Ig Group Holdings Plc · LSE:IGG
Ig — FY2019 Earnings Presentation
52 slides from Ig's earnings presentation, July 2019
Slide 1: Results Presentation – Full Year Ended 31 May 2019
Results Presentation Full Year Ended 31 May 2019 FY19 FULL YEAR RESULTS 1
Slide 2: Disclaimer
Disclaimer This presentation, prepared by IG Group Holdings plc (the “Company”), may contain forward-looking statements about the Company and its subsidiaries (the “Group”). Such forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", “
Slide 3: Introduction
Introduction June Felix Chief Executive Officer FY19 FULL YEAR RESULTS 3
Slide 4: What we will discuss today
What we will discuss today 1. JUNE FELIX 4. PAUL MAINWARING FY19 summary Financial results and financial position Strengths, strategy and organisation 2. JON NOBLE 5. JUNE FELIX Business model and risk management Conclusion 3. BRIDGET MESSER Clients and client experience FY19 FULL YEAR RESULTS 4
Slide 5: FY19 summary
FY19 summary Operating and strategic summary • Successful navigation of the ESMA product intervention measures • Continued to recruit and retain a high quality client base • Actions taken to deliver a return to revenue growth in FY20 • Updated strategy and new medium term financial targets announced
Slide 6: Who we are
Who we are Purpose To empower informed, decisive, adventurous people to access opportunities in the financial markets Values Champion the client Lead the way Love what we do Vision To provide the world’s best trading experience FY19 FULL YEAR RESULTS 6
Slide 7: IG Group's key strengths
IG Group’s key strengths A great company with a strong foundation, underpinned by the strength of our balance sheet BUSINESS PEOPLE MODEL & & RISK CULTURE MANAGEMENT CONDUCT & STANDING IG Group’s BRAND WITH REGULATORS key & REPUTATION strengths TECHNOLOGY CLIENTS & AND CLIENT INNOVATION EXPERIENCE F
Slide 8: Our strategic choices
Our strategic choices In pursuing our vision to provide the world’s best trading experience, we choose to: Operate a sustainable business model Provide the best client experience Win with our technology Tailor client propositions Broaden our product range Extend our geographic reach FY19 FULL YEAR R
Slide 9: Our growth levers
Our growth levers NEW CONTINUING Expanded A global firm with Segmented Multi distribution channels more local focus target markets product Accelerated and Localised marketing and Customised offerings OTC, ETD and non- expanded distribution customer experience for high-value, retail leveraged offerin
Slide 10: Core markets
Core markets FY19 revenue £417.4m - 88% of Group revenue Includes: UK, EU (OTC Leveraged), EMEA ex EU, Australia and Singapore Marketing • Localised marketing for improved effectiveness Client • Expanded premium client service teams to services accelerate acquisition of high quality clients • Stream
Slide 11: Significant opportunities
Significant opportunities FY19 revenue £59.5m - 12% of Group revenue • Three complementary businesses • Spectrum development complete EU (new • Appointed regional head to products) • Marketing launch planned for September USA maximise synergies • Barriers proving popular • Distribution partnerships
Slide 12: Our operating model
Our operating model South Africa Institutional Switzerland Singapore Emerging Australia Markets Japan Dubai USA UK EU Strategy & Client Facing Performance Team Corporate Development Product & Marketing Technology Business Change Trading & Operations Office of Risk & Governance Finance People the CEO
Slide 13: Medium term financial targets
Medium term financial targets • Core markets: revenue growth at around 3-5% pa over the medium term • Significant opportunities: an increase in revenue of £100 million, to around £160 million in FY22 • Assuming these targets are achieved, revenue in FY22 will be around 30% higher than in FY19 • The
Slide 14: Business model and risk management
Business model and risk management Jon Noble Chief Operating Officer FY19 FULL YEAR RESULTS 14
Slide 15: Business model and risk management
Business model and risk management • IG’s business model is based on generating a return from its services through transaction fees charged to clients • We hedge our market risk through internalisation, hedging externally when our exposure reaches predetermined symmetrical limits • Consistent revenu
Slide 16: Business model
Business model Our interests are aligned with those of our clients • Our business model is based on generating a return from the transaction fees charged to clients 100% 17% • Revenue in any period is driven by the number Commission of active clients and their level of activity Funding 9% Client 74%
Slide 17: How do we manage market risk? - Internalisation
How do we manage market risk? - Internalisation • We net off client long and short positions on % OF CLIENT VOLUME HEDGED - May 2019 products and markets which are correlated £454bn £12bn £161bn £11bn • The volume and breadth of our clients’ trading 91% 83% 88% 64% gives us an advantage − Global foo
Slide 18: How do we manage market risk? – External hedging
How do we manage market risk? – External hedging Risk limits • Volume of client business, market volatility and market liquidity are determining factors in setting symmetrical risk limits • IG does not take a view on the direction of potential market moves • Maximum notional limits approved by the B
Slide 19: How do we manage market risk?
