Results Presentation. Full Year Ended 31 st May 2018

Transcription

1 Results Presentation Full Year Ended 31 st May 2018

2 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", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. Forward-looking statements involve known and unknown risks and uncertainties because they are beyond the Company s control and are based on current beliefs and expectations about future events, including the results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy of the Company and the industry in which it operates. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company. If the assumptions on which the Company bases its forward-looking statements change, actual results may differ from those expressed in such statements. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update these forward-looking statements. Nothing in this presentation should be construed as a profit forecast. Some numbers and period on period percentages in this presentation have been rounded or adjusted to ensure consistency with the financial statements. This may lead to differences between subtotals and the sum of individual numbers as presented. FY18 relates to the financial year ending 31st May 2018, FY17 relates to the financial year ending 31st May FY18 H1 refers to the half year ending 30th November 2017, FY17 H1 refers to the half year ending 30th November

3 FY18 Summary Record revenue, record operating profit, and record earnings FY18 RESULTS Net trading revenue 569.0m, up 16% on FY17 Operating profit 281.1m, up 32% Operating profit margin 49.4%, up 5.9% points PAT 226.4m, up 34% Own funds generated from operations of 320.9m Basic EPS 61.7p, up 34% Full year dividend of 43.2p, 34% increase on FY17 and 70% payout of earnings, giving final of 33.51p 5 YEAR REVENUE, EPS AND DIVIDEND Underlying 1 REVENUE ( m) EARNINGS PER SHARE (p) DIVIDEND PER SHARE (p) H1 H2 H1 H2 Interim Final FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 1 FY15 excludes impact of Swiss franc event 3

4 Purpose, vision and values Our purpose is to empower informed, decisive, adventurous people to access opportunities in financial markets. Our vision is to be a global leader in retail trading and investments. Champion the client Understand them. Be part of their whole experience. Think big, think long-term. Make every moment count and stick with them all the way. Do what matters most. Lead the way Be brave. Back yourself. Innovate and adapt to win. Challenge assumptions, ideas, decisions. Ask why. Stand up and speak your mind. Achieve. Do the right thing. Love what we do Make it personal. Care, be passionate, have fun. Respect our diversity and learn from each other. Share your enthusiasm. Take pride in each other s achievements. Work as a team. 4

5 Financial Results and Position Paul Mainwaring Chief Financial Officer 5

6 Income statement Net revenue up 16%, operating profit up 32%, earnings up 34% m FY18 FY17 Change m FY18 FY17 Change Net trading revenue % Operating profit % Net interest on client money Net finance (cost) / income (0.3) 0.3 Betting duty and FTT (5.1) (7.5) Profit before taxation % Other operating income Net operating income % Taxation Profit for the year (54.4) (44.5) % Operating expenses Variable remuneration Total operating costs Operating profit (254.2) (35.9) (290.1) (252.5) (23.6) (276.1) % 32% Effective rate of tax Basic earnings per share Total dividend per share 19.4% 61.7p 43.2p 20.8% 46.2p 32.3p 34% 34% Operating profit margin 49.4% 43.5% 5.9 %pts 6

7 Revenue trends REVENUE ( m) FY18 FY17 Change REVENUE BY ASSET CLASS UK EMEA APAC OTC Leveraged US Share Dealing & Investments Group % 18% 20% 16% 18% 67% 16% Shares Options 17% 16% 8% 9% FY17 FY18 41% 44% Indices 17% FX 24% 14% 10% Commodities and rates 7

8 Client trends UK EMEA APAC OTC Leveraged US Share Dealing & Investments Multi Product Clients Group Active Clients ( 000)¹ FY18 FY17 Change (6.9) (5.0) (7%) - 3% (2%) (1%) 74% 38% 5% Revenue per Client ( ) FY18 FY17 Change 4,166 3,519 3,543 3, ,915 3,446 2,997 3,051 3, ,643 21% 17% 16% 18% 20% (2%) 10% 1 Active clients represents all clients who generated revenue through leveraged trading, or were holding a Share Dealing or Investment position at the end of the period. Multi-product clients are included in both numbers, with the overlap removed as shown 8

9 Drivers of revenue Increase in rate of growth reflects existing clients trading more OTC LEVERAGED REVENUE BRIDGE ( m) (52.6) (12.0) Existing clients trading more/(less) (50.6) Existing clients not trading 6.2 Returning clients 86.7 New clients Existing clients trading more/ (less) Existing clients not trading (44.3) 8.3 Returning clients New clients (44.4) FY16 FY17 FY18 9

