenue up 44%, to £89m, EBITDA up 51% to £53m and normalised earnings pershare up 61% to 10.88p. We have spent the last few years expanding our productrange, enhancing our technology and beginning to develop IG from a UK-centricbusiness into a multi-national operation. I believe that IG is well positionedfor further growth.. Financial Our regulated financial businesses performed strongly with revenue up 49% to£75.1m. Levels of equity market volatility remained subdued for most of theyear, although increasing dramatically in the last two weeks of May. Duringthis period of high market volatility our well-established risk managementsystems performed robustly with no loss making days and the volatility of ourdaily revenue remaining low. Spread betting Our financial spread betting business had its most successful year. Revenue was£54.8m, up 47%, accounting for 61% of group revenues. The rate of clientrecruitment increased significantly in the second half of the year and the runrate of account opening in the last three months of our financial year wasapproximately double the rate of six months earlier. This is the highestsustained level of account recruitment ever achieved. Account opening is a keyleading indicator for the business and therefore I am optimistic about thecontinuing growth prospects of this business. There are a number of factors that may be responsible for this acceleration inclient recruitment. In part, it may simply reflect an increasing recognitionthat IG is the leading financial spread betting brand, with market-leadingdealing software and product range. We continue to improve our client offeringto ensure that we further extend this market lead. The increase may alsoreflect the impact of reducing our spreads on spot currencies in January.Markets which clients trade short-term show the most elasticity of demand afterspread cuts and this was the last such market where our spreads were higher thansome of our competitors. Moving to fully competitive spreads in these currencymarkets resulted in a significant increase in the number of new clients we arerecruiting who are only, or primarily, interested in betting on currencies. CFDs Our London based contracts for difference (CFD) business achieved revenue growthof 60% to £15.0m and now accounts for 17% of group revenues. This business isbecoming increasingly international, with more than 40% of revenues now comingfrom clients outside the UK, largely through a developing network ofintroducers. Continental Europe was the most significant geographic area outside the UK,accounting for almost £3m of revenues. We intend to increase our presence inseveral European countries in the coming months and will commence marketingdirectly to end-clients rather than solely recruiting clients indirectly viaintroducers. We plan to establish an office in Germany which will handleaccount opening and initial enquiries from prospective clients. We willcommence advertising in Germany within the next three months. We envisagecommencing direct marketing in at least one other European country within thenext six months. Ireland is also becoming an increasingly important source of clients. This is acountry which has seen a large increase in personal wealth over recent years. Asubstantial portion of this wealth is now managed by private client stockbrokers who are increasingly seeking to offer their clients the opportunity totrade equity markets with gearing using CFDs. Over the last six months we havewon mandates from many of the major private client stock brokers in Ireland andopened large numbers of accounts. The indications are that there is asignificant amount of business still to win. Looking further afield there are a number of countries where the regulatoryregime enables us to offer foreign exchange trading, but not CFDs on individualequities or equity indices. Perhaps the most obvious of these is the US, wherewe already hold the necessary regulatory authorisation to enable us to offercurrency trading to retail clients. We are looking for the right opportunitiesto allow us to generate substantial revenue in this regulated market. Itremains our policy not to accept bets from US resident clients. Australia Our Australian office again delivered excellent growth, with revenue up 136% to£8.9m, accounting for 10% of group revenues. There are encouraging signs thatwe are gaining market share against the backdrop of a rapidly expanding overallmarket. We have recently recruited a local marketing manager in Australia and she willbe running our marketing efforts in both Australia and Singapore. Thisappointment will improve our ability to react quickly to changes in local marketconditions. We are increasing our marketing expenditure in Australia and, asthe market increases in sophistication, our view is that brand awareness isbecoming increasingly more important. During the current financial year our Melbourne office will be relocating tolarger premises in order to provide room for future expansion. We also plan toopen a small sales office in Sydney. We continue to believe in the strength of our Australian business and in itspotential to continue to deliver further significant growth. Singapore Our Singapore office opened in April and has made an encouraging start, withabout 300 accounts opened so far. The early signs are that client interest is primarily in currency markets ratherthan in CFDs on local shares. We are running seminars to increase awareness ofthe benefits of equity CFDs. In addition to serving the Singapore market itself the office is proving auseful base from which to approach introducers in surrounding countries wherethe regulatory framework permits. Financial binaries The financial binary is viewed by most of our clients as an adjunct to the restof our product range, rather than a stand-alone product. It provides a usefuldifferentiator