Annual Report
IG Group Holdings plc
Report and Financial Statements
31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
Contents
IG Group Holdings plc is a world leader in financial
derivatives trading and sports betting. Our well-known
and successful brands cover a global client base.
Contents
01 At a Glance
02 Marketing Activity
04 Technology
06 Partners
08 Chairman’s Statement
10 Chief Executive’s Report
16 Directors’ Biographies
18 Group Operating and Financial Review
26 Corporate Governance
31 Directors’ Remuneration Report
39 Directors’ Report
43 Statement of Directors’ Responsibilities in
Respect of the Financial Statements
44 Group and Company Financial Statements
49 Notes to the Financial Statements
90 Independent Auditor’s Report
At a Glance
Report and Financial Statements 2008 01
IG Group Holdings plc
At a Glance
Revenue
+ 51%
Revenue up 51% at £184 million
EBITDA
£ 98.5m
EBITDA up 40% at £98.5 million
EBITDA margin
53.5%
Strong EBITDA margin of 53.5%
Earnings per share
Final dividend
+ 40%
Diluted earnings per share up 40%
at 20.28p
9.0p
Final dividend 9.0p per share – total
dividend 12.0p per share
Final dividend increase
+ 38.5%
Final dividend increases 38.5% to 9.0p
Revenue (£million)
EBITDA (£million)
Earnings per share*
*To aid comparison, normalised earnings per share is presented for 2004 and 2005
02
IG Group Holdings plc
Report and Financial Statements 2008
Marketing Activity
Marketing Activity
Report and Financial Statements 2008 03
IG Group Holdings plc
“
Our global marketing
strategy utilises engaging
creative treatments across
multiple media, to ensure
high visibility in each of our
territories
“
Marketing
Activity
I n support of our world-leading brands we deploy a global marketing strategy. This
utilises a variety of engaging creative treatments across multiple media, to ensure high
visibility in each of our territories. Our activity includes print and online advertising,
event sponsorship, and a continued presence at seminars and investment shows.
Innovation as standard
In April 2008 we ran the first advert in our ‘Innovation as Standard’ campaign for IG Index in
the UK, to showcase our new iPhone dealing service. The campaign has served to underline
that IG continues to lead the way in both platform and product innovation within the
spread betting industry.
This series of press and online adverts taps into our history of innovation and reputation
as pioneers of spread betting. During a year of significant technological development, the
campaign has allowed us to feature each successive new product or feature from IG Index
over the course of spring and summer 2008, months that have seen record levels of client
recruitment.
Education
Another key driver of client recruitment and trading activity is our education service,
comprising the TradeSense course and an ongoing seminar programme. The ‘Spread
Betting with Confidence’ adverts – featured in national UK Sunday newspapers and
supported by online and email marketing – spoke to prospective clients who feel they
need more knowledge and training before they try spread betting for the first time.
Global marketing
IG Markets, our CFD service, has a truly global client base. To this end we have distinctive
ongoing campaigns promoting IG Markets across Europe and also in Australia, Singapore
and the US. Our expansion in Europe and Asia Pacific has been supported by extensive
direct advertising.
Back in the UK, our leisure brands are promoted in a lighter vein, capturing the unique thrill
of the betting experience. For example, we have recently launched an eye-catching new
campaign for extrabet.com, bringing the ‘quit while you’re ahead’ proposition to life through
a recurring ‘comic strip’ theme.
04
IG Group Holdings plc
Report and Financial Statements 2008
Technology
Technology
Report and Financial Statements 2008 05
IG Group Holdings plc
“
In March 2008 IG Index
became the first UK spread
betting company to offer
iPhone dealing
“
Technology
O
ur continuous programme of technological innovation determines
the competitive advantage of all the IG businesses, across all our
territories.
Deal anytime, anywhere
The IG ethos is to deliver fast and reliable dealing on an exhaustive range of
instruments, wherever you are. Our award-winning PureDeal platform is used by over
50,000 active clients worldwide to gain 24-hour access to fast-moving global markets.
In March 2008 IG Index became the first UK spread betting company to offer dealing
software tailored for use on Apple’s groundbreaking iPhone, iPhone 3G and iPod
touch devices. This software has since been rolled out to the IG Markets business in
all locations worldwide.
IG clients can also deal on-the-move via mobile phone, BlackBerry or PDA. For the
higher-end investor, our Direct Market Access platform, L2 Dealer, provides full
market depth data and the ability to interact with the order book. The L2 platform is
popular with institutions and professional traders.
Market-leading trading tools
Our research and development aims to enhance the trading experience with an
unparalleled suite of tools. From Reuters news to pro-level charting, each new tool is
designed to increase a client’s chance of trading success.
Innovation comes as standard at IG. Since April 2008 alone we have introduced:
Trailing Stops
A unique type of Stop Order whereby your Stop level trails favourable market moves,
helping you to lock in profits
DealThru Charts
Giving you the ability to trade directly from our market-leading charts, with all trades
logged automatically on PureDeal
Price Alerts
For real-time notification of price levels across our range of markets, with optional
email or SMS messaging.
06
IG Group Holdings plc
Report and Financial Statements 2008
Partners
Partners
Report and Financial Statements 2008 07
IG Group Holdings plc
“
As our business expands
overseas so does our
network of partners, which
is becoming increasingly
diverse
“
Partners
W ith a range of partnership models, from straight referral through to full
‘white-labelling’ of our dealing and back-office systems, our partner network
creates significant ongoing revenue.
A global network
We have the power to bring our dealing technology to your
clients, and the experience and expertise to support a vast network
of partners around the world. The year 2007-2008 has seen IG
consolidate its offer to partners through whom we market our CFD
and spread betting services, often via white-label relationships.
IG Markets and IG Index together have over 300 Introducing Brokers
and Agents who generated revenue during the past year. As our
business expands overseas so does our network of partners, which is
becoming increasingly diverse. The main partners to IG are advisors,
online brokers, private client stockbrokers and wealth managers.
Partnering with IG
Our partner relationships are designed to be mutually beneficial, with
generous rebates to successful partners. Payments made to partners
by IG Markets alone in 2007-2008 were in excess of £40 million, up
from £33 million in 2006-2007.
Cooperation with either IG Markets or IG Index allows our partners
to generate new revenue streams using their marketing and sales
capabilities while relying on our award-winning dealing platforms,
plus our expertise in dealing, risk management and client services.
08
IG Group Holdings plc
Report and Financial Statements 2008
Chairman’s Statement
Chairman’s Statement
Report and Financial Statements 2008 09
IG Group Holdings plc
“
Revenue for the year was
up 51% to £184m and profit
before tax was up 41% to
£97m
“
Chairman’s
Statement
It is my pleasure to present this statement after another successful year at IG. Revenue
for the year was up 51% to £184m (2007 - £122m) and profit before tax was up 41% to
£97m (2007 - £69m). These results were the product of our continuing focus on
broadening our client base by offering high quality dealing platforms, a broad range of
products and excellent customer service.
Our international strategy continues to be to widen our geographic spread where local
regulation and market conditions are appropriate. We have made further progress on our
strategy this year, opening offices in Paris, Madrid and Chicago.
There remains a great deal of work to be done to build on the initial success we have
seen in our recently established overseas businesses. Our aim is to develop each of
these operations and we believe that they all have the potential to grow into substantial
businesses over time, emulating our success in the United Kingdom and Australia.
Dividend
At the AGM your board will recommend the payment of a final dividend of 9.0p per share.
This brings the total dividend for the year to 12.0p, an increase on last year of 41%. This
represents a total dividend of approximately 60% of earnings for the year, in line with the
policy that I announced last year. Our policy, which we will review from time to time, will
be to continue to pay a similar proportion of earnings in future years.
These results could not have been achieved without the hard work and skill of all our
employees throughout the world. Along with my fellow directors I would like to extend my
thanks to them all for their contribution to these excellent results.
I and my colleagues at IG look forward to working towards another successful year for
our business.
Jonathan Davie, Chairman, 21 July 2008
10
IG Group Holdings plc
Report and Financial Statements 2008
Chief Executive’s Report
Chief Executive’s Report
Report and Financial Statements 2008 11
IG Group Holdings plc
Chief
Executive’s Report
“
W e have had another successful year, achieving a very strong level of growth
whilst also significantly developing the Group and its client offering. Revenue
growth of 51% this year exceeded our long run average – over the last 10
As previously indicated, the opening of new businesses in France, Spain and the US
has meant that we added costs before these businesses began to generate revenue. In
addition, betting duty was a rather higher percentage of revenue than in recent years.
Despite these factors, our EBITDA margin this year remains strong, at 53.5%, although
down from 57.7% the previous year.
years we have achieved compound annual growth in excess of 40%.
Over the last 10 years we
have achieved compound
annual growth in excess
of 40%
“
Financial markets were volatile for much of the year. Volatility benefits us because clients
tend to trade more actively in these conditions. It is, however, encouraging to note that
our best month’s revenue in the year was achieved in April, which was not a volatile month
when compared to the preceding nine months.
Over the longer term, client recruitment is the most significant driver of our revenue
growth. The rate of client recruitment has been increasing progressively for a number
of years. This year we recruited more than twice the number of spread betting and CFD
clients compared with the previous year and well over three times the number achieved
in the year before that. This reflects continued growth of client recruitment within our UK
business, together with the extension of our international reach.
This has also been a year of significant innovation for us. The year began with the UK
launch of PureDeal, our state-of-the-art browser-based financial dealing platform. We
then progressively rolled the platform out across the rest of our offices worldwide, in
each case accompanying this with a significant update of the website. The year also saw
the introduction of a version of PureDeal customised to work on the iPhone and two
new methods for clients to manage risk: trailing stops and bungee bets. Each of these
developments has proved to be popular with our clients.
Since the year end we have launched DealThru Charts, our new charting package which
allows clients to deal directly from charts. Individually none of these new features is
revolutionary, but I believe they combine to make our offering significantly better than
those of our competitors. I am sure that our commitment to continuing technology and
product innovation is a significant factor in the progressive improvement we have seen in
client recruitment.
12
IG Group Holdings plc
Report and Financial Statements 2008
Chief Executive’s Report
Client education is also an area where we
have made significant progress during the
course of the last year. We believe that the
more help and guidance we are able to
provide to clients, the greater will be our
recruitment, conversion and retention rates.
It is eighteen months since we introduced
the TradeSense education programme,
which is now available to all our financial
clients worldwide.
Over the last few months we have
supplemented TradeSense with a programme
of seminars, some aimed at existing clients,
some at potential clients. These seminars
are delivered either in person or online, the
latter available both in real-time so that the
attendees can ask questions of the presenter,
and on-demand, so that attendees can
Revenue (£million)
EBITDA (£million)
Chief Executive ‘s Report
Report and Financial Statements 2008 13
IG Group Holdings plc
watch at a time of their choosing. All of
our international offices have seminar
programmes and over the coming months
we will continue to develop each of these to
emulate the breadth of the UK programme.
This year has seen us significantly extend our
international reach. The Markets in Financial
Instruments Directive (“MiFID”) enabled us
to open offices in Paris and Madrid at the
beginning of November.
In early December we completed the
acquisition of HedgeStreet in the US. This
acquisition also provided the stimulus
to activate our dormant US subsidiary,
IG Markets Inc. I discuss the performance of
these, and all our other businesses, below.
Financial
Our financial business performed very
strongly, with revenue increasing by 57%
to £172.5m. Across our spread betting and
CFD businesses we opened 41,000 accounts
compared to 22,500 the previous year, an
increase of 82%.
UK
UK-based clients dealing with our financial
business produced revenue of £123.2m,
an increase of 46%. Within this, financial
spread betting, financial binary betting
and CFDs all grew at similar rates. We have
opened more than 2,000 UK spread betting
accounts in each of the last six months.
“
Our financial business
performed very strongly,
with revenue increasing by
57% to £172.5m
“
Europe
We now have four European operations
targeting clients in Germany, Italy, France
and Spain. In addition to this we have
direct clients of the London office in a
number of other European countries and
we have a number of European introducer
relationships, most notably in Ireland
and Greece.
Clients based in the rest of Europe generated
revenue of £20.4m, an increase of 73% on
the prior year. About £7.2m of this revenue
came from the four European operations.
We have been very pleased with the rapid
progress achieved by our offices in Paris
and Madrid. Both of these started at the
beginning of November and were covering
their direct costs by the end of March. By
May they were each generating a level of
monthly revenue which took more than
two years to achieve when we started our
Australian business.
Our Italian business continues to make
good progress. It currently operates as a
desk in our London office, but our plans
are now well advanced to open an office in
Milan in the autumn. We hope that this will
enable us to accelerate our rate of client
recruitment in Italy without increasing our
cost base significantly.
14
IG Group Holdings plc
Report and Financial Statements 2008
Chief Executive’s Report
Chief Executive ‘s Report
Report and Financial Statements 2008 15
IG Group Holdings plc
Our German office has also seen revenue
growth, but at a slower pace than our other
European operations. We have recently
made some operational changes which we
are hopeful will aid the progression of this
business.
Asia Pacific
Asia Pacific delivered strong growth with
revenue increasing by 115% to £27.4m. A
little over 90% of this revenue is from our
Australian office, the remainder is principally
from our office in Singapore.
Rest of the World
In December we completed the purchase
of HedgeStreet Inc. for £3m in cash.
HedgeStreet is a US-based, CFTC regulated,
exchange offering binary options. The
exchange had ceased active trading a few
months prior to our acquiring it.
We re-activated the exchange in February
and since then we have undertaken the
IT work necessary to expand its range of
markets and opening hours. As a result, in
the last few weeks we have been able to
extend the market hours significantly, and
are in the process of adding two-hour intra-
day contracts and an additional contract size.
have seen a steady trickle of new exchange
members. Once we have further improved
the offering we plan to re-brand the
exchange and we will then increase
marketing and public relations activity.
The acquisition of HedgeStreet provided a
catalyst to activate our previously dormant
US subsidiary, IG Markets Inc. This company
offers forex trading, including spot forex,
forex vanilla options and forex binary
options. IG Markets Inc. commenced trading
only a few weeks before the end of the
financial year.
“
Asia Pacific delivered strong
growth with revenue
increasing by 115% to
£27.4m
“
The combined revenue of these two nascent
businesses was not significant in the year
to 31 May 2008. As expected, our cost base
in the US is higher than that of the other
businesses we have started recently.
Over the coming weeks we intend to
continue to broaden the product range,
both in terms of contract types and
underlying markets offered. To date we have
done almost no marketing or public relations
activity for HedgeStreet, despite which we
IG Markets Inc. also operates in a more
competitive environment than any of our
other recent start-ups. For these reasons we
anticipate that it will take longer for our US
businesses to reach break-even than
has been the case for our other start-ups.
However, together they represent a significant
opportunity in one of the world’s largest retail
markets for speculative financial products.
Future Developments
We continue to evaluate new markets and we
expect to continue to extend our geographic
reach as suitable opportunities arise.
White label and introducer relationships
are becoming increasingly important for us
and now account for about 14% of financial
revenue. We are in discussions with a number
of potential white label partners in Europe
and the Asia Pacific region.
Sport
Revenue for our sport business fell by 5.5%
to £11.5m. The previous year contained the
football World Cup, which for us is usually
the biggest betting event in the four year
sporting calendar. If this is adjusted for then
there was underlying growth in the business.
We have recently taken some steps to
reduce operating costs in order to improve
the contribution that this business makes. In
addition, we are working on several projects
which we hope will boost the revenue of the
business in the coming year.
Current trading
and outlook
While it remains difficult to predict future
trends in volatility or customer reaction to
any change in market conditions, IG is well
positioned for further growth.
The new financial year has started well and
current trading remains very strong.
The UK’s economic outlook has been
deteriorating for a number of months now.
However, to date we have seen no signs of
our UK clients reducing their activity levels as
a result. Client recruitment since the year end
continued at the high levels seen in
previous months.
I remain confident about the prospects for
the coming year.
IG Group clients
IG Group clients (but no betting clients)
Tim Howkins, Chief Executive, 21 July 2008
16
IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Biographies
Directors’
Biographies
02
03
01. Jonathan Davie
Non-Executive Chairman, 61 years old
Jonathan qualified as a Chartered Accountant. He joined George
M. Hill and Co, a jobber on the London Stock Exchange in 1969.
The firm was acquired by Wedd Durlacher Mordaunt and Co where
Jonathan became a partner in 1975. Jonathan was the senior dealing
partner of the firm on its acquisition by Barclays Bank to form BZW
in 1986. Jonathan developed BZW’s Fixed Income business prior
to becoming CEO of the Global Equities Business in 1991. In 1996
Jonathan became Deputy Chairman of BZW and then Vice Chairman
of Credit Suisse First Boston in 1998 on their acquisition of most of
BZW’s businesses. Jonathan is presently a non-executive director of
the Credit Suisse Private Bank in the UK and a partner in First Avenue
Partners, an alternatives advisory boutique.
02. Tim Howkins
Chief Executive, 45 years old
Tim has a first class degree in Mathematics and Computer Science
from Reading. He qualified as a Chartered Accountant with Ernst &
Young and is also a member of the Chartered Institute of Taxation.
Tim was one of a group of partners and staff who left Ernst & Young
in 1990 to form Rees Pollock, a firm of chartered accountants
targeted at entrepreneurial, owner-managed businesses. Tim
was a partner in Rees Pollock for seven years and was the partner
responsible for IG’s audit. He joined IG as Finance Director in 1999,
and became Chief Executive in 2006.
01
04
03. Steve Clutton
Finance Director, 47 years old
Steve gained a first class degree in Chemistry from Nottingham. After
qualifying as a Chartered Accountant with KPMG, he spent five years
in corporate finance with Barclays de Zoete Wedd. In 1994 he joined
British Telecom heading up its internal corporate finance team before
becoming the Chief Financial Officer of BT’s international business
based in Virginia, USA. Between 2000 and 2004, Steve was Finance
Director of Interoute Communications Ltd, a private equity backed
supplier of telecoms services with operations throughout Europe.
Steve joined IG Group in October 2006 from Barclays Bank plc, where
he was Finance Director of UK Retail Banking.
04. Peter Hetherington
Chief Operating Officer, 39 years old
Peter read Economics at Nottingham University and has a Masters
in Finance from the London Business School. Peter was an officer
in the Royal Navy before joining IG Index, as a graduate trainee, in
February 1994. He became head of financial dealing in 1999 and was
appointed a director of IG Group in June 2002, since when he has
performed the role of Chief Operating Officer.
Directors’ Biographies
Report and Financial Statements 2008 17
IG Group Holdings plc
05
08
06
09
07
10
05. Andrew MacKay
Legal Director, 42 years old
Andrew has a Masters in History from St Andrews University and
completed the Law Society Finals examination at the College of Law
in London. He qualified as a lawyer with Linklaters and worked there
for seven years, principally in the litigation and financial services
practices. In 1998, Andrew moved to LIFFE as market investigations
manager before joining the IG Group as Legal Counsel in March 1999.
06. Sir Alan Budd
Non-Executive Director, 70 years old
Sir Alan was appointed a non-executive director of IG Group in April
2005. He was Chief Economic Adviser to the Treasury and head of
the government economic service between 1991 and 1997 and
served as a member of the Monetary Policy Committee of the Bank
of England between 1997 and 1999. Prior to 1991, he was group
economic adviser at Barclays Bank and Professor of Economics at the
London Business School. He was chairman of the Gambling Review
Body and is currently Provost of The Queen’s College, Oxford.
07. Martin Jackson
Non-Executive Director, 59 years old
Martin was appointed a non-executive director of IG Group and
chairman of the audit committee in April 2005. He was the group
Finance Director of Friends Provident plc between 2001 and 2003 and
Friends Provident Life Office between 1999 and 2001. Prior to that, he
was the group Finance Director at London & Manchester Group plc
from 1992 to 1998 up to the date of its acquisition by Friends Provident
Life Office. He is a non-executive director and chairman of the audit
committee of Admiral Group plc and is a fellow of the Institute of
Chartered Accountants.