10 Enduring client value CUMULATIVE AVERAGE OTC LEVERAGED CLIENT VALUE 1 ( ) FY14 CLIENT COHORT REVENUE 2 9,000 8,000 FY14 Investment 3 52m 59m 7,000 6,000 FY16 FY15 40m 39m 35m 33m 5,000 FY17 4,000 3,000 2,000 FY18 YEAR 1YEAR Column1 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 FY10 CLIENT COHORT REVENUE 2 1, m 31m 31m 29m Months from first trade 1 Figures from 18 months onwards use a 6 month rolling average Column2 Column1 0m YEAR 6 YEAR 7 YEAR 8 YEAR 9 2 Revenue from OTC leveraged clients only 3 Total prospect acquisition cost excluding Nadex 10

11 Operating expenses and variable remuneration BY ACTIVITY CATEGORY ( m) FY18 FY17 Change BY COST TYPE ( m) FY18 FY17 Change Prospect acquisition (7%) Fixed remuneration % Sales and client service Technology and innovation Business administration % (2%) 15% Advertising and marketing Other costs (9%) 8% Operating expenses % Operating expenses % Share based compensation Sales bonuses % 25% HEADCOUNT BY LOCATION General bonuses Variable remuneration Total operating costs % 52% 5% 3% 2% 5% 7% 16% 67% FY14 1,153 employees 4% 3% 5% 12% 12% 48% FY18 1,677 employees London Krakow Bangalore Melbourne Johannesburg USA Sales offices 16% 11

12 Own funds Excellent conversion of profit into cash OWN FUNDS FLOW ( m) FY18 FY17 MOVEMENT IN OWN FUNDS ( m) FY18 FY17 Operating profit Net own funds generated from operations Depreciation and amortisation Net financing income / (cost) (0.6) 0.6 Share based compensation Investments Change in working capital 15.2 (8.3) - Purchase of DailyFX (3.0) (29.8) Own funds generated from operations as % of operating profit Taxes paid Net own funds generated from operations % (48.9) % (45.3) Capital expenditure - Purchase of own shares Pre-dividend increase in own funds Dividends Increase in own funds Own funds at start of the year (11.0) (4.3) (119.6) (17.1) (1.1) (118.7) Impact of movement in exchange rates (1.7) 8.8 Own funds at the end of period

13 Balance sheet Strong financial position BALANCE SHEET ( m) FY18 FY17 AVAILABLE LIQUIDITY ( m) FY18 Goodwill Liquid assets Intangible assets Broker margin requirement (386.8) Property, plant and equipment Non-UK cash balances (154.1) Fixed assets Own funds in client money (49.5) Liquid asset buffer Available liquidity at end of period Amounts at brokers Cash in IG bank accounts Own funds in client money Liquid assets of which is: Held as liquid asset buffer Final dividend due Client deposits IG Bank SA Title transfer funds Own funds Working capital Tax payable (37.0) (89.2) (62.4) (17.6) (57.1) (60.0) (49.1) (13.1) NEW BANK FACILITY 100m 3 year term loan 100m 1 year revolving credit facility Deferred tax assets Capital employed Shareholders funds

14 Broker margin Margin requirement driven by notional size of hedging positions NOTIONAL POSITIONS ( m) MARGIN REQUIREMENT ( m) 10,000 8,000 Client notional FY16 FY17 FY18 PEAK: 367m AVERAGE: 286m PEAK: 453m AVERAGE: 372m 6,000 4,000 IG hedge notional PEAK: 259m AVERAGE: 213m 250 2,000 - IG residual exposure J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M

15 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% 15

16 Our Competitive Advantage Peter Hetherington Chief Executive Officer 16

17 Our business model Our interests are completely aligned with our clients we want clients to succeed REVENUE PERFORMANCE ( m) 250 Revenue is driven by clients and their level of activity not direction of market movements We internalise what we can and hedge the balance Client commission, spread and funding The greater the internalisation, the less we hedge 100 Internalisation benefit Reported quarterly revenue 50 Revenue if fully hedged 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY13 FY14 FY15 FY16 FY17 FY18 17

18 High value, long standing client base 50% revenue is generated by < 2% of clients c.19 million trades in FY18 REVENUE BY ACTIVE CLIENTS 1 REVENUE BY CLIENT TENURE 1 80% revenue is generated by < 10% of clients 90% 20% 38% 5+ years 52% revenue comes from clients who trade with IG longer than 3 years We are focused on building deeper, longer, better relationships with our clients 30% 14% 3-5 years 50% 33% 1-3 years 8% Clients < 2% Revenue 10% 5% FY months 0-6 months 1 OTC leverage clients only 18

19 Macro trends fuel business growth Driven by a favourable macro environment Wealth and financial awareness is increasing Spread of information via technology Self-directed involvement in financial markets is on the rise In a period of increasing competition and changing regulation we have delivered consistently strong growth We are strategically positioned to continue to benefit from these trends 10 YEAR REVENUE 1 ( m) 9% CAGR FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 1 FY15 excludes impact of Swiss franc event 19