between our service and that of our competitors and since it ismost attractive to clients in low volatility conditions enhances thediversification of our revenue. Volatility rose sharply towards the end of thefinancial year and this naturally resulted in some shift of client activity awayfrom binaries and into our traditional scalar markets such as Daily FTSE andDaily Wall Street. As a consequence of these factors revenue growth frombinaries was muted at only 5%. Sports Our sport spread betting business achieved growth of 25% with revenues of £7.6m,8.5% of group revenues. This is a commendable achievement in a year which,aside from England winning the Ashes, featured no major sporting events otherthan the normal annual calendar. Our software was originally designed tocalculate and distribute prices for financial markets. Applying this technologyto sport gives us the ability to price more markets with more frequent updatesthan any of our competitors. Our smaller sport fixed odds business doubled its revenues, up to £1.5m,accounting for 2% of group revenues. This business encompasses sports binaries,extrabet and market making into exchanges. Extrabet and market making intoexchanges were both new ventures this year and were intended to capitalise onour existing ability to make prices in order to provide incremental revenuesfrom the existing infrastructure of the sports department. Market making intobetting exchanges has been a success and while the revenue generated in the yearwas small, at only £0.3m, I feel that the prospects for this business areencouraging. We were market making in only one exchange for much of the year,and began market making into a second only a few days before the year end.Subsequent to the year end we have seen a significant increase in the volume ofbusiness we are transacting on exchanges as the second exchange has come onstream. I believe there is considerable further scope to grow this business,both on the existing exchanges and on others. Our new sports fixed odds web-site, extrabet.com has received some veryfavourable coverage in the sporting press and client recruitment has been good:to date we have recruited almost 9,000 clients of whom about two thirds haveplaced a bet. Transaction sizes are significantly smaller than in our otherbusinesses and the clients are significantly less "sticky", so that towards theend of the World Cup, while we had recruited about 8,000 clients only about 10%of these clients were logging-on on a daily basis. Our planned initialmarketing has come to an end, and we will see how client recruitment andbehaviour develops over the next few months as we enter the domestic footballseason. Investing for the future As a result of our success in generating new clients, transaction volumes andhence load on our systems have increased significantly. We have completed acapacity planning exercise and are in the process of building new data centresappropriate to the scale of business we hope to become over the next few years.We have also taken an additional floor in our London office building, which addsapproximately 50% to our existing office space and is currently being fittedout. Taken together these projects represent significant but necessary capitalexpenditure to enable IG to continue to deliver the group's growth momentum. Current trading and outlook The strong trading that we have seen in recent months continued after the yearend. June was another very good month for our financial business, with revenuesignificantly higher than in June 2005. The World Cup is the most importantevent in the four-year sporting calendar and helped our sports departmentproduce its best ever month in June. Perhaps more importantly the World Cupproved a good client recruitment opportunity, with our sport spread bettingbusiness recruiting more clients than it did during either Euro 2004 or the 2002World Cup. I feel fortunate, as incoming chief executive, that I inherit a business whichis performing strongly. We have well-established businesses in London andMelbourne which are delivering strong growth and I have no reason to believethat this growth will not continue, providing that we continue to develop andenhance our infrastructure and product offering. There are a great manyopportunities to extend the reach of our business and the challenge for thecoming year is to prioritise and allocate our resources so as to maximise thereturn on the investment of marketing, IT development and management time. Myimmediate priorities are to sustain high levels of growth from our existingbusinesses and to develop significant client bases within Europe, starting withIreland and Germany. I approach the chief executive role with great confidence in the future of IG. Tim Howkins Finance director and chief executive designate 24 July 2006 For further information please contact:IG Group 020 7896 0011Tim Howkins Financial Dynamics 020 7269 7200Robert Bailhache [email protected] Henderson [email protected] www.iggroup.com Analyst Presentation There will be an analyst presentation on the results at 09:30am on Monday 24July 2006 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, LondonWC2A 1PB. Those analysts wishing to attend are asked to contact FinancialDynamics. The presentation will also be accessible via a conference call forthose unable to attend in person. The international dial-in is +44 (0) 1452 560304 A web cast of the presentation will be available at www.iggroup.com. Group operating and financial review for the year ended 31 May 2006 Introduction The Accounting Standards Board issued Reporting Statement: Operating andFinancial Review in January 2006. This statement does not have mandatory forceand is not an accounting or reporting standard. The directors have consideredthe recommendations of this reporting statement in producing this operating