08. Robert Lucas
Non-Executive Director, 45 years old
Robert read Electrical Engineering at Imperial College, London. He
joined Marconi post graduation until 1987, when he moved into
private equity investment with 3i plc. In 1996, he joined CVC Capital
Partners Limited and, in 2004, he became a Managing Partner. Robert
is a non-executive director of a number of companies in which funds
managed or advised by CVC Capital Partners Limited or its affiliates
have invested, including AA/Saga. He became a non-executive
director of IG Group in 2003.
09. Nat le Roux
Non-Executive Deputy Chairman, 51 years old
Nat read Law at St Catharine’s College, Cambridge. He spent ten years
in futures broking and stock broking before joining IG in 1992. Initially
he held the position of Financial Dealing Director and was promoted
to deputy Chief Executive in 1999. He became Chief Executive in
2002 and held the position for four years before becoming non-
executive deputy chairman in 2006.
10. Roger Yates
Senior Independent Non-Executive Director, 51 years old
Roger joined the board as non-executive and Senior Independent
Director in February 2006. Roger read Modern History at Worcester
College Oxford, and has 27 years’ experience in the fund management
industry as an investment professional and business manager.
Previously he was Chief Investment Officer of Invesco Global and
held senior roles for fund management companies LGT and Morgan
Grenfell. He joined Henderson Global Investors as Chief Executive in
1999, and in 2003 led the de-merger of Henderson from its then-parent
AMP, becoming Chief Executive of the resulting listed entity, now
Henderson Group plc.
18 IG Group Holdings plc
Report and Financial Statements 2008
Group Operating and Financial Review
Group Operating
and Financial Review
for the year ended 31 May 2008
Introduction
The Accounting Standards Board issued Reporting Statement:
Operating and Financial Review in January 2006. This statement does
not have mandatory force and is not an accounting or reporting
standard. The directors have considered the recommendations of this
reporting statement as appropriate in producing this operating and
financial review (OFR). A discussion of the Group’s performance and
future prospects has been included in the Chief Executive’s Report.
In applying this framework, the directors believe that they have
adequately discharged their responsibilities under Section 234ZZB of
the Companies Act 1985 to provide a balanced and comprehensive
review of the development and performance 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
Contracts for difference (CFDs), spread bets and exchange traded
futures on equities, equity indices, precious and base metals, soft
commodities, exchange rates, interest rates and other financial
markets. Exchange traded options and CFDs and spread bets on
options on certain of these markets. Financial binaries, including
exchange traded and OTC binary options and fixed odds bets on
many of these markets. The operation of a regulated futures and
options exchange.
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 following strategies:
Maintaining a leading position in the markets in which the
Group operates;
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’s progress during the year and prospects for the future with
reference to the business strategies outlined below.
Maintaining a leading position in the markets in
which the Group operates
The Group is widely recognised as the market leader in the financial
spread betting market, which is predominantly a UK business. It also
has a market leading position in a number of the countries where it
offers CFDs. The Group’s strategy is to continue to strengthen market
position by offering the broadest range of products and by offering
quality and speed of execution.
Continuing to broaden the client base
The Group continues to broaden the client base, both directly and
through introducers, from what has historically been a relatively
narrow but sophisticated group of predominantly retail clients. This
includes attracting a greater proportion of leisure-oriented clients
for the Group’s fixed odds offerings and more market professionals
and institutional clients for its CFD business. Further developing the
business of market making on betting and financial exchanges, as
well as white-labelling opportunities (where the Group’s products are
branded and distributed in the name of third parties), will extend the
reach of the Group’s products.
Group Operating and Financial Review
Report and Financial Statements 2008 19
IG Group Holdings plc
Nature, objectives and strategies (continued)
Expanding the Group’s international reach
The Group continues to expand its non-UK client base and in the year ended 31 May 2008 revenue from non-UK clients grew to 27% of total
revenue (2007 - 21%). It has been a significant year for international expansion with the opening of offices in Madrid and Paris in November
and the acquisition of the HedgeStreet Exchange in the USA in December. The HedgeStreet Exchange was re-opened in February and
IG Markets Inc., the retail FX business based in Chicago USA, was launched in April. The Group will continue to explore the feasibility of other
branches or offices where local regulation and market conditions are suitable. In addition, the Group continues to extend the range of third
parties who introduce clients to the Group and this is an effective way of establishing a presence for the Group’s regulated financial business in
territories which do not merit the establishment of a local office.
The Group has multi-lingual websites for its CFD business and will continue to offer an increasing range of languages in order to further widen
its global reach.
Continuing to deliver product and technological innovation
The Group recognises the benefits it has experienced as a result of the introduction of innovative products. During the year, PureDeal was
launched which is a state-of-the-art browser-based financial dealing platform. In addition, methods for clients to manage risk such as trailing
stops and bungee bets have been developed. This culture of innovation is one which the Group intends to maintain in order to continue to be
at the forefront 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’s Report.
Revenue
EBITDA (3)
EBITDA margin (3)
Profit before tax
Basic earnings per share (4)
Diluted earnings per share (4)
Normalised earnings per share
(3)
Interim dividend paid per share
Final dividend proposed per share
Total dividend per share
Year ended 31 May
2008
IFRS
£000
184,008
98,493
53.5%
96,990
20.62p
20.28p
N/A
3.0p
9.0p
12.0p
2007
IFRS
£000
121,990
70,351
57.7%
68,894
14.67p
14.52p
N/A
2.0p
6.5p
8.5p
2006
IFRS
£000
89,391
52,629
58.9%
51,140
10.92p
10.88p
N/A
1.5p
4.0p
5.5p
2005 (1)
IFRS
£000
62,177
34,949
56.2%
16,621
5.83p
5.41p
6.75p
–
–
–
2004 (2)
UK GAAP
£000
49,839
25,128
50.4%
7,920
1.55p
1.43p
4.94p
–
–
–
1 Figures reported for 2005 have been restated to reflect changes in accounting policies brought about as a result of the Group’s adoption of International Financial Reporting
Standards (IFRS). Figures prior to 1 June 2004 are prepared under UK Generally Accepted Accounting Practices (UK GAAP) rather than IFRS.
2 The financial statements of IG Group Holdings plc include the results of the Group from 5 September 2003 (the date of acquisition of the Group). The five year summary presents
revenue, EBITDA, profit before tax and normalised earnings per share as if IG Group Limited (formerly IG Group plc) was a member of the Group throughout.
3 EBITDA, EBITDA margin, and normalised earnings per share are defined and explained in the key performance indicators commentary.
4 Basic and diluted earnings per share are presented for the period from 5 September 2003 to 31 May 2004 and for the full years ended 31 May 2005, 2006, 2007 and 2008.
20
IG Group Holdings plc
Report and Financial Statements 2008
Group Operating and Financial Review
Group revenue
Group revenue by business segment
The Group operates in two business segments: financial and sport.
Financial
Sport
2008
£000
172,475
11,533
184,008
2007
£000
109,791
12,199
121,990
Increase/
(decrease) %
57.1%
(5.5%)
50.8%
Group revenue by geographical segment
The geographical analysis classifies revenue according to client location reflecting the increasing proportion of revenue derived from outside
the UK.
United Kingdom
Europe
Asia Pacific
Rest of World
Group profit
Financial
Sport
Profit before unallocated items
Unallocated administrative expenses
Unallocated finance revenue
Unallocated finance costs
2008
£000
134,713
20,396
27,371
1,528
184,008
2008
£000
126,265
1,892
128,157
(34,584)
4,100
(683)
2007
£000
96,841
11,771
12,704
674
121,990
2007
£000
87,948
3,679
91,627
(25,865)
3,426
(294)
Profit before taxation
96,990
68,894
Increase
%
39.1%
73.3%
115.5%
126.7%
50.8%
Increase
(decrease) %
43.6%
(48.6%)
39.9%
33.7%
19.7%
132.3%
40.8%
Group Operating and Financial Review
Report and Financial Statements 2008 21
IG Group Holdings plc
Key performance indicators
The Chief Executive’s Report provides an overall assessment of the Group’s progress 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 the most effective measures of progress towards achieving the Group’s strategies and as such towards fulfilling the Group’s business objectives.
Financial
Number of clients dealing
Average revenue per client (£)
Number of accounts opened
Number of accounts dealing for the first time
Sport
Number of clients dealing
Number of accounts opened
Number of accounts dealing for the first time
Volatility of daily revenue
Coefficient of variability at 31 May
Average for the year
Highest in year
Lowest in year
2008
2007
Increase/
(decrease) %
56,291
3,064
42,693
29,211
15,860
10,401
8,102
0.53
0.55
0.69
0.45
34,483
3,184
23,785
15,809
19,905
16,437
12,013
0.46
0.53
0.73
0.36
63.2%
(3.8%)
79.5%
84.8%
(20.3%)
(36.7%)
(32.6%)
15.2%
3.8%
(5.5%)
25.0%
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 63% compared with the previous year. The most marked increase was in the number
of CFD clients dealing, reflecting growth driven by the expansion of the non-UK client base. The number of financial betting clients dealing
increased by 56% over the previous year.
The number of sports clients dealing directly with IG fell by 20% compared with the previous year which included the football World Cup.
Average revenue per financial client
Average revenue per financial client represents the total revenue divided by the number of clients dealing. This varies significantly for different
products and geographies and the overall average reflects changes in the business mix during the year.
Average revenue per financial client reduced slightly from the previous year. Higher average revenues in the UK were offset by lower average
revenues elsewhere in the world. In particular, CFD clients in the Asia Pacific and Rest of World segments are more retail in nature and
represent a newer client base for which average revenues are significantly lower than for UK CFD clients. As these businesses develop CFD
revenues worldwide are tending towards similar levels to those seen in financial betting. The average revenue for financial betting clients was
consistent with the previous year.
22
IG Group Holdings plc
Report and Financial Statements 2008
Group Operating and Financial Review
Key performance indicators (continued)
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 revenue growth. The number of accounts opened and the number of
accounts dealing for the first time therefore provide leading indicators of future prospects.
New financial accounts were favourably impacted by the UK launch and subsequent roll-out worldwide of the PureDeal platform and client
education programmes. Sport account openings were impacted by the lack of a major football tournament in the year.
Volatility of daily revenue
The coefficient of variability of daily revenue is a statistical measure of the volatility of the Group’s revenue from day to day. The Group
calculates this as the 60 day standard deviation of daily revenues divided by the 60 day mean. Over recent years the coefficient of variability
has fallen significantly as the Group has sought to reduce the volatility of its revenues and hence improve the quality of earnings. The Group
has a formal risk policy which includes limits, or a methodology for setting limits for every single financial market which the Group trades.
Despite greatly increased volatility in financial markets during the year, daily revenue volatility remained consistent with the prior year.
EBITDA and EBITDA margin
EBITDA represents earnings before exceptional administrative costs, depreciation, amortisation charges, amounts written off property, plant
and equipment and intangible assets, taxation, interest payable on debt and interest receivable on corporate cash balances but includes
interest receivable on clients’ balances less interest payable to clients. The net interest receivable on client balances is considered to be part of
the normal activities of 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 the Company raised significant debt and preference shares in
order to finance the purchase of IG Group plc by IG Group Holdings plc. This acquisition gave rise to significant goodwill. The Group’s capital
structure changed again in May 2005 when this debt and preference shares were repaid at the time of the Company’s initial public offering
(IPO). To facilitate comparison of business performance over time the Group uses EBITDA as a primary profit measure. The Group seeks to
achieve rapid growth in EBITDA, and bonuses for most staff other than directors of the Company are linked to EBITDA.
Operating profit
Net interest on client balances
Depreciation
Amortisation
Amounts written off property, plant and equipment and intangible assets
EBITDA
EBITDA margin
2008
£000
83,350
10,221
4,016
782
124
98,493
53.5%
2007
£000
59,202
6,559
3,513
856
221
70,351
57.7%
EBITDA for the year reached £98.5m which represents an increase of 40.0% from the previous year. This growth was driven by the increase in
revenue, partially offset by an increase in betting duty and investment in overseas expansion and information technology leading to a reduced
EBITDA margin in the year under review to 53.5% from 57.7%.
Group Operating and Financial Review
Report and Financial Statements 2008 23
IG Group Holdings plc
Key performance indicators (continued)
Earnings per share
The Group seeks to maximise the growth in earnings per share over time in order to maximise shareholder value. The Group’s Long Term
Incentive Plans (LTIPs) and directors’ bonuses are linked to growth in earnings per share and growth in the Company’s share price. Further
details of LTIPs and directors’ bonuses are set out in the directors’ remuneration report and note 25 to the financial statements.
Diluted earnings per share were 20.28p compared with 14.52p in the previous year, an increase of 39.7%.
The directors consider that the basic and diluted earnings per share calculations for the years ended 31 May 2005 and prior do not fully
reflect changes in the Group’s capital structure referred to above. In order to facilitate comparison of performance over the periods to 31 May
2005, normalised earnings per share was established. Normalised earnings per share were not calculated for the year ended 31 May 2006 or
subsequently.
Normalised earnings per share represents earnings adjusted for normalising items, divided by the number of ordinary shares in issue and to
be issued, adjusted for normalising items. Normalising adjustments to earnings comprise the impact, net of tax, of exceptional administrative
costs, interest and charges on debt finance, redeemable preference share interest payable and tax items relating to the financing structure.
Normalising adjustments to the number of shares comprise the impact of restating the weighted average number of ordinary shares in issue
prior to a subdivision and re-designation on 31 May 2005 to the equivalent weighted average number of ordinary shares in issue in the period
and treating the issue of new ordinary shares at the time of the Company’s flotation as if it had taken place prior to 1 June 2002.
Employees
The Group’s continued growth is highly dependent upon attracting and retaining high calibre employees.
The Group pays performance related bonuses to all staff and has made awards under LTIPs to key personnel. In addition, the opportunity to
acquire shares under a Share Incentive Plan (SIP) has been made available to all UK staff. These awards reward employees for past performance
and help to retain them in the future. The Group provides a range of benefits to its employees, including pension contributions, private health
cover and contributions towards health club membership.
The average number of employees in the Group increased in the year from 404 to 551. At the year end approximately 20% of staff were
based overseas.
The Group aims to provide a challenging and rewarding working environment and staff turnover for the year ended 31 May 2008 was less
than 20%.
A significant proportion of the employment cost consists of performance related bonuses and commissions which vary according to revenue,
profitability or earnings per share growth. Performance related bonuses for the majority of staff are awarded on a discretionary basis while
commissions are calculated according to an agreed formula. Inclusive of national insurance and pension costs, employment costs comprise:
Fixed employment costs
Performance related bonuses and commissions
Share based payment schemes
2008
£000
27,768
15,971
4,716
48,455
2007
£000
20,229
9,747
1,842
31,818
24
IG Group Holdings plc
Report and Financial Statements 2008
Group Operating and Financial Review
Financial position
Property, plant and equipment
The Group continues to invest heavily in technology in order to enhance its capacity and resilience which are critical to the success of the
business. During the year, the Group entered into a lease for a new disaster recovery location and has commenced the fit-out which will be
completed in the year ending 31 May 2009. In addition new offices in London, Europe and the USA were established. In total additions during
the year amounted to £5.7m compared with £7.8m in the previous year. Depreciation charged in the year amounted to £4.0m (2007 - £3.5m).
Intangible fixed assets
Goodwill, which has mainly arisen on the acquisition of IG Group plc and its subsidiaries, amounts to £110.0m (2007 - £106.2m). The increase
in goodwill during the year reflects the acquisition of the HedgeStreet exchange in the USA. Goodwill has been capitalised and under the
provisions of IFRS is subject to an annual impairment review. There were no impairment write offs in the year.
Expenditure on other intangible assets includes client lists, development expenditure and the cost of software and licences. This amounted to
£1.3m (2007: £1.4m). Amortisation charged in the year amounted to £0.8m (2007 - £0.9m).
Working capital
An explanation of the liquidity exposure faced by the Group and the management of this risk is included in note 30 to the financial statements.
The working capital position at the year end was as follows:
Amounts due from brokers
Amounts due from clients
Cash and cash equivalents
Amounts due to clients
Net working capital
2008
£000
252,522
10,801
471,722
(582,689)
2007
£000
345,076
7,552
484,556
(726,144)
152,356
111,040
Amounts due to and from clients include unrealised profits/losses on clients’ open positions, profits/losses on closed positions as well as
the cash balance on clients’ accounts. The Group hedges the vast majority of clients’ open positions in the financials business and amounts
due from brokers represent cash or treasury bills placed with counterparties in order to provide initial and variation margin to support these
positions. Net working capital increased by £41.3m during the year.
The Group offers credit only to a minority of clients. A charge for impairment of trade receivables (amounts due from brokers and clients) is
established where there is objective evidence of non-collectability. Reference is made to an aged profile of debt and the provision is subject
to management review. The charge for the year was approximately 2.2% of revenue (2007 - 1.2%), the increase being as a result of market
volatility in the year. The Group continues to pursue outstanding debts vigorously.
At the year end, the Group had total committed bank facilities of £200.0m (2007 - £106.0m), none of which were drawn. Facilities of £160.0m
(2007 - £80.0m) are to provide the short-term liquidity which may be necessary to meet payments to market counterparties before payment
is received from clients in the event of a large market move. Facilities of £40.0m (2007 - £26.0m) provide the ability for paperless settlement of
share transactions (CREST).
Group Operating and Financial Review
Report and Financial Statements 2008 25
IG Group Holdings plc
Financial position (continued)
Cash flow
Cash and cash equivalents (before the effect of exchange rates) decreased by £22.4m during the year. This reflects the substantial reduction
in amounts owed to clients largely the result of a small number of clients reducing their account balances. Client open positions are mainly
covered by cash margins, which are reflected in the movement in trade receivables and payables. Excluding these, net cash inflow for the year
was £40.3m after significant cash outflows of £29.5m for taxation (2007 - £26.1m); £31.1m for dividends (2007 - £19.7m); capital expenditure of
£6.2m (2007 - £9.2m) and acquisition costs of £3.4m (2007 - £nil).
The Group holds client money on account in segregated bank accounts which at the year end amounted to £369.0m compared with £391.3m
in the previous year.
Capital structure
Equity share capital
Share premium
Own shares held in Employee Benefit Trusts
Retained earnings
Shareholders’ equity
Minority interests
Total equity
Redeemable preference shares
Total liabilities
2008
£000
16
125,235
(704)
120,129
244,676
40
244,716
40
40
2007
£000
16
125,235
(503)
76,920
201,668
40
201,708
40
40
There were no issues of share capital during the year and the Group remains debt free except for preference shares. Own shares held in
Employee Benefit Trusts were purchased to satisfy future obligations of the SIP awards.
Dividend policy
The Company’s dividend policy was changed during the year ended 31 May 2007 whereby the dividend payout proportion was increased
from 50% to approximately 60% of earnings. This policy will be kept under review, but the Company’s current intention is to pay out a similar
proportion of earnings in the future.
During the year the Company paid an interim dividend of 3.0p per share amounting to £9.8m. The final dividend for 2008 proposed for
approval by shareholders at the AGM is 9.0p per share which will amount to £29.5m taking the total dividends for the year to £39.3m. This
represents a dividend cover of 1.7 consistent with prior year.
Regulatory capital
Two of the Group’s UK operating subsidiaries are regulated by the FSA. The FSA imposes a minimum level of regulatory capital which must be
retained by each Company and also an overall level of regulatory capital which must be maintained by the Group. At 31 May 2008 the Group had
an overall consolidated FSA regulatory capital surplus as disclosed in note 30 to the financial statements of approximately £67m (2007 - £44m).
