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Annual Report
IG Group Holdings plc | 31 May 2010
IG Group Holdings plc
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
Tel: + 44 (0)20 7896 0011
Fax: + 44 (0)20 7896 0010
www.iggroup.com
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InTroducTIon
Introduction
IG Group Holdings plc is a world leader in the provision
of online financial derivatives trading to retail investors.
We provide these services directly under our own brands
and via a network of partners.
Our award-winning dealing platforms provide clients with easy
access to global financial markets and the flexibility to trade
on multiple asset classes.
During the year, over 120,000 clients in 123 countries traded
Contracts for Difference (CFDs)(i) or spread bets on a range of
over 10,000 equity, equity index, commodity, forex, interest
rate and binary contracts, covering all major global financial
markets.
(i) Defined in Glossary of Terms Used with illustrative CFD examples.
Performance at a glance
IG Group is listed on the London Stock Exchange and is a
member of the FTSE 250. Our head office is in London with
other offices in Beijing, Chicago, Düsseldorf, Johannesburg,
Lisbon, Luxembourg, Madrid, Melbourne, Milan, Paris,
Singapore, Stockholm and Tokyo.
The Group is debt-free and has high levels of capital and
liquidity to provide assurance to our clients and other
counterparties.
Total equity
£474.6m
[2009: £395.9m]
Number of financial
clients dealing(1)(2)
103,338
[2009: 88,336]
New financial
accounts opened(1)(2)
+3.6%
to 63,757
[2009: 61,538]
Trading revenue(1)
+16.1%
to £298.6m [2009: £257.1m]
Adjusted profit
before tax(1)
Adjusted diluted
earnings per share(1)
+25.2%
to £157.6m
[2009: £125.9m]
+24.4%
to 30.77p per share
[2009: +22.0%]
Total available liquidity(1)
Regulatory capital
adequacy(1)
ordinary
dividend per share
£358.7m
[2009: £252.9m]
338.1%
[2009: 253.3%]
+23.3%
to 18.5p per share
[2009: + 25.0%]
Adjusted PBT
margin(1)
52.8%
[2009: 49.0%]
(1) This term is defined and discussed further in our Key Performance Indicators section on pages 11 and 12.
(2) To facilitate full year-on-year comparison, this excludes clients of FXOnline, our Japanese subsidiary, which was acquired in October 2008.
2
Contents
Contents
Business Review
Corporate Governance
Financial Statements
Other Information
Five-year Summary
What we do...
Board of Directors
Strategy
Key Performance Indicators
Chairman’s Statement
Chief Executive’s Review
Operating and Financial Review
Our Business Risks
Directors’ Statutory Report
Corporate Governance Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
to the Members of IG Group Holdings plc
39
42
48
57
58
1
3
7
9
11
13
15
19
33
Group Income Statement
Statements of Financial Position
Group Statement of Comprehensive Income
Statements of Changes in Shareholders’ Equity
Cash Flow Statements
Index to Notes to the Financial Statements
Notes to the Financial Statements
Glossary of Terms Used
Global Offices
Shareholder Information
Company Information
Cautionary Statement
60
61
62
63
65
66
67
121
127
129
IBC
IBC
In addition to the Chairman’s Statement and the Chief
Executive’s Review, the Business Review section describes our
business, strategy and performance against key indicators, as
well as our financial performance for the year. We also describe
our key business risks and how we mitigate them.
As well as the Directors’ Statutory Report and the Directors’
Remuneration Report, the Corporate Governance section
also describes our corporate governance framework and
our compliance with the Combined Code.
The Financial Statements section contains both Group and
Company statutory Financial Statements.
This section contains Company and investor information,
including details of the Group’s registrar and our electronic
communications programme.