20 Innovation It s in our DNA 20

21 Regulation and Mitigation Peter Hetherington Chief Executive Officer 21

22 ESMA product intervention measures Formally adopted for EU retail clients This is emergency intervention We are planning on the basis these temporary restrictions will become permanent in the UK and across the EU 1 ST JUN ND JUL ST AUG 2018 Formal adoption by ESMA Binary options Contracts for difference ESMA s product intervention measures are focused on the CFD industry, and risk creating an unlevel playing field by giving an advantage to other forms of leveraged trading products which are offered to retail clients such as futures, turbos and warrants. 22

23 Mitigation 1 Professional clients For professionals only. 1 Losses can exceed deposits. Professional clients contribute > 40% of UK and EU revenue 1 We continue to expect this to rise to 50% 18,650 applications, of which 4,350 accepted In total c. 4,600 professional clients The IG professional account. For traders who know As an experienced trader you could gain access to a host of exclusive features, as well as exemption from upcoming leverage limits. Check your eligibility at IG.com/uk/professional APPLICATION STATUS 23% Accepted >40% 77% Rejected Revenue 1 by professional clients c.19% UK and EU revenue represented 1 The advertised offering is only available to clients capable of obtaining professional status. This requires experience of trading relevant products on you own account above a certain size, experience of working within the financial sector for at least one year in a relevant position and/or a personal investment portfolio worth at least 500,000. For more information please visit IG.com/uk/professional 1 Revenue generated by OTC leveraged active UK and EU clients in the three months to June

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26 Mitigation 2 Our global footprint IG has 8 regulated legal entities Clients can choose which IG entity they want to contract with Factual information is available for clients to compare which IG entity provides the best account for them, based on their trading priorities TOTAL EU AND UK CLIENTS CONTRACTING WITH MULTIPLE IG ENTITIES May 16 May 30 May 13 Jun 27 Jun 11 Jul

27 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) RETAIL CLIENT EQUITY 7,000 6,000 RETAIL CLIENT NOTIONAL PRO CLIENT EQUITY 5,000 4, RETAIL MARGIN REQ 3, ,000 PRO CLIENT NOTIONAL 100 PRO MARGIN REQ 0 July Aug Sep Oct Nov Dec Jan Feb Mar Apr May ,000 0 July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 27

28 Mitigation Retail clients can change the products they trade 4 Within CFD category 5 We expect the product mix clients use to change The Spanish and German index (IBEX and DAX), used to have similar margin rates; under new rules, IBEX requires double the margin of DAX Outside of CFD category Clients may switch to unaffected products: Futures, Options, Swaps and Turbos IG is developing new OTC leveraged derivative products that are compliant with regulations that it believes will be attractive to retail clients. These products have similar economic characteristics to CFDs 28

29 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 restricting the advertising and marketing of all binaries and cryptocurrencies Progressive Web App (PWA) allows clients to download our dealing platform without using an app store 29

30 Future Growth Peter Hetherington Chief Executive Officer 30

31 Existing countries We expect to grow our market share Economies of scale Large volume of trading allows us to internalise flow Price improvements given regularly Range of products Range of asset classes: over 15,000 products Tailor products based on location to fit client needs Multi channel marketing Fuelled by technology, data, insight and optimisation Combining local market and customer insight Relationship management We tailor service based on specific client needs Regression and predictive analysis allows us to build a model which is difficult to replicate Market leading platform Introduced Progressive Web Application 31

32 Entry into new countries Strong track record of opening new offices 15 offices opened or bought since % of group revenue in FY18 SWITZERLAND AND DUBAI REVENUE GROWTH ( ) 2,000,000 Switzerland and Dubai combined revenue up over 25% year on year Having local, regulated offices allows us to continue marketing to local clients We are applying for licences to open two new offices in emerging markets 1,750,000 1,500,000 1,250,000 1,000, , ,000 Dubai Switzerland 250, Months since launch 32

33 Entry into new countries US Retail Foreign Exchange Dealer US retail FX market is poorly served 3 brokers with 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 IG US will offer spot FX and options to retail clients across the USA Synergy with DailyFX brand will drive client acquisition Opens up a large new OTC market, with high regulatory and financial barriers to entry ADDRESSABLE MARKET 1 85k Active FX traders 25k Predicted new FX traders 1 Investment Trends US Foreign Exchange report