On behalf of the board
Steve Clutton
Finance Director
21 July 2008
26
IG Group Holdings plc
Report and Financial Statements 2008
Corporate Governance
Corporate
Governance
Statement by the directors in
compliance with the Combined Code
The board is satisfied that the Group complied with the provisions
of the Combined Code on corporate governance, issued by the
Financial Reporting Council in June 2006, for the whole year, with
the following exception that the Group was not compliant with
paragraph A.3.2 throughout the year.
Paragraph A.3.2 of the Combined Code requires that at least half of
the board, excluding the Chairman, are independent non-executive
directors. The board is comprised of four executive directors and four
non-executive directors excluding the Deputy Chairman and the
Chairman.
The board recognises that whilst Nat le Roux, as former Chief Executive
and now Deputy Chairman, will be considered a non-independent
director, it has taken the view that his 16 years experience with the
Group and the value he brings as an advisor in the uniquely specialised
market of spread betting and retail contracts for difference justifies his
position on the board and is in the best interests of the Group and the
shareholders.
One of the non-executive directors, Robert Lucas, is considered to be
a non-independent non-executive director as he represents funds
managed or advised by CVC Capital Partners Limited and associates
(“CVC”), a substantial shareholder, holding 7.7% of the ordinary share
capital of the company at 31 May 2008 (2007 – 7.7%). Robert Lucas
was invited to remain on the board at last year’s AGM because of the
very valuable contribution he makes to the board. Robert has been
involved with the IG Group since 2003 and has a detailed knowledge
of the company and its businesses. His contribution to the board
is recognised and he is valued for his challenging participation at
board meetings. In this respect, his experience and knowledge of
the industry combined with his skills as an investment professional
are highly regarded by the independent non-executive directors and
on balance weighing up all the considerations and the best interests
of the shareholders the board considers that Robert’s presence on
the board is a positive asset to the IG Group and that this outweighs
other considerations.
The board further considers that the three independent non-
executive directors are of sufficient calibre and number that their
views carry significant weight in the board’s decision making and
the board considers that its current composition is appropriate. Brief
biographies of the directors appear on pages 16 and 17.
Corporate Governance
Report and Financial Statements 2008 27
IG Group Holdings plc
The workings of the board and its
committees
The board
The division of responsibilities between the Chairman and the Chief
Executive is clearly defined in writing and has been approved by the board.
The board is responsible to shareholders for the proper management
of the Group. A statement of the directors’ responsibilities in respect
of the financial statements is set out on page 43 and a statement
regarding the use of the going concern basis in preparing these
financial statements is given on page 41.
The board has a formal schedule of matters specifically reserved to it.
These include:
Setting Group strategy
Approving major acquisitions, divestments and capital expenditure
Approval of extension of the Group’s activities into new business or
geographic areas
Approving annual budgets
Reviewing operational and financial performance
Reviewing the Group’s systems of internal control and risk
management
Approving board, board committee and Company Secretary
appointments
Ensuring adequate succession planning for the board and senior
management
Defining and setting board committee terms of reference
Approving policies relating to directors’ remuneration and the
severance of directors’ contracts
Approving any changes to the Group’s risk management policy
which materially increases the risk profile of the Group
Receiving reports on the views of the Company’s shareholders
Matters not specifically reserved to the board are delegated to the
executive directors. These include:
The development and recommendation of strategic plans for the
Group
Implementation of the strategies of the Group
Day to day monitoring of the operating and financial results of the
Group
Prioritising the allocation of capital, technical and human resources
Developing and implementing risk management systems, policies
and procedures
All directors have access to the advice and services of the Company
Secretary, who is responsible to the board for ensuring that board
procedures are followed and that applicable rules and regulations are
complied with. Directors receive appropriate training as necessary
when they are appointed. Training on the duties and responsibilities
of directors is provided by the Group’s legal advisers.
The Group purchases appropriate liability insurance for all directors
and staff.
The board meets regularly; at least five times a year. In addition to
its regular meetings the board meets when necessary to discuss
strategic opportunities such as acquisitions. The non-executive
directors have a particular responsibility to ensure that the strategies
proposed by the executive directors are appropriate and fully
considered. To enable the board to discharge its duties, all directors
receive appropriate and timely information. Briefing papers are
distributed to all directors in advance of board meetings and financial
information is distributed monthly. The chairman ensures that the
directors take independent professional advice as required.
The following committees deal with specific aspects of the
Group’s affairs:
Remuneration committee
The remuneration committee is chaired by Roger Yates. It makes
recommendations to the board, within agreed terms of reference,
on an overall remuneration package for executive directors in
order to attract, retain and motivate high quality directors capable
of achieving the Group’s objectives. Consideration is given to pay
and employment policies elsewhere in the Group, especially when
determining annual salary increases. The committee determines
the contract terms, remuneration and other benefits for each of the
executive directors, including performance related bonus schemes,
pension rights, compensation payments and contingent share
awards. The committee approves all share-based awards under
the Group’s LTIP and SIP schemes. The board itself determines the
remuneration of the non-executive directors.
Audit committee
The audit committee is chaired by Martin Jackson, who has recent
and relevant financial experience. It meets not less than three
times annually. The committee provides a forum for reporting by
the Group’s external and internal auditors. Meetings may also be
attended for all or part of the meetings, by invitation, by the Chief
Executive, the Finance Director, the head of internal audit, the
compliance officer, and the external auditors.
28
IG Group Holdings plc
Report and Financial Statements 2008
Corporate Governance
The workings of the board and its committees (continued)
The terms of reference set out the roles, responsibilities and objectives of the audit committee. The committee’s key activities include selecting
appropriate accounting policies, approving significant accounting judgements and estimates, monitoring the integrity of the half year interim
report and annual financial statements before their submission to the board and reviewing the effectiveness of the internal control and risk
management systems including compliance with regulatory requirements. The audit committee monitors and reviews the effectiveness of
internal audit and advises the board on the appointment of external auditors and on their remuneration, and discusses the nature, scope and
results of their work. The audit committee keeps under review the level of fees and the independence and objectivity of the external auditors
and regularly monitors the non-audit services being provided. A copy of the external auditor policy for non-audit services is available on the
Group website in the policies section. This policy sets out types of assignment which the auditors are precluded from undertaking and those
which they may undertake. It also sets limits for the levels of fees which may be paid to the external auditors without prior approval of the
audit committee or, in the cases of certain types of assignment, without a competitive tendering process. The external auditors provide an
annual report to the audit committee confirming the procedures they have undertaken to confirm their independence. During the year, the
committee expanded its terms of reference. These changes included:
Reviewing effectiveness of the Company’s implementation of processes to meet the FSA’s requirements to demonstrate the consistent fair
treatment of customers;
Reviewing the Company’s procedures for detecting internal fraud.
The committee undertakes an annual review of the Company’s arrangements for its employees to raise concerns, in confidence, about
possible wrongdoing in financial reporting or other matters (whistle blowing). This review concluded that these arrangements were
satisfactory.
Nomination committee
The nomination committee considers appointments to the board and meets as necessary. The nomination committee is responsible for
nominating candidates to fill board vacancies and for making recommendations on board composition and balance.
The committee leads the process for making appointments to the board or where the appointee is likely to become a board member.
The committee ensures there is a formal, rigorous and transparent procedure for the appointment of new directors to the board through a
full evaluation of the skills, knowledge and experience of directors. The committee also ensures plans are in place for orderly succession for
appointments to the board, and to other senior management positions. Responsibility for making senior management appointments
is vested in the Chief Executive.
The membership of these committees was as follows:
Audit committee
Remuneration committee
Nomination committee
Martin Jackson (chair)
Sir Alan Budd
Roger Yates
Roger Yates (chair)
Sir Alan Budd
Jonathan Davie
Martin Jackson
Jonathan Davie (chair)
Sir Alan Budd
Martin Jackson
Roger Yates
Copies of the terms of reference of these committees can be obtained from the Company Secretary on request and are available on the
Group’s investor relations website.
Corporate Governance
Report and Financial Statements 2008 29
IG Group Holdings plc
The workings of the board and its
committees (continued)
Relations with shareholders
The board recognises the importance of communications with
shareholders. The Chairman’s Statement, Chief Executive’s Report
and Operating and Financial Review include detailed reviews of the
business and future developments. There is regular dialogue with
institutional shareholders including presentations by management
around the time of the Company’s preliminary announcement of the
year end results and at the half year. These presentations are made
available from the Group’s investor relations website at
www.iggroup.com which also provides information to shareholders
and prospective shareholders. Feedback is provided to the board
following these investor presentations of any views or concerns
expressed by shareholders.
The board uses the annual general meeting to communicate with
private and institutional investors and welcomes their participation.
The chairman aims to ensure that all of the directors, including the
chairmen of the remuneration and audit committees, are available at
annual general meetings to answer questions. Details of resolutions
to be proposed at the annual general meeting will be contained in
the notice of the meeting.
Roger Yates, the Senior Independent Director, is available to meet
shareholders on request and to ensure that the board is aware of
shareholder concerns not resolved through other mechanisms for
shareholder communication.
The Chairman and the Senior Independent Director provide feedback to
the board of any views or concerns expressed to them by shareholders.
Internal control
The board of directors is responsible for the Group’s system of internal
control and reviews its effectiveness at least annually. The system is
designed to manage, rather than eliminate, the risk of failure to achieve
the business objectives and can only provide reasonable, but not
absolute assurance against the risk of material misstatement or loss.
The effectiveness of the Group’s system of internal control, covering
financial, operational and compliance controls and risk management
systems, is reviewed regularly by the board and the audit committee.
The audit committee regularly receive and review reports on internal
control from internal audit and quarterly reports from the compliance
function.
An ongoing process of identifying, evaluating and managing the
significant risks facing the Group is co-ordinated by the risk function
and is reviewed regularly by the board and the audit committee.
The process has been in place for the full year under review and up to
the date of approval of the annual report and accounts. The Group’s
approach to the management of key risks including market, credit
and liquidity risks is discussed in note 30 to the financial statements.
Environment report
Given the nature of the Group’s business operations, the Group’s
impact on the environment is very small. The main direct
environmental impacts are through energy consumption and
business travel. These impacts are monitored and controlled
through the financial management processes (energy and travel
costs are approximately 1% of overall costs) and, where appropriate,
opportunities to improve are sought.
Going forward, additional information will be collected on the
number of kilowatt hours (KWH) of energy used and business miles
travelled. This will allow the Group to calculate greenhouse gas
(GHG) emissions for the next financial year using the emission factors
developed by the UK Department for Environment, Food and Rural
Affairs (DEFRA).
30
IG Group Holdings plc
Report and Financial Statements 2008
Corporate Governance
Attendance at board and committee meetings
The number of full board meetings and committee meetings attended by each director as members of each committee during the year
was as set out below. In each case the first figure indicates the number of meetings attended and the second figure indicates the maximum
number of meetings during the year for which each individual was a director or committee member.
Jonathan Davie (Chairman)
Tim Howkins (Chief Executive)
Steve Clutton
Peter Hetherington
Andrew MacKay
Sir Alan Budd
Martin Jackson
Nat le Roux
Robert Lucas
Roger Yates
Full board
meetings
Nomination
committee
Audit
committee
Remuneration
committee
7/7
7/7
7/7
7/7
7/7
6/7
7/7
7/7
7/7
7/7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4/4
4/4
–
–
4/4
2/3
–
–
–
–
3/3
2/3
–
–
3/3
Evaluation of the board’s performance
During the year the board carried out an evaluation of itself and its committees. The evaluation consisted of one-to-one discussions between
the Chairman and directors including meetings with the non-executive directors without the executive directors being present. The results
of the evaluation were discussed at a board meeting in May 2008. The performance of the individual executive directors, other than the Chief
Executive, is appraised annually by the Chief Executive, to whom they report. The performance of the Chief Executive is appraised annually
by the Chairman. The performance of the Chairman is reviewed by the non-executive directors, led by the senior independent non-executive
director (Roger Yates), taking into account the views of the executive directors, following which Roger Yates gives feedback to the Chairman.
Review of the audit committee’s performance
During the year the audit committee reviewed its performance. The review consisted of all members completing the Audit Committee
Institute’s evaluation checklist and a discussion of the results by the committee at a meeting in May 2008. The results were reported to the
board in May 2008.
Review of the remuneration committee’s performance
During the year the remuneration committee reviewed its performance. The review consisted of all members completing an evaluation
questionnaire and a discussion of the results by the committee at a meeting in May 2008. The results were reported to the board in July 2008.
Directors subject to re-election
In accordance with the Company’s articles of association, the following directors retire, and being eligible, offer themselves for re-election at
the next annual general meeting: Nat le Roux and Jonathan Davie.
Directors’ Remuneration Report
Report and Financial Statements 2008 31
IG Group Holdings plc
Directors’
Remuneration Report
This report has been prepared by the board following the provisions
in schedule 7A of the Companies Act 1985 and gives details of the
remuneration and service contracts of the directors.
Information not subject to audit
The remuneration committee, whose composition is set out on
page 28, determines the contract terms, remuneration and other
benefits for each of the executive directors, including performance
related bonus schemes, pension rights, compensation payments and
contingent awards.
The committee aims to put in place a remuneration structure for
executive directors which positions total remuneration:
competitively against the market;
at median for target performance; and
at upper quartile for above target performance.
The board itself determines the remuneration of the non-executive
directors.
Basic salary
Salary is not performance related and is normally reviewed
annually at the start of the financial year. Andrew MacKay’s salary
was increased with effect from 1 June 2008. Salaries for the other
executive directors were not increased.
Performance related bonuses
Executive directors’ bonuses are based on a fixed formula which is
determined in advance of each year by the remuneration committee.
The formula for the year ended 31 May 2008 was linked to growth in
fully diluted earnings per share compared with the year ended
31 May 2007.
The formula produced bonuses equal to 0% of basic salary at 17%
growth, 100% of basic salary at 25% growth, 150% of basic salary
at 29% growth and a maximum of 200% of basic salary achieved at
35% growth. Actual growth achieved was 39.7% and accordingly,
maximum bonuses of 200% of basic salary were awarded to the
executive directors.
The remuneration committee retains the right to vary the bonuses
payable if it considers that the formula has not produced an
appropriate result.
Performance related bonuses are paid in full within three months of
the year end.
For the year ending 31 May 2009, the maximum bonus has been set
at 200% of basic salary, payable at growth in fully diluted earnings per
share of 35%. No bonus is payable at growth in fully diluted earnings
per share of less than 17%.
32 IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Remuneration Report
Information not subject to audit (continued)
Long term incentive plans
The Group operates long term incentive plans (LTIPs) for management, including the executive directors. Contingent share awards were made
under the LTIPs during the years ended 31 May 2005, 2007 and 2008 which vest on publication of the results for the financial year to 31 May 2008,
2009 and 2010 respectively. The maximum participation limit of the LTIP scheme is 10% of the issued share capital in a ten year rolling period.
The vesting criteria of these plans are based on compound annual growth rate in fully diluted earnings per share (normalised earnings per
share for the awards made in 2005) and share price growth over the relevant three year period as shown in the table below:
Year of award
Scheme
Base period Base earnings Measurement
period
per share
(year ended
ending
(pence)
31 May)
31 May
Compound
annual
growth
% of award
vesting
31 May 2008
31 May 2008
Share price growth
award
Earnings per share
growth award
2007
N/A(*)
2010
2007
14.52
2010
31 May 2007
Senior management
award
2006
10.88
2009
31 May 2007
Executive award
31 May 2005
31 May 2005
Senior management
IPO award
Senior management
basic award
2006
2005
2005
10.88
6.75
6.75
2009
2008
2008
* share price growth is determined on a base share price of 310.9 pence per share.
In all cases vesting is pro-rata between the lower and upper limits.
<22.5%
22.5-100%
<20%
20-25%
25-31%
<10%
10-20%
20-30%
30-40%
40-50%
<20%
20-50%
<20%
20-50%
<15%
15-20%
Nil
0-100%
Nil
37.5-75%
75-100%
Nil
0-40%
40-70%
70-90%
90-100%
Nil
0-100%
Nil
0-100%
Nil
0-100%
The remuneration committee considers delivery of high rates of growth in earnings per share to be a key driver of shareholder return. The
above vesting criteria were selected to ensure that senior management has significant incentive to deliver high rates of growth. LTIP awards
are discussed further in note 25 to the financial statements.
Awards may be made to the executive directors in future on the recommendation of the remuneration committee. The remuneration committee
will determine appropriate vesting conditions for future awards with regard to prevailing conditions at the time the awards are granted.
The remuneration committee intends to make awards in the year ending 31 May 2009 to senior management, including the executive directors.
The Company operates a share incentive plan (SIP) for all UK employees except executive directors who are not able to participate in the scheme.
Directors’ Remuneration Report
Report and Financial Statements 2008 33
IG Group Holdings plc
Executive directors
Tim Howkins
Steve Clutton
Peter Hetherington
Andrew MacKay
12 April 2005
2 October 2006
12 April 2005
12 April 2005
The non-executive directors were each appointed for an initial term of
12 months with appointment continuing indefinitely thereafter subject
to re-election, but capable of being terminated on 3 months notice.
There are no special provisions for compensation in the event of
loss of office. The remuneration committee would consider the
circumstances of individual cases of early termination and determine
compensation payments accordingly.
Information not subject to
audit (continued)
Benefits
The Group provides a range of benefits to its employees, including
private health cover and health club membership. The executive
directors are entitled to participate in these non-cash benefits on
equal terms with all other staff.
Pensions
The Group contributes 15% of basic salary to personal pensions for
each of the executive directors. As an alternative to the payment of
part of a performance related bonus or basic salary, directors may
elect to receive an equivalent contribution to their pension.
Fees
The fees for non-executive directors are determined by the board.
The non-executive directors are not involved in any discussions or
decisions by the board about their own remuneration.
Service contracts
Each of the executive directors is employed under a service
contract, which can be terminated on six months notice by either
the Company or the executive director. All service contracts are
continuous and contractual termination payments are for the
unexpired notice period. The effective dates of the service contracts
for each of the executive directors as at the date of this report are:
34 IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Remuneration Report
Information not subject to audit (continued)
Interests in share capital
The directors who served during the year and their beneficial interests in the share capital of the Company were as follows:
J R Davie
T A Howkins
S Clutton
P G Hetherington
A R MacKay
Sir Alan Budd
D M Jackson
R R Lucas
N B le Roux
R P Yates
31 May
2008
Ordinary
Shares
910,000
4,081,800
3,500
909,900
1,456,225
16,667
–
42,664
222,100
25,000
31 May
2008
Preference
Shares
–
10,000
–
10,000
10,000
–
–
–
10,000
–
31 May
2007
Ordinary
Shares
1,500,000
4,081,800
–
1,909,900
1,476,225
16,667
–
42,664
222,100
25,000
31 May
2007
Preference
Shares
–
10,000
–
10,000
10,000
–
–
–
10,000
–
There have been no changes in directors’ interests in share capital between the year end and the date of the annual report.
The market price of the Company’s ordinary shares on 31 May 2008 was 382.25p and the high and low share prices in the year were 427.00p
and 291.75p respectively.
Performance graph
The following graph illustrates the performance of IG Group Holdings plc ordinary shares measured by total shareholder return (share price
growth plus dividends paid) in the period since conditional dealings commenced on the London Stock Exchange on 27 April 2005. The most
appropriate benchmark is considered by the directors to be the FTSE 250 index as it represents a broad equity market index in which the
Company is a constituent member.
The figures have been based to 100 as at 27 April 2005 in order to aid comparison and are presented to 18 July 2008.