Business Review: FIVE-YEAR SUMMARY
Five-year Summary
Group income statement – statutory (£000s)
Key performance indicators(1)
Year ended 31 May
Trading revenue
Interest income on segregated client funds
Revenue
Interest expense on segregated client funds
Betting duty
Net operating income
Recovery / (impairment) of trade receivables
Amortisation of intangibles arising on
consolidation
Other administrative expenses
Operating profit
Finance revenue
Finance costs
Profit before taxation
Tax expense
Profit for the year
1 | IG Group Holdings plc | Annual Report 2010
1 | IG Group Holdings plc | Annual Report 2010
2010
2009
2008
2007
2006
Year ended 31 May
2010
2009
2008
2007
2006
298,551
5,791
304,342
(321)
(4,298)
299,723
1,064
257,089
12,888
269,977
(5,288)
(7,223)
257,466
(18,168)
(17,298)
(14,613)
(143,500)
(114,635)
139,989
110,050
2,664
(2,312)
140,341
(38,855)
101,486
2,887
(1,678)
111,259
(32,607)
78,652
184,008
26,562
210,570
(16,341)
(10,842)
183,387
(4,057)
-
(85,759)
93,571
4,047
(628)
96,990
(29,702)
67,288
121,990
19,195
141,185
(12,636)
(4,214)
124,335
(1,416)
-
(57,158)
65,761
3,409
(276)
68,894
(21,027)
47,867
89,391
8,308
97,699
(3,272)
(1,584)
92,843
(1,401)
-
(42,336)
49,106
2,373
(339)
51,140
(15,472)
35,668
Adjusted profit before taxation (£000s)
Adjusted profit before taxation margin
EBITDA (£000s)
EBITDA margin
Adjusted diluted earnings per share
Regulatory capital adequacy
Total available liquidity (£000s)
Average revenue per financial client (£)
Excluding clients of FXOnline (£) (2)
Number of financial clients dealing
Excluding clients of FXOnline (2)
Number of financial accounts opened
Excluding accounts of FXOnline (2)
Number of financial accounts dealing
for the first time
Excluding accounts of FXOnline (2)
157,639
52.8%
165,941
55.6%
30.77p
338.1%
125,872
49.0%
131,086
51.0%
24.74p
253.3%
96,990
52.7%
98,493
53.5%
20.28p
228.1%
68,894
56.5%
70,351
57.7%
14.52p
188.0%
358,686
252,892
274,823
161,975
2,425
2,600
120,689
103,338
81,134
63,757
2,263
2,495
109,747
88,336
74,331
61,538
55,674
46,612
50,364
44,291
3,064
3,064
56,291
56,291
42,693
42,693
29,211
29,211
3,184
3,184
34,483
34,483
23,785
23,785
15,809
15,809
51,140
57.2%
52,626
58.9%
10.88p
197.2%
81,759
3,251
3,251
24,709
24,709
18,377
18,377
12,287
12,287
(1) All key performance indicators are defined and discussed further in our Key Performance Indicators section on pages 11 and 12.
(2) Metric excluded to facilitate full year-on-year comparison as FXOnline was acquired in October 2008.
Other metrics
Year ended 31 May
2010
2009
2008
2007
2006
Trading revenue - % derived from UK office
Trading revenue - % derived from non-UK offices
56.4%
43.6%
62.0%
38.0%
81.1%
18.9%
88.7%
11.3%
89.5%
10.5%
Total equity (£000s)
474,628
395,913
244,716
201,708
170,448
Average number of employees for the year
Interim dividend paid per share
Final dividend proposed per share
Total dividend per share
828
5.0p
13.5p
18.5p
761
4.0p
11.0p
15.0p
551
3.0p
9.0p
12.0p
404
2.0p
6.5p
8.5p
312
1.5p
4.0p
5.5p
2
Business Review: WhAt WE dO...
What we do...
In this section we describe our
business and the factors that
contribute to our success.
Award-winning business and recognised
market leader
IG Group brands have been recognised with a number of
awards. In 2009 IG Index was awarded Best Spread Betting
Firm by Shares Magazine and Best Online Provider at the
MoneyAM Online Finance Awards. Our cutting-edge charting
package, DealThru Charts, was also recognised with the Best
Online Product Innovation award.
(i) Investment Trends: ‘2009 UK Spread Betting and CFD Report’ (November 2009).
(ii) Investment Trends: ’May 2010 Australia CFD Report’(July 2010).
Market-leading brands
Focus on our clients
We are committed to providing our clients with a consistent,
world-class service. In 2009, independent research by
Investment Trends(i)(ii) confirmed IG Markets as the largest
single provider of CFD accounts in the UK and Australia,
while IG Index is the UK’s largest spread-betting company.
A commitment to client education
The Group monitors a range of key performance indicators
to ensure we continue to deliver high-quality client service
and maintain our reputation for fair treatment of clients.
This commitment includes educating clients throughout
their trading life.
We provide all new clients with our established TradeSense
education programme. TradeSense covers a number of key
topics, and offers reduced trade sizes for the duration of the
six-week course, promoting responsible trading and building
client confidence.