How do we manage market risk? Automated hedging when risk limits reached FY19 FULL YEAR RESULTS 19
Slide 20: Revenue composition
Revenue composition Consistent revenue return independent of client performance (£m) 150 Key (£m) FY18 FY19 100 Client income 783 644 50 Client (profits) / losses (273) 139 Hedging profits / (losses) 115 (245) Client execution benefit (158) (106) 0 Hedging costs (56) (61) -50 Business model cost (21
Slide 21: Low variability of revenue
Low variability of revenue 3 loss making days in past 5 years £10m £8m £6m £4m £2m £0m Swiss franc de-peg (£12m) (£2m) FY15 FY16 FY17 FY18 FY19 FY19 FULL YEAR RESULTS 21
Slide 22: Clients and client experience
Clients and client experience Bridget Messer Chief Commercial Officer FY19 FULL YEAR RESULTS 22
Slide 23: Our clients
Our clients We have a valuable and high quality client base who are passionate about trading • Why do we have such a high quality client base? • What value does our client base provide? • How do we grow our high quality client base? FY19 FULL YEAR RESULTS 23
Slide 24: Our clients
Our clients FY19 REVENUE FY19 REVENUE SPLIT BY CLIENT TENURE FROM TRADING CLIENTS 0-6 months 5% 1% 5% 7-12 months 10% 92% 20% Scale 27% • 130,000 OTC Leveraged active 1-3 years 30% 30% clients in FY19 − Executed 86m trades 17% − Average revenue per client 3-5 years 16% 50% ~£3,500 50% 5+ years 39% 6
Slide 25: Our clients are passionate about trading
Our clients are passionate about trading MAIN REASONS CLIENTS TRADE OTC LEVERAGED DERIVATIVES 70% of clients enjoy the intellectual Leverage 60% challenge of speculating on To go short on markets which way the markets will turn 53% Low transaction costs 24 hour short term trading opportunities 49% 4
Slide 26: Our clients are passionate about trading
Our clients are passionate about trading OTC Leveraged client outcomes – after transaction fees DISTRIBUTION OF CLIENT RESULTS – May 2019 £64 loss 19,731 Median client outcome £1,082 loss 14,315 Mean client loss 12,419 8,886 10,223 49,723 Negative client results 6,595 2,951 27,463 1,615 Positive cli
Slide 27: Why do we have such a high quality client base?
Why do we have such a high quality client base? Our unrivalled package allows clients to pursue their passions Our clients seek We provide • Deep liquidity To trade… • Impartial execution what they want, • Price improvement for limit orders when they want, • 16,000 markets where they want and • Out
Slide 28: What value does our client base provide?
What value does our client base provide? An enduring revenue stream CUMULATIVE AVERAGE OTC OTC LEVERAGED REVENUE BY YEAR ONBOARDED (£m) LEVERAGED CLIENT VALUE (£) 8,000 600 FY15 We estimate the lifetime value FY16 500 of the FY19 cohort to be ~£300m Cohort: 6,000 FY17 FY14 400 FY19 FY18 4,000 FY18 3
Slide 29: How do we acquire high quality clients?