Total shareholder return
IG FTSE 250
400.00
400.00
375.00
375.00
350.00
350.00
325.00
325.00
300.00
300.00
275.00
275.00
250.00
250.00
225.00
225.00
200.00
200.00
175.00
175.00
150.00
150.00
125.00
125.00
100.00
100.00
75.00
75.00
Apr 05
Apr 05
M ay 05
M ay 05
Jun 05
Jun 05
Jul 05
Jul 05
Aug 05
Aug 05
Sep 05
Sep 05
Oct 05
Oct 05
N ov 05
N ov 05
Dec 05
Dec 05
Jan 06
Jan 06
Feb 06
Feb 06
M ar 06
M ar 06
Apr 06
Apr 06
M ay 06
M ay 06
Jun 06
Jun 06
Jul 06
Jul 06
Aug 06
Aug 06
Sep 06
Sep 06
Oct 06
Oct 06
N ov 06
N ov 06
Dec 06
Dec 06
Jan 06
Jan 06
Feb 07
Feb 07
M ar 07
M ar 07
Apr 07
Apr 07
M ay 07
M ay 07
Jun 07
Jun 07
Jul 07
Jul 07
Aug 07
Aug 07
Sep 07
Sep 07
Oct 07
Oct 07
N ov 07
N ov 07
Dec 07
Dec 07
Jan 08
Jan 08
Feb 08
Feb 08
M ar 08
M ar 08
Apr 08
Apr 08
M ay 08
M ay 08
Jun 08
Jun 08
Jul 08
Jul 08
Aug 08
Aug 08
Directors’ Remuneration Report
IG Group Holdings plc
Report and Financial Statements 2008
35
Information subject to audit
Directors’ remuneration
This section of the report sets out the remuneration of the directors for the year ended 31 May 2008. The remuneration of the directors who
served during the year was as follows:
Executive directors:
T A Howkins
S Clutton
P G Hetherington (4)
A R MacKay
Non-executive directors:
J R Davie
Sir Alan Budd
D M Jackson
R R Lucas (3)
N B le Roux
R P Yates
Basic
salary
and fees
£000
Other
benefits and
payments (1)
£000
Performance
related
bonuses
£000
Pension
elections (2)
Year ended
2008
Year ended
2007
£000
£000
£000
265
200
160
180
805
80
35
40
30
35
35
1,060
–
1
1
–
2
–
–
–
–
–
–
2
530
400
320
360
1,610
–
–
–
–
–
–
–
(181)
(200)
(182)
(563)
–
–
–
–
–
–
795
420
281
358
609
334
326
205
1,854
1,474
80
35
40
30
35
35
80
35
40
30
149
35
1,610
(563)
2,109
1,843
(1) All executive directors are entitled to receive professional subscriptions, private health cover and health club membership.
(2) Executive directors can elect to receive pension contributions in lieu of performance related bonuses and salary. These contributions are deducted in the
remuneration table and included within pension entitlements below inclusive of employers’ national insurance.
(3) Fees of £30,000 (2007- £30,000) relating to the services of Robert Lucas as a director of the Company were paid to CVC Capital Partners Limited.
(4) Included within pension election is £25,000 of salary sacrificed in relation to extended paternity leave.
There was no compensation for loss of office paid during the year (2007 - £ nil).
36 IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Remuneration Report
Information subject to audit (continued)
Pension entitlements
In addition, the Group contributed to personal pensions for each of the executive directors as follows:
T A Howkins
S Clutton
P G Hetherington
A R MacKay
N B le Roux
There were no contributions made for the non-executive directors during the year ended 31 May 2008.
2008
£000
40
235
217
233
–
725
2007
£000
37
65
167
216
13
498
Directors’ Remuneration Report
IG Group Holdings plc
Report and Financial Statements 2008
37
Information subject to audit (continued)
Interests in long term incentive plans
Awards under the Company’s Long Term Incentive Plans were made to each of the executive directors in the years ended 31 May 2005, 2007
and 2008. There were no awards made in the year to 31 May 2006. The awards made and the maximum numbers of shares that can vest are as
follows:
Award date
Share price Number as at
31 May 2007
at award
date
Number
awarded
during
the year
Number
lapsed
during
the year
Number as at
31 May 2008
T A Howkins
Senior management
IPO basic award
Senior management
IPO high growth award
Executive award
Earnings per share award
Share price growth award
S Clutton
Senior management award
Executive award
Earnings per share award
Share price growth award
P G Hetherington
Senior management
IPO basic award
Senior management
IPO high growth award
Executive award
Earnings per share award
Share price growth award
16 May 2005
112.5p
141,666
16 May 2005
7 Aug 2006
23 July 2007
23 July 2007
4 Oct 2006
4 Oct 2006
23 July 2007
23 July 2007
112.5p
217.0p
312.25p
312.25p
261.75p
261.75p
312.25p
312.25p
–
–
–
169,736
169,736
425,000
122,120
–
–
688,786
339,472
76,409
229,226
–
–
–
–
96,077
96,077
305,635
192,154
16 May 2005
112.5p
125,000
16 May 2005
112.5p
375,000
7 Aug 2006
23 July 2007
23 July 2007
217.0p
312.25p
312.25p
82,949
–
–
–
–
–
76,861
76,861
582,949
153,722
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
141,666
425,000
122,120
169,736
169,736
1,028,258
76,409
229,226
96,077
96,077
497,789
125,000
375,000
82,949
76,861
76,861
736,671
38
IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Remuneration Report
Information subject to audit (continued)
Interests in long term incentive plans (continued)
A R MacKay
Senior management
IPO basic award
Senior management
IPO high growth award
Executive award
Earnings per share award
Share price growth award
N B le Roux
Senior management
IPO basic award
Senior management
IPO high growth award
Award date
Share price
at award
date
Number as at
31 May 2007
Number
awarded
during
the year
Number Number as at
31 May 2008
lapsed
during
the year
16 May 2005
112.5p
112,500
16 May 2005
112.5p
337,500
7 Aug 2006
23 July 2007
23 July 2007
217.0p
312.25p
312.25p
69,124
–
–
–
–
–
86,469
86,469
519,124
172,938
16 May 2005
112.5p
61,111
16 May 2005
112.5p
183,333
244,444
–
–
–
–
–
–
–
–
–
–
–
–
112,500
337,500
69,124
86,469
86,469
692,062
61,111
183,333
244,444
The charge for the year ended 31 May 2008 relating to share-based payments in respect of the directors was £1,467,000 (2007 - £648,000).
On behalf of the board
Steve Clutton
Finance Director
21 July 2008
Directors’ Report
IG Group Holdings plc
Report and Financial Statements 2008
39
Directors’ Report
The directors have pleasure in submitting their report together with
the Group financial statements for the year ended 31 May 2008.
Principal activities
The principal activities of the Group throughout the year have been
those of running a spread betting market, trading as principal and
market maker for foreign exchange and contracts for difference and
acting as a fixed odds bookmaker. During the year the Group began
trading on a regulated futures and options exchange. The Group
hedges unmatched bets and trades, as considered appropriate, to
ensure that it is not unacceptably exposed to material losses.
Results
The Group’s profit for the year, after taxation amounted to
£67,288,000 (2007 - £47,867,000) all of which is attributable to the
members of the Company.
Dividends
The directors recommend a final ordinary dividend of 9.0 pence per
share, amounting to £29,475,000 making totals of 12.0 pence per
share and £39,300,000 for the year. Dividends are recognised in the
financial statements in the year in which they are paid, or in the case
of a final dividend, when approved by the shareholders. The amount
recognised in the financial statements, as described in note 12, is
made up of this year’s interim dividend and the final dividend from
the previous year, which were both paid during the year.
The final ordinary dividend, if approved, will be paid on 14 October
2008 to those shareholders on the register at 12 September 2008.
Review of business and future
developments
A review of the Group’s progress, outlining developments during
the year and giving an indication of likely future developments, is
provided in the Chief Executive’s report set out on pages 10 to 15.
An analysis of the position of the Company at the year end and key
performance indicators is provided in the operating and financial
review on pages 18 to 25.
Directors and their interests
Details of the directors who served and their interests in the share
capital of the Company are set out in the directors’ remuneration
report on pages 31 to 38.
40
IG Group Holdings plc
Report and Financial Statements 2008
Directors’ Report
Major interests in shares
Notifications have been received by the Company of the following shareholdings of three percent or more of the issued ordinary share capital:
As at 18 July 2008
No.
percentage
As at 31 May 2008
No.
percentage
Janus Capital Management, LLC
CVC Capital Partners Limited
Prudential Limited
JP Morgan Fleming (ex Fleming)
Legal and General Investment Management Ltd
Hound Partners, LLC
Reach Capital Management LLC
32,430,008
25,105,819
17,826,267
15,830,307
13,219,486
10,309,607
9,872,084
9.9%
7.7%
5.4%
4.8%
4.0%
3.1%
3.0%
32,750,008
25,105,819
17,826,267
15,830,307
13,219,486
–
9,872,084
10.0%
7.7%
5.4%
4.8%
4.0%
–
3.0%
Supplier payment policy and practice
The Company does not incur significant costs and the Group does not follow any stated code on payment practice. It is the Group’s policy to
agree terms of payment with suppliers when agreeing the terms for each transaction and to abide by those terms. Standard terms provide for
payment of all invoices within 30 days after the date of the invoice except where different terms have been agreed with the supplier at the
outset. There were 16 creditor days of suppliers’ invoices outstanding at the year end (2007 - 17) for the Group.
Financial instruments
The principal activities of the Group outlined above give rise to exposure to financial risks in the ordinary course of business. The objective of
the risk department is to manage the Group’s financial risk and to minimise the effects of fluctuations in the financial markets on the value of
the Group’s financial assets and liabilities, on reported profitability and on the cash flows of the Group.
The main risks associated with the Group’s financial assets and liabilities are set out in note 30 to the financial statements, as are the policies
agreed by the board for their management.
Donations
The Group made no political donations. The Group made charitable donations of £13,779 in the year (2007 - £24,077) as follows:
Children specific
Medical research
Other
£7,500
£1,550
£4,729
Disabled employees
The Group gives full consideration to applications for employment from disabled persons where the candidate’s particular aptitudes and
abilities are consistent with adequately meeting the requirements of the job. Opportunities are available to disabled employees for training,
career development and promotion. Where existing employees become disabled, it is the Group’s policy to provide continuing employment
wherever practicable in the same or alternative position and to provide appropriate training to achieve this aim.
Directors’ Report
IG Group Holdings plc
Report and Financial Statements 2008
41
Employee involvement
During the year, the policy of providing employees with information
about the Group continued through quarterly management forums
where line managers are informed of current developments and
encouraged to present suggestions and views of the Group’s
performance, development and policies. Line management
communicate the points raised in the forum with their departments.
The Group’s intranet is used to communicate with staff. Employees
participate directly in the success of the business through the Group’s
performance related bonus schemes and employee share plans.
Directors’ statement as to disclosure
of information to auditors
The directors who were members of the board at the time of
approving the directors’ report are listed on pages 16 to 17. Having
made enquiries of fellow directors and of the Company’s auditors,
each of these directors confirms that:
to the best of each director’s knowledge and belief, there is no
information (that is information needed by the Group’s auditors
in connection with preparing their report) of which the Company’s
auditors are unaware; and
Events since the balance sheet date
There have been no significant events since the balance sheet date.
each director has taken all the steps a director might reasonably
be expected to have taken to be aware of relevant audit
information and to establish that the Company’s auditors are
Annual general meeting
The Group’s annual general meeting will be held on 7 October 2008.
A separate circular will be sent to all shareholders which details the
agenda for the AGM.
Auditors
aware of that information.
Going concern
After making enquiries, the directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, they continue to
adopt the going concern basis in preparing the financial statements.
A resolution to re-appoint Ernst & Young LLP as the Group’s auditor
will be put to the forthcoming annual general meeting.
On behalf of the board
Steve Clutton
Finance Director
21 July 2008
Statement of Directors’ Responsibilities in Respect of the Financial Statements
IG Group Holdings plc
Report and Financial Statements 2008
43
Statement of Directors’ Responsibilities
in Respect of the Financial Statements
The directors are responsible for preparing the annual report and
the Group and Company financial statements in accordance with
applicable United Kingdom law and those International Financial
Reporting Standards (IFRS) as adopted by the European Union.
The directors are required to prepare financial statements for each
financial year which present fairly the financial position of the
Company and of the Group and the financial performance of the
Group and cash flows of the Group and of the Company for that
period. In preparing those financial statements, the directors are
required to:
select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors,
and then apply them consistently;
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
provide additional disclosures when compliance with the specific
requirements of IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Group’s financial position and financial performance; and
state that the Group and the Company have complied with IFRS,
subject to any material departures disclosed and explained in the
financial statements.
The directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Group and of the Company and enable them to
ensure that the financial statements comply with the Companies
Act 1985 and, as regards the Group financial statements, Article 4 of
the IAS Regulation. They are also responsible for safeguarding the
assets of the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
44
IG Group Holdings plc
Report and Financial Statements 2008
Group Income Statement for the year ended 31 May 2008
Group Income Statement
for the year ended 31 May 2008
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Finance revenue
Finance costs
Profit before taxation
Tax expense
Profit for the year
Profit for the year attributable to:
Equity holders of the parent
Earnings per share (pence)
- Basic
- Diluted
Notes
3
5
8
9
10
2008
£000
184,008
(10,842)
173,166
(89,816)
83,350
30,609
(16,969)
96,990
(29,702)
67,288
2007
£000
121,990
(4,214)
117,776
(58,574)
59,202
22,604
(12,912)
68,894
(21,027)
47,867
67,288
47,867
11
11
20.62p
20.28p
14.67p
14.52p
All of the Group’s revenue and profit for the year and prior year relate to continuing operations.
As permitted by Section 230 of the Companies Act 1985, the individual income statement of IG Group Holdings plc has not been presented in
these financial statements. The amount of profit after taxation for the financial year dealt with in the financial statements of IG Group Holdings
plc is £35,641,000 (2007 - £47,640,000).
The notes on pages 49 to 89 are an integral part of these financial statements.
Statements of Changes in Shareholders’ Equity for the year ended 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
45
Statements of Changes in Shareholders’ Equity
for the year ended 31 May 2008
Group
Equity
share
capital
(Note 22)
£000
At 1 June 2006
Profit for the year
Excess of tax deduction
benefit on share-based
payments recognised directly
in equity (note 10(c))
Total recognised income
and expense for the year
Equity settled employee
share-based payments
Purchase of own shares
Equity dividends paid
Movement in
shareholders’ equity
At 1 June 2007
Profit for the year
Excess of tax deduction
benefit on share-based
payments recognised directly
in equity (note 10(c))
Total recognised income
and expense for the year
Equity settled employee
share-based payments
Purchase of own shares
Equity dividends paid
Movement in
shareholders’ equity
16
–
–
–
–
–
–
–
16
–
–
–
–
–
–
–
Share
premium
£000
125,235
–
–
–
–
–
–
–
125,235
–
–
–
–
–
–
–
Own shares
held in
Employee
Benefit
Trusts
(Note 23)
£000
–
–
–
–
–
(503)
–
(503)
(503)
–
–
–
–
(201)
–
Retained
earnings
(Note 24)
£000
Share-
holders’
equity
Minority
interests
Total
equity
£000
£000
£000
45,157
47,867
170,408
47,867
40
–
170,448
47,867
1,814
1,814
49,681
49,681
1,732
–
(19,650)
1,732
(503)
(19,650)
31,763
31,260
76,920
201,668
67,288
67,288
2,352
2,352
69,640
69,640
4,682
–
(31,113)
4,682
(201)
(31,113)
–
–
–
–
–
–
40
–
–
–
–
–
–
–
1,814
49,681
1,732
(503)
(19,650)
31,260
201,708
67,288
2,352
69,640
4,682
(201)
(31,113)
43,008
At 31 May 2008
16
125,235
(704)
120,129
244,676
40
244,716
The notes on pages 49 to 89 are an integral part of these financial statements.
(201)
43,209
43,008
46
IG Group Holdings plc
Report and Financial Statements 2008
Statements of Changes in Shareholders’ Equity for the year ended 31 May 2008
Statements of Changes in Shareholders’ Equity
for the year ended 31 May 2008 (continued)
Company
At 1 June 2006
Profit for the year
Equity settled employee
share-based payments
Equity dividends paid
Purchase of own shares
At 1 June 2007
Profit for the year
Equity settled employee
share-based payments
Equity dividends paid
Purchase of own shares
At 31 May 2008
Equity
share
capital
(Note 22)
£000
16
–
–
–
–
16
–
–
–
–
16
Share
premium
£000
125,235
–
–
–
–
125,235
–
–
–
–
125,235
Own shares
held in
Employee
Benefit
Trusts
(Note 23)
£000
–
–
–
–
(503)
(503)
–
–
–
(201)
(704)
Retained
earnings
(Note 24)
£000
145,980
47,640
1,732
(19,650)
–
175,702
35,641
4,682
(31,113)
–
Total
equity
£000
271,231
47,640
1,732
(19,650)
(503)
300,450
35,641
4,682
(31,113)
(201)
184,912
309,459
The notes on pages 49 to 89 are an integral part of these financial statements.
Balance Sheets
at 31 May 2008
Non-current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Deferred tax assets
Current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade payables
Other payables
Income tax payable
Non-current liabilities
Redeemable preference shares
Total liabilities
NET ASSETS
Capital and reserves
Equity share capital
Share premium
Own shares held in Employee
Benefit Trusts
Retained earnings
Shareholders’ equity
Minority interests
TOTAL EQUITY
Notes
13
14
15
10
17
18
19
20
21
22
23
24
Balance Sheets at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
47
2008
£000
9,824
112,056
–
8,053
129,933
263,323
5,690
471,722
740,735
870,668
582,689
26,715
16,508
625,912
40
40
625,952
244,716
16
125,235
(704)
120,129
244,676
40
244,716
Group
Company
2007
£000
8,158
107,675
–
3,940
119,773
352,628
3,954
484,556
841,138
960,911
726,144
18,472
14,547
759,163
40
40
759,203
201,708
16
125,235
(503)
76,920
201,668
40
201,708
2008
£000
–
–
309,581
–
309,581
–
1,631
46
1,677
2007
£000
–
–
304,899
–
304,899
–
62
607
669
311,258
305,568
–
1,759
–
1,759
40
40
–
5,078
–
5,078
40
40
1,799
5,118
309,459
300,450
16
125,235
(704)
184,912
309,459
–
309,459
16
125,235
(503)
175,702
300,450
–
300,450
Tim Howkins
Director
21 July 2008
The notes on pages 49 to 89 are an integral part of these financial statements.
Steve Clutton
Director
21 July 2008
48
IG Group Holdings plc
Report and Financial Statements 2008
Cash Flow Statements for the year ended 31 May 2008
Cash Flow Statements
for the year ended 31 May 2008
Note
Group
2008
£000
2007
£000
Company
2008
£000
2007
£000
83,350
59,202
(2,020)
(1,759)
Operating activities
Operating profit/(loss)
Adjustments to reconcile operating profit/
(loss) to net cash flow from operating activities
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payments
Property, plant and equipment written off
Intangible assets written off
Impairment of trade receivables
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
Income taxes paid
4,016
782
4,716
115
9
4,057
83,151
(145,818)
34,378
(29,501)
3,513
856
1,842
211
10
1,416
(226,563)
442,587
283,074
(26,110)
Net cash flow from operating activities
4,877
256,964
Investing activities
Interest received
Purchase of property, plant and equipment
Payments to acquire intangible assets
Purchase of subsidiary undertaking
Net cash acquired on purchase
of subsidiary undertaking
Net cash flow from investing activities
Financing activities
Interest paid
Equity dividends paid to shareholders of
the parent
Purchase of own shares held in Employee
Benefit Trusts
Repayment of financial liabilities
Payment of redeemable preference share
dividends
31,020
(4,905)
(1,282)
(3,375)
132
21,590
(17,550)
(31,113)
(201)
–
(3)
21,000
(7,793)
(1,414)
–
–
11,793
(11,508)
(19,650)
(503)
(92)
(3)
–
–
–
–
–
–
37,163
(3,998)
31,145
–
31,145
1
–
–
–
–
1
–
–
–
–
–
–
1
22,660
20,902
–
20,902
2
–
–
–
–
2
(390)
(50)
(31,113)
(19,650)
(201)
–
(3)
(503)
(92)
(3)
Net cash flow from financing activities
(48,867)
(31,756)
(31,707)
(20,298)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(22,400)
484,556
237,001
247,277
Effect of foreign currency differences on opening
balances of cash and cash equivalents
9,566
278
Net cash and cash equivalents at the end
of the year
18
471,722
484,556
(561)
607
–
46
606
1
–
607
The notes on pages 49 to 89 are an integral part of these financial statements.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
49
Notes to the Financial Statements
at 31 May 2008
Basis of consolidation
The Group financial statements consolidate the financial statements
of IG Group Holdings plc and the entities it controls (its subsidiaries)
made up to the reporting date as listed in note 15.