We also offer a range of seminars, both online and at our
offices, designed by our team of financial experts led by
our Chief Market Strategist.
Providing online derivatives trading to a global client base:
Contracts for Difference (CFD) trading on forex, shares, indices,
commodities and options, plus a full Direct Market Access (DMA)
service
Principal offices in London, Düsseldorf, Lisbon, Madrid,
Melbourne, Milan, Paris and Singapore
Clients in over 123 countries and a network of global partners
The largest and longest-running spread betting company in
the world
Spread betting on forex, indices, commodities, binaries and
thousands of global shares
Multi-award-winning and recently confirmed as UK market
leader(i)
CFD trading and margined forex
Based in Tokyo, acquired by IG Group in 2008
Nadex offers limited-risk derivative contracts on indices, commodities
and forex as well as direct-access browser-based trading
Futures brokers can now trade on Nadex following a change in
regulatory designation in April 2010
Sports spread betting, fixed-odds, binaries and an online
casino, all from one account
3 | IG Group Holdings plc | Annual Report 2010
4
Business Review: WhAt WE dO...
What we do...
(continued)
Competitive and transparent
pricing
Advanced and robust
technology
We offer transparent prices that are competitively low, while
maintaining our trademark quality of service and trade
execution. Spreads on EUR/USD, for example, start at just one
pip, while our commission rates start at 0.1% for UK equities.
We provide our clients with a fast, reliable and secure trading
environment. Over 45,000 clients use our trading platforms
on a daily basis, utilising super-quick pricing and one-click
dealing, and over 99% of all trades are executed automatically.
New Smart Order Routing
The PureDeal trading platform
During the year, we introduced Smart Order Routing to source
prices from Europe’s top three Multilateral Trading Facilities
(MTFs): Chi-X, Turquoise and BATS. This provides our clients
with greater liquidity and better prices. In addition to MTFs,
we also source prices from major European exchanges, such
as the London Stock Exchange and Euronext, in search of the
narrowest market spreads. Our pricing is then derived from the
best bid and offer prices to be found in the underlying market.
Our in-house IT team has developed an award-winning trading
platform to keep us at the forefront of the industry. Some of
the platform’s key features include:
Fully customisable interface so clients can easily monitor
their favourite markets
Trading tools including Reuters news feeds, research and
market analysis
Extensive charting packages including real-time charts,
in-built trading pattern software and DealThru Charts
Mobile dealing on iPhone, BlackBerry and smartphones
Direct Market Access solutions
We offer Direct Market Access (DMA) through a choice of
browser-based and downloadable platforms. DMA offers a
number of advantages to traders, including the ability to trade
straight into the order book of equity exchanges and view full
market depth.
Partners and institutional
business
In addition to our focus on the recruitment and servicing of
direct retail clients, we also have a diversified base of over
370 global partners.
Partner relationships can take a number of forms:
A third party introduces the client, but is not actively
involved in the ongoing relationship.
A third party has an ongoing involvement in the client
relationship. This may be management of the underlying
investment under a power of attorney, or more general
relationship management. In some cases, all client contact
is via the intermediary.
A white-label arrangement is created where clients of a third
party trade on our PureDeal platform, but under the third
party’s ‘trading banner’.
FlX is an industry standard protocol for systems connectivity
that enables direct electronic access to our pricing and
trade execution technology. This enables firms with their
own trading platform to offer IG Group products.
Financial strength
Since IG Index was established in 1974, our operations
have expanded and we are now a global leader in online
CFD trading and spread betting. We are a multinational
organisation supporting over 120,000 clients worldwide
who carry out millions of transactions per month.
The IG Group is built on solid financial foundations:
Constituent of the FTSE 250
IG Group is listed on the London Stock Exchange where it
is a constituent of the FTSE 250. Our market capitalisation
at 31 May 2010 was £1.4bn (2009: £0.8bn).
Client money protection
We adopt a best-practice approach to client money
protection. We follow the client asset rules set by the UK’s
Financial Services Authority (FSA), segregating all retail
clients’ funds in ‘client money’ bank accounts, in contrast
to a number of our competitors.
Risk management and corporate
governance
IG Group has a strong and effective enterprise-wide risk
management and corporate governance framework.
Our centralised operating model allows our experienced
management team to effectively control our global
operations.
Capital resources
IG Group is strongly capitalised and highly cash generative.
