Ig Group Holdings Plc · LSE:IGG
Ig — FY2018 Earnings Presentation
43 slides from Ig's earnings presentation, July 2018
Slide 1: Results Presentation
Results Presentation Full Year Ended 31st May 2018
Slide 2: Disclaimer
Disclaimer This presentation, prepared by IG Group Holdings plc (the “Company”), may contain forward-looking statements about the Company. Such forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", “projects”, "estimates", "plans", "a
Slide 3: FY18 Summary
FY18 Summary Record revenue, record operating profit, and record earnings FY18 RESULTS • Net trading revenue £569.0m, up 16% on FY17 • Own funds generated from operations of £320.9m • Operating profit £281.1m, up 32% • Basic EPS 61.7p, up 34% • Operating profit margin 49.4%, up 5.9% points • Full ye
Slide 4: Purpose, vision and values
Purpose, vision and values Our purpose is to Champion the client empower informed, Understand them. Be part of their whole experience. Think big, think long-term. Make decisive, adventurous every moment count and stick with them all the people to access way. Do what matters most. opportunities in Le
Slide 5: Financial Results and Position
Financial Results and Position Paul Mainwaring Chief Financial Officer IG Group Holdings plc • FY18 Results 5
Slide 6: Income statement
Income statement Net revenue up 16%, operating profit up 32%, earnings up 34% £m FY18 FY17 Change £m FY18 FY17 Change Net trading revenue 569.0 491.1 16% Operating profit 281.1 213.4 32% Net interest on client money 4.5 4.0 Net finance (cost) / income (0.3) 0.3 Betting duty and FTT (5.1) (7.5) Profi
Slide 7: Revenue trends
Revenue trends REVENUE (£m) FY18 FY17 Change REVENUE BY ASSET CLASS UK 249.5 223.0 12% EMEA 162.1 137.5 18% Options APAC 136.8 114.1 20% 8% FY18 OTC Leveraged 548.4 474.6 16% 9% US 16.6 14.1 18% Shares 17% FY17 Share Dealing & Investments 4.0 2.4 67% Group 569.0 491.1 16% 16% Indices 41% 44% 17% FX
Slide 8: Client trends
Client trends Active Clients (‘000)¹ Revenue per Client (£) FY18 FY17 Change FY18 FY17 Change UK 59.9 64.7 (7%) 4,166 3,446 21% EMEA 46.1 45.9 - 3,519 2,997 17% APAC 38.6 37.4 3% 3,543 3,051 16% OTC Leveraged 144.6 148.0 (2%) 3,794 3,207 18% US 22.0 22.3 (1%) 756 630 20% Share Dealing & Investments
Slide 9: Drivers of revenue
Drivers of revenue Increase in rate of growth reflects existing clients trading more OTC LEVERAGED REVENUE BRIDGE (£m) 81.9 548.4 36.2 (52.6) 86.7 474.6 8.3 Existing 444.3 (12.0) clients New (50.6) Existing Returning trading clients clients not clients Existing more/ trading clients trading (less) 6
Slide 10: Enduring client value
Enduring client value CUMULATIVE AVERAGE OTC LEVERAGED CLIENT VALUE1 (£) FY14 CLIENT COHORT REVENUE2 9,000 £59m FY14 8,000 Investment3 £52m FY15 £40m 7,000 £39m FY16 £35m £33m 6,000 FY17 5,000 4,000 FY18 YEAR 1 YEAR 1 Column1 YEAR 22 YEAR YEAR 33 YEAR YEAR 44 YEAR YEAR 55 YEAR 3,000 2,000 FY10 CLIEN
Slide 11: Operating expenses and variable remuneration
Operating expenses and variable remuneration BY ACTIVITY CATEGORY (£m) FY18 FY17 Change BY COST TYPE (£m) FY18 FY17 Change Prospect acquisition 79.8 85.9 (7%) Fixed remuneration 96.0 95.5 1% Sales and client service 33.1 30.2 10% Advertising and marketing 58.7 64.5 (9%) Technology and innovation 88.