How do we acquire high quality clients? We only onboard appropriate clients We invest significantly in marketing • We market to a target audience within • Multi-channel, analytical based marketing appropriate sectors and demographic approach groups • Significant investment in SEO capability • We con
Slide 30: Summary
Summary • Clients are passionate about trading the financial markets • We offer clients an unrivalled package • We give them the ability to trade what they want, when they want, where they want and how they want – with a provider they can trust • Our large, high quality client base provides us with
Slide 31: Financial results and financial position
Financial results and financial position Paul Mainwaring Chief Financial Officer FY19 FULL YEAR RESULTS 31
Slide 32: Income statement
Income statement £m FY19 FY18 Change £m FY19 FY18 Change Net trading revenue 476.9 569.0 (16%) Operating profit 192.9 281.1 (31%) Net interest on client money 6.3 4.5 Net finance (cost) / income 1.4 (0.3) Betting duty and FTT (7.9) (5.1) Profit before taxation 194.3 280.8 (31%) Other operating incom
Slide 33: Revenue by product
Revenue by product REVENUE (£m) FY19 FY18 Change OTC Leveraged 454.2 548.4 (17%) Exchange Traded Derivatives 16.8 16.6 1% Stock trading & Investments 5.9 4.0 48% Group 476.9 569.0 (16%) ACTIVE CLIENTS (000s) FY19 FY18 Change REVENUE PER CLIENT (£) FY19 FY18 Change OTC Leveraged 129.7 144.6 (10%) OTC
Slide 34: OTC Leveraged revenue bridge
OTC Leveraged revenue bridge (£m) (45) 82 548 (96) 36 (53) (65) 475 8 Existing (70) 67 454 clients trading Existing New Returning more / (less) clients not clients Existing clients clients trading trading more/(less) 5 New Existing Returning clients clients not clients trading FY17 FY18 FY19 FY19 FU
Slide 35: OTC Leveraged by geography
OTC Leveraged by geography Reported Underlying OTC REVENUE BY ASSET CLASS REVENUE (£m) FY19 FY18 change change UK 195.3 257.6 (24%) (21%) Commodities EU 68.1 117.2 (42%) (36%) 9% ESMA Region 263.4 374.8 (30%) (26%) FY19 10% EMEA ex EU 43.7 36.8 19% 2% 18% 17% Australia 68.9 68.8 0% (10%) FX FY18 Sin
Slide 36: ESMA Region
ESMA Region Update on Professional client upgrades since November 2017 ACTIVE PROFESSIONAL CLIENTS APPLICATION STATUS BEHAVIOUR OF CLIENTS 6,000 NOT ACCEPTED 5,000 24% 76% 70% 4,000 Accepted Not accepted Continued to trade 30% 3,000 Did not trade 2,000 1,000 0 Q3 Q4 Q1 Q2 Q3 Q4 FY18 FY18 FY19 FY19 F
Slide 37: OTC Leveraged – ESMA Region
OTC Leveraged – ESMA Region Reported Underlying REVENUE (£m) FY19 FY18 change change REVENUE (£m) Q1 Q2-Q4 Q2-Q4 % ESMA Professional 161.0 ESMA Professional 38.4 122.6 66% ESMA Retail 102.4 ESMA Retail 40.0 62.4 34% ESMA Region 263.4 374.8 (30%) (26%) ESMA Region 78.4 185.0 100% Reported ACTIVE CLIE
Slide 38: Operating costs
Operating costs BY COST ACTIVITY (£m) FY19 FY18 Change BY COST TYPE (£m) FY19 FY18 Change Prospect acquisition 72.5 78.7 (8%) Fixed remuneration 106.3 96.0 11% Sales and client management 22.2 21.0 6% Advertising and marketing 51.7 58.7 (12%) Technology 52.9 46.0 15% Other costs 84.3 81.9 3% Operati
Slide 39: Own funds
Own funds OWN FUNDS FLOW (£m) FY19 FY18 MOVEMENT IN OWN FUNDS (£m) FY19 FY18 Operating profit 192.9 281.1 Net own funds generated from operations 159.7 272.0 Depreciation and amortisation 17.3 17.6 Net financing income / (cost) 0.5 (0.6) Share based compensation 7.2 7.0 Investments Change in working
Slide 40: Balance sheet
Balance sheet BALANCE SHEET (£m) 31 May 19 31 May 18 AVAILABLE LIQUIDITY (£m) 31 May 19 Goodwill 108.1 108.0 Liquid assets 928.1 Intangible assets 43.4 43.4 Broker margin requirement (314.0) Property, plant and equipment 14.4 15.5 Non-UK cash balances (187.5) Fixed assets 165.9 166.9 Own funds in cl
