23rd Jul 2007 07:01
IG Group Holdings plc23 July 2007 23 July 2007 IG GROUP HOLDINGS PLC Preliminary Results for the year ended 31 May 2007 IG Group Holdings plc ("IG" or "the Group") today announces preliminary resultsfor the year ended 31 May 2007. Highlights • Revenue up 36% at £122.0 million• EBITDA1 up 34% at £70.4 million• Strong EBITDA margin of 57.7%• Earnings per share up 33% at 14.52p• Final dividend of 6.5p per share - total dividend of 8.5p per share• EBITDA margin improvement from 54.5% in H1 to 60.3% in H2• Successful launch of TradeSense in UK and recent launch in Australia• Launch of PureDeal dealing platform Tim Howkins, Chief Executive "2007 has been another very successful year for IG and we have now achievedcompound annual revenue growth of 40% over the past nine years. The launch ofthe PureDeal platform is intended to reinforce our market lead in UK spreadbetting and we have significantly increased our geographic reach. I believe weare well positioned for further profitable growth." Jonathan Davie, Chairman "IG has delivered strong growth across all areas of the business, with animpressive increase in revenue and profits. Reflecting our confidence in thebusiness, the board has recommended a final dividend of 6.5p per share, making atotal distribution for 2007 of 8.5p, an increase of 55%." Financial highlights Year ended Year ended 31 May 2007 31 May 2006 Growth £000 £000 % Revenue 121,990 89,391 +36%EBITDA1 70,351 52,629 +34%Profit before taxation 68,894 51,140 +35%Profit after taxation 47,867 35,668 +34%Basic earnings per share 14.67p 10.92p +34%Diluted earnings per share 14.52p 10.88p +33%Final dividend per share 6.5p 4.0p +63%Total dividend per share 8.5p 5.5p +55% 1 EBITDA represents earnings before exceptional administrative costs,depreciation, amortisation charges, amounts written off property, plant andequipment and intangible assets, taxation, interest payable on debt and interestreceivable on corporate cash balances but includes interest receivable onclients' balances less interest payable to clients. Chairman's Statement for the year ended 31 May 2007 It is my pleasure to present this statement after another successful year at IG.Revenue for the year was up 36% to £122m (2006 - £89m) and profit before taxwas up 35% to £69m (2006 - £51m). These results were the product of ourcontinuing focus on broadening our domestic and international client base byoffering high quality dealing platforms, an extremely broad range of productsand excellent customer service. Our international strategy continues to be to widen our geographic spread wherelocal regulation and market conditions are appropriate. I am pleased with theprogress that we have made in the past year in the Asia Pacific region andEurope. Board We announced a little over a year ago that Tim Howkins would be taking over asChief Executive as soon as a new Finance Director was appointed. This changetook place at the beginning of October on the appointment of Steve Clutton. Thetransition went very smoothly resulting in the delivery of continuous strongperformance by the restructured management team. During the year I stepped down as chairman of the remuneration committee. Myreplacement is Roger Yates, our senior independent non-executive director. Wemade this change in order to ensure compliance with recommended corporategovernance best practice. Dividend At the AGM your board will recommend the payment of a final dividend of 6.5p pershare. This brings the total dividend for the year to 8.5p, an increase on lastyear of 55%. This makes the total dividend for the year approximately 60% ofearnings. Our policy, which we will review from time to time, will be to pay asimilar proportion of earnings in the future. This represents a change from ourpreviously stated policy of paying approximately 50% of earnings. Your boardbelieves that this change is merited by the accumulation of surplus capital overthe past two years. At 31 May 2007, the Group had an overall consolidatedregulatory capital surplus of approximately £44m before payment of the finaldividend for the year. The board will continue to monitor and maintain aprudent regulatory capital surplus. I would like to close by extending my thanks to all my colleagues at IG, whoseskill and hard work have been instrumental in delivering the strong growth inrevenue and profit that we have experienced over the last year. Together with all my colleagues at IG, I look forward to working towards anothersuccessful year for our business. Jonathan DavieChairman23 July 2007 Chief Executive's Report for the year ended 31 May 2007 Revenue growth of 36% this year continues a long running trend - we have nowachieved compound annual growth of approximately 40% over nine years. We highlighted in our interim results that this had been a period of significantinvestment for future growth and that this temporarily impacted EBITDA marginsin the first half. In the second half we achieved an EBITDA margin of 60.3%,compared to 54.5% in the first half. This brought the margin for the year as awhole to 57.7%. The increase in IT staff over the last year gives us considerably more abilityto develop our software. Clients can now deal with us using their BlackBerry ormobile phone, our internet dealing platform, or our direct market accessplatform, L2. "API" (Application Program Interface) technology gives clientsthe ability to route orders through us directly into an underlying exchange. Wehave a range of tools specifically for introducers and white label partners toenable them to view and manage the activity of their underlying clients.Technology is an area where we believe we have a strong competitive advantageand we continue to enhance and improve all of these systems in order to maintainthis position. Financial Our financial business performed strongly with revenue up 37% to £109.8m.Across our spread betting and CFD businesses we opened 22,500 accounts thisyear, compared