Slide 12: Own funds
Own funds Excellent conversion of profit into cash OWN FUNDS FLOW (£m) FY18 FY17 MOVEMENT IN OWN FUNDS (£m) FY18 FY17 Operating profit 281.1 213.4 Net own funds generated from operations 272.0 183.9 Depreciation and amortisation 17.6 16.4 Net financing income / (cost) (0.6) 0.6 Share based compensat
Slide 13: Balance sheet
Balance sheet Strong financial position BALANCE SHEET (£m) FY18 FY17 AVAILABLE LIQUIDITY (£m) FY18 Goodwill 108.0 108.1 Liquid assets 872.3 Intangible assets 43.4 48.6 Broker margin requirement (386.8) Property, plant and equipment 15.5 17.4 Non-UK cash balances (154.1) Fixed assets 166.9 174.1 Own
Slide 14: Broker margin
Broker margin Margin requirement driven by notional size of hedging positions NOTIONAL POSITIONS (£m) MARGIN REQUIREMENT (£m) FY16 FY17 FY18 10,000 500 PEAK: £453m AVERAGE: £372m Client notional 450 8,000 PEAK: £367m AVERAGE: £286m 400 6,000 350 PEAK: £259m AVERAGE: £213m 300 4,000 IG hedge notional
Slide 15: FY19 financial outlook
FY19 financial outlook • Revenue in FY19 expected to be lower than in FY18 • Operating expenses expected to increase in FY19 • Variable remuneration expected to be lower in FY19 • Net financing costs expected to be c. £2m higher • Tax rate estimated to be 19.5% IG Group Holdings plc • FY18 Results 1
Slide 16: Our Competitive Advantage
Our Competitive Advantage Peter Hetherington Chief Executive Officer IG Group Holdings plc • FY18 Results 16
Slide 17: Our business model
Our business model • Our interests are completely aligned with our REVENUE PERFORMANCE (£m) clients – we want clients to succeed 250 • Revenue is driven by clients and their level of activity – not direction of market movements 200 Client commission, spread and funding • We internalise what we can a
Slide 18: High value, long standing client base
High value, long standing client base • 50% revenue is generated by < 2% of clients REVENUE BY 1 REVENUE BY 1 – c.19 million trades in FY18 ACTIVE CLIENTS CLIENT TENURE • 80% revenue is generated by < 10% of clients 90% 20% 38% 5+ years • 52% revenue comes from clients who trade with IG longer than
Slide 19: Macro trends fuel business growth
Macro trends fuel business growth • Driven by a favourable macro environment 10 YEAR REVENUE1 (£m) – Wealth and financial awareness is 9% CAGR increasing 569 491 – Spread of information via technology 456 400 367 362 370 – Self-directed involvement in financial 320 299 markets is on the rise 257 • I
Slide 20: Innovation
Innovation It’s in our DNA IG Group Holdings plc • FY18 Results 20
Slide 21: Regulation and Mitigation
Regulation and Mitigation Peter Hetherington Chief Executive Officer IG Group Holdings plc • FY18 Results 21
Slide 22: ESMA product intervention measures
ESMA product intervention measures Formally adopted for EU retail clients • This is emergency intervention “ ESMA’s product intervention • We are planning on the basis these measures are focused on the temporary restrictions will become CFD industry, and risk creating permanent in the UK and across
Slide 23: Mitigation
Mitigation For professionals only.1 Losses can exceed deposits. 1 Professional clients • Professional clients contribute > 40% of UK and EU revenue1 – We continue to expect this to rise to 50% The IG professional account. • 18,650 applications, of which 4,350 accepted For traders who know As an expe
Slide 24: IG Group Holdings plc • FY18 Results
IG Group Holdings plc • FY18 Results 24
Slide 25: IG Group Holdings plc • FY18 Results
IG Group Holdings plc • FY18 Results 25
Slide 26: Mitigation: Our global footprint
Mitigation 2 Our global footprint • IG has 8 regulated legal entities TOTAL EU AND UK CLIENTS CONTRACTING WITH MULTIPLE IG ENTITIES • Clients can choose which IG entity they want to 350 contract with 300 • Factual information is available for clients to 250 compare which IG entity provides the best
Slide 27: Mitigation: Retail clients can fund more or continue trading
Mitigation 3 Retail clients can fund more or continue trading as is • Our clients actively manage their funds on account • Retail clients, on average, have headroom of around 3x their margin requirement UK AND EU CLIENT MARGIN AND CASH BALANCE (£m) UK AND EU CLIENT NOTIONAL (£m) 700 7,000 RETAIL CLI
Slide 28: Mitigation: Retail clients can change the products they trade