Subsidiaries are consolidated from the date of their acquisition,
being the date on which the Group obtains control, and continue
to be consolidated until the date that such control ceases. Control
comprises the power to govern the financial and operating policies
of the investee so as to obtain benefit from its activities and is
achieved through direct or indirect ownership of voting rights;
currently exercisable or convertible potential voting rights; or by way
of contractual agreement. The financial statements of the subsidiaries
used in the preparation of the consolidated financial statements are
prepared for the same reporting year as the parent company and are
based on consistent accounting policies. All inter-company balances
and transactions, including unrealised profits arising from them, are
eliminated.
On acquisition, the assets, liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition.
Any excess of the cost of acquisition over the fair values of the
identifiable net assets acquired is recognised as goodwill. Any
deficiency of the cost of acquisition below the fair values of the
identifiable net assets acquired (discount on acquisition) is credited
to the profit and loss in the period of acquisition.
1. Authorisation of financial
statements and statement of
compliance with IFRS
The financial statements of IG Group Holdings plc (“the Company”)
and its subsidiaries (“the Group”) for the year ended 31 May 2008
were authorised for issue by the board of the directors on 21 July
2008 and the balance sheet signed on the board’s behalf by TA
Howkins and S Clutton. IG Group Holdings plc is a public limited
company incorporated and domiciled in England and Wales.
The Company’s ordinary shares are traded on the London Stock
Exchange.
The Group and Company financial statements have been prepared
in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU) as they apply to the financial
statements of the Group and of the Company for the year ended
31 May 2008 and applied in accordance with the provisions of the
Companies Act 1985. The principal accounting policies adopted by
the Group and the Company are set out in note 2.
2. Accounting policies
Basis of preparation
The accounting policies which follow have been applied in preparing
the financial statements for the year ended 31 May 2008.
The Group and Company financial statements are presented in
Sterling and all values are rounded to the nearest thousand pounds
(£000) except where otherwise indicated.
The preparation of financial statements requires management to
make estimates and assumptions that affect the amounts reported
for assets and liabilities as at the balance sheet date and the amounts
reported for revenues and expenses during the year. The nature
of estimates means that actual outcomes could differ from those
estimates.
50
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
2. Accounting policies (continued)
Basis of consolidation (continued)
The interest of minority shareholders is stated at the minority’s
proportion of the fair values of the identifiable assets, liabilities and
contingent liabilities recognised. Losses applicable to the minority in
a consolidated subsidiary’s equity may exceed the minority interest in
the subsidiary’s equity. The excess, and any further losses applicable
to the minority, are allocated against the majority interest except to
the extent that the minority has a binding obligation and is able to
make an additional investment to cover the losses. If the subsidiary
subsequently reports profits, such profits are allocated to the majority
interests until the minority’s share of losses previously absorbed by
the majority has been recovered.
Minority interests represent the portion of profit or loss and net
assets in subsidiaries that is not held by the Group and is presented
within equity in the consolidated balance sheet, separately from
parent shareholders’ equity.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies used into line with
those used by other members of the Group. All inter-company
transactions and balances between Group entities are eliminated on
consolidation.
Foreign currencies
The functional currency of each company in the Group is that of
the country of incorporation as disclosed in note 15. The Group’s
most significant functional currency is Sterling. Transactions in
other currencies are initially recorded in the functional currency
by applying spot exchange rates prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and
liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange prevailing on the balance sheet
date. Non-monetary assets and liabilities carried at fair value that
are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Gains
and losses arising on translation are taken to the income statement,
except for exchange differences arising on monetary assets and
liabilities that form part of the Group’s net investment in a foreign
operation. These are taken directly to equity until the disposal of the
net investment, at which time they are recognised in profit or loss.
On consolidation, the assets and liabilities of the Group’s overseas
operations are translated into Sterling at exchange rates prevailing
on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period. Exchange
differences arising, if any, are classified as equity and taken directly
to a translation reserve. Such translation differences are recognised
as income or as expenses in the period in which the operation is
disposed of. Goodwill and fair value adjustments arising on the
acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
51
2. Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses. Cost comprises
the aggregate amount paid and the fair value of any other
consideration given to acquire the asset and includes costs directly
attributable to making the asset capable of operating as intended.
Depreciation is provided on all property, plant and equipment at
rates calculated to write off the cost, less estimated residual value
based upon estimated useful lives. Estimated residual value and
useful lives are reviewed on an annual basis and residual values are
based on prices prevailing at the balance sheet date. Depreciation
is charged on a straight line basis over the expected useful lives as
follows:
Leasehold improvements
- over the lease term of
up to 15 years
Office equipment, fixtures and fittings - over 5 years
Computer and other equipment
Motor vehicles
- over 4 years
- over 2, 3 or 5 years
The carrying values of property, plant and equipment are reviewed
for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable, and are written down
immediately to their recoverable amount.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on
derecognition of an asset is determined as the difference between
the sale proceeds and the carrying amount of the asset and is
included in the income statement in the period of derecognition.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group’s interest in the fair value of
the identifiable assets, liabilities and contingent liabilities of a
subsidiary at the date of acquisition. Externally purchased goodwill
is recognised at the fair value of the consideration paid. Goodwill is
recognised as an asset and is allocated to cash generating units for
purposes of impairment testing. Cash generating units represent
the smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or
groups of assets.
Business combinations on or after 1 June 2004 are accounted for
under IFRS 3 using the purchase method. Any excess of the cost of
the business combination over the Group’s interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities is
recognised in the balance sheet as goodwill and is not amortised. To
the extent that the net fair value of the acquired entity’s identifiable
assets, liabilities and contingent liabilities is greater than the cost
of the investment, a gain is recognised immediately in the income
statement. Goodwill recognised as an asset as at 31 May 2004 is
recorded at its carrying amount under UK GAAP and is not amortised.
Any goodwill asset arising on the acquisition of equity accounted
entities is included within the cost of those entities.
After initial recognition, goodwill is stated at cost less any
accumulated impairment losses, with the carrying value being
reviewed for impairment, at least annually and whenever events or
changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill is allocated to the
related cash-generating units monitored by management, usually at
business segment level or statutory company level as the case may
be. Where the recoverable amount of the cash-generating unit is less
than its carrying amount, including goodwill, an impairment loss is
recognised in the income statement.
The carrying amount of goodwill allocated to a cash-generating unit
is taken into account when determining the gain or loss on disposal
of the unit, or of an operation within it.
52
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
2. Accounting policies (continued)
Intangible assets
Intangible assets are carried at cost less accumulated amortisation
and accumulated impairment losses.
Intangible assets acquired separately from a business are carried
initially at cost. An intangible asset acquired as part of a business
combination is recognised outside goodwill if the asset is separable
or arises from contractual or other legal rights and its fair value
can be measured reliably. Expenditure on internally developed
intangible assets, excluding development costs, is taken to the
income statement in the year in which it is incurred. Development
expenditure is recognised as an intangible asset only after all the
following criteria are met:
the project’s technical feasibility and commercial viability can be
demonstrated;
the availability of adequate technical and financial resources and
an intention to complete the project have been confirmed; and
the correlation between development costs and future revenue
has been established.
Following initial recognition, the historic cost model is applied, with
intangible assets being carried at cost less accumulated amortisation
and accumulated impairment losses.
Intangible assets with a finite life are amortised on a straight line basis
over their expected useful lives, as follows:
Client lists
Development costs
Software and licences
- over the expected trading
life of up to 5 years
- over 3 years
- over the contract term of
up to 5 years
The carrying value of intangible assets is reviewed for impairment
whenever events or changes in circumstances indicate the carrying
value may not be recoverable. In addition, the carrying value of
capitalised development expenditure is reviewed for impairment
annually before being brought into use.
Impairment of assets
At least annually, or when annual impairment testing is required, the
directors review the carrying amounts of the Group’s tangible and
intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the cash generating
unit to which the asset belongs.
The recoverable amount is the higher of fair value less selling costs
and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present values using a pre-tax discount
rate. This rate reflects current market assessments of the time value
of money as well as the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. Impairment losses are recognised as an expense
immediately.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognised
impairment loss is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognised. If that is the case
the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount
that would have been determined, had no impairment loss been
recognised for the asset in prior years. A reversal of an impairment
loss is recognised as income immediately, although impairment
losses relating to goodwill may not be reversed.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
53
2. Accounting policies (continued)
Investments in subsidiaries
Investments in subsidiaries are stated at cost less accumulated
impairment losses.
Operating leases
Leases are classified as operating leases where the lessor retains
substantially all the risks and benefits of ownership of the asset. Lease
payments under an operating lease are recognised as an expense
on a straight line basis over the lease term unless another systematic
basis is more representative of the time pattern of the user’s benefit.
Financial instruments
The Group determines the classification of its financial instruments at
initial recognition in accordance with the categories outlined below
and re-evaluates this designation at each financial year end. When
financial instruments are recognised initially, they are measured at fair
value, being the transaction price plus, in the case of financial assets
and financial liabilities not at fair value through profit or loss, directly
attributable transaction costs.
Financial assets and financial liabilities at fair value
through profit or loss
Financial assets and financial liabilities classified as held for trading,
or designated as such on inception, are included in this category
and relate to trade receivables and trade payables as shown in
the balance sheet. Financial instruments are classified as held for
trading if they are expected to settle in the short term. The Group
uses derivative financial instruments, in order to hedge exposures
resulting from derivatives with clients, which are also classified as
held for trading.
All financial instruments at fair value through the profit and loss
are carried in the balance sheet at fair value with gains or losses
recognised in the income statement.
Determination of fair value
Bets and other derivative financial instruments are stated at fair value
determined by reference to third party market values (bid prices for
long positions and offer prices for short positions).
For all other derivative financial instruments where there is no
underlying active market, the fair value is determined using an
appropriate valuation technique as determined by the Group at the
year end.
Derecognition of financial assets and
liabilities
A financial asset or liability is generally derecognised when the
contract that gives rise to it is settled, sold, cancelled or expires.
Financial assets
A financial asset is derecognised where the rights to receive cash
flows from the asset have expired; the Group retains the right to
receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a
‘pass-through’ arrangement; or the Group has transferred its rights
to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows
from an asset and has neither transferred nor retained substantially
all the risks and rewards of the asset nor transferred control of the
asset, the asset is recognised to the extent of the Group’s continuing
involvement in the asset. Continuing involvement that takes the form
of a guarantee over the transferred asset is measured at the lower of
the original carrying amount of the asset and the maximum amount
of consideration that the Group could be required to repay.
54
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
Cash and cash equivalents
Cash comprises cash in hand and demand deposits which may be
accessed without penalty. Cash equivalents comprise short-term
highly liquid investments with a maturity of less than three months
from the date of acquisition. For the purposes of the consolidated cash
flow statement, net cash and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding bank overdrafts.
The Group holds money on behalf of clients in accordance with
the client money rules of the Financial Services Authority (FSA) and
other regulatory bodies. This money is included within cash and cash
equivalents on the balance sheet and the corresponding liability to
clients is included in trade and other payables. The return received on
managing client balances is included within finance revenue.
Other payables
Non-trading financial liabilities are recognised initially at fair value
and carried at amortised cost using the effective interest rate method
if the time value of money is significant.
Loan notes
Loan notes are initially recognised at fair value of the consideration
received and are subsequently measured at amortised cost using the
effective interest rate method.
2. Accounting policies (continued)
Financial liabilities
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as
a derecognition of the original liability and the recognition of a new
liability, such that the difference in the respective carrying amounts
together with any costs or fees incurred are recognised in profit or loss.
Trade receivables and trade payables
Assets or liabilities resulting from profit or losses on open positions
are carried at fair value. Amounts due from/to clients and brokers are
netted against other assets and liabilities with the same counterparty
where a legally enforceable netting agreement is in place and where
it is anticipated that assets and liabilities will be netted on settlement.
Trade receivables represent balances with counterparties and clients
where the combination of cash held on account and the valuation
of financial derivative open positions result in an amount due to
the Group. A provision for impairment is established where there is
objective evidence of non-collectability. Reference is made to an aged
profile of debt and the provision is subject to management review.
Trade payables represent balances with counterparties and clients
where the combination of cash held on account and the valuation of
financial derivative open positions results in an amount payable by
the Group.
Prepayments and other receivables
Prepayments and other receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in
an active market, do not qualify as trading assets and have not been
designated as fair value through profit and loss. Such assets are
carried at amortised cost using the effective interest method if the
time value of money is significant. Gains and losses are recognised in
income when the receivables are derecognised or impaired, as well
as through the amortisation process. A provision for impairment is
established where there is objective evidence of non-collectability.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
55
2. Accounting policies (continued)
Taxation
The income tax expense represents the sum of tax currently payable
and movements in deferred tax.
The tax currently payable is based on taxable profit for the period.
Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that
are taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is generally accounted for on all temporary differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax basis used in the computation
of taxable profit. In principle, deferred tax liabilities are recognised
for all temporary differences and deferred tax assets are recognised
to the extent that it is probable that taxable profits will be available,
against which deductible temporary differences may be utilised.
Such assets and liabilities are not recognised if the temporary
difference arises from goodwill (or negative goodwill) or from the
initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the tax profit
nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related
asset is realised or liability is settled, based on tax rates and laws
enacted or substantively enacted at the balance sheet date. Deferred
tax is charged or credited in the income statement, except when it
relates to items credited or charged directly to equity, in which case
the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Classification of shares as debt or equity
When shares are issued, any component that creates a financial
liability of the Group is presented as a liability in the balance sheet;
measured initially at fair value net of transaction costs and thereafter
at amortised cost until extinguished on conversion or redemption.
The corresponding dividends relating to the liability component are
charged as interest expense in the income statement.
Equity instruments issued by the Company are recorded as the
proceeds received, net of direct issue costs. Equity instruments
are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Own shares held in Employee Benefit Trusts
Shares held in trust by the Company for the purposes of employee
share schemes are classified as a deduction from shareholders’ equity
and are recognised at cost. Consideration received for the sale of such
shares is also recognised in equity, with any difference between the
proceeds from the sale and the original cost being taken to revenue
reserves. No gain or loss is recognised in the income statement on the
purchase, sale, issue or cancellation of equity shares.
56
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
Retirement benefit costs
The Group operates defined contribution schemes. Contributions are
charged to the income statement as and when they become payable
according to the rules of the schemes.
Share-based payments
The Company operates two employee share plans: a Share Incentive
Plan (SIP) and Long Term Incentive Plans (LTIPs) both of which are
equity settled. The cost of these awards is measured at fair value
based on the market price of the Company’s shares at the date of the
grant and are recognised as an expense in the income statement on
a straight line basis over the vesting period based on the Company’s
estimate of the number of shares that will eventually vest.
At each balance sheet date before vesting, the cumulative expense
is calculated representing the extent to which the vesting period
has expired and management’s best estimate of the achievement
or otherwise of non-market conditions determining the number
of equity instruments that will ultimately vest. The movement
in cumulative expense since the previous balance sheet date is
recognised in the income statement as part of administrative
expenses, with a corresponding entry in equity.
The Company also operates a Shadow SIP scheme for overseas staff,
which is cash settled. The fair value of these awards is measured at
the grant date using the Black-Scholes option pricing model taking
into account the terms and conditions of the award. A liability is
recognised over the expected vesting period and until the liability is
settled it is re-measured at each reporting date with changes in fair
value recognised in the income statement.
2. Accounting policies (continued)
Revenue recognition
Revenue is recognised when it is probable that economic benefits
associated with the transaction will flow to the Group and the
revenue can be reliably measured.
Rendering of services includes gains and losses on the running of
betting markets and trading in financial markets, net of commissions
expensed. Open positions are carried at fair market value and gains
and losses arising on this valuation are recognised in revenue as well
as gains and losses realised on positions that have closed.
Finance revenue is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable. The
effective interest rate is the rate which exactly discounts estimated
future cash receipts over the expected life of the financial asset to
that asset’s net carrying amount.
Dividends receivable are recognised when the shareholder’s right to
receive the payment is established.
Cost of sales
Cost of sales represents duties and levies charged on betting
revenues. Betting duties are charged at a fixed rate on aggregate net
client losses.
Operating profit
Operating profit is the results of the principal activities of the Group
after charging depreciation of property, plant and equipment,
amortisation of intangible assets, operating lease rentals on land
and buildings, foreign exchange differences, profit/loss on sale of
property, plant and equipment and other administrative expenses.
Finance costs
The interest cost recognised in the income statement is accrued on
a time basis by reference to the principal amount charged at the
effective interest rate applicable. The effective interest rate is the rate
that exactly discounts the future expected cash flows to the carrying
amount of the liability. Issue costs are included in the determination
of the effective interest rates.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
57
2. Accounting policies (continued)
Recent accounting developments
IFRS 7 “Financial Instruments: Disclosures” has been adopted
with effect from 1 June 2007. IFRS 7 introduces new disclosure
requirements for financial instruments, but has not affected the
valuation or classification of the Group’s financial instruments. The
comparative disclosures have been restated to comply with the
requirements of IFRS 7.
IFRS 2 (Amendment) “Share-based payment” applies to accounting
periods beginning after 1 January 2009. This amendment clarifies that
vesting conditions are service and performance conditions only. It also
specifies that all cancellations should receive the same accounting
treatment whether cancelled by the entity or by other parties.
IFRS 3 (Amendment) “Business Combinations” applies to accounting
periods beginning after 1 July 2009. This standard includes significant
changes to how the acquisition method is applied to business
combinations.
IAS 27 (Amendment) “Consolidated and separate financial
statements” applies to accounting periods beginning after 1 July
2009. The revised standard requires the effects of all transactions
with non-controlling interests to be recorded in equity if there is no
change in control.
IAS 32 (Amendment) “Financial Instruments: Presentation” and
IAS 1(Amendment) “Presentation of Financial Statements – Puttable
Instruments and Instruments with obligations arising on Liquidation”
applies to accounting periods beginning after 1 January 2009.
IFRIC 12 “Service concession arrangements” applies to accounting
periods beginning after 1 January 2008.
IFRIC 13 “Customer loyalty programmes” applies to accounting
periods beginning after 1 July 2008.
IFRIC 14 “The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction” applies to accounting periods
beginning after 1 January 2008.
The following standards and interpretations have been issued with
an effective date after the date of these financial statements. The
Group has not applied these standards and interpretations in the
preparation of these financial statements. The impact on the Group’s
financial statements of the future adoption of the standards and
interpretations is still under review, but the Group does not expect
any of these changes to have a material effect on the results or net
assets of the Group in the period of initial application.
IFRS 8 “Operating Segments” applies to accounting periods beginning
after 1 January 2009. This standard replaces IAS 14 “Segment
Reporting” and will not affect the results of the Group but will
require a change in the disclosure of segmental information. IFRS 8
amends the current segmental reporting requirements of IAS 14 and
requires “management approach” to be adopted so that segmental
information is presented on the same basis as that used for internal
reporting purposes.