andfinancial review (OFR). A discussion of the group's performance and futureprospects has been included in the chief executive designate's report. Nature, objectives and strategies The group's businesses The group has operated in three principal areas of activity throughout the year;financial, financial binaries and sports. Financial Spread bets on equities, equity indices, precious and base metals, softcommodities, exchange rates, interest rates and other financial markets; spreadbets on options on certain of these products; exchange traded futures andoptions. Spot and forward contracts for foreign exchange and contracts fordifferences (CFDs) on shares, indices and other financial markets. Financial binaries Fixed odds betting on equities, equity indices, precious and base metals, softcommodities, exchange rates, interest rates and other financial markets. Sports Spread bets and fixed odds bets on sporting and other events. Business objective The group's objective is to maximise shareholder value by pursuing the followingstrategies Maintaining a leading position in the group's core UK financial spread bettingmarket Continuing to broaden the client base Expanding the group's international reach Continuing to deliver product and technological innovation Business strategies Maintaining a leading position in the group's core UK financial spread bettingmarket The group is widely recognised as the market leader in the financial spreadbetting market, which is predominantly a UK business. The group's strategy isto continue to strengthen this market lead by offering the broadest range ofproducts and by offering quality and speed of execution. The group'sadvertising in this market is focused on maintaining and enhancing awareness ofthe IG brand. Continuing to broaden the client base The group's strategy is to continue to broaden the client base from what hashistorically been a relatively narrow but sophisticated group of predominantlyretail clients. This will include attracting a greater proportion ofleisure-oriented clients for the group's fixed odds offerings and more marketprofessionals and institutional clients for its CFD business. Furtherdeveloping the business of market making on betting and financial exchanges, aswell as white-labelling opportunities (where the group's products are brandedand distributed in the name of third parties), will extend the reach of thegroup's products. Expanding the group's international reach The group continues to expand its non-UK client base. It now has offices inAustralia and Singapore and will continue to explore the feasibility of otheroffices where local regulation and market conditions are suitable. In additionthe group continues to extend the range of third parties who introduce clientsto the group and this is an effective way of establishing a presence for thegroup's regulated financial business in territories which do not merit theestablishment of a local office. The group now has multi-lingual websites for its CFD, financial binary andsports fixed odds businesses and will continue to offer an increasing range oflanguages in order to further widen its global reach. Continuing to deliver product and technological innovation The group recognises the benefits it has experienced as a result of theintroduction of innovative products such as binary bets and extrabet and theintroduction of market leading dealing platforms. This culture of innovation isone which the group intends to maintain in order to continue to be at theforefront of the market in terms of product offering and technology platforms. Five year summary A discussion of the group's performance is included within the chief executivedesignate's report. Year ended 31 May* 2006 2005 2004** 2003** 2002** IFRS IFRS UK GAAP UK GAAP UK GAAP £000 £000 £000 £000 £000 Revenue 89,391 62,177 49,839 40,996 33,573EBITDA*** 52,629 34,949 25,128 17,188 14,628EBITDA margin*** 58.9% 56.2% 50.4% 41.9% 43.6%Profit before tax 51,140 16,621 7,920 15,281 13,375 Basic earnings per share**** 10.92p 5.83p 1.55p - -Diluted earnings per share**** 10.88p 5.41p 1.43p - -Normalised earnings per share*** 10.88p 6.75p 4.94p 3.30p 2.86p Interim dividend paid per share 1.5p - - - -Final dividend proposed per share 4.0p - - - -Total dividend per share 5.5p - - - - *Figures reported for 2005 have been restated to reflect changes in accountingpolicies brought about as a result of the group's adoption of internationalfinancial reporting standards (IFRS). Figures prior to 1 June 2004 are preparedunder UK GAAP rather than IFRS. *\* The financial statements of IG Group Holdings plc include the results of thegroup from 5 September 2003 (the date of acquisition of the group). The fiveyear summary presents revenue, EBITDA, profit before tax and normalised earningsper share as if IG Group Limited (formerly IG Group plc) was a member of thegroup throughout. ***EBITDA, EBITDA margin, and normalised earnings per share are defined andexplained in the key performance indicators commentary. ****Basic and diluted earnings per share are presented for the period from 5September 2003 to 31 May 2004 and for the full years ended 31 May 2005 and 2006.Comparatives are not available for the preceding years as IG Group Holdingsplc was not in existence. Group revenue Group revenue by business segment 2006 2005 Increase Increase £000 £000 £000 % Financial 75,129 50,391 24,738 49.1%Financial binaries 5,196 4,950 246 5.0%Sports 9,066 6,836 2,230 32.6% ----------- ----------- ----------- 89,391 62,177 27,214 43.8% =========== =========== =========== Group revenue by geographical segment 2006 2005 Increase Increase £000 £000 £000 % United Kingdom 80,466 58,401 22,065 37.8%Australia and Singapore 8,925 3,776 5,149 136.4% ----------- ----------- ----------- 89,391 62,177 27,214 43.8% =========== =========== =========== Group profit % of % of 2006 segment 2005 segment £000 revenue £000 revenueFinancial 63,644 84.7% 39,623 78.6%Financial binaries 3,593 69.1% 3,474 70.2%Sports 2,517 27.8% 921 13.5% ----------- -----------Profit before unallocated items 69,754 44,018Unallocated administrative expenses (20,650) (14,047)Unallocated finance revenue 2,105 1,186Unallocated finance costs (69) (14,536) ----------- -----------Profit before taxation 51,140 16,621 =========== =========== Key performance indicators The chief executive designate's report provides an overall assessment of thegroup's progress during the year and prospects for the future. The directors have assessed that the following key performance indicators,together with revenue, EBITDA, EBITDA margin, and normalised earnings per share,are the most effective measures of progress towards achieving the group'sstrategies and as such towards fulfilling the company's objectives. Year ended 31 May 2006 2005 2004 2003 2002 Number of clients dealing 32,924 26,102 21,263 16,700 15,678Average revenue per client (£) 2,715 2,387 2,344 2,455 2,141Number of accounts opened 21,891 18,747 15,992 7,736 6,644Number of accounts dealing for the first time 14,705 11,297 9,376 5,240 5,005Volatility of daily revenueCoefficient of variability at 31 May 0.56 0.54 0.75 0.88 1.46Highest in year 0.56 0.75 0.89 1.75 1.59Lowest in year 0.38 0.42 0.58 0.56 0.65 EBITDA and EBITDA margin EBITDA represents earnings before exceptional administrative costs,depreciation, amortisation charges, taxation, interest payable on debt andinterest receivable on corporate cash balances and includes interest receivableon clients' money net of interest payable to clients. The group's capitalstructure changed significantly in September 2003 when the company raisedsignificant debt and preference shares in order to finance the purchase of IGGroup plc by IG Group Holdings plc. This acquisition gave rise to significantgoodwill. The group's capital structure changed again in May 2005 when thisdebt and preference shares were repaid at the time of the company's initialpublic offering (IPO). As a result of these changes in capital structure,profit measures such as profit before or after tax do not fully reflect theunderlying financial performance of the business over time. The group thereforeutilises EBITDA as a primary profit measure. The group seeks to achieve rapidgrowth in EBITDA, and bonuses for most staff other than directors of the companyare linked to EBITDA. EBITDA margin represents EBITDA as a percentage of revenue. 2006 2005 £000 £000 Operating profit 44,070 26,288Interest on client money 5,036 3,682Depreciation 2,205 2,236Amortisation 1,318 1,854Exceptional administrative costs - 889 --------- ---------EBITDA 52,629 34,949 ========= =========EBITDA margin 58.9% 56.2% ========= ========= EBITDA for the year reached £52.6m which represents an increase of 51% from theprevious year. EBITDA margin improved from 56.2% in the previous year to 58.9%in the year under review. This reflects the group's ability to continue tobenefit from operational gearing. Normalised earnings per share The directors consider that the basic and diluted earnings per sharecalculations for prior years do not fully reflect changes in the group's capitalstructure referred to above. Normalised earnings per share represents earnings adjusted for normalisingitems, divided by the number of ordinary shares in issue and to be issued,adjusted for normalising items. Normalising adjustments to earnings comprisethe impact, net of tax, of exceptional administrative costs, interest andcharges on debt finance, redeemable preference share interest payable and taxitems relating to the financing structure. Normalising adjustments to thenumber of shares comprise the impact of restating the weighted average number ofA ordinary shares to the equivalent weighted average ordinary shares in issue inthe period and treating the issue of new ordinary shares at the time of thecompany's flotation as if it had taken place prior to 1 June 2004. For the yearended 31 May 2005 the number of shares in issue, excluding treasury shares, at31 May 2005 was used as the basis of the normalised earnings per sharecalculation. The calculation is not intended to comply with IAS33. The group seeks to maximise the growth in normalised earnings per share overtime in order to maximise shareholder value. The group's long term incentiveplan (LTIP) and directors' bonuses are both linked to growth in normalisedearnings per share. Normalised earnings per share was 10.88p compared with 6.75p in the previousyear, an increase of 61.2%. Number of clients dealing Revenue is determined to a significant extent by the number of clients dealing. The number of clients dealing reached almost 33,000 during the year whichrepresents a 26% increase over the previous year. The most marked increase thisyear was in the financial spread betting business although all business linesimproved from the previous year. Average revenue per client Average revenue per client represents the total revenue divided by the number ofclients dealing. This varies significantly for different business segments andthe overall average revenue reflects changes in the business mix in the period. Average revenue per client improved 13.7% over the previous year. This wasprimarily as a result of an increased proportion of the group's businessderiving from the financial segment where average revenues per client are higherthan other segments. There were no significant changes in average revenues perclient within each business segment. Number of accounts opened and dealing for the first time Over the long term the growth of IG's client base is a key driver of revenuegrowth. The number of accounts opened and the number of accounts dealing forthe first time therefore provide a leading indicator of future prospects. The