IG Group Holdings plc · LSE:IGG
IG — Merger or Acquisition (October 2008)
18 slides from IG's merger presentation, October 2008
Slide 1: Acquisition of FXOnline Japan KK
IG Group Acquisition of FXOnline Japan KK Tim Howkins, CEO Steve Clutton, Finance Director
Slide 2: Important notice
Important notice This presentation does not constitute or form part of any formal proposal on behalf of IG Group Holdings plc (“IG” or the “Company”) or any other person, nor may it or any part of it, or the fact of its distribution, be relied upon in any manner or for any purpose. The information c
Slide 3: Introduction: A major strategic opportunity
Introduction A major strategic opportunity IG Group to acquire 87.5% of FXOnline Japan KK (“FXO”) Cost £112m (Y 21.9bn) * £117m total funding requirement including costs to be financed via £35m from own resources £82m share placing Delivers immediate scale in a key strategic market FXO
Slide 4: FXO background
FXO background Established player in a key market Strong growth driven by client acquisition Retail FX in Japan Dec 2002: Established as a white label Feb 2005: Launched own online trading platform Feb 2005: Introduced commission free trading Feb 2006: FX licence enhanced credibility Incre
Slide 5: FXO management
FXO management Proven leadership, relevant experience and market knowledge Jim Gow CEO / Founder • UK national • Extensive global securities and FX experience in London, Hong Kong and Japan • Lived in Japan for 16 years • Founded FXO in 2002 • Will retain 12.5% stake in FXO (subject to call option
Slide 6: Japanese FX market
Japanese FX market Immediate scale and infrastructure in the 2nd largest retail FX market in the world Online Retail FX Trading Retail FX Volumes Established regulatory Y Trn Reported market volume framework 300 Experiencing extremely rapid 250 R 89% growth C AG 200 FXO market share 4% 150 F
Slide 7: Integration plan
Integration plan Risk management, dealing and technology move to IG’s platform Immediately Risk management/hedging undertaken from IG’s London/Melbourne offices IG prices into FXO platform About 1 month FXO platform relocated to IG data centres from 3rd party host About 2 months New clients onto IG’
Slide 8: Japan CFD opportunity
Japan CFD opportunity Strong trading culture Regulation permits CFDs Expect client interest in equity indices Almost 80% of retail FX traders have experience of trading shares * Individuals account for a third of volume on the Tokyo Stock Exchange Minimal competition at present for CFDs
Slide 9: Synergies
Synergies Improved profitability and better client offering under IG ownership Hedging IG’s hedging model allows offsetting of client flows with limited volatility of revenue FXO hedges by currency pair rather than by currency Acquisition expected to approximately double the Group’s FX volum
Slide 10: IG Group international diversification
IG Group international diversification IG has made good progress executing its international strategy Australia 2002 FY08 revenue grew at over 100% Opening over 550 accounts per month Singapore, Germany, Italy 2006 Monthly revenue run rate approx £1.1m Opening over 600 accounts per month Fra
Slide 11: FXO increases geographical diversification
FXO increases geographical diversification UK pro forma revenue falls to 61% of worldwide total FY08: IG revenue £184m FY08: Enlarged group pro-forma revenue £220m IG year ended May-08 FXO year ended March-08 (unaudited) - 11 -
Slide 12: FXO financial summary
FXO financial summary Low cost base FXO operating costs represent 30% of revenue Third of costs relate to advertising (10% of revenue in FY08) Year on year Summary FY07 FY08 £m £m Total revenue 20.4 35.9 Operating costs: Advertising -1.3 -3.6 Salaries -1.7 -2.3 Systems/ communication costs -1.4
Slide 13: FXO: IG comparison
FXO: IG* comparison A business of significant scale FXO IG CFD Monthly client recruitment 1,000+ 2,000+ Monthly number of clients dealing 10,000 11,500 6m to M ar-08 6m to M ay-08 Revenue £19.7m £36.6m Revenue per client £1,053 £2,122 * Global CFD business - 13 -
Slide 14: Combined pro forma P&L
Combined pro forma P&L Highly profitable business IG FXO Pro forma Year ended Year ended 31 05 08 31 03 08 combined Profit margin £m £m £m enhancement Revenue Betting duty 184.0 -10.8 35.9 0.0 219.9 -10.8 Stated before 12.5% minority interest Gross profit 173.2 35.9 209.1 adjustment Interest on
Slide 15: Deal structure
Deal structure FXO valued at Y25bn (£128m) Represents 31-Mar-08 PER of 8.7x Acquisition of 87.5% for Y21.9bn (£112m) Jim Gow retains 12.5% Subject to call option exercisable from Jan 2011 ‐ Profit-based formula Financing of initial stake: £117m (inc costs) £35.0m cash (own resources) £
Slide 16: FXO current trading
FXO current trading Signs of return to strong growth Aggressive price competition slowed trading in Apr/May FXO spread cuts in late May boosted volume and revenue September* shows return to strong growth after August holiday season Average daily revenue 70% higher than preceding five months
Slide 17: IG current trading
IG current trading Strong growth continues Q1 Results Revenue growth 29% Costs in line with expectations Strong summer account opening – financial accounts up 45% Established overseas offices continue to grow New offices in France and Spain performing well Non-UK revenues represent 30%
Slide 18: Summary
Summary A major strategic opportunity Provides immediate scale and infrastructure in a key strategic market Valuation represents a multiple of 8.7 times profit after tax in respect of the financial year ending 31 March 2008 Significant scope to generate synergy benefits Expected to be EPS en
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