IAS 23 (Amendment) “Borrowing Costs” applies to accounting periods
beginning after 1 January 2009. The amendment to the standard
requires an entity to capitalise borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset (one
that takes a substantial period of time to get ready for use or sale) as
part of the cost of that asset. The option of immediately expensing
borrowing costs is removed.
IAS 1 (Amendment) “Presentation of Financial Statements” applies to
accounting periods beginning after 1 January 2009. This amendment
prohibits the presentation of items of income and expense (that
is “non-owner changes in equity”) in the statement of changes
in equity. Revised IAS 1 also sets out the additional disclosure
requirements for entities making restatement or reclassifications.
58
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
2. Accounting policies (continued)
Critical accounting estimates and judgements
In the directors’ opinion there are no critical accounting estimates or judgements that have a significant risk of causing material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
The accounting estimates or judgements that have the most significant impact on the financial statements are the estimation of share-based
payment costs (see note 25), the measurement and impairment of goodwill (see note 16), the impairment of trade receivables (see note 5)
and the assessment of net market risk and associated disclosures (see note 30).
3. Revenue
Revenue represents the net trading income from financial instruments carried at fair value through profit and loss. Revenue disclosed in the
income statement is analysed as follows:
Rendering of services
Finance revenue is disclosed in note 8.
2008
£000
2007
£000
184,008
121,990
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
59
4. Segment information
The operating businesses are organised and managed separately according to the nature of the products provided, with each segment
representing a strategic business 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 risks and rates of return are affected predominantly by
differences in the products provided.
Year ended 31 May 2008
Revenue
Segment result
Unallocated administrative expenses
Unallocated finance revenue
Unallocated finance costs
Profit before taxation
Tax expense
Profit for the year
Assets and liabilities
Segment assets
Segment liabilities
Other segment information
Capital expenditure
Property, plant and equipment
Intangible assets
Depreciation
Amortisation
Impairment of trade receivables
Financial
£000
172,475
126,265
Sport
£000
11,533
1,892
Unallocated
£000
–
–
745,613
591,275
2,417
680
1,482
407
3,426
8,285
145
736
137
590
84
631
116,770
34,532
2,522
465
1,944
291
–
Total
£000
184,008
128,157
(34,584)
4,100
(683)
96,990
(29,702)
67,288
870,668
625,952
5,675
1,282
4,016
782
4,057
60
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
4. Segment information (continued)
Primary reporting format – business segments (continued)
Year ended 31 May 2007
Revenue
Segment result
Unallocated administrative expenses
Unallocated finance revenue
Unallocated finance costs
Profit before taxation
Tax expense
Profit for the year
Assets and liabilities
Segment assets
Segment liabilities
Other segment information
Capital expenditure
Property, plant and equipment
Intangible assets
Depreciation
Amortisation
Impairment of trade receivables
Financial
£000
Sport
£000
Unallocated
£000
109,791
12,199
87,948
3,679
–
–
851,809
732,520
3,034
1,414
1,612
856
1,467
7,494
143
1,188
–
483
–
(51)
101,608
26,540
3,571
–
1,418
–
–
Total
£000
121,990
91,627
(25,865)
3,426
(294)
68,894
(21,027)
47,867
960,911
759,203
7,793
1,414
3,513
856
1,416
Unallocated administrative expenses comprise overheads, including information technology 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 and cash equivalents, accruals, tax liabilities and financial liabilities which are not specifically attributable to business segments.
Unallocated assets include cash and cash equivalents amounting to £99,411,000 (2007 - £90,489,000).
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
61
4. Segment information (continued)
Secondary reporting format – geographical segments
Geographical segment information for revenue and profit is based upon client location. The UK segment includes all clients located in the UK;
Europe includes all clients located in Ireland and continental Europe; Asia Pacific includes all clients located in Australasia, Asia and the Far East;
all other clients are classified as Rest of World. Geographical segment information for assets and capital expenditure is based upon asset location.
The Group has offices in the United Kingdom, Australia, Singapore, Germany, France, Spain and the United States of America.
Year ended 31 May 2008
Revenue
UK
£000
Europe
£000
134,713
20,396
Asia
Pacific
£000
27,371
Rest of
World
£000
1,528
Unallo-
cated
£000
Total
£000
–
184,008
Segment assets
757,217
54,694
35,246
15,459
8,052
870,668
4,377
923
392
6
103
1
803
352
–
–
5,675
1,282
UK
£000
Europe
£000
96,841
11,771
Asia
Pacific
£000
12,704
Rest of
World
£000
674
715
Unallo-
cated
£000
Total
£000
–
121,990
3,940
960,911
Segment assets
945,458
162
10,636
Other segment information
Capital expenditure
Property, plant and equipment
Intangible assets
Unallocated assets comprise deferred tax assets.
7,212
1,176
16
238
565
–
–
–
–
–
7,793
1,414
Other segment information
Capital expenditure
Property, plant and equipment
Intangible assets
Year ended 31 May 2007
Revenue
62
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
5. Operating profit
This is stated after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating lease rentals for land and buildings
Impairment of trade receivables
Foreign exchange differences
Advertising and marketing
Property, plant and equipment written off
Intangible assets written off
Group
2008
£000
4,016
782
1,793
4,057
(127)
11,922
115
9
2007
£000
3,513
856
1,177
1,416
63
6,996
211
10
All of the above except foreign exchange differences are included in the administrative expenses of the income statement. Foreign exchange
differences are included in revenue.
6. Auditors’ remuneration
Audit of the financial statements
Additional costs in relation to the audit of prior year financial statements
Other fees to auditors:
Audit of financial statements of subsidiaries of the Company pursuant to legislation
Other services supplied pursuant to legislation
Services relating to corporate finance transactions entered into or proposed
to be entered into by or on behalf of the Company or its subsidiaries
Group
2008
£000
273
45
85
30
–
115
2007
£000
250
102
75
–
71
146
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
63
7. Staff costs
The staff costs for the year including directors were as follows:
Wages and salaries
Social security costs
Other pension costs
2008
£000
41,871
4,284
2,300
48,455
Group
2007
£000
26,851
2,979
1,988
31,818
Wages and salaries include the following amounts in respect of performance related bonuses, inclusive of national insurance and share-based
payments charged to the income statement:
Performance related bonuses
Equity settled share-based payment schemes
Cash settled share-based payment schemes
2008
£000
15,971
4,682
34
20,687
Group
2007
£000
9,747
1,732
110
11,589
The directors’ emoluments for the year ended 31 May 2008 and the comparative year can be found in the directors’ remuneration report on
page 35.
The average monthly number of employees was made up as follows:
Dealing, sales and client support
Management and administration including IT
Group
2008
329
222
551
2007
244
160
404
64
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
8. Finance revenue
Interest receivable from brokers
Interest receivable from clients
Bank interest receivable
2008
£000
7,725
885
21,999
30,609
Group
2007
£000
5,155
392
17,057
22,604
Finance revenue includes £26,562,000 (2007 - £19,195,000) of interest receivable in respect of segregated and non-segregated client balances,
part of which is held with brokers.
9. Finance costs
Interest payable to clients
Interest payable to brokers
Interest payable on interest-bearing loans
Dividend on redeemable preference shares
Other charges
10. Taxation
(a) Tax on profit on ordinary activities
Tax charged in the income statement
Current income tax:
UK Corporation tax
Foreign tax
Adjustment in respect of prior years
Total current income tax
Deferred tax:
Origination and reversal of temporary differences
Tax expense in the income statement (note 10(b))
Group
Group
2008
£000
16,341
329
–
3
296
16,969
2008
£000
30,857
1,046
(440)
31,463
(1,761)
29,702
2007
£000
12,636
174
1
3
98
12,912
2007
£000
21,791
–
(1,149)
20,642
385
21,027
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
65
10. Taxation (continued)
(b) Reconciliation of the total tax charge
The rate of corporation tax in the UK was reduced from 30% to 28% from 1 April 2008. The tax expense in the income statement for the year is
marginally higher than the standard rate of corporation tax in the UK of 29.67% (2007 - 30%). The differences are reconciled below:
Accounting profit before income tax
Accounting profit multiplied by the UK standard rate of corporation tax of 29.67% (2007 - 30%)
Expenses not deductible for tax purposes
(Lower)/higher taxes on overseas earnings
Foreign tax losses previously not recognised
Adjustment in respect of prior years
Total tax expense reported in the income statement
The effective tax rate is 30.6% (2007 - 30.5%).
(c) Deferred income tax
The deferred income tax assets included in the balance sheet are as follows:
Deferred tax assets:
Decelerated capital allowances
Tax losses available for offset against future tax
Share-based payments
2008
£000
96,990
28,777
1,638
(120)
(153)
(440)
29,702
2008
£000
817
759
6,477
8,053
2007
£000
68,894
20,668
1,463
45
–
(1,149)
21,027
2007
£000
936
199
2,805
3,940
Group
The tax losses available for offset against future tax relate to operating losses arising in overseas subsidiary companies, the recoverability of
which is dependent on future operating profits in those entities. A deferred tax asset is recognised where it is anticipated that future operating
profits will exceed the losses that have arisen to date. Where it is not anticipated that future operating profits will exceed the losses that have
arisen to date a deferred tax asset is not recognised. At the balance sheet date deferred tax assets of £nil (2007 - £153,418) were not recognised
because of uncertainty over the recoverability of tax losses against future operating profits.
Share-based payment awards have been charged to the income statement but are not allowable as a tax expense until the awards vest. The
excess of tax relief in future periods over the amount charged to the income statement is recognised as a credit directly to equity.
The gross movement in the deferred income tax included in the balance sheet is as follows:
At the beginning of the year
Income statement credit/(charge)
Tax credited directly to equity
At the end of the year
2008
£000
3,940
1,761
2,352
8,053
Group
2007
£000
2,511
(385)
1,814
3,940
66
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
10. Taxation (continued)
(c) Deferred income tax (continued)
The deferred income tax credit/(charge) included in
the income statement is made up as follows:
Decelerated capital allowances
Tax losses available for offset against future tax
Share-based payments
Open positions valuation at bid or offer
Employees’ short-term compensated absences
The deferred tax credited to equity during the year is as follows:
Share-based payments
Adjustment in respect of prior years for share-based payments
Group
2008
£000
(119)
560
1,320
–
–
1,761
2,352
–
2,352
2007
£000
52
(556)
522
(379)
(24)
(385)
1,378
436
1,814
The deferred tax asset recognised in equity relates to a deductible temporary excess of the estimated future taxation benefit and the amounts
charged to date in the income statement.
11. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares in issue during the year, excluding ordinary shares purchased 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 that used in basic earnings per share and
by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The
following reflects the income and share data used in the basic and diluted earnings per share computations:
Basic and diluted earnings attributable to ordinary shareholders
Basic weighted average number of equity shares
Effect of share-based payments
Diluted weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share
2008
£000
67,288
Group
2007
£000
47,867
326,243,567
5,515,661
326,343,794
3,288,896
331,759,228
329,632,690
20.62p
20.28p
14.67p
14.52p
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
67
12. Dividends
Declared and paid during the year:
Final dividend for 2007 at 6.50p per share (2006 - 4.00p)
Interim dividend for 2008 at 3.00p per share (2007 - 2.00p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2008 at 9.00p per share (2007 - 6.50p)
13. Property, plant and equipment
Group
Company and Group
2008
£000
2007
£000
21,288
9,825
31,113
13,100
6,550
19,650
29,475
21,288
Leasehold
improvements
£000
Office
equipment,
fixtures and
fittings
£000
Computer
and other
equipment
£000
Motor
vehicles
£000
1,627
–
3,458
(351)
4,734
15
2,078
–
(922)
5,905
838
–
857
(255)
1,440
–
1,132
(830)
1,742
4,163
3,294
789
250
–
122
(135)
237
6
505
5
(47)
706
169
–
49
(127)
91
2
61
(47)
107
599
146
81
8,091
(9)
4,213
(712)
11,583
(158)
3,092
115
(1,712)
12,920
4,874
(7)
2,605
(605)
6,867
(141)
2,821
(1,689)
7,858
5,062
4,716
3,217
7
–
–
–
7
–
–
–
–
7
3
–
2
–
5
–
2
–
7
–
2
4
Cost:
At 1 June 2006
Foreign currency adjustment
Additions
Written off
At 31 May 2007
Foreign currency adjustment
Additions
Acquisition of subsidiary
Written off
At 31 May 2008
Depreciation:
At 1 June 2006
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2007
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2008
Net book value at 31 May 2008
Net book value at 31 May 2007
Net book value at 1 June 2006
Total
£000
9,975
(9)
7,793
(1,198)
16,561
(137)
5,675
120
(2,681)
19,538
5,884
(7)
3,513
(987)
8,403
(139)
4,016
(2,566)
9,714
9,824
8,158
4,091
68
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
14. Intangible assets
Group
Cost:
At 1 June 2006
External purchases
Written off
At 31 May 2007
External purchases
Foreign currency adjustment
Acquisition of subsidiary
Written off
At 31 May 2008
Amortisation:
At 1 June 2006
Provided during the year
Written off
At 31 May 2007
Provided during the year
Written off
At 31 May 2008
Net book value at 31 May 2008
Net book value at 31 May 2007
Net book value at 1 June 2006
Goodwill
£000
106,218
–
–
106,218
–
5
3,802
–
110,025
–
–
–
–
–
–
–
110,025
106,218
106,218
15. Investment in subsidiaries
At cost:
At the beginning of the year
Investment relating to equity settled share-based payments
for subsidiary employees
At the end of the year
Client
lists
£000
Development
costs
£000
Software
and licences
£000
588
238
–
826
–
24
–
–
850
588
111
–
699
151
–
850
–
127
–
3,126
–
(7)
3,119
50
–
–
(9)
3,160
2,782
258
(6)
3,034
89
(9)
3,114
46
85
344
1,549
1,176
(47)
2,678
1,232
10
49
(292)
3,677
984
487
(38)
1,433
542
(283)
1,692
1,985
1,245
565
Total
£000
111,481
1,414
(54)
112,841
1,282
39
3,851
(301)
117,712
4,354
856
(44)
5,166
782
(292)
5,656
112,056
107,675
107,127
Company
2008
£000
2007
£000
304,899
303,167
4,682
1,732
309,581
304,899
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
69
15. Investment in subsidiaries (continued)
The following companies are all owned directly or indirectly by IG Group Holdings plc:
Name of Company
Country of
incorporation
Holding
Voting rights
Nature of business
Subsidiary undertakings held directly:
IG Finance
IG Group Limited
Subsidiary undertakings held indirectly:
extrabet Limited
HedgeStreet Inc
HedgeStreet Securities Inc
IG Asia Pte Limited
UK
UK
UK
USA
USA
Singapore
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
IG Australia Pty Limited
Australia
Ordinary shares
IG Finance Two
IG Finance Three
IG Finance Four
IG Markets Inc
IG Index plc
IG Infotech (India) Private Ltd
IG Markets Limited
UK
UK
UK
USA
UK
India
UK
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
IG Markets (Deutschland) AG
Germany
Ordinary shares
100%
IG Nominees Limited
ITS Market Solutions Limited
IG US Holdings Inc
Market Data Limited
Market Risk Management Inc
Tower Three Capital Inc
Employee Benefit Trusts:
UK
UK
USA
UK
USA
USA
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
60%
100%
100%
100%
100%
IG Group Holdings plc Inland Revenue Approved Share Incentive Plan (UK trust)
IG Group Limited Employee Benefit Trust (Jersey trust)
Financing
Holding company
Fixed odds bookmaker
Exchange
Non-trading
Margin trading and
foreign exchange
Australia sales and
marketing office
Financing
Financing
Financing
Foreign exchange
and USA sales office
Spread betting and
fixed-odds bookmaker
Software development
Margin trading and
foreign exchange
German sales and
marketing office
Nominee company
Software development
and sales
Holding company
Data distribution
Market maker
Non-trading
70
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
15. Investment in subsidiaries (continued)
On 6 December 2007, the Group acquired 100% of the ordinary shares of HedgeStreet Inc. (“HedgeStreet”) for a consideration of £3,024,000
($6,000,000) satisfied in cash. HedgeStreet is a US company which, since 2004, has operated the HedgeStreet Exchange (“the Exchange”).
The Exchange is a US based Designated Contract Market operating under the regulatory oversight of the US Commodity Futures Trading
Commission (“CFTC”). HedgeStreet is also registered with the CFTC as a Derivatives Clearing Organisation.
Book and fair values of the net liabilites at the date of acquisition were as follows:
Property, plant and equipment
Intangible assets
Prepayments and other receivables
Cash and cash equivalents
Trade payables
Other payables
Net liabilities
Goodwill arising on acquisition
Discharged by:
Cash
Costs associated with the acquisition, settled in cash
Book
values
£000
120
284
68
132
(508)
(292)
(196)
Fair value
to group
£000
120
49
57
132
(508)
(277)
(427)
3,802
3,375
3,024
351
3,375
From the date of acquisition to 31 May 2008, HedgeStreet has incurred a net loss to the Group of £1,210,000. If the combination had taken
place at the beginning of the year, the consolidated profit for the Group would have been £64,511,000 and revenue from continuing
operations would have been £184,036,000.
Goodwill of £3,802,000 arose on the acquisition of HedgeStreet which forms part of our financials business. This relates to certain intangible
assets that cannot be individually separated and reliably measured and includes the future growth potential of the business.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
71
16. Impairment of goodwill
Goodwill has been allocated for impairment testing purposes to two cash generating units (CGU), which are also reportable segments, as
follows:
Financial
Sport
2008
£000
104,775
5,250
110,025
Group
2007
£000
100,968
5,250
106,218
Goodwill arising on the purchase of IG Group plc by IG Group Holdings plc on 5 September 2003 has been allocated according to the
profitability of the segments at that date. Goodwill arising since that date has been allocated to the financial segment as it related to the
purchase of financial subsidiaries.
For the purposes of impairment testing of goodwill the carrying amount of each CGU (including goodwill) is compared to the recoverable
amount of each CGU and any deficits are provided. The carrying amount of a CGU includes only those assets that can be attributed directly, or
allocated on a reasonable and consistent basis in accordance with the segmental disclosure in note 4.
The estimated recoverable amount of each CGU was based on value in use calculated using the present value of projected 5 year future
cash flows.
Key assumptions used in value in use calculations
The calculation of value in use for both business segments is most sensitive to the following assumptions:
Growth rate used to extrapolate cash flows beyond the budget period
Discount rate
Client recruitment rates
Average revenue per client
Projected future cash flows for each CGU, measured over a five year period, were based on Board approved two year budgets, reflecting past
experience as well as future expected trends, and a subsequent growth rate of 5% which is below the average long term growth rates of the
Financial and Sport businesses being 39% and 6% respectively, measured over a five year period.
The cash flows were discounted using a pre-tax discount rate of 14.1%, derived from the group’s weighted average cost of capital.
Client recruitment rates and average revenue per client were based upon actual amounts measured in prior periods which were projected
forward in accordance with expected trends.
The directors have performed sensitivity analysis around the cash flow assumptions and have concluded that no reasonably possible change
in key assumptions would cause the carrying amount of either CGU to exceed its recoverable amount.
On the basis of the results of the above analysis there was no impairment of goodwill during the year.
72
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
17. Trade receivables
Amounts due from brokers
Amounts due from clients
18. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Client money held
Group
2008
£000
252,522
10,801
263,323
Group
Company
2008
£000
99,411
3,348
368,963
471,722
2007
£000
92,116
1,167
391,273
484,556
2008
£000
46
–
–
46
2007
£000
345,076
7,552
352,628
2007
£000
607
–
–
607
Cash and cash equivalents are deposited for varying periods of between one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents is not
materially different from the book value.
Net interest receivable on client balances amounted to £10,221,000 (2007 - £6,559,000).
Undrawn committed borrowing facilities amounted to £160m (2007 - £106m) at the balance sheet date.