number of accounts opened in the year improved by 16.8% during the year andthe number of accounts dealing for the first time improved by 30%. Thisindicates that a much greater proportion of accounts which were opened in theyear resulted in a bet or a trade on the account. Volatility of daily revenue The coefficient of variability of daily revenue is a statistical measure of thevolatility of the group's revenue from day to day. The group calculates this asthe 60 day standard deviation of daily revenues divided by the 60 day mean.Over recent years the coefficient of variability has fallen significantly as thegroup has sought to reduce the volatility of its revenues and hence improve thequality of earnings. The directors consider that the levels of coefficient ofvariability seen throughout the year ended 31 May 2006 represent an acceptablebalance between the cost of hedging and volatility of income. The coefficient of variability at 31 May 2006 increased slightly over theprevious year because of the volatility in equity markets just prior to the yearend. The variability of revenue for the year however continued to diminish withboth the highest and lowest levels in the year reducing from the previous year. Employees The group's continued growth is highly dependent upon attracting and retaininghigh calibre employees. The group pays performance related bonuses to all staff and has introduced aLong Term Incentive Plan (LTIP) awarded to key personnel and a Share IncentivePlan (SIP) awarded to all staff which reward employees for past performance andhelp to retain them in the future. The group provides a range of benefits toall of its employees, including pension contributions, private health cover andcontributions towards health club membership. The average number of employees in the group increased in the year from 267 to312. Of these, the vast majority are based in the UK, with 20 staff based inAustralia and 4 based in the Singapore office which was established during theyear. The group aims to provide a challenging and rewarding working environment andstaff turnover has been low. A significant proportion of the employment cost consists of performance relatedbonuses and commissions which vary according to revenue, profitability orearnings per share growth. These increased by 65.5% compared with the previousyear. Performance related bonuses are awarded on a discretionary basis whilecommissions are calculated according to an agreed formula. Inclusive ofnational insurance and pension costs, employment costs comprise: 2006 2005 £000 £000Fixed employment costs 15,326 12,770Performance related bonuses and commissions 8,695 5,255Share based payment schemes 1,696 - --------- --------- 25,717 18,025 ========= ========= Financial position Property plant and equipment The group continues to invest heavily in technology in order to enhance thecapacity and resilience of its systems which are critical to the success of thebusiness. Additions during the year amounted to £2.7m compared with £1.8m inthe previous year. Depreciation charged in the year amounted to £2.2m (2005:£2.2m). Intangible fixed assets The goodwill arising on the acquisition of the group amounting to £106.2m wascapitalised and under the provisions of IFRS is subject to an annual impairmentreview. There were no impairment write offs in the year. Development expenditure and software and licenses purchased during the yearamounted to £0.5m (2005: £0.8m). Amortisation charged in the year amounted£1.3m (2004: £1.9m). Working capital 2006 2005 £000 £000Amounts due from brokers 121,857 40,262 =========== =========== Amounts due from clients 5,254 3,735Amounts due to clients (285,635) (127,358) ----------- -----------Net amounts due to clients (280,381) (123,623) =========== =========== Cash and cash equivalents 247,277 120,550Loan notes (92) (167)Redeemable preference shares (40) (40) ----------- -----------Net funds 247,145 120,343 =========== =========== One of the main elements of working capital is amounts due from the brokers andother counterparties with whom the group hedges its financial business. Thegroup places cash or treasury bills with these brokers in order to provideinitial and variation margin to support its positions. This has increasedsignificantly in the year under review as the magnitude of client positions hasincreased. Amounts due to and from clients include unrealised profits and losses onclients' open positions, the result of closed positions as well as the cashbalance on clients' accounts. The amounts due to and from clients thereforefluctuate according to the movement in markets. The group only offers credit to a minority of clients. The charge for bad anddoubtful debts was approximately 1.6% of revenue. The company continues topursue outstanding debts vigorously. Cash flow Cash and cash equivalents increased by £126.7m over the previous year because ofthe significant and profitable expansion of the business during the year. Operating activities generated £128.8m of cash and interest received amounted to£10.6m. Expenditure on property, plant and equipment amounted to £2.7m while£0.5m was spent on additions to intangible assets. Payment in respect of theacquisition of the minority interest in IG Australia Pty Limited amounted to£0.9m, interest paid amounted to £3.6m, an interim dividend of £4.9m was paidduring the year and loan notes amounting to £0.1m were redeemed. The group holds client money on account in segregated bank accounts which at theyear end amounted to £199.2m compared with £107.4m in the previous year. Capital structure 2006 2005 £000 £000Equity share capital 16 16Share premium 125,235 125,197Retained earnings 45,157 12,706 ----------- -----------Shareholders' equity 170,408 137,919Minority interests 40 40 ----------- -----------Total equity 170,448 137,959 =========== =========== Redeemable