to 15,750 the previous year, an increase of 43%. For much of the year equity volatility was subdued, although we saw a briefupward spike in volatility at the end of February and in early March. Suchvolatility can put pressure on trading systems - the number of clients loggingin, the number of transactions and the number of price updates all increasedramatically as volatility rises. Our systems coped admirably with theseconditions and we had no down-time at all during this period of extremevolatility. The scalability and robustness of our internet dealing platformshould become increasingly important factors in the recruitment of clients, bothdirectly and when signing up introducers and white label partners. Our CFD business has increased its geographic reach substantially over the lastyear with revenue from Europe now significant. We have therefore presented amore detailed geographic analysis of revenues in these results. Financial betting Our financial betting revenue grew from £56.4m to £68.8m, an increase of 22%with similar rates of growth in both financial spread betting and financialbinary betting. As I have said before, financial binaries are viewed by most ofour clients as an adjunct to the rest of our financial product range, ratherthan as a stand-alone product. In the segmental analysis of our results we havetherefore included financial binaries as part of financial rather thanseparately analysing them. In January we launched TradeSense, a client education program for new spreadbetting clients. This has proved very popular and has had a beneficial impacton our recruitment of clients. Since January the number of accounts opened hasexceeded 1,000 each month. This compares to levels of around 800 per month inthe autumn. Conversion rates have also increased. We have just launched PureDeal, our new browser-based dealing platform forfinancial spread betting. As part of this launch we have introduced PriceImprovement technology across both spread betting and CFDs - if a better priceis available when a client's order is executed we give the client the improvedprice. PureDeal also features rapid one-click dealing, a customisable userinterface and a much greater depth of information as well as Reuters news and asophisticated charting package with the ability to back-test trading strategies.The launch of PureDeal and Price Improvement are intended to reinforce ourposition as the market leader in spread betting. The technology underpinning PureDeal, along with Reuters news and analytics willbe rolled out across our remaining websites over the coming months. UK CFD UK CFD revenue grew by 90% to £15.9m. Within the UK most retail clientsgravitate towards spread betting rather than CFDs but we have seen excellentgrowth in our UK CFD client base this year. These clients includeprofessionally managed funds, corporate clients, clients introduced bystockbrokers or trading advisors and individuals who are attracted by our DirectMarket Access platform, L2. During the spring the London Stock Exchange ran apromotional campaign highlighting the benefits of Direct Market Access and wesimultaneously ran advertising to promote L2. The quality of our L2 software is a significant driver of the growth of our CFDbusiness worldwide and we continue to devote significant IT development time toenhancing its functionality, scalability and robustness. Europe Our revenue from Europe grew by 126% from £5.2m to £11.8m and now accounts for10% of total revenue. Several different initiatives drove this growth. Lastautumn we set up an office in Germany, and an Italian desk based in London.In Ireland we have relationships with the majority of the large private clientadvisory stock brokers who introduce clients to us. As well as these countryspecific initiatives we have clients in every country in Europe, some direct andsome via our ever expanding network of introducers. The Markets in Financial Instruments Directive comes into force at the beginningof November. This harmonises the regulation of financial instruments, whichinclude CFDs, across Europe and will make it significantly easier for us to dobusiness in some parts of Europe. Our plans are now well advanced to openoffices in Paris and Madrid. We have recruited local senior management for bothoperations and we aim to open these offices in the second quarter of the currentyear. Germany, Italy, Spain and France all have large, affluent populations, withsignificant interest in online share trading and with active warrants markets.All of these factors make them attractive markets to us. We have no currentplans to open offices in the other countries of Europe, although this issomething which we will keep under close review. Our approach to the remainderof Europe is to seek local partners who can offer our CFDs to their clients.These partners may be advisory stockbrokers, or they may be online brokers whowish to offer a white label of our dealing software to their clients. Thesuccess that we have had in Ireland demonstrates that, with the right partners,it is possible to develop a significant business in a country via introducersrather than marketing directly to clients. Asia Pacific Revenue from clients located in the Asia Pacific region grew by 38% to £12.7m.The vast majority of these clients deal with either our Australian or Singaporeoffices. The number of accounts opened by our Australian office this year was almosttwice that of the prior year. Client recruitment was particularly strong in thefinal quarter of the financial year following improvements to our online accountopening process. As we reported in January, our Australian office had mutedgrowth in the first quarter, as the volatility of May and June 2006 led toclients reducing their activity for a couple of months. The year-on-year growthin revenues that we saw in Australia was distorted by very strong comparativefigures, particularly in the spring of 2006 when we saw extremely