19. Trade payables
Amounts due to clients
Group
2008
£000
2007
£000
582,689
726,144
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
73
20. Other payables
Accruals
Other taxes and social security
Amounts due to group companies
Dividends on redeemable preference shares
21. Redeemable preference shares
Authorised:
Preference shares of £1 each
Allotted, called up and fully paid:
Preference shares of £1 each
Group
Company
2008
£000
25,501
1,211
–
3
26,715
2007
£000
17,587
882
–
3
18,472
2008
£000
1,756
–
–
3
1,759
2007
£000
1,282
–
3,793
3
5,078
Company and Group
2008
£000
40
40
2007
£000
40
40
The preference shares are entitled to a fixed non-cumulative dividend of 8% paid in preference to any other dividend. Redemption is only
permissible in accordance with capital distribution rules or on the winding up of the Company where the holders are entitled to £1 per share
plus, if the Company has sufficient distributable reserves, any accrued or unpaid dividends. The preference shares have no voting rights, except
that they are entitled to vote should the Company fail to pay any amount due on redemption of the shares. The effective interest rate on these
shares is 8% (2007 - 8%).
22. Equity share capital
Authorised:
500,000,000 ordinary shares of 0.005p each
65,000 B shares of 0.001p each
Allotted, called up and fully paid:
At 31 May 2008 and 31 May 2007:
327,500,959 ordinary shares of 0.005p each
65,000 B shares of 0.001p each
Company and Group
2008
£000
2007
£000
25
–
25
16
–
16
25
–
25
16
–
16
Except as the ordinary shareholders have agreed or may otherwise agree, on a winding up of the Company, the balance of assets available
for distribution after the payment of all of the Company’s creditors and subject to any special rights attaching to other classes of shares are
distributed among the shareholders according to the amounts paid up on shares by them.
B shares
The B shares carry no entitlement to dividends and no voting rights. To the extent not already received by them the B shareholders shall, on a
winding up of the Company be entitled to receive, from the trustee, a consideration equal to the amount realised by the sale by the trustee of
approximately 122 ordinary shares for every B share held.
74
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
23. Own shares held in Employee Benefit Trusts
The movements in own shares held in Employee Benefit Trusts in respect of employee share plans during the year were as follows:
At the beginning of the year:
1,206,445 (2007 - 994,833) ordinary shares of 0.005p each
Purchased during the year:
59,764 (2007 - 211,612) ordinary shares of 0.005p each
Exercised during the year:
93,369 (2007 - nil) ordinary shares of 0.005p each
At the end of the year:
1,172,840 (2007 - 1,206,445) ordinary shares of 0.005p each
Company and Group
2008
£000
503
201
–
704
2007
£000
–
503
–
503
The Group has a UK resident Employee Benefit Trust in order to hold shares in the Company in respect of awards under the Group’s HM
Revenue and Customs approved share incentive plan (SIP). At 31 May 2008 660,765 ordinary shares (2007 - 694,370) were held in the trust
and at the balance sheet date have reduced shareholders’ equity by £704,149 (2007 - £503,124). These include 185,509 ordinary shares
(2007 - 148,351) which were not allocated to employees and are available for future SIP awards. The market value of the shares held
conditionally at the balance sheet date was £2,525,774 (2007 - £2,296,629).
The Group has a Jersey resident Employee Benefit Trust which holds shares in the Company. At the balance sheet date the trust held 512,075
(2007 - 512,075) ordinary shares which are available to satisfy awards under the SIP and LTIP schemes. The shares held at the balance sheet
date have reduced shareholders’ equity by £26 (2007 - £26). The market value of the shares held conditionally at the balance sheet date was
£1,957,407 (2007 - £1,693,688).
Upon flotation of the Company on 4 May 2005 5,861,497 ordinary shares and cash of £2.4m were transferred to the Jersey Employee Benefit
Trust by institutional shareholders in order to satisfy their obligations to holders of 48,059 B shares and 16,941 B shares respectively. During
the year ended 31 May 2008 3,653 (2007 - 33,640) B shares were sold by B shareholders to the trust. The trust sold 445,537 (2007 - 4,102,889)
ordinary shares in order to realise the funds necessary to purchase these B shares. The trust unconditionally held 58,834 (2007 - 55,181) B
shares at the balance sheet date. The Trust also held 6,166 (2007 - 9,819) B shares and 752,034 (2007 - 1,197,571) ordinary shares which it may
sell in order to satisfy its obligations to B shareholders, all of whom are current or former employees.
24. Reserves
Retained earnings
Retained earnings includes the share-based payment reserve which relates to the estimated cost of equity settled employee share plans based
on a straight line basis over the vesting period. Retained earnings include a credit for the excess of the tax deduction for employee share-
based payments over the amounts charged to the income statement. Retained earnings also include the foreign currency translation reserve
which is insignificant in amount.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
75
25. Employee share plans
The Company operates two employee share plans; a share incentive plan (SIP) and long term incentive plans (LTIPs) both of which are equity
settled. In addition the Company operates a Shadow SIP scheme for Australian employees which is cash settled. The expense recognised in the
income statement in respect of share-based payments was as follows:
Equity settled share-based payment schemes
Cash settled share-based payment schemes
Group
2008
£000
4,682
34
4,716
2007
£000
1,732
110
1,842
SIP awards made to UK staff
SIP awards are made available to all UK staff, except executive directors and are equity settled. There are no further performance conditions
other than remaining in employment with IG for the term of each award. Shares awarded under the scheme are held in a UK trust in
accordance with HM Revenue and Customs rules. Employees are entitled to receive dividends on the shares held in trust for as long as they
remain employees.
On 3 May 2005, the SIP awarded all UK employees, except executive directors, a total of 94,267 free shares which vested immediately and
470,758 additional free shares which vest after three years. The price of ordinary shares on the award date was £1.20.
On 24 August 2006, the Company invited all UK employees to subscribe for up to £1,500 of partnership shares when the share price was £2.38.
IG offered to match every partnership share with 2 matching shares up to a maximum of £3,000. The matching shares vest after three years.
On 24 July 2007, the Company invited all UK employees to subscribe for up to £1,500 of partnership shares when the share price was £3.36.
IG offered to match every partnership share with 1 matching share up to a maximum of £1,500. The matching shares vest after three years.
Shadow SIP awards made to non-UK staff
Shadow SIP awards are made to overseas staff and are cash settled. The fair value of these awards is estimated at the grant date using the Black-
Scholes option pricing model taking into account the terms and conditions of the award. A liability is recognised over the expected vesting
period and until the liability is settled it is re-measured at each reporting date with changes in fair value recognised in the income statement.
On 9 December 2005, Australian employees were awarded a total of 45,000 shares which settled on a cash basis on 31 May 2008. There were
no further performance conditions other than remaining in employment with IG for the term of the award. At the vesting date a bonus was
payable to each participant equivalent to the value of 2,500 IG shares at 31 May 2008. The number of awards vesting was the equivalent of
37,500 shares.
LTIP awards
LTIPs allow the award of nil cost or nominal cost shares. UK employees’ awards for the years ended 31 May 2005 and 31 May 2007 automatically
crystallised on the vesting date. During the year ended 31 May 2008, these awards were modified at the Company’s discretion, to offer
employees the opportunity to convert all or a proportion of their shares entitlement under the initial share award plans to share options.
The modification had no impact on the income statement. LTIP awards made in the year ended 31 May 2008 and to Australian employees are
legally categorised as options. The fair value of awards made to UK staff (for the years ended 31 May 2005 and 2007) is the price of ordinary
shares at the grant date adjusted for the present value of future dividends to which the holder is not entitled. The fair values of awards made in
the year ended 31 May 2008 and to Australian employees for earlier years are calculated using the Black-Scholes option pricing model.
76
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
25. Employee share plans (continued)
LTIP awards (continued)
LTIPs vest if specific performance targets are achieved and are conditional upon continued employment at the vesting date. Performance
is measured as the compound annual growth rate in fully diluted earnings per share over the three year vesting period and also share price
growth over the same period for awards made in the year ended 31 May 2008. For each award a minimum performance target must be
achieved before any shares vest and the awards vest fully once the maximum performance target is achieved. Further information on the
Company’s LTIPs is given in the Directors’ Remuneration Report on pages 31 to 38.
On 16 May 2005, when the share price was 112.25p awards were made to staff, conditional upon growth in normalised earnings per share in
the three years to 31 May 2008. The vesting date of these awards is upon publication of the Group’s results for the year ended 31 May 2008
which was on 21 July 2008.
On 7 August 2006, when the share price was 217.0p awards were made to staff, conditional upon growth in diluted earnings per share in
the three years to 31 May 2009. Further awards were made on 4 October 2006, when the share price was 261.75p. The vesting date of these
awards is upon publication of the Group’s results for the year ending 31 May 2009 which is expected to be 27 July 2009.
On 23 July 2007, when the share price was 312.25p awards were made to staff, conditional upon growth in diluted earnings per share in the
three years to 31 May 2010 and upon growth in the IG Group Holdings plc share price in the three years to 31 May 2010. Further awards were
made on 14 August 2007, 21 August 2007, 22 October 2007 and 31 January 2008, when the share prices were 311.00p, 304.00p, 398.00p and
364.00p respectively. The vesting date of these awards is upon publication of the Group’s results for the year ending 31 May 2010 which is
expected to be 26 July 2010.
The maximum numbers of shares that vest based on the awards made are as follows:
Type of
award
Award date
Share
price at
Expected
award vesting date
At the
start of the
year
No.
Awarded
during the
year
No.
Lapsed
during the
year
No.
Exercised
during the At the end
of the year
No.
year
No.
SIP
LTIP
Shadow SIP
LTIP
SIP
LTIP
SIP
LTIP
LTIP
LTIP
LTIP
LTIP
4 May 2005
120.0p
3 May 2008
347,861
16 May 2005
112.25p
21 Jul 2008
5,753,705
9 Dec 2005
7 Aug 2006
183.0p
31 May 2008
37,500
217.0p
27 Jul 2009
1,133,965
24 Aug 2006
237.61p
23 Aug 2009
4 Oct 2006
23 Jul 2007
23 Jul 2007
14 Aug 2007
21 Aug 2007
22 Oct 2007
31 Jan 2008
261.75p
336.09p
312.25p
311.0p
304.0p
398.0p
364.0p
27 Jul 2009
22 Jul 2010
26 Jul 2010
26 Jul 2010
26 Jul 2010
26 Jul 2010
26 Jul 2010
198,658
427,143
–
–
–
–
–
–
59,764
2,366,165
30,547
100,428
12,563
45,610
–
–
–
–
–
–
(20,830)
(108,500)
–
(29,435)
(13,206)
–
(3,122)
–
–
–
–
–
(93,369)
233,662
–
–
–
–
–
–
5,645,205
37,500
1,104,530
185,452
427,143
56,642
–
2,366,165
–
–
–
–
30,547
100,428
12,563
45,610
Year ended 31 May 2008
Year ended 31 May 2007
7,898,832
2,615,077
(175,093)
(93,369)
10,245,447
7,206,317
1,889,155
(1,196,640)
–
7,898,832
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
77
25. Employee share plans (continued)
The weighted average fair values of the awards made were as follows:
At the
beginning of
the year
Awarded
during
the year
Year ended 31 May 2008
126.66p
288.64p
Lapsed
during
the year
134.49p
Exercised
during
the year
120.00p
Year ended 31 May 2007
101.35p
213.36p
111.11p
–
At the end
of the year
167.94p
126.66p
Liability for cash-settled awards
The carrying amount of the liability for the cash-settled Shadow SIP scheme at 31 May 2008 is £143,344 (2007 - £109,518). The amount of
cash-settled awards which had vested at 31 May 2008 was £143,344 (2007 - £nil). The weighted average fair value of cash-settled awards which
were granted in the year were £nil at the grant date (2007 - £73,800). The following table lists the inputs to a Black-Scholes option pricing
model used in calculating the liability:
Balance sheet date
Underlying share price (pence)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of awards (years)
31 May 2008
31 May 2007
382.25
48
5.00
0.00
330.75
31
5.50
1.00
The expected life of the awards is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption
that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the awards
were incorporated into the measurement of fair value.
Fair value of equity-settled awards
The fair value of equity-settled share-based payments to employees is determined at the grant date. The weighted average fair value of the
equity settled awards granted during the year was £7,548,086 (2007 - £4,030,659) at the grant date. For SIP awards, the fair value is determined
to be the share price at the grant date without making an adjustment for expected dividends as awardees are entitled to dividends over
the vesting period. For LTIP awards made to UK staff in the years ended 31 May 2005 and 31 May 2007, the fair value is determined to be the
share price at the grant date after a deduction for the expected present value of future dividends over the vesting period. LTIP awards made
to Australian staff for these periods and awards made in the year ended 31 May 2008 are legally categorised as options and the fair value was
calculated using a Black-Scholes option pricing model, using the following inputs:
Grant date
Share price at grant date (pence)
Expected life of awards (years)
Risk-free interest rate (%)
Expected volatility (%)
Expected dividend yield (%)
16 May 2005
7 Aug 2006
23 July 2007
112.25p
3.18
5.00
34
3.73
217.0p
2.97
5.00
32
3.04
312.25p
3.00
5.75
32
3.42
78
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
26. Net funds/(debt)
Group
Cash at bank and in hand
Short-term deposits
Client money held
Loan notes
Redeemable preference shares
At
1 June
2006
£000
47,447
605
199,225
(92)
(40)
Cash
flow
£000
44,669
562
192,048
92
–
At
1 June
2007
£000
92,116
1,167
391,273
–
(40)
Cash
flow
£000
7,295
2,181
(22,310)
–
–
At
31 May
2008
£000
99,411
3,348
368,963
–
(40)
247,145
237,371
484,516
(12,834)
471,682
27. Obligations under leases
Operating lease agreements where the Group is lessee
The Group has entered into commercial leases on certain properties. The lessee has options of renewal on each of these leases with a notice
period of three months. There were no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable
under non-cancellable operating leases are as follows:
Future minimum payments due:
Not later than one year
After one year but not more than five years
After more than five years
2008
£000
1,855
8,147
7,144
17,146
2007
£000
1,486
4,544
1,303
7,333
28. Transactions with directors
The Group had no transactions with its directors other than those disclosed in the directors’ remuneration report on pages 35-38.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
79
29. Related party transactions
During the year, fees amounting to £30,000 (2007 - £50,000) were paid to CVC Capital Partners Limited relating to the services of Robert Lucas
as a director of IG Group Holdings plc of £30,000 (2007 - £30,000), and four other individuals as directors of IG Group Limited amounting to
£nil (2007 - £20,000). Funds managed or advised by CVC Capital Partners Limited or its affiliates held 7.7 % of the ordinary share capital of the
Company at 31 May 2008 (2007 - 7.7% of the ordinary share capital).
The directors are considered to be the key management personnel of the Group in accordance with IAS 24. The directors’ remuneration report
on pages 35 to 38 discloses all benefits and share-based payments made during the year and the preceding year to the directors. The total
compensation for key management personnel was as follows:
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
2008
£000
2,109
725
1,467
4,301
2007
£000
1,843
498
648
2,989
There were no further related party transactions during the year or the preceding year.
30. Financial instruments
Accounting classifications and fair values
The table below sets out the classification of each class of financial assets and liabilities and their fair values (excluding accrued interest):
Group
As at 31 May 2008
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Redeemable preference shares
As at 31 May 2007
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Redeemable preference shares
Held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
–
252,522
10,801
263,323
582,689
–
582,689
–
345,076
7,552
352,628
726,144
–
726,144
471,722
–
–
471,722
–
–
–
484,556
–
–
484,556
–
–
–
–
–
–
–
–
40
40
–
–
–
–
–
40
40
471,722
252,522
10,801
735,045
582,689
40
582,729
484,556
345,076
7,552
837,184
726,144
40
726,184
Fair
value
£000
471,722
252,522
10,801
735,045
582,689
40
582,729
484,556
345,076
7,552
837,184
726,144
40
726,184
80
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
30. Financial instruments (continued)
Accounting classifications and fair values (continued)
Company
As at 31 May 2008
Financial assets
Cash and cash equivalents
Financial liabilities
Redeemable preference shares
As at 31 May 2007
Financial assets
Cash and cash equivalents
Financial liabilities
Redeemable preference shares
Held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
–
–
–
–
46
–
607
–
–
40
–
40
46
40
607
40
Fair
value
£000
46
40
607
40
Broker margin
Amounts due from brokers, included in trade receivables, represent balances with counterparties where the combination of cash held on
account and the valuation of financial derivative open positions results in an amount due to the Group. The cash held on account with
counterparties comprises margin and surplus funds which mitigate each counterparty’s credit risk exposure to the Group, and amounted to
£252,522,000 at 31 May 2008 (2007 - £345,076,000). These transactions are conducted under terms that are usual and customary to standard
margin trading activities.
Items of income, expense, gains or losses
Gains and losses arising from financial assets and liabilities classified as held for trading amounted to net gains of £184,008,000 (2007 -
£121,990,000).
Finance revenue totalled £30,609,000 (2007 - £22,604,000). The entire amount represents interest income on financial assets not at fair value
through profit or loss and includes interest receivable in respect of segregated and non-segregated client balances of £25,562,000 (2007 -
£19,195,000), part of which is held with brokers.
Finance costs totalled £16,969,000 (2007 - £12,912,000) which includes interest payable on client balances of £16,341,000 (2007 - £12,636,000).
An amount of £16,673,000 represents interest expense on financial liabilities not at fair value through profit or loss (2007 - £12,814,000). The
remainder, £296,000 (2007 - £98,000) represents fee expense arising from maintaining the Group’s committed bank facilities.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
81
30. Financial instruments (continued)
Nature and extent of risks arising from
financial instruments
The principal activities of the Group outlined in the Directors’ Report
give rise to exposure to financial risks in the ordinary course of
business.
The Board is responsible for reviewing the Group’s system of internal
control and risk management and approving any changes to the
Group’s risk management policy which materially increases the
risk profile of the Group. Limits as to the acceptable level of risk are
established and regularly reviewed by the Board. Under authority
delegated by the Board, the Executive Directors formulate high-
level Group risk management policy. All changes to the Group’s risk
management policies are approved by the Chief Executive and the
Finance Director.
The Group’s finance department, headed by the Finance Director,
who is responsible to the Board, comprises risk management,
financial planning, financial control and credit departments, which
are responsible for the operation of the Group’s controls in these
areas. The risk management department reports daily to the Group’s
senior management. The objective of the risk department is to
manage the Group’s financial risk and to minimise the effects of
fluctuations in financial markets on the value of the Group’s financial
assets and liabilities, on reported profitability and on the cash flows
of the Group.
The Group has exposure to the following risks from its use of financial
instruments:
Market risk
Credit risk
Liquidity risk
Operational risk
Market risk
Market risk is the risk that changes in market prices will affect the
Group’s income or the value of its holdings of financial instruments.
Management of market risk
Market risk is managed on a Group-wide basis. The Group’s
products can be divided into two groups: those which relate to a
liquid financial market in which it is normally easy for the Group
to hedge and those for which there is not an easily accessible and
cost effective hedge. The Group’s revenue model for each of these
product groups is set out below.
The Group does not take proprietary positions based on an
expectation of market movements. However, not all client
transactions are hedged and as a result the Group may have a net
position in any of the markets on which it offers products.
The Group has a formal risk policy which includes limits, or a
methodology for setting limits, for every single financial market
which the Group trades, as well as certain groups of markets which
the directors consider to be correlated. These limits determine the
net exposure arising from client activity and hedging which the
Group is prepared to carry. The Group’s exposure monitor allows it to
continually monitor its exposure against these limits. If the Group’s
exposure exceeds these limits, the policy requires that sufficient
hedging is carried out to bring the exposure back within the defined
limit or, if the market is closed, as soon as it re-opens.