At 31 May 2010, consolidated regulatory capital resources
represented 338.1% (2009: 253.3%) of capital resources
requirement and total equity amounted to £474.6m (2009:
£395.9m).
5 | IG Group Holdings plc | Annual Report 2010
6
Business Review: BOARd OF dIRECtORS
Board of
directors
Jonathan davie
tim howkins
Steve Clutton
Peter hetherington
Andrew MacKay
Non-Executive Chairman, 63 years old
Chief Executive, 47 years old
Finance Director, 49 years old
Chief Operating Officer, 41 years old
Head of Asia Pacific, 44 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 Persimmon plc and Infrastrata plc
and Chairman of First Avenue Partners, an alternatives
advisory boutique.
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 the Group’s audit. He then joined
IG Group as Finance Director in 1999, and became
Chief Executive in 2006. During the year, Tim was
appointed as a Board Member of the Futures and
Options Association.
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.
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
1994. He became head of financial dealing in 1999
and was appointed a director of IG Group in 2002,
since when he has performed the role of Chief
Operating Officer.
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.
Andrew was appointed a director of IG Group in
2003. Following the Group’s acquisition of FXOnline
in October 2008, Andrew moved to Tokyo to assume
the role of Head of Asia Pacific.
david Currie
Martin Jackson
Robert Lucas
Nat le Roux
Roger Yates
Non-Executive Director, 63 years old
Non-Executive Director, 61 years old
Non-Executive Director, 47 years old
Non-Executive Deputy Chairman, 53 years old
David Currie (Lord Currie of Marylebone) was the
founding Chairman of Ofcom, where he served from
2002 to 2009. He was also previously a non-executive
director of Abbey National plc from 2001 to 2002; a
founder and Chairman of the International Centre of
Financial Regulation and Chairman of Independent
Audit from 2003 until 2007. Between 2001 and 2007
David was the Dean of Cass Business School. Prior to
that, at the London Business School, he was Deputy
Dean, Professor of Economics, and headed the Centre
for Economic Forecasting and the Regulation Initiative.
He is currently a non-executive director of Royal Mail
Holdings plc, the Dubai Financial Services Authority
and the London Philharmonic Orchestra as well as
Chairman of Semperium PPP Investment Partners.
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.
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.
Nat was Chief Executive of IG Group for four years
before becoming Non-Executive Deputy Chairman
in 2006. He initially joined the Group as Financial
Dealing Director in 1992 after a career in futures
broking and stock broking. Nat holds an MA in
Law from Cambridge University and an MSc in
Anthropology from University College London.
He is an independent director of the London
Metal Exchange.
Senior Independent Non-Executive Director,
53 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
28 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,
until November 2008. In June 2009, he also became a
non-executive director of F&C Asset Management plc,
and laterly, CEO of Pioneer Investments, a part of the
UniCredit Group.
8
7 | IG Group Holdings plc | Annual Report 2010
Business Review: StRAtEGY
Strategy
Our strategy comprises
four elements:
Maintaining market-leading
positions
Expanding our global reach –
directly or through partnership
delivering product and
technological innovation
Continuing high standards of
client service
IG Group is the leading provider of CFD trading and spread
betting products to retail investors, and our brands hold
market-leading positions in the global markets in which
we operate.
The Group is committed to maintaining its strong global
position and our strategy is to target new markets where
we believe there is a sizeable long-term opportunity and
regulations permit.
We seek to have a decisive retail market lead in every country
in which we operate.
We believe CFD products have the potential to reach market
penetration levels in most of the markets in which we operate
similar to those seen in the UK and Australia, the Group’s most
developed markets. In addition, we also see significant further
partnering opportunities, which complement our direct retail
offer. Partnering can be used to develop business in countries
where we do not currently have a local presence.
The Group has a culture of innovation and is at the forefront
of the market in terms of product offering and technology
platforms. Our trading platforms are based on award-winning
technology and provide clients with state-of-the-art features
in an easy-to-use way, while maintaining high levels of
platform resilience and speed of trade execution.
In addition to spread betting in the UK, the Group provides a
complete CFD service to clients globally, including enhanced
websites, dealing platforms, 24-hour customer support and
telephone dealing in 11 languages. The key focus of our
customer service strategy is the ability to treat clients fairly and
deliver a superior customer experience. For higher frequency
trading clients, we offer access to a nominated sales trader.
IG Group businesses offer near-instantaneous execution,
with around 99% of client orders accepted automatically.