high levels ofAustralian client activity in volatile precious metal markets. Year on yearrevenue growth in both May and June 2007 was higher than for the year as awhole. We established our Singapore office towards the end of the 2006 financial year,and revenue in that year was therefore negligible. This year the office hasdelivered revenue of £800,000, 71% of which arose in the second half. Rest of World As our plans for expansion across Europe advance, we are now focusingincreasingly on opportunities in the rest of the world. Regulatory restrictionslimit our ability to offer our full financial product set in many parts of theworld, but there are a number of significant areas where trading in foreignexchange ("forex") is both permitted by the regulatory regime and popular withretail clients. These include the US, Japan and much of Asia. Forexrepresented 20% of our financial revenue this year. The majority of this wasfrom spread betting on forex by UK clients. The launch of our igforex.comwebsite in January was the first step in our plans to broaden our forexoffering. The revenue that this site generates is still small, but is growingrapidly. At the moment this site is in English only and we intend to add otherlanguages to the site in the coming months as we begin to extend itsinternational reach. Within the next few months we will also be able to offerclients the ability to execute their forex business using our DMA platform, L2,and we continue to examine other opportunities to extend the reach of our forexoffering. Sport This was another year of strong growth from our sports business with revenue up35% to £12.2m. This growth came from both spread betting, up 14% to £8.7m, andfixed odds, up 143% to £3.5m. Fixed odds comprise three offerings: sports binary bets, extrabet and marketmaking into betting exchanges. We manage our risk on a unified basis acrossthese three offerings and, where necessary utilise the exchanges to hedge ourrisk. This has given us increasing ability to deal with clients who want to betin large size and extrabet is beginning to gain recognition as a bookmaker withthe appetite to take sizeable bets from large clients. Current trading and outlook We are only a few weeks into the new financial year, but it has started well. Aslight increase in equity market volatility meant that we achieved a new recordlevel of monthly revenue in June. Account opening since the year end hascontinued at the strong levels seen in the final months of the last financialyear. A number of factors should continue to drive growth in the coming year. Our newPureDeal platform and Price Improvement technology are clear competitivedifferentiators, as is our L2 direct market access platform. TradeSense has hada beneficial impact on our recruitment and conversion of UK spread bettingclients, and we hope to replicate this success with its recent launch inAustralia. Our recently opened German, Italian and Singaporean operations haveall delivered good revenue in their early months, providing a solid base fromwhich to deliver further growth. They will be joined this year by French andSpanish operations. Introducers, particularly in Ireland and the UK, havedelivered significant growth in the last year, and we continue to expand ournetwork of introducers around the world. I look forward to the coming year with confidence. Tim HowkinsChief Executive23 July 2007 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 23July 2007 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 542300 A web cast of the presentation will be available at www.iggroup.com. Group Operating and Financial Review for the year ended 31 May 2007 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's Report. In applying this framework, the directors believe that they have adequatelydischarged their responsibilities under Section 234ZZB of the Companies Act 1985to provide a balanced and comprehensive review of the development andperformance of the business. Nature, objectives and strategies The Group's businesses The Group has operated in two principal areas of activity throughout the year;financial and sport. 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. Financialbinaries, being fixed-odds bets on equities, equity indices, precious and basemetals, soft commodities, exchange rates, interest rates and other financialmarkets. Sport 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 UK financial spread betting market; Continuing to broaden the client base; Expanding the Group's international reach; and Continuing to deliver product and technological innovation. Business strategies The Chief Executive's Report provides an overall assessment of the Group'sprogress during the year and prospects for the future with reference to thebusiness strategies outlined below. Maintaining a leading position in the Group's UK financial spread betting market 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 continues to broaden the client base, both directly and throughintroducers, from what has historically been a relatively narrow butsophisticated group of predominantly retail clients. This includes attracting agreater proportion of leisure-oriented clients for the Group's fixed oddsofferings and more market professionals and institutional clients for its CFDbusiness. Further developing the business of market making on betting andfinancial exchanges, as well as white-labelling opportunities (where the Group'sproducts are branded and distributed in the name of third parties), will extendthe reach of the Group's products. Expanding the Group's international reach The Group continues to expand its non-UK client base and in the year ended 31May 2007; revenue from non-UK clients grew to 21% of total revenue (2006 - 17%).It now has offices in Australia, Singapore and Germany together with anItalian desk based in London. The Group will continue to explore thefeasibility of other branches or offices where