Slide 41: Regulatory capital
Regulatory capital (£m) 31 May 19 31 May 18 Workings Shareholders’ funds 841.8 842.1 Less foreseeable declared dividends (111.3) (123.1) Less acquisition intangibles (108.1) (108.0) Less other intangible assets (43.4) (43.4) Less deferred tax assets (9.0) (9.1) Capital resources 570.0 558.5 A Pillar
Slide 42: Conclusion
Conclusion June Felix Chief Executive Officer FY19 FULL YEAR RESULTS 42
Slide 43: IG Group's key strengths
IG Group’s key strengths A great company with a strong foundation, underpinned by the strength of our balance sheet BUSINESS PEOPLE MODEL & & RISK CULTURE MANAGEMENT CONDUCT & STANDING IG Group’s BRAND WITH REGULATORS key & REPUTATION strengths TECHNOLOGY CLIENTS & AND CLIENT INNOVATION EXPERIENCE F
Slide 44: FY20 outlook
FY20 outlook • The Company expects to return to growth in FY20 • Operating expenses, excluding variable remuneration, expected to increase by around £30m • IG will continue to lead the way in the industry • Strategy to position the business to deliver for: − Clients − Shareholders − Other stakeholde
Slide 45: Appendices
Appendices FY19 FULL YEAR RESULTS 45
Slide 46: Full year and half year analysis – OTC Leveraged
Appendix 1 Full year and half year analysis – OTC Leveraged FY19 FY18 FY17 REVENUE (£m) H1 H2 FY H1 H2 FY H1 H2 FY UK 106.8 88.5 195.3 120.5 137.1 257.6 119.0 111.7 230.7 EU 38.6 29.5 68.1 55.4 61.8 117.2 48.7 50.4 99.1 USA 0.0 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 Australia 35.7 33.2 68.9 34.5 34.3 68.8
Slide 47: Full year and half year analysis – Stock trading & Investments
Appendix 2 Full year and half year analysis – Stock trading & Investments FY19 FY18 FY17 REVENUE (£m) H1 H2 FY H1 H2 FY H1 H2 FY UK 2.0 2.7 4.7 1.5 1.7 3.2 1.0 1.1 2.1 EU 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.1 0.1 Australia 0.5 0.6 1.1 0.3 0.4 0.7 0.0 0.2 0.2 Stock trading & Investments 2.5 3.4 5.9 1.8 2.2
Slide 48: Full year and half year analysis – ETDs
Appendix 3 Full year and half year analysis – ETDs FY19 FY18 FY17 REVENUE (£m) H1 H2 FY H1 H2 FY H1 H2 FY USA 8.4 8.4 16.8 7.3 9.3 16.6 6.3 7.8 14.1 FY19 FY18 FY17 CLIENTS H1 H2 FY H1 H2 FY H1 H2 FY USA 12,378 12,079 17,506 14,785 14,796 21,966 13,045 15,822 22,340 FY19 FY18 FY17 REV PER CLIENT (£)
Slide 49: Quarterly analysis – OTC Leveraged
Appendix 4 Quarterly analysis – OTC Leveraged FY19 FY18 FY17 REVENUE (£m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 UK 55.6 51.3 43.1 45.3 60.7 59.9 71.5 65.6 54.9 64.1 52.9 58.7 EU 22.9 15.7 13.8 15.7 28.1 27.3 31.1 30.8 22.0 26.7 24.0 26.4 USA 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Australia 17
Slide 50: Quarterly analysis – Stock trading & Investments
Appendix 5 Quarterly analysis – Stock trading & Investments FY19 FY18 FY17 REVENUE (£m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 UK 0.96 1.03 0.66 2.03 0.69 0.73 0.86 0.91 0.44 0.46 0.53 0.62 EU 0.02 0.02 0.03 0.07 0.02 0.02 0.03 0.02 0.01 0.02 0.03 0.02 Australia 0.19 0.26 0.12 0.50 0.14 0.19 0.23 0.18
Slide 51: Quarterly analysis – ETDs
Appendix 6 Quarterly analysis – ETDs FY19 FY18 FY17 REVENUE (£m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 USA 3.9 4.4 4.1 4.4 3.4 3.8 4.3 5.0 3.0 3.3 3.9 3.9 FY19 FY18 FY17 CLIENTS Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 USA 9,123 8,570 8,698 8,808 10,325 9,966 10,495 10,205 8,952 8,746 10,347 11,196 FY19 FY
Slide 52: Broker margin
Appendix 7 Broker margin FY15 FY16 FY17 FY18 FY19 500 PEAK: £294m PEAK: £258m PEAK: £366m PEAK: £453m PEAK: £456m AVERAGE: £220m AVERAGE: £214m AVERAGE: £286m AVERAGE: £372m AVERAGE: £332m 450 400 350 300 250 200 150 100 50 0 FY19 FULL YEAR RESULTS 52