9 | IG Group Holdings plc | Annual Report 2010
10
Business Review: KEY PERFORMANCE INdICAtORS
Key Performance
Indicators (KPIs)
KPI
Financial
Trading revenue
description of KPI and how we use it
Represents revenue from commissions, spreads and financing on client trades, net of gains and losses on positions entered into
by the Group to hedge open client positions in our Financial or Sport businesses.
IG Group’s Board of Directors
and senior management utilise
both financial and non-financial
KPIs to monitor performance.
These are described in this
section, with the actual results
for the financial year discussed
in the Operating and Financial
Review on page 19.
Adjusted profit before taxation
This is used as a measure of underlying business profitability. It also facilitates year-on-year profitability comparison. It is
calculated as profit before taxation excluding amortisation and impairment of intangible assets arising on consolidation.
Adjusted profit before
taxation margin
EBITDA
EBITDA margin
Adjusted diluted earnings
per share
Regulatory capital adequacy
Total available liquidity
Client
Average revenue per financial client
Number of financial clients dealing
New financial client
account openings
Number of new financial accounts
dealing for the first time
Client service
This is calculated as adjusted profit before taxation expressed as a percentage of trading revenue and facilitates year-on-year
performance comparison, as well as against the performance of our peer group.
EBITDA represents operating profit before depreciation, amortisation of intangible assets, amortisation and impairment of
intangibles arising on consolidation and amounts written-off property, plant and equipment and intangible assets.
EBITDA margin is used by the Group to assess the relative performance of our regional businesses. It is expressed as EBITDA as
a percentage of trading revenue.
The Group seeks to maximise the growth in earnings per share over time in order to maximise shareholder value. Our long-term
incentive plans (LTIPs) and Directors’ bonuses are linked to growth in adjusted diluted earnings per share and growth in our share
price. Adjusted basic earnings per share is calculated by dividing the profit for the year (before amortisation and impairment
of intangibles arising on consolidation and related tax adjustments) 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 Group
and held as own shares in employee benefit trusts. Adjusted diluted earnings per share is calculated using the same profit, but
adjusts the weighted average number of ordinary shares outstanding to assume conversion of all dilutive ordinary shares arising
from share schemes. A reconciliation to statutory earnings per share is included in note 12 to the Financial Statements.
Monitoring our regulatory capital adequacy is key to satisfying regulatory requirements. This KPI is calculated as our consolidated
capital resources expressed as a percentage of our ‘Pillar 1’ consolidated capital resources requirement (calculated under the
rules of the UK’s Financial Services Authority).
Total available liquidity is the total of net working capital and undrawn facilities. This is analysed further in the Operating and
Financial Review section on page 29.
Average revenue per client comparisons provide useful indicators of business development on a total and geographical basis.
It is calculated as total trading revenue (excluding Sport revenue) divided by the number of financial clients dealing.
Number of financial clients dealing represents the total number of financial clients who have opened a trade in the financial year.
The number of clients dealing is a key driver of revenue growth and reflects the underlying growth of the business. Although
year-on-year comparisons of this KPI can be distorted during sustained periods of high financial market volatility, these provide
useful indicators of business development on a total and geographical basis.
Over the medium and long-term, the growth of our client base is a key driver of revenue growth. The number of accounts
opened and the number of accounts dealing for the first time are leading indicators of future prospects. These are analysed
on both a total and a geographical basis.
The Group monitors a range of client service metrics to ensure that we continue to maintain a high level of client service.
11 | IG Group Holdings plc | Annual Report 2010
12
Business Review: ChAIRMAN’S StAtEMENt
Chairman’s Statement
It is my pleasure to make this annual statement
after another record year for the Group. Our annual
revenue has increased 16.1% to £298.6m (2009:
£257.1m), whilst adjusted diluted earnings per share
increased 24.4% to 30.77p (2009: 24.74p).
As I made clear last year, we have focused on the further
development of our established and newer businesses, and
improving our performance in Japan. Our aim is that many of our
newer markets should ultimately reach the scale and performance
that we have achieved in the UK and Australia.
Board composition
I am very pleased to welcome David Currie to the Board to replace
Sir Alan Budd who has become the Chairman of the Office of
Budgetary Responsibility.
We continue to evaluate the opportunity to enter new markets and,
to this end, we have opened offices in Portugal, Sweden and China
(representative) in the past year. We continue to focus on investment
in high quality dealing platforms, a broad range of products and
excellent customer service provided to our expanding client base.