local regulation and marketconditions are suitable. In particular, the Markets in Financial InstrumentsDirective, which comes into force in November 2007, will facilitate the Group'sentry into further European markets and the Group plans to open offices in Spainand France in the coming year. In addition the Group continues to extend therange of third parties who introduce clients to the Group and this is aneffective way of establishing a presence for the Group's regulated financialbusiness in territories which do not merit the establishment of a local office. The Group has multi-lingual websites for its CFD and sports fixed oddsbusinesses and will continue to offer an increasing range of languages in orderto 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 Executive'sReport. Year ended 31 May 2007 2006 2005* 2004** 2003** IFRS IFRS IFRS UK GAAP UK GAAP £000 £000 £000 £000 £000 Revenue 121,990 89,391 62,177 49,839 40,996EBITDA*** 70,351 52,629 34,949 25,128 17,188EBITDA margin*** 57.7% 58.9% 56.2% 50.4% 41.9%Profit before tax 68,894 51,140 16,621 7,920 15,281 Basic earnings per share**** 14.67p 10.92p 5.83p 1.55p -Diluted earnings per share**** 14.52p 10.88p 5.41p 1.43p -Normalised earnings per share*** N/A N/A 6.75p 4.94p 3.30p Interim dividend paid per share 2.0p 1.5p - - -Final dividend proposed per share 6.5p 4.0p - - -Total dividend per share 8.5p 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 Generally Accepted Accounting Practices (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, 2006 and2007. Comparatives are not available for the year ended 31 May 2003 as IG GroupHoldings plc was not in existence. Group revenue Group revenue by business segment As explained in the Chief Executive's Report the financial segment includesfinancial binaries which were reported separately in the previous year. Figuresfor the prior year have been restated to aid comparability. 2007 2006 Increase Increase £000 £000 £000 % Financial 109,791 80,325 29,466 36.7%Sport 12,199 9,066 3,133 34.6% ----------- ----------- ----------- ----------- 121,990 89,391 32,599 36.5% ----------- ----------- ----------- ----------- Group revenue by geographical segment The geographical analysis now classifies revenue according to client locationreflecting the increasing proportion of revenue derived from outside the UK. Inthe previous year the Group presented geographical information according tooffice location. Figures for the prior year have been restated to aidcomparability. 2007 2006 Increase Increase £000 £000 £000 % United Kingdom 96,841 73,792 23,049 31.2%Europe 11,771 5,209 6,562 126.0%Asia Pacific 12,704 9,199 3,505 38.1%Rest of World 674 1,191 (517) (43.4%) ----------- ----------- ----------- ----------- 121,990 89,391 32,599 36.5% ----------- ----------- ----------- ----------- Group profit 2007 2006 Increase Increase £000 £000 £000 %Financial 87,948 67,237 20,711 30.8%Sport 3,679 2,517 1,162 46.2% ----------- ----------- ----------- -----------Profit before unallocated items 91,627 69,754 21,873 31.4%Unallocated administrative expenses (25,865) (20,650) (5,215) 25.3%Unallocated finance revenue 3,426 2,105 1,321 62.8%Unallocated finance costs (294) (69) (225) 326.1% ----------- ----------- ----------- -----------Profit before taxation 68,894 51,140 17,754 34.7% ----------- ----------- ----------- ----------- Key performance indicators The Chief Executive's Report provides an overall assessment of the Group'sprogress 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 earnings per share, are themost effective measures of progress towards achieving the Group's strategies andas such towards fulfilling the Company's business objectives. 2007 2006FinancialNumber of clients dealing 34,483 24,709Average revenue per client (£) 3,184 3,251Number of accounts opened 23,785 18,377Number of accounts dealing for the first time 15,809 12,287 SportNumber of clients dealing 19,905 10,268Number of accounts opened 16,437 3,969Number of accounts dealing for the first time 12,013 2,796 Volatility of daily revenueCoefficient of variability at 31 May 0.46 0.56Average for the year 0.53 0.48Highest in year 0.73 0.56Lowest in year 0.36 0.38 Number of clients dealing Revenue is determined to a significant extent by the number of clients dealing. The number of financial clients dealing increased by 40% compared with theprevious year. The most marked increase was in the number of CFD clientsdealing, reflecting growth driven by an increase in introduced business andexpansion of the non-UK client base. The number of clients financial bettingincreased by 21% over the previous year. The number of sports clients dealing directly with IG increased by 94% comparedwith the previous year. This number excludes those clients dealing on exchangesfor which client numbers are unavailable. The growth in sport in the year wasdue in part to the launch of the Group's fixed odds offering, extrabet. Average revenue per financial client Average revenue per financial client represents the total revenue divided by thenumber of clients dealing. This varies significantly for different products andgeographies and the overall average reflects changes in the business mix duringthe year. Average revenue per financial client reduced slightly from the previous year.Higher average revenues in the UK were offset by lower average revenueselsewhere in the world. In particular, CFD clients in the Asia Pacific and Restof World segments are more retail in nature and represent a newer client basefor which average revenues are significantly lower than for UK CFD clients. Theaverage revenue for financial betting clients was consistent with the previousyear. Average revenue per sport client The average revenue for sport clients cannot be accurately measured as thenumber of clients betting on exchanges cannot be determined. 