preference shares 40 40Loan notes 92 167 ----------- -----------Total liabilities 132 207 =========== =========== There were no issues of share capital during the year and the group remains debtfree other than loan notes which are expected to be redeemed on 31 July 2006. Dividend policy The directors have adopted a progressive dividend policy which reflects the longterm earnings and cash flow potential of the group, whilst targeting dividendcover of approximately two times earnings after tax. It is envisaged thatinterim dividends will be paid in February and final dividends paid in October.If the group accumulates surplus capital, the directors will give dueconsideration to returning it to shareholders. During the year the company paid interim dividends amounting to £4.9m. Thefinal dividend for 2006 proposed for approval by shareholders at the AGM is4.00p per share which amounts to £13.1m taking the total dividends for the yearto £18.0m. This represents a dividend cover of 1.98. Regulatory capital Two of the group's UK operating subsidiaries are regulated by the FSA. The FSAimposes a minimum level of regulatory capital which must be retained by eachcompany and also an overall level of regulatory capital which must be maintainedby the group. At 31 May 2006 the group had an overall consolidated regulatorycapital surplus of approximately £30.4m. On behalf of the board Tim Howkins Finance director and chief executive designate 24 July 2006 Group income statement for the year ended 31 May 2006 Year ended Year ended 31 May 31 May 2006 2005 Notes £000 £000 Revenue 89,391 62,177 Cost of sales (1,584) (2,528) --------------- ---------------Gross profit 87,807 59,649 Administrative expenses (43,737) (33,361) --------------- ---------------Operating profit 3 44,070 26,288 Finance revenue 10,681 6,013Finance costs (3,611) (15,680) --------------- ---------------Profit before taxation 51,140 16,621 Tax expense (15,472) (4,495) --------------- ---------------Profit for the year 35,668 12,126 =============== =============== Profit for the year attributable to:Equity holders of the parent 35,668 12,181Minority interest - (55) --------------- --------------- 35,668 12,126 =============== =============== Earnings per share (pence)- Basic 4 10.92p 5.83p- Diluted 4 10.88p 5.41p- Normalised 4 10.88p 6.75p All of the group's revenue and profit for the year relate to continuingoperations. Group statement of recognised income and expense for the year ended 31 May 2006 2006 2005 £000 £000 Profit for the year 35,668 12,126 -------------- --------------- -Total recognised income and expense for the year 35,668 12,126 ============== =============== Attributable to: Equity holders of the parent 35,668 12,181 Minority interest - (55) -------------- --------------- 35,668 12,126 ============== =============== Group balance sheet at 31 May 2006 2006 2005 £000 £000 Non-current assetsProperty, plant and equipment 4,091 3,614Intangible assets 107,127 107,538Deferred tax assets 2,511 1,435 -------------- --------------- 113,729 112,587 -------------- --------------- Current assetsTrade receivables 127,111 43,997Prepayments and other receivables 2,720 2,123Cash and cash equivalents 247,277 120,550 -------------- --------------- 377,108 166,670 -------------- --------------- Total assets 490,837 279,257 -------------- --------------- Current liabilitiesTrade payables 285,635 127,358Other payables 14,607 9,658Income tax payable 20,015 3,575Loan notes 92 167 -------------- --------------- 320,349 140,758 -------------- --------------- Non-current liabilitiesOther payables - 500Redeemable preference shares 40 40 -------------- --------------- 40 540 -------------- --------------- Total liabilities 320,389 141,298 -------------- --------------- NET ASSETS 170,448 137,959 ============== =============== Capital and reservesEquity share capital 16 16Share premium 125,235 125,197Retained earnings 45,157 12,706 -------------- --------------- Shareholders' equity 170,408 137,919Minority interests 40 40 -------------- --------------- TOTAL EQUITY 170,448 137,959 ============== =============== Group cash flow statement for the year ended 31 May 2006 2006 2005 £000 £000Operating activitiesGroup operating profit 44,070 26,288Adjustments to reconcile group operating profit to net cash flow from operating activitiesDepreciation of property, plant and equipment 2,205 2,236Amortisation of intangible assets 1,318 1,854Share-based payments 1,696 -Loss on disposal of property, plant and equipment 2 2Increase in trade and other receivables (83,627) (11,190)Increase in trade and other payables 163,264 39,601 -------------- --------------- Cash generated from operations 128,928 58,791Income taxes paid (108) (2,480) -------------- --------------- Net cash flow from operating activities 128,820 56,311 -------------- --------------- Investing activitiesInterest received 10,597 6,013Purchase of property, plant and equipment (2,682) (1,841)Payments to acquire intangible assets (475) (839)Purchase of subsidiary undertakings - (21)Purchase of residual interest in subsidiary undertaking (934) - -------------- --------------- Net cash flow from investing activities 6,506 3,312 -------------- --------------- Financing activitiesInterest paid (3,611) (11,934)Interim dividends paid to equity shareholders of the parent (4,913) -Proceeds from share issue - 131,731Issue costs of new shares - (5,779)Repayment of financial liabilities (75) (102,097)Redemption of redeemable preference shares - (35,660)Payment of redeemable preference share dividends - (4,749) -------------- --------------- Net cash flow from financing activities (8,599) (28,488) -------------- --------------- Net increase in cash and cash equivalents 126,727 31,135 Cash and cash equivalents at the beginning of the year 120,550 89,415 -------------- --------------- Net cash and