At the forthcoming AGM, your Board will recommend the payment
of a final dividend of 13.5p per share. This will bring the total dividend
for the year to 18.5p, an increase of 23.3% on last year. This represents
approximately 60% of our adjusted earnings for the year, which is
consistent with the policy that the Board announced three years ago.
Board evaluations
In our previous financial year, your Board decided to commission
the Institute of Chartered Secretaries and Administrators (ICSA),
an external consultant, to conduct a full evaluation of the Board in
accordance with Principle A.6 of the Combined Code on Corporate
Governance. Your Board does not consider it necessary to undertake
such an external review every year and this year have performed our
review of performance internally.
Following on from the recommendations made by the ICSA and this
year’s internal review, I believe that we will continue to make ongoing
improvements to ensure the Board continues to operate effectively in
the coming year.
Remuneration
One matter which remains at the top of many investor agendas is
that of remuneration. As I mentioned in my Chairman’s Statement last
year, following consultation with some of our larger shareholders, we
agreed that the Remuneration Committee, under the Chairmanship
of Roger Yates, our Senior Independent Director, should undertake an
annual review of the pay of all Executive and Non-executive Directors.
We have again consulted with many of our leading shareholders
about the increases which are set out in the Directors’ Remuneration
Report. We continue with an element of deferral in the bonus
structure, reflecting the UK’s Financial Services Authority’s guidance
on best practice and in line with our commitments in previous
reports.
In light of feedback from some of our shareholders that they would
prefer an element of relative rather than absolute share price
performance in our long-term incentive schemes, we have designed
a new long-term incentive scheme, which will be put to shareholders
for approval at the AGM. The new scheme enables Executive
Directors and senior staff to share in the creation of shareholder
value, over and above the total shareholder return of the FTSE 350
Financial Services Index, and a 12% compound growth in adjusted
profit before tax. We believe that this new scheme provides greater
alignment of long-term management incentives with shareholder
interests. Further details of this proposed scheme are set out in the
Directors’ Remuneration Report.
Your Board is very fortunate to have found David, an excellent
replacement for Sir Alan Budd, whose wisdom and guidance will be
missed. David has considerable knowledge of financial markets and
extensive government experience. He has advised two Conservative
Chancellors and three Labour Shadow Chancellors. He is presently
Chairman of the International Centre for Financial Regulation, a Non-
executive Director of the Royal Mail and Chairman of Semperium
Investment Partners.
As I mentioned in my statement last year, the Board has also
commenced a search for an additional independent non-executive
director who will further extend the range of skills and experience
possessed by the Board. We very much hope to be able to make
an announcement on a new appointment prior to our AGM. Rob
Lucas has expressed a desire to step down from your Board at
this year’s AGM, due to his substantial commitments as the Senior
Partner of CVC (Europe). Your Board has accepted Rob’s decision with
understanding and regret.
Rob will be a great loss to our Board and we thank him for all the
insights, professionalism and wisdom that he has imparted to us over
the past seven years.
The effect of Rob’s retirement and the anticipated arrival of a new
independent non-executive director means that we will have made
substantial progress towards becoming more compliant with Code
Provision A.3.2 of the Combined Code.
As previously announced, Steve Clutton, who has been Finance
Director for the last four years, will be leaving the Group shortly,
having effected an orderly handover of his responsibilities. The
search for his successor is underway. We have enjoyed working with
Steve and thank him for his significant contribution in managing the
Group’s impressive growth over the last four years. We wish him well
for the future.
Our results of the past year could not have been achieved without
the dedication and skill of all our employees throughout the world. I
and my fellow Directors would like to express our thanks to them all
for their personal contributions to these excellent results.
I and all my colleagues look forward to working towards another
successful year for the Group and all its shareholders.