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 leading indicators of future prospects. New financial accounts were favourably impacted by the introduction ofTradeSense, recruitment of introducers and the promotion of L2 during the year.Sport account numbers benefited in the early part of the year from the footballWorld Cup. 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 2007 represent an acceptablebalance between the cost of hedging and volatility of income. EBITDA and EBITDA margin EBITDA represents earnings before exceptional administrative costs,depreciation, amortisation charges, amounts written off property, plant andequipment and intangible assets, taxation, interest payable on debt and interestreceivable on corporate cash balances but includes interest receivable onclients' balances less interest payable to clients. The net interest receivableon client balances is considered to be part of the normal operating activitiesof the Group and is therefore included in EBITDA. EBITDA margin represents EBITDA as a percentage of revenue. The Group's capital structure changed significantly in September 2003 when theCompany raised significant debt and preference shares in order to finance thepurchase of IG Group plc by IG Group Holdings plc. This acquisition gave riseto significant goodwill. The Group's capital structure changed again in May2005 when this debt and preference shares were repaid at the time of theCompany's initial public offering (IPO). As a result of these changes incapital structure, profit measures such as profit before or after tax do notfully reflect the underlying financial performance of the business over time.The Group therefore utilises EBITDA as a primary profit measure. The Groupseeks to achieve rapid growth in EBITDA, and bonuses for most staff other thandirectors of the Company are linked to EBITDA. 2007 2006 £000 £000Operating profit 59,202 44,070Net interest on client balances 6,559 5,034Depreciation 3,513 2,205Amortisation 856 1,318Amounts written off property, plant and equipment and intangible assets 221 2 ----------- -----------EBITDA 70,351 52,629 ----------- -----------EBITDA margin 57.7% 58.9% ----------- ----------- EBITDA for the year reached £70.4m which represents an increase of 34% from theprevious year. EBITDA margin reduced slightly in the year under review to 57.7%from 58.9%. This was primarily due to investment for future growth and inparticular investment in IT capability and infrastructure. Earnings per share The Group seeks to maximise the growth in earnings per share over time in orderto maximise shareholder value. The Group's long term incentive plans (LTIPs)and directors' bonuses are linked to growth in earnings per share. Diluted earnings per share were 14.52p compared with 10.88p in the previousyear, an increase of 33.5%. The directors consider that the basic and diluted earnings per sharecalculations for the years ended 31 May 2005 and prior do not fully reflectchanges in the Group's capital structure referred to above. In order tofacilitate comparison of performance over the periods to 31 May 2005, normalisedearnings per share was established. Normalised earnings per share were notcalculated for the year ended 31 May 2006 or subsequently. 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 ofordinary shares in issue prior to a subdivision and re-designation on 31 May2005 to the equivalent weighted average ordinary shares in issue in the periodand treating the issue of new ordinary shares at the time of the Company'sflotation as if it had taken place prior to 1 June 2002. 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 made awardsunder Long Term Incentive Plans (LTIPs) to key personnel. In addition, theopportunity to acquire shares under a Share Incentive Plan (SIP) has been madeavailable to all UK staff which rewards employees for past performance and helpsto retain them in the future. The Group provides a range of benefits to all ofits 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 312 to404. Of these, the vast majority are based in the UK, with 29 staff based inAustralia, 6 based in the Singapore office, and 6 based in the German officewhich was established during the year. 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 12% compared with the previousyear. Performance related bonuses for the majority of staff are awarded on adiscretionary basis while commissions are calculated according to an agreedformula. Inclusive of national insurance and pension costs, employment costscomprise: 2007 2006 £000 £000Fixed employment costs 20,229 15,326Performance related bonuses and commissions 9,747 8,695Share based payment schemes 1,842 1,696 ----------- ----------- 31,818 25,717 ----------- ----------- Financial position Property, plant and equipment The Group continues to invest heavily in technology in order to enhance itscapacity and resilience which are critical to the success of the business.Additions during the year amounted to £7.8m compared with £2.7m in the previousyear and include the fit-out of additional office space in London, Melbourne andtwo data centres. Depreciation charged in the year amounted to £3.5m (2006 -£2.2m). Intangible fixed assets Goodwill, which has mainly arisen on the acquisition of IG Group plc and itssubsidiaries, amounts to £106.2m. This has been capitalised and under theprovisions of IFRS is subject to an annual impairment review. There were noimpairment write offs in the year. Development expenditure and software and licences purchased during the yearamounted to £1.4m (2006: £0.5m). Amortisation charged in the year amounted£0.9m (2006 - £1.3m). Working capital 2007 2006 £000 £000Amounts due from brokers 345,076 121,857 ----------- ----------- Amounts due from clients 7,552 5,254Amounts due to clients (726,144) (285,635) ----------- -----------Net amounts due to clients (718,592) (280,381) ----------- ----------- Cash and cash equivalents 484,556 247,277Loan notes - (92)Redeemable preference shares (40) (40) ----------- -----------Net funds 484,516 247,145 ----------- ----------- Amounts due to and from clients include unrealised profits/losses on clients'open positions, profits/losses on closed positions as well as the cash balanceon clients' accounts. The Group hedges the vast majority of clients' openpositions in the financials business and amounts due from brokers represent cashor treasury bills placed with counterparties in order to provide initial andvariation margin to support these positions. These elements of working capital have increased significantly in the year underreview reflecting higher levels of client activity and movement in markets. The Group only offers credit to a minority of clients. The charge forimpairment of trade receivables (amounts due from brokers and clients) isestablished where there is objective evidence of non-collectability. Referenceis made to an aged profile of debt and the provision is subject to managementreview. The charge for the year was approximately 1.2% of revenue (2006 -1.6%). The Group continues to pursue outstanding debts vigorously. Cash flow Cash and cash equivalents increased by £237.3m over the previous year because ofthe significant and profitable expansion of the business during the year and thesubstantial inflow of client money. This reflected increased client activityand growth in client open positions, the majority of which was covered by cashmargins which were reflected in the movement in trade receivables and payables.Excluding these, net cash inflow for the year was £20.9m after significant cashoutflows of £26.1m for taxation (2006 - £0.1m); £19.7m for dividends (2006 -£4.9m) and capital expenditure of £7.8m (2006 - £2.7m). The Group holds client money on account in segregated bank accounts which at theyear end amounted to £391.3m compared with £199.2m in the previous year. Capital structure 2007 2006 £000 £000Equity share capital 16 16Share premium 125,235 125,235Own shares held in Employee Benefit Trusts (503) -Retained earnings 76,920 45,157 ----------- -----------Shareholders' equity 201,668 170,408Minority interests 40 40 ----------- -----------Total equity 201,708 170,448 ----------- ----------- Redeemable preference shares 40 40Loan notes - 92 ----------- -----------Total liabilities 40 132 ----------- ----------- There were no issues of share capital during the year and the Group remains debtfree except for preference shares. Own shares held in Employee Benefit Trustswere purchased in satisfaction of the SIP award made during the year. Theremaining loan notes were redeemed on 31 July 2006. Dividend policy As explained in the Chairman's Statement the Company has increased the dividendpayout proportion from 50% to approximately 60% of earnings. This policy willbe kept under review, but the Company intends to pay out a similar proportion ofearnings in the future. During the year the Company paid an interim dividend of 2.00p per shareamounting to £6.6m. The final dividend for 2007 proposed for approval byshareholders at the AGM is 6.50p per share which will amount to £21.3m takingthe total dividends for the year to £27.9m. This represents a dividend cover of1.72. 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 2007 the Group had an overall consolidated regulatorycapital surplus of approximately £44m (2006 - £30m). On behalf of the board Steve CluttonFinance Director23 July 2007 Group Income Statement for the year ended 31 May 2007 2007 2006 Notes £000 £000 Revenue 121,990 89,391 Cost of sales (4,214) (1,584) --------------- ---------------Gross profit 117,776 87,807 Administrative expenses (58,574) (43,737) --------------- ---------------Operating profit 3 59,202 44,070 Finance revenue 22,604 10,681Finance costs (12,912) (3,611) --------------- ---------------Profit before taxation 68,894 51,140 Tax expense (21,027) (15,472) --------------- ---------------Profit for the year 47,867 35,668 --------------- ---------------Profit for the year attributable to: Equity holders of the parent 47,867 35,668 --------------- --------------- Earnings per share (pence)- Basic 4 14.67p 10.92p- Diluted 4 14.52p 10.88p --------------- --------------- All of the Group's revenue and profit for the year and prior year relate tocontinuing operations. Group Statement of Changes in Shareholders' Equity For the year ended at 31 May 2007 Own shares held in Equity Employee Share- share Share Benefit Retained holders' Minority Total capital premium Trusts earnings equity interests equity £000 £000 £000 £000 £000 £000 £000 At 1 June 2005 16 125,197 - 12,706 137,919 40 137,959Total recognised - - - 35,668 35,668 - 35,668income and expensefor the yearAdjustment to costs - 38 - - 38 - 38of share issueEmployee - - - 1,696 1,696 - 1,696share-basedpaymentsEquity dividends - - - (4,913) (4,913) - (4,913)paid ----------- ----------- ----------- ----------- ----------- --------- ----------- At 1 June 2006 16 125,235 - 45,157 170,408 40 170,448 ----------- ----------- ----------- ----------- ----------- --------- ----------- Profit for the year - - - 47,867 47,867 - 47,867Excess of tax - - - 1,814 1,814 - 1,814deduction benefiton share-basedpayments recogniseddirectly in equity ----------- ----------- ----------- ----------- ----------- --------- ----------- Total recognised - - - 49,681 49,681 - 49,681income and expensefor the yearEmployee - - - 1,732 1,732 - 1,732share-basedpaymentsPurchase of own - - (503) - (503) - (503)shares held in EmployeeBenefit TrustsEquity dividends - - - (19,650) (19,650) - (19,650)paid ----------- ----------- ----------- ----------- ----------- --------- ----------- Movement in - - (503) 31,763 31,260 - 31,260shareholders'equity ----------- ----------- ----------- ----------- ----------- --------- ----------- At 31 May 2007 16 125,235 (503) 76,920 201,668 40 201,708 ----------- ----------- ----------- ----------- ----------- --------- ----------- Group Balance Sheets at 31 May 2007 2007 2006 £000 £000Non-current assetsProperty, plant and equipment 