Mitigation Retail clients can change the products they trade 4 Within CFD category • We expect the product mix clients use to change “IG is developing new OTC • The Spanish and German index (IBEX and DAX), leveraged derivative used to have similar margin rates; under new rules, IBEX requires double
Slide 29: Marketing landscape
Marketing landscape Policy changes for CFD industry by large technology firms • A number of large technology firms are restricting advertising and marketing in the CFD industry • Actions include: – Ensuring apps or ads are served in locations where firms are explicitly licensed – Banning or restrict
Slide 30: Future Growth
Future Growth Peter Hetherington Chief Executive Officer IG Group Holdings plc • FY18 Results 30
Slide 31: Existing countries
Existing countries We expect to grow our market share • Economies of scale • Multi channel marketing – Large volume of trading allows us to – Fuelled by technology, data, insight and internalise flow optimisation – Price improvements given regularly – Combining local market and customer insight • Ra
Slide 32: Entry into new countries
Entry into new countries Strong track record of opening new offices • 15 offices opened or bought since 2002 SWITZERLAND AND DUBAI REVENUE GROWTH (£) – 56% of group revenue in FY18 2,000,000 • Switzerland and Dubai combined revenue 1,750,000 up over 25% year on year 1,500,000 • Having local, regulat
Slide 33: Entry into new countries: US Retail Foreign Exchange Dealer
Entry into new countries US Retail Foreign Exchange Dealer • US retail FX market is poorly served – 3 brokers with ADDRESSABLE MARKET 1 higher costs than in EU • Large pool of clients – 85k active traders with 25k new entrants in 2018 – Over $500m of retail funds on deposit 85k • IG US will offer sp
Slide 34: Growth through innovation
Growth through innovation MTF Initiative ESTIMATED MARKET SIZE • Offensive and defensive • Deutsche Bank – European preference for this structure and product • Commerzbank • Unicredit – IG’s Turbos will be listed on IG’s MTF • Goldman Sachs • UBS – Safe harbour • BBVA • Nomura • BNP Well positioned
Slide 35: Conclusion
Conclusion Peter Hetherington Chief Executive Officer IG Group Holdings plc • FY18 Results 35
Slide 36: Why we differ
Why we differ Technology and Brand innovation Client service 44 years experience being a Continuously innovating to At the heart of the global leader, with market enable clients to trade corporate culture providing capitalisation of over £3.1bn financial markets an uninterrupted service to clients,
Slide 37: Conclusion
Conclusion Record revenue, record operating profit, and record earnings • IG has been a sustainable business for more than 40 years • Well positioned strategically to mitigate impact of regulatory change • Well positioned to deliver sustainable growth and attractive shareholder returns • Making inve
Slide 38: Questions?
Questions? For further information, please contact: IG Group FTI Consulting Liz Scorer Neil Doyle / Ed Berry 020 7573 0727 020 3727 1141 / 1046 IG Group Holdings plc • FY18 Results 38
Slide 39: APPENDICES
APPENDICES IG Group Holdings plc • FY18 Results 39
Slide 40: Full year and half year analysis
Appendix 1 Full year and half year analysis 1 FY16 FY17 FY18 REVENUE (£m) H1 H2 FY H1 H2 FY H1 H2 FY UK 106.4 116.0 222.3 115.0 108.0 223.0 116.7 132.8 249.5 EMEA 53.1 64.2 117.3 67.0 70.5 137.5 76.6 85.5 162.1 APAC 50.3 54.4 104.7 55.6 58.5 114.1 66.0 70.8 136.8 OTC Leveraged 209.8 234.5 444.3 237.
Slide 41: Quarterly analysis
Appendix 2 Quarterly analysis 1 FY16 FY17 FY18 REVENUE (£m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 UK 54.5 51.9 60.3 55.7 53.0 62.0 51.1 56.9 58.8 57.9 69.2 63.7 EMEA 24.1 29.0 30.4 33.8 29.8 37.2 33.5 37.0 39.0 37.7 41.9 43.5 APAC 25.1 25.2 28.5 25.9 25.2 30.4 28.2 30.3 33.1 32.9 36.4 34.4 OTC Leverag
Slide 42: Regulatory capital
Appendix 3 Regulatory capital £m FY18 FY17 Workings Shareholders’ funds 842.1 735.3 Less foreseeable declared dividends (123.1) (83.9) Less acquisition intangibles (108.0) (108.1) Less other intangible assets (43.4) (48.6) Less deferred tax assets (9.1) (9.1) Capital resources 558.5 485.6 A Pillar 1
Slide 43: Revenue optimisation
Appendix 4 Revenue optimisation 1 REVENUE VARIABILITY (£m) Revenue Coefficient 3.0 2.5 2.5 2.0 2.0 Daily revenue (60 day roll avg) 1.5 1.5 1.0 1.0 Coefficient of variability (60 day roll avg) 0.5 0.5 0.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1 Excluding impact of Swiss franc eve