Changes to the market risk policy require approval by the Group’s
Risk Committee, which comprises the Chief Executive, the Finance
Director, the Risk Director and the Credit Director. Changes to the
market risk policy which may result in a significant increase in market
risk require approval of the Board.
Where the Group has positions in markets for which it has not been
possible or cost-effective to hedge, the Group’s Risk Committee
determines the appropriate action and reviews these exposures
regularly.
82
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
30. Financial instruments (continued)
Market risk (continued)
Sports spread bets and binary bets are difficult or not cost-effective to hedge and there is often no direct underlying market which can be
utilised in setting the price which the Group quotes. The Group normally undertakes no hedging for these markets but can lay off large
positions if considered necessary. The directors aim to reduce the volatility of revenue from these markets by offering a large number of
different betting opportunities, the results of which should, to some extent, offset each other irrespective of the underlying market outcome.
The overwhelmingly short-term nature of these bets means that risk on these markets at any point in time is not considered to be significant.
Exposure to market risk
The Group has exposure to market risk to the extent that it has a residual un-hedged position.
The Group’s exposure to market risk at any point in time depends primarily on short-term market conditions and client activities during the
trading day. The exposure at each balance sheet date is therefore not considered representative of the market risk exposure faced by the
Group over the year. The Group’s exposure to market risk is determined by the exposure limits described above which change from time
to time.
The most significant market risk faced by the Group is on equity positions including shares and indices which are highly correlated and
managed on a portfolio basis. Other exposures, including foreign exchange, commodities and interest rates do not give rise to significant
market risk. The equity exposure at the balance sheet date and details of the exposure limit at the year end and for the year then ended is as
follows:
Equity exposure at year end
Equity exposure limit at year end
Average equity exposure limit for the year
The Group has no significant concentration of market risk.
2008
£000
12,920
15,000
15,000
2007
£000
10,015
15,000
13,750
Sensitivity analysis
The following sensitivity analysis shows the potential impact of large moves in equity markets on revenue. The percentage applied is based
upon the Group’s assessment of movements in equity markets and the percentages applied are considered to represent single day market falls
that are reasonably possible.
Equities
Equity
exposures
2008
£000
12,920
Market
movement
applied
%
Potential
revenue
impact
£000
5%
646
The Group’s average daily gain from financial instruments classified as held for trading was £504,000 (2007 - £334,000) and therefore the
potential revenue impact shown above represents 1.3 days trading.
Reasonably possible movements in other markets have no significant impact on the Group’s revenue.
Changes in risk variables have no direct impact on the Group’s equity as the Group has no financial instruments classified as available for sale,
or designated in hedging relationships.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
83
30. Financial instruments (continued)
Market risk (continued)
Foreign currency risk
Foreign currency exposures arise in the normal course of business and the management of this risk forms part of the risk policies outlined
above. Limits on the exposures which the Group will accept in each currency are set by the Risk Committee and the Group hedges its
exposures as necessary with market counterparties. Foreign currency risk is managed on a Group-wide basis, while the Company’s exposure to
foreign currency risk is not considered by the directors to be significant.
The functional currency of each company in the Group is that denominated by the country of incorporation as disclosed in note 15. The
Group’s currency exposures are measured and managed in Sterling.
The Group’s exposure monitor measures foreign currency risks including currency balance sheet exposures, equity, commodity, interest and
other positions denominated in foreign currencies and bets and trades on foreign currencies. The Group’s net exposure to foreign exchange
risk based on notional amounts at each balance sheet date was as follows:
USD
EUR
AUD
Other
2008
£000
12,548
8,074
(313)
(7,506)
2007
£000
(8,155)
707
376
3,367
No sensitivity analysis is presented for foreign exchange risk as the impact of reasonably possible market movements on the Group’s revenue
and equity are immaterial.
Interest rate risk
The Group has interest rate risk arising from its trading activities which is hedged as part of the overall market risk management. The Group
offers bets and contracts for difference (CFDs) on interest rate derivatives and hedges its exposure using exchange traded futures and
options. Exposure limits are set by the Risk Committee for each product, and also for groups of products where it is considered that their
price movements are likely to be positively correlated. Interest rate risk arising from trading activities is not considered to be significant by the
directors and is measured by the Group’s exposure monitor on a Group wide basis.
The Group also has interest rate risk relating to financial instruments not at fair value through profit and loss such as cash held with banks
which are not included in the Group’s exposure monitor. These exposures are not significant and are not hedged.
84
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
30. Financial instruments (continued)
Market risk (continued)
The interest rate risk profile of the Group’s financial assets and liabilities as at the balance sheet date was as follows:
Group
Fixed rate
Redeemable preference shares (8%)
Floating rate
Trade receivables
Trade payables
Cash and cash equivalents
Within 1 year
2008
£000
2007
£000
More than 5 years
2008
£000
2007
£000
Total
2008
£000
2007
£000
–
–
(40)
(40)
(40)
(40)
263,323
(582,689)
471,722
352,628
(726,144)
484,556
–
–
–
–
–
–
263,323
(582,689)
471,722
352,628
(726,144)
484,556
152,356
111,040
(40)
(40)
152,316
111,000
Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Trade receivables and payables include
client and broker balances upon which interest is paid or received based upon market rates. Cash and cash equivalents includes client money
equivalent to the amount included with trade payables. Other financial instruments of the Group that are not included in the above tables are
non-interest bearing and are therefore not subject to interest rate risk.
No sensitivity analysis is presented for interest rate risk as the impact of reasonably possible market movements on the Group’s revenue and
equity are immaterial.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Management of credit risk
Credit risk is managed on a Group-wide basis. The Group has credit exposure to the banks with which it deposits funds and the market
counterparties with which it hedges. The Group sets limits for its maximum exposure to each market counterparty and bank to which it has
credit exposure. Certain balances with brokers are held in segregated accounts with banks.
Clients are permitted to deal in circumstances where they may be capable of suffering losses greater than the funds they have on their
account, or in limited circumstances are allowed credit. The Group has a formal credit policy which determines the financial and experience
criteria which a client must satisfy before being given an account which exposes the Group to credit risk, including trading limits for each
client and strict margining rules. The Group accepts collateral from clients in the form of shares or other securities which mitigate credit risk
and all such assets are individually assessed and discounted for expected market risk.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
85
30. Financial instruments (continued)
Credit risk (continued)
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure without taking account of any collateral held or other credit
enhancements such as personal guarantees. The maximum exposures to credit risk at the reporting date was:
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Group
Company
2008
£000
471,722
252,522
10,801
735,045
2007
£000
484,556
345,076
7,552
837,184
2008
£000
46
–
–
46
2007
£000
607
–
–
607
The fair value of collateral held at 31 May 2008 against amounts due from clients was £4,521,000 (2007 - £10,727,000).
The Group’s largest credit exposure to any one individual broker at 31 May 2008 was £71,614,000, or 28% of the exposure to all brokers (2007
- £108,000,000, 31%). The Group’s largest credit exposure to any bank at 31 May 2008 was £125,189,000, or 27% of the exposure to all banks
(2007 - £148,000,000, 31%). The Group has no significant exposure to any one particular client.
The balance of cash and cash equivalents and trade receivables – due from brokers, will fluctuate over the course of the reporting period.
The tables below presents further detail on the Group’s and the Company’s exposure to credit risk. External credit ratings (Moody’s long term
ratings or equivalent) are available for exposures to brokers and banks, and these are shown below. No external credit rating of clients is
available and therefore the balances are unrated.
Amounts due from clients are considered past due from the date that positions are closed and are aged from that date. If debtors arise on
open positions the amounts due from clients are considered neither past due nor impaired unless impairment is provided.
86
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
30. Financial instruments (continued)
Credit risk (continued)
Group
Trade receivables
– due from brokers
2008
2007
£000
£000
Trade receivables
– due from clients
2008
£000
2007
£000
Cash and cash
equivalents
2008
£000
2007
£000
Collateral held
at fair values
2008
£000
2007
£000
Individually
impaired
Gross exposure
Allowance for
impairment
Past due but not
impaired
Ageing profile:
0-3 months
4-6 months
7-9 months
10-12 months
Neither past due
nor impaired
Credit rating:
Aaa
Aa1-Aa3
A1-A3
Baa1 – Baa3
Unrated
Total carrying
amount
Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,036
3,620
(5,864)
(2,849)
1,172
771
4,993
1,630
14
–
17
3
–
–
5,024
1,633
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
–
15
3,118
–
–
–
3,118
–
–
–
–
89
–
89
–
–
–
–
–
–
–
–
–
1,388
10,638
3,812
160,445
71,547
12,253
4,465
2,801
94,403
240,584
–
7,288
252,522
345,076
–
–
–
–
4,605
4,605
–
–
–
–
5,148
60,232
379,252
32,090
–
148
36,418
402,302
45,762
–
74
5,148
471,722
484,556
1,388
10,638
252,522
345,076
10,801
7,552
471,722
484,556
4,521
10,727
Neither past due nor impaired
Credit rating:
Aa1-Aa3
Cash and cash
equivalents
2008
£000
2007
£000
46
46
607
607
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
87
30. Financial instruments (continued)
Credit risk (continued)
The Group records specific impairments of trade receivables due from clients in a separate allowance account. Impairments are recorded
where the Group determines that it is probable that it will be unable to collect all amounts owing according to the contractual terms of the
agreement. There are no collective impairments taken, and no other assets are considered impaired. Below is a reconciliation of changes in the
separate allowance account during the period:
Balance at 1 June
Impairment loss for the year
- charge for the year
- recoveries
Write-offs
Balance at 31 May
2008
£000
2,849
4,478
(453)
(1,010)
5,864
2007
£000
2,069
2,064
(387)
(897)
2,849
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities.
Management of liquidity risk
Liquidity risk is managed centrally for the whole Group by the Risk department. The Group’s approach to managing liquidity is to ensure, as
far as possible, that it will always have sufficient liquidity to meet its broker margin requirements and liabilities when due, under both normal
circumstances and stressed conditions.
In order to monitor and manage this risk, the Group’s Risk Department records the available funds daily and undertakes monthly liquidity
stress testing. The liquidity testing simulates what would happen to the Group’s cash resources should there be a large single market fall and
a sequential three day market fall. This testing requires a number of assumptions regarding the impact of large market moves on client and
broker positions and balances and the resulting behaviour of clients and brokers in terms of maintaining or closing positions and settling
margin requirements.
There were no changes in the management of liquidity risk during the year.
Exposure to liquidity risk
Positions can be closed at any time by clients and can also be closed by the Group, in accordance with the Group’s margining rules. If after
closing a position a client is in surplus, then the amount owing is repayable on demand by the Group. When client positions are closed,
corresponding positions relating to the hedged position are closed with brokers. Accordingly the Group releases cash margin, which is repaid
by brokers to the Group on demand.
In the event of a significant movement in world markets, IG could have a short-term funding requirement to meet its payment obligations
to market counterparties or winning clients before payment would be received from losing clients. Any failure by IG to meet its payment
obligations could result in market counterparties closing IG’s hedge positions which would have materially adverse consequences for the
Group’s business.
The key measure used by the Group for managing liquidity risk is the level of working capital. For this purpose working capital is the net of all
trade receivables, cash and cash equivalents and trade payables. Working capital at the balance sheet date was as follows:
88
IG Group Holdings plc
Report and Financial Statements 2008
Notes to the Financial Statements at 31 May 2008
30. Financial instruments (continued)
Liquidity risk (continued)
Amounts due from brokers
Amounts due from clients
Cash and cash equivalents
Trade payables
2008
£000
252,522
10,801
471,722
(582,689)
2007
£000
345,076
7,552
484,556
(726,144)
152,356
111,040
The Group’s liquidity risk under stressed conditions is mitigated by its committed bank facilities which amounted to £160.0m (2007 - £80.0m)
at the year end. In the directors’ opinion the Group has sufficient funds available to meet all operational requirements in the event of a large
market movement. Liquidity management is also dependent on credit risk management described above.
Residual contractual maturities of financial liabilities
The following are the contractual maturities of financial liabilities, excluding estimated interest payments. Given the nature of trade payables
(representing liabilities to clients in respect of trading margin deposited, unrealised profits on open positions and surpluses held on account)
and the fact that open positions can be closed immediately, trade payables are presented in the table below as on demand.
Group
Trade payables – due to clients
Redeemable preference shares
Company
Redeemable preference shares
On demand
2008
£000
2007
£000
Over 5 years
2008
£000
2007
£000
Total
2008
£000
2007
£000
582,689
–
726,144
–
582,689
726,144
–
–
–
–
–
40
40
40
40
–
40
40
40
40
582,689
40
726,144
40
582,729
726,184
40
40
40
40
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel,
technology and infrastructure, and from external factors other than credit, market and liquidity risks outlined above. The directors are
responsible for managing operational risk and have identified the following risks which are considered significant to the Group.
Technology
The Group’s operations are highly dependent on technology and advanced information systems. Its ability to provide its clients with reliable,
real-time access to its systems is fundamental to the success of the business. Such dependency upon technology exposes the Group to
significant risk in the event that such technology or systems experience any form of damage, interruption or failure. The Group has business
continuity procedures and policies in place which are designed to allow the Group to continue trading in its core markets and its systems are
designed to mitigate the risk of failure of any component.
Notes to the Financial Statements at 31 May 2008
IG Group Holdings plc
Report and Financial Statements 2008
89
30. Financial instruments (continued)
Operational risk (continued)
Where the Group is dependent upon providers of data, market information, telephone and internet connectivity, the Group mitigates against
the risk of failure of any of these suppliers by ensuring that where possible multiple providers and data routes are utilised.
To remain competitive, the Group must continue to enhance and improve the responsiveness, functionality, accessibility and other features of
its software, network distribution systems and technologies.
Regulation
The Group’s spread betting, CFD and foreign exchange businesses are regulated in a number of jurisdictions. In addition, two of the Group’s
subsidiaries are subject to regulation as licensed bookmakers by the Gambling Commission. The Group is also subject to various regulation
and legislation relating to technology, the provision of internet services and the use of the internet. These regulatory frameworks impose
restrictions on certain of the Group’s activities and resources which place constraints on the Group operations and development.
The regulatory environment is regularly changing and imposes significant demands on the resources of the Group. As the Group’s activities
expand, offering new products and penetrating new markets, these regulatory demands will inevitably increase. The increasing complexity
of the Group’s operations require training and recruitment be tailored to meet these regulatory demands and the costs of compliance are
expected to increase.
Capital management
Regulatory capital
The Group’s lead regulator is the Financial Services Authority (FSA). Two of the Group’s UK operating subsidiaries are regulated by the FSA
which imposes a minimum level of regulatory capital which must be retained by each company and also an overall level of regulatory capital
which must be maintained by the Group.
Given the Group’s recent strong growth, profits have been and continue to be the primary source of new capital. The Group is highly cash
generative and plans to maintain a dividend payout ratio of approximately 60% of earnings.
Capital resources are largely comprised of share capital and reserves, net of intangible assets and treasury shares. Capital requirements are
derived from credit risk, operational risk, counterparty risk and market risk considerations. Capital resources, capital requirements and surplus
capital at the balance sheet dates were as follows:
Group
Capital resources
Capital requirements
Surplus capital resources
Certain of the Group’s subsidiaries are also regulated by a number of other regulators in overseas jurisdictions.
There have been no material changes in the Group’s management of capital during the year.
2008
£000
127,480
60,893
66,587
2007
£000
94,638
50,332
44,306
90
IG Group Holdings plc
Report and Financial Statements 2008
Independent auditor’s report
Independent auditor’s report
to the members of IG Group Holdings plc
We have audited the Group and Company financial statements of IG
Group Holdings plc for the year ended 31 May 2008 which comprise
the Group income statement, the Group and Company statements
of changes in shareholders’ equity, the Group and Company balance
sheets, the Group and Company cash flow statements and the
related notes 1 to 30. These Group and Company financial statements
have been prepared under the accounting policies set out therein.
We have also audited the information in the directors’ remuneration
report that is described as having been audited.
This report is made solely to the Company’s members, as a body, in
accordance with Section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and
auditors
The directors are responsible for preparing the annual report, the
directors’ remuneration report, and the Group and Company financial
statements in accordance with applicable United Kingdom law
and International Financial Reporting Standards (IFRS) as adopted
by the European Union as set out in the statement of directors’
responsibilities.
Our responsibility is to audit the Group and Company financial
statements and the part of the directors’ remuneration report to be
audited in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Group and Company
financial statements give a true and fair view and whether the Group
and Company financial statements and the part of the directors’
remuneration report to be audited have been properly prepared
in accordance with the Companies Act 1985 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. We also
report to you whether in our opinion the information given in the
directors’ report is consistent with the Group and Company financial
statements. The information given in the directors’ report includes
that specific information presented in the operating and financial
review and Chief Executive’s report that is cross referred from the
review of business section of the directors’ report.
In addition, we report to you if, in our opinion, the Company has
not kept proper accounting records, or if we have not received
all the information and explanations we require for our audit, or if
information specified by law regarding directors’ remuneration and
other transactions is not disclosed.
We review whether the corporate governance statement reflects
the Company’s compliance with the nine provisions of the 2006
Combined Code specified for our review by the Listing Rules of
the Financial Services Authority, and we report if it does not. We
are not required to consider whether the board’s statements on
internal control cover all risks and controls, or form an opinion on the
effectiveness of the Group’s corporate governance procedures or its
risk and control procedures.
We read other information contained in the annual report and
consider whether it is consistent with the audited Group and
Company financial statements. The other information comprises only
the directors’ report, the Chairman’s statement, the Chief Executive’s
report, the operating and financial review, the statement of directors’
responsibilities the corporate governance statement and the
unaudited part of the directors’ remuneration report. We consider
the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the Group and
Company financial statements. Our responsibilities do not extend to
any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant
to the amounts and disclosures in the Group and Company financial
statements and the part of the directors’ remuneration report to be
audited. It also includes an assessment of the significant estimates
and judgements made by the directors in the preparation of the
Group and Company financial statements, and of whether the
accounting policies are appropriate to the Group’s and Company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the Group and Company financial statements and
the part of the directors’ remuneration report to be audited are
free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the Group
and Company financial statements and the part of the directors’
remuneration report to be audited.
Independent auditor’s report
IG Group Holdings plc
Report and Financial Statements 2008
91
Opinion
In our opinion:
the Group financial statements give a true and fair view, in
accordance with IFRS as adopted by the European Union, of the
state of the Group’s affairs as at 31 May 2008 and of its profit for the
year then ended;
the Company financial statements give a true and fair view, in
accordance with IFRS as adopted by the European Union, of the
state of the Company’s affairs as at 31 May 2008;
the Group and Company financial statements and the part
of the directors’ remuneration report to be audited have been
properly prepared in accordance with the Companies Act 1985
and, as regards the Group financial statements, Article 4 of the IAS
Regulation; and
the information given in the directors’ report is consistent with the
Group and Company financial statements.
Ernst & Young LLP
Registered auditor
London
Company Information
IG Group Holdings plc
Report and Financial Statements 2008
Company
Information
Solicitors
Linklaters
One Silk Street
London EC2Y 8HQ
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Brokers
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
Registered Office
Friars House
157 _168 Blackfriars Road
London SE1 8EZ
Registered Number
04677092
Directors
Executive directors
T A Howkins (Chief Executive)
S Clutton
P G Hetherington
A R MacKay
Non-executive directors
J R Davie (Chairman)
Sir Alan Budd
D M Jackson
R R Lucas
N B le Roux (Deputy Chairman)
R P Yates (Senior Independent Director)
Secretary
G Abbi
Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF
Bankers
Lloyds TSB Bank plc
10 Gresham Street
London SE1 2AF
Royal Bank of Scotland plc
280 Bishopsgate
London EC2M 4RB
IG Group Holdings plc
Friars House
157_168 Blackfriars Road
London SE1 8EZ
Tel: +44 (0)20 7896 0011
Fax: +44 (0)20 7896 0010
www.iggroup.com