8,158 4,091Intangible assets 107,675 107,127Investment in subsidiaries - -Deferred tax assets 3,940 2,511 --------------- --------------- 119,773 113,729 --------------- ---------------Current assetsTrade receivables 352,628 127,111Prepayments and other receivables 3,954 2,720Cash and cash equivalents 484,556 247,277 --------------- --------------- 841,138 377,108 --------------- ---------------Total assets 960,911 490,837 --------------- ---------------Current liabilitiesTrade payables 726,144 285,635Other payables 18,472 14,699Income tax payable 14,547 20,015 --------------- --------------- 759,163 320,349 --------------- ---------------Non-current liabilitiesRedeemable preference shares 40 40 --------------- --------------- 40 40 --------------- ---------------Total liabilities 759,203 320,389 --------------- ---------------NET ASSETS 201,708 170,448 --------------- --------------- Capital and reservesEquity share capital 16 16Share premium 125,235 125,235Own shares held in Employee Benefit Trusts (503) -Retained earnings 76,920 45,157 --------------- ---------------Shareholders' equity 201,668 170,408Minority interests 40 40 --------------- ---------------TOTAL EQUITY 201,708 170,448 --------------- --------------- Group Cash Flow Statements for the year ended 31 May 2007 2007 2006 £000 £000Operating activitiesOperating profit 59,202 44,070 Adjustments to reconcile operating profit to net cash flow fromoperating activitiesDepreciation of property, plant and equipment 3,513 2,205Amortisation of intangible assets 856 1,318Share-based payments 1,842 1,696Property, plant and equipment written off 211 2Intangible assets written off 10 -Impairment of trade receivables 1,416 1,401(Increase) in trade and other receivables (226,563) (85,028)Increase in trade and other payables 442,587 163,588 --------------- ---------------Cash generated from operations 283,074 129,252Income taxes paid (26,110) (108) --------------- ---------------Net cash flow from operating activities 256,964 129,144 --------------- ---------------Investing activitiesInterest received 21,000 10,597Purchase of property, plant and equipment (7,793) (2,682)Payments to acquire intangible assets (1,414) (475)Purchase of residual interest in subsidiary undertaking - (934) --------------- ---------------Net cash flow from investing activities 11,793 6,506 --------------- ---------------Financing activitiesInterest paid (11,508) (3,611)Equity dividends paid to shareholders of the parent (19,650) (4,913)Purchase of own shares held in Employee Benefit Trusts (503) -Repayment of financial liabilities (92) (75)Payment of redeemable preference share dividends (3) - --------------- ---------------Net cash flow from financing activities (31,756) (8,599) --------------- --------------- Net increase in cash and cash equivalents 237,001 127,051 Cash and cash equivalents at the beginning of the year 247,277 120,550 Effect of foreign currency differences on opening balances of cash and 278 (324)cash equivalents --------------- --------------- Net cash and cash equivalents at the end of the year 484,556 247,277 --------------- --------------- Notes to the Financial Statements at 31 May 2007 1. Basis of consolidation The Group financial statements consolidate the financial statements of IG GroupHoldings plc and the entities it controls (its subsidiaries) made up to thereporting date. Subsidiaries are consolidated from the date of their acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activities and is achieved through direct or indirect ownership of votingrights; currently exercisable or convertible potential voting rights; or by wayof contractual agreement. The financial statements of the subsidiaries used inthe preparation of the consolidated financial statements are prepared for thesame reporting year as the parent company and are based on consistent accountingpolicies. All inter-company balances and transactions, including unrealisedprofits arising from them, are eliminated. 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 the Group's risksand rates of return are affected predominantly by differences in the productsprovided. As explained in the Chief Executive's Report, the financial segmentincludes financial binaries, which were reported separately in the previousyear. The directors consider that including financial binaries within thefinancial segment is appropriate for the following reasons: financial binariesare viewed by most of our clients as an adjunct to the rest of our financialproduct range, rather than as a stand-alone product; financial binaries andother financial businesses share common management and processes; and financialbinaries are predominantly traded by the same clients as other financial clientson their regulated accounts. Figures for the prior year have been restated toaid comparability. Year ended 31 May 2007 Financial Sport Unallocated Total £000 £000 £000 £000 Revenue 109,791 12,199 - 121,990 ----------- ----------- ----------- ----------- Segment result 87,948 3,679 - 91,627 ----------- ----------- -----------Unallocated administrative expenses (25,865)Unallocated finance revenue 3,426Unallocated finance costs (294) -----------Profit before taxation 68,894Tax expense (21,027) -----------Profit for the year 47,867 -----------Assets and liabilitiesSegment assets 851,809 7,494 101,608 960,911 ----------- ----------- ----------- -----------Segment liabilities 732,520 143 26,540 759,203 ----------- ----------- ----------- -----------Other segment informationCapital expenditure Property, plant and equipment 3,034 1,188 3,571 7,793 Intangible assets 1,414 - - 1,414Depreciation 1,612 483 1,418 3,513Amortisation 856 - - 856 ----------- ----------- ----------- ----------- Year ended 31 May 2006 (restated) Financial Sport Unallocated Total £000 £000 £000 £000 Revenue 80,325 9,066 - 89,391 ----------- ----------- ----------- ----------- Segment result 67,237 