cash equivalents at the end of year 247,277 120,550 ============== =============== Notes 1. Basis of consolidation The group financial statements incorporate the financial statements of IG GroupHoldings plc and entities controlled by the company (its subsidiaries) made upto the reporting date. Control is achieved where the company has the power togovern the financial and operating policies of an investee enterprise so as toobtain benefits from its activities. On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired(discount on acquisition) is credited to the profit and loss in the period ofacquisition. The interest of minority shareholders is stated at the minority's proportion ofthe fair values of the identifiable assets, liabilities and contingentliabilities recognised. Losses applicable to the minority in a consolidatedsubsidiary's equity may exceed the minority interest in the subsidiary's equity. The excess, and any further losses applicable to the minority, are allocatedagainst the majority interest except to the extent that the minority has abinding obligation and is able to make an additional investment to cover thelosses. If the subsidiary subsequently reports profits, such profits areallocated to the majority interests until the minority's share of lossespreviously absorbed by the majority has been recovered. Minority interests represent the portion of profit or loss and net assets insubsidiaries that is not held by the group and is presented within equity in theconsolidated balance sheet, separately from parent shareholders' equity. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used byother members of the group. All inter-company transactions and balances betweengroup entities are eliminated on consolidation. 2. Segment information The operating businesses are organised and managed separately according to thenature of the products provided, with each segment representing a strategicbusiness unit that offers different products and serves different markets. Primary reporting format - business segments The primary segment reporting format is by business segment as described in theoperating and financial review as the group's risks and rates of return areaffected predominantly by differences in the products provided. Year ended 31 May 2006 Financial Financial Binaries Sports Total £000 £000 £000 £000 Revenue 75,129 5,196 9,066 89,391Results =========== =========== =========== =========== Segment result 63,644 3,593 2,517 69,754 =========== =========== ===========Unallocated administrative expenses (20,650)Unallocated finance revenue 2,105Unallocated finance costs (69) -----------Profit before taxation 51,140Income tax expense (15,472) -----------Net profit for year 35,668 =========== Assets and liabilities Segment assets 431,950 1,259 6,229 439,438 =========== =========== ===========Unallocated assets 51,399 -----------Total assets 490,837 =========== Segment liabilities 311,161 2,257 1,788 315,206 =========== =========== ===========Unallocated liabilities 5,183 -----------Total liabilities 320,389 ===========Other segment informationCapital expenditure Property, plant and equipment 1,080 38 589 1,707 Goodwill 434 - - 434 Other intangible assets 318 9 148 475Depreciation 877 24 507 1,408Amortisation 1,028 4 286 1,318 =========== =========== =========== =========== Year ended 31 May 2005 Financial Financial Binaries Sports Total £000 £000 £000 £000 Revenue 50,391 4,950 6,836 62,177 =========== =========== =========== ===========ResultsSegment result 39,623 3,474 921 44,018 =========== =========== ===========Unallocated administrative expenses (14,047)Unallocated finance revenue 1,186Unallocated finance costs (14,536) -----------Profit before taxation 16,621Income tax expense (4,495) -----------Net profit for year 12,126 =========== Assets and liabilities Segment assets 247,927 702 7,115 255,744 =========== =========== ===========Unallocated assets 23,513 -----------Total assets 279,257 =========== Segment liabilities 135,325 1,347 926 137,598 =========== =========== ===========Unallocated liabilities 3,700 -----------Total liabilities 141,298 ===========Other segment informationCapital expenditure Property, plant and equipment 730 20 412 1,162 Goodwill 784 - - 784 Other intangible assets 734 6 99 839Depreciation 908 23 504 1,435Amortisation 1,575 3 276 1,854 =========== =========== =========== =========== Unallocated assets and liabilities comprise those tangible fixed assets,deferred tax assets, prepayments and other debtors, cash and cash equivalents,accruals, tax liabilities and financial liabilities which are not specificallyattributable to business segments. Secondary reporting format - geographical segments The group has offices in the United Kingdom, Australia and Singapore. Clientsof the Australian office deal with two of the UK operating subsidiaries, butunder customer agreements which are specific to the Australian office. Clientsof the Singapore office are serviced by staff in Australia and Singapore. Theresults of the Singapore office are not material and are reported within theresults of the Australian office. Clients of the London office may be situatedanywhere else in the world. Accordingly, the group provides a geographicalanalysis based on the division of clients serviced from the United Kingdom andfrom Australia and Singapore. Year ended 31 May 2006 Australia and UK Singapore Total £000 £000 £000 Revenue 80,466 8,925 89,391 =========== =========== =========== Segment assets 484,921 5,916 490,837 =========== =========== =========== Other segment informationCapital expenditure Property, plant and equipment 2,630 52 2,682 Intangible assets 475 434 909 =========== =========== ===========Year ended 31 May 2005 Australia and UK Singapore Total £000 £000 £000 Revenue 58,401 3,776 62,177 =========== =========== =========== Segment assets 277,650 1,607 279,257 =========== =========== ===========Other segment informationCapital expenditure Property, plant and equipment 1,815 26 1,841 Intangible assets 839 784 1,623 =========== =========== =========== 3. Group operating profit Year ended Year ended 31 May 31 May 2006 2005 £000 £000This is stated after charging/(crediting):Depreciation of property, plant and equipment 2,205 2,236Amortisation of intangible assets 1,318 1,854Operating lease rentals for land and buildings 785 763Foreign exchange differences (392) 607(Profit)/loss on sale of property, plant and equipment 2 2Exceptional administrative costs - 889 =========== =========== Exceptional administrative costs in the year ended 31 May 2005 related toprofessional fees payable in connection with listing the company's shares on theLondon Stock Exchange. 