34 Growth through innovation MTF Initiative Offensive and defensive European preference for this structure and product IG s Turbos will be listed on IG s MTF Safe harbour Well positioned to deliver success Regulatory expertise Attract and convert European clients Strong balance sheet Technological capability ESTIMATED MARKET SIZE Deutsche Bank Commerzbank Unicredit Goldman Sachs UBS BBVA Nomura BNP 1.96bn Total EU (ex UK) leveraged market 788m Total EU (ex UK) CFD market 118m IG s EU (ex UK) share 34

35 Conclusion Peter Hetherington Chief Executive Officer 35

36 Why we differ Brand 44 years experience being a global leader, with market capitalisation of over 3.1bn Technology and innovation Continuously innovating to enable clients to trade financial markets Client service At the heart of the corporate culture providing an uninterrupted service to clients, tailored to them Risk management Thoroughly tested and highly resilient in a wide range of real-life scenarios Conduct Always seek to operate in clients best interests Business model Ensures our interests as a business are aligned with the interest of our clients 36

37 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 investments for future growth Confidence in the strategy and financial outlook We expect to maintain the 43.2 pence per share dividend until earnings allow progressive dividends 37

38 Questions? For further information, please contact: IG Group Liz Scorer FTI Consulting Neil Doyle / Ed Berry /

39 APPENDICES 39

40 Appendix 1 Full year and half year analysis 1 REVENUE ( m) H1 FY16 H2 FY H1 FY17 H2 FY H1 FY18 H2 FY UK EMEA APAC OTC Leveraged US Share Dealing & Investments GROUP CLIENTS ( 000) H1 FY16 H2 FY H1 FY17 H2 FY H1 FY18 H2 FY UK EMEA APAC OTC Leveraged US Share Dealing & Investments (Multi Product Clients) GROUP (1.5) (2.1) (2.4) (3.3) (4.3) (5.0) (5.2) (6.0) (6.9) REVENUE PER CLIENT ( ) H1 FY16 H2 FY H1 FY17 H2 FY H1 FY18 H2 FY UK EMEA APAC OTC Leveraged US Share Dealing & Investments GROUP 2,307 1,743 1,671 1, ,818 2,419 1,876 1,856 2, ,907 3,710 2,821 2,879 3, ,897 2,171 1,871 1,834 1, ,722 2,248 1,920 1,959 2, ,680 3,446 2,997 3,051 3, ,643 2,470 2,128 2,200 2, ,767 2,807 2,331 2,226 2, ,876 4,166 3,519 3,543 3, ,915 1 Unique clients trading in each period with revenue stated as Net Trading Revenue 40

41 Appendix 2 Quarterly analysis 1 REVENUE ( m) Q1 FY16 Q2 Q3 Q4 Q1 FY17 Q2 Q3 Q4 Q1 FY18 Q2 Q3 Q4 UK EMEA APAC OTC Leveraged US Share Dealing & Investments GROUP CLIENTS ( 000) Q1 FY16 Q2 Q3 Q4 Q1 FY17 Q2 Q3 Q4 Q1 FY18 Q2 Q3 Q4 UK EMEA APAC OTC Leveraged US Share Dealing & Investments GROUP REVENUE PER CLIENT ( m) Q1 FY16 Q2 Q3 Q4 Q1 FY17 Q2 Q3 Q4 Q1 FY18 Q2 Q3 Q4 UK EMEA APAC OTC Leveraged US Share Dealing & Investments GROUP 1, , ,085 1,436 1,156 1,026 1, ,149 1,508 1,092 1,129 1, ,185 1,488 1,224 1,063 1, ,171 1,220 1, , ,469 1,228 1,188 1, ,137 1,291 1,089 1,126 1, ,430 1,174 1,197 1, ,035 1,498 1,293 1,316 1, ,082 1,502 1,265 1,291 1, ,038 1,694 1,337 1,331 1, ,104 1,703 1,473 1,308 1, ,102 1 Unique clients trading in each period with revenue stated as Net Trading Revenue 41

42 Appendix 3 Regulatory capital m FY18 FY17 Workings Shareholders funds 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 A Pillar 1 Risk Exposure Amounts (REA) Total Pillar 1 REA 2, ,817.3 B Capital ratio 27.4% 26.7% A / B = C Required capital ratio Pillar 1 minimum 8.0% 8.0% D Individual Capital Guidance (ICG) 9.4% 9.4% E ICG requirement 17.4% 17.4% D + E = F Plus combined buffer requirement 2.2% 1.3% G Total requirement % 19.6% 18.7% F + G = H Total requirement - m H x B = I Capital headroom - m A - I 42

43 Appendix 4 Revenue optimisation REVENUE VARIABILITY 1 ( m) Revenue 3.0 Coefficient Daily revenue (60 day roll avg) Coefficient of variability (60 day roll avg) Excluding impact of Swiss franc event (Jan 15) 43