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 liabilitiesSegment assets 433,209 6,229 51,399 490,837 ----------- ----------- ----------- ----------- Segment liabilities 313,418 1,788 5,183 320,389 ----------- ----------- ----------- ----------- Other segment informationCapital expenditure Property, plant and equipment 1,118 589 975 2,682 Goodwill 434 - - 434 Other intangible assets 327 148 - 475Depreciation 901 507 797 2,205Amortisation 1,032 286 - 1,318 ----------- ----------- ----------- ----------- Unallocated administrative expenses comprise overheads, including informationtechnology costs, which are not specifically attributable to business segments. Unallocated assets and liabilities comprise property, plant and equipment,intangible assets, deferred tax assets, prepayments and other debtors, cash andcash equivalents, accruals, tax liabilities and financial liabilities which arenot specifically attributable to business segments. Unallocated assets include cash and cash equivalents amounting to £90,489,000(2006 - £47,095,000). Secondary reporting format - geographical segments Geographical segment information for revenue and profit is based upon clientlocation. The UK segment includes all clients located in the UK; Europeincludes all clients located in Ireland and continental Europe; Asia Pacificincludes all clients located in Australasia, Asia and the Far East; all otherclients are classified as Rest of World. Geographical segment information forassets and capital expenditure is based upon asset location. The Group has offices in the United Kingdom, Australia, Singapore and Germany.In previous periods geographical segments were reported according to officelocation. The Australia and Singapore segment dealt with clients serviced fromthe Melbourne and Singapore offices. The UK segment included the results of allother business. To aid comparability the figures for the previous year havebeen restated. Year ended 31 May 2007 Asia Rest of Unallo- UK Europe Pacific World cated Total £000 £000 £000 £000 £000 £000 Revenue 96,841 11,771 12,704 674 - 121,990 ----------- ----------- ----------- ----------- ----------- ----------- Segment assets 945,458 162 10,636 715 3,940 960,911 ----------- ----------- ----------- ----------- ----------- -----------Other segment informationCapital expenditure Property, plant and equipment 7,212 16 565 - - 7,793 Intangible assets 1,176 238 - - - 1,414 ----------- ----------- ----------- ----------- ----------- ----------- Year ended 31 May 2006 (restated) Asia Rest of Unallo- UK Europe Pacific World cated Total £000 £000 £000 £000 £000 £000 Revenue 73,792 5,209 9,199 1,191 - 89,391 ----------- ----------- ----------- ----------- ----------- ----------- Segment assets 483,205 - 5,121 - 2,511 490,837 ----------- ----------- ----------- ----------- ----------- -----------Other segment informationCapital expenditure Property, plant and equipment 2,630 - 52 - - 2,682 Goodwill - - 434 - - 434 Other intangible assets 475 - - - - 475 ----------- ----------- ----------- ----------- ----------- ----------- Unallocated assets comprise deferred tax assets. 3. Operating profit 2007 2006 £000 £000This is stated after charging/(crediting):Depreciation of property, plant and equipment 3,513 2,205Amortisation of intangible assets 856 1,318Operating lease rentals for land and buildings 1,177 785Impairment of trade receivables 1,416 1,401Foreign exchange differences 63 (392)Property, plant and equipment written off 211 2Intangible assets written off 10 - --------------- --------------- Amortisation of intangible assets is included in the administrative expenses ofthe income statement. 4. Earnings per ordinary share Basic earnings per share is calculated by dividing the profit for the yearattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares in issue during the year, excluding ordinary sharespurchased by the Company and held as own shares held in Employee Benefit Trusts.Diluted earnings per share is calculated using the same profit figure as thatused in basic earnings per share and by adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potentialordinary shares. The following reflects the income and share data used in thebasic and diluted earnings per share computations: 2007 2006 £000 £000Basic and diluted earnings attributable to ordinary shareholders 47,867 35,668 --------------- --------------- Basic weighted average number of equity shares 326,343,794 326,506,126 Effect of share-based payments 3,288,896 1,373,861 --------------- ---------------Diluted weighted average number of ordinary shares 329,632,690 327,879,987 --------------- --------------- Basic earnings per share 14.67p 10.92p --------------- --------------- Diluted earnings per share 14.52p 10.88p --------------- --------------- 5. Dividends 2007 2006 £000 £000Declared and paid during the year:Final dividend for 2006 at 4.00p per share (2005 - nil) 13,100 -Interim dividend for 2007 at 2.00p per share (2006 - 1.50p) 6,550 4,913 ----------- ----------- 19,650 4,913 ----------- -----------Proposed for approval by shareholders at the AGM:Final dividend for 2007 at 6.50p per share (2006 - 4.00p) 21,288 13,100 ----------- ----------- 6. Basis of preparation The above financial information for the year ended 31 May 2007 does notconstitute statutory accounts. It is an extract from the 2006 unaudited Groupfinancial statements, which have not yet been delivered to the UK Registrar ofCompanies; it is expected that the report of the auditors on those financialstatements will be unqualified. Copies of full financial statements will be posted to all shareholders inSeptember 2007. Further copies will be available, from the date of posting, fromthe Company's headquarters at Friars House, 157-168 Blackfriars Road, London,SE1 8EZ, by telephone on 020 7896 0011 or via the Company's website atwww.iggroup.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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