4. Earnings per ordinary share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earningsper share amounts are calculated by dividing the net profit attributable toordinary equity holders of the parent by the weighted average number of ordinaryshares outstanding during the year plus the weighted average number of ordinaryshares that would be issued on the conversion of all the dilutive potentialordinary shares into ordinary shares. The following reflects the income and share data used in the basic and dilutedearnings per share computations: Year ended Year ended 31 May 31 May 2006 2005 £000 £000 Basic earnings attributable to ordinary shareholders 35,668 12,181 Effects of dilution - - ------------ -------------- Diluted earnings attributable to ordinary shareholders 35,668 12,181 ============ ============== Basic weighted average number of equity shares 326,506,126 208,786,062 Effect of warrants - 16,365,331 Employee share plans 1,373,861 - ------------ -------------- Diluted weighted average number of ordinary shares 327,879,987 225,151,393 ============ ============== Basic earnings per share 10.92p 5.83p ============ ============== Diluted earnings per share 10.88p 5.41p ============ ============== On 31 March 2005 there were 1,000,000 A ordinary shares in issue. Each of theseshares was re-designated and subdivided into 200 ordinary shares. The weightedaverage numbers of shares have been shown as if the re-designation andsubdivision had taken place prior to 1 June 2004. The weighted average numberof shares excludes treasury shares held in employee benefit trusts. There wereno movements in treasury shares during the year. The directors consider that the basic and diluted earnings per sharecalculations for the year ended 31 May 2005 do not fully reflect changes in thegroup's capital structure as a result of the flotation of the company on 4 May2005. Normalised earnings per share represents earnings adjusted fornormalising items, divided by the number of ordinary shares in issue and to beissued, adjusted for normalising items. Normalising adjustments to earningscomprise the impact, net of tax, of exceptional administrative costs, interestand charges on debt finance, redeemable preference share interest payable andtax items relating to the financing structure. Normalising adjustments to thenumber of shares comprise the impact of restating the weighted average number ofA ordinary shares to the equivalent weighted average ordinary shares in issue inthe period and treating the issue of new ordinary shares at the time of thecompany's flotation as if it had taken place prior to 1 June 2004. For the yearended 31 May 2005 the number of shares in issue, excluding treasury shares, at31 May 2005 was used as the basis of the normalised earnings per sharecalculation. The calculation is not intended to comply with IAS33. Year ended 31 May Year ended 31 May 2006 2005 Earnings Earnings Earnings per share Earnings per share £000 pence £000 pence Diluted earnings and earnings per share 35,668 10.88 12,181 5.41 Normalising adjustment to number of shares - - - (1.67)Normalising adjustments to earnings: Exceptional administrative costs - - 889 0.27 Interest and charges on debt finance - - 11,851 3.62 Tax effect of above items - - (3,555) (1.09) Tax items relating to the financing structure - - (2,004) (0.61) Redeemable preference share interest payable - - 2,685 0.82 ---------- ---------- ---------- ---------- Total normalising adjustments - - 9,866 1.34 ---------- ---------- ---------- ---------- Normalised earnings attributable to equity shareholders 35,668 10.88 22,047 6.75 ========== ========== ========== ========== Year ended Year ended 31 May 31 May 2006 2005 Diluted weighted average number of equity shares 327,879,987 225,151,393Normalising adjustment to number of shares - 101,354,733 ------------- ------------- Weighted average number of equity shares used as basis of normalised earnings per share calculation 327,879,987 326,506,126 ============= ============= 5. Dividends Year ended Year ended 31 May 31 May 2006 2005 £000 £000Declared and paid during the year:Interim dividend for 2006 at 1.5p per share (2005: nil) 4,913 - ============= ============= Proposed for approval by shareholders at the AGM:Final dividend for 2006 at 4.00p per share (2005: nil) 13,100 - ============= ============= 6. Basis of preparation The above financial information for the year ended 31 May 2006 does notconstitute statutory accounts. It is an extract from the 2006 unaudited groupaccounts, which have not yet been delivered to the UK Registrar of Companies; itis expected that the report of the auditors on those accounts will beunqualified. Copies of full accounts will be posted to all shareholders in September 2006.Further copies will be available, from the date of posting, from the company'sheadquarters at Friars House, 157-168 Blackfriars Road, London, SE1 8EZ, bytelephone on 020 7896 0011 or via the company's website at www.iggroup.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
IG