Jonathan Davie, Chairman
20 July 2010
13 | IG Group Holdings plc | Annual Report 2010
13 | IG Group Holdings plc | Annual Report 2010
14
Business Review: ChIEF ExECUtIVE’S REVIEW
Chief Executive’s Review
Our strategy has two key elements – continuing to
grow our existing businesses whilst also extending
our global reach. We continue to make good progress
on both fronts.
uK (excluding Sport)
Trading Revenue +8.0%
Australia
Trading Revenue +63.4%
Europe (excluding UK)
Trading Revenue +57.2%
Rest of the World
Trading Revenue +11.0%
It is now five years since our Initial Public Offering. At that
time, in the year to 31 May 2005, our total trading revenue was
£62m and Australia, our only office outside the UK, accounted
for only 6% of revenue. Over the intervening five years, we
have grown trading revenue almost five-fold to £298.6m,
we now have offices in 14 countries and almost half of our
revenue comes from outside the UK. We have continued to
achieve strong growth in the UK, with the trading revenue of
our UK financial business growing more than three-fold from
less than £52m in 2005 to over £162m in 2010. Both Australia
and mainland Europe are now substantial businesses. In the
year to 31 May 2010, they achieved revenues of £45.7m and
£47.4m respectively. With the highest growth rates in the
Group, they are both rapidly approaching the scale that our
UK financial business had at the time of our IPO.
Performance of our main business units
The UK is our longest established business. In the previous
financial year, we suffered a loss of clients in the extreme
volatility of October 2008 and it was a satisfactory
achievement that revenue in the first half of this year was
flat, reflecting the rebuilding of our client base. Once the
anniversary of October 2008 was behind us, year-on-year
growth resumed and in the second half of the year, we grew
revenue by 18%.
Our Australian business was established eight years ago. It
achieved very strong growth this year with revenue increasing
by 63.4% from £27.9m to £45.7m. We are the largest retail CFD
firm in Australia and recent market research indicates that we
have opened up a decisive market lead during the year.
Revenue from our European offices also grew rapidly, up
57.2% from £30.2m to £47.4m. Our main European businesses
in Germany, Italy, France and Spain were established between
two-and-a-half and four years ago, and all of these markets
are therefore at a very early stage and still growing rapidly.
Germany is the most established of these markets and
achieved the highest growth rate this year.
Our Japanese business made a good recovery in the final
quarter of the year, vindicating our strategy of re-positioning
the business to appeal more to established traders. There
remains much to be done in Japan, where we face a
challenging competitive and regulatory environment. The
first of a number of leverage restrictions comes into force at
the beginning of August and it is inevitable that this will have
an immediate adverse impact on our revenues. We are doing
what we can to mitigate this impact.
IG Group clients
IG Group clients (but no betting clients)
A significant proportion of our partners business comes
from advisory brokers who are interested primarily in equity
markets. As a result, our partners business grew strongly this
year driven by the equity market rally and revenue was up
41.6%. Partners accounted for 16.3% of our trading revenue,
compared to 13.4% in the previous year.
A more detailed analysis of our financial performance is set
out in the Operating and Financial Review on page 19.
International expansion continues
We have continued with our strategy of international
expansion. We opened an office in Sweden in August 2009
and commenced marketing into New Zealand from our
Australian office in October 2009. Shortly after the year-end,
we opened an office in Portugal, a country which we were
previously marketing into from our office in Spain. These new
ventures are all making encouraging progress. We continue
to evaluate new countries and expect to open an office in at
least one additional country during the coming year.
During the year, we also opened a representative office
in Beijing. As I indicated in January, this is a long-term
opportunity and we do not expect to generate material
revenue from China in the short or medium term.
We have exchanged contracts on the acquisition of the
business of Ideal CFDs, our white-label partner in South Africa
and will complete shortly. The consideration is £1.6m for the
business and the vendor will retain a 20% interest in our South
African business, which is subject to call and put options in
2013. This is an interesting emerging market and the financial
performance of Ideal to date has been all the more impressive
because it has been achieved with minimal marketing
expenditure. With the resources of the Group behind them,
I am hopeful that we can build a more substantial business in
South Africa over time.
15 | IG Group Holdings plc | Annual Report 2010
15 | IG Group Holdings plc | Annual Report 2010
16
Business Review: ChIEF ExECUtIVE’S REVIEW
Chief Executive’s Review
(continued)
The US
Our client offering
Investment in IT development
Current trading and outlook
At the start of the year we re-named HedgeStreet, our
CFTC-regulated exchange in the US, as Nadex (the North
American Derivatives Exchange). Nadex now offers exchange-
traded options and futures over forex, equity indices and
commodities as well as some ‘event’ markets such as economic
indicators. Our strategy for Nadex is for the majority of clients
to trade on it through brokers. Our own broker, IG Markets
Inc, is already connected to the exchange and giving its
clients access to it, but has only a small client base. Before
other brokers with much larger client bases can be added,
the software firms which provide their trading platforms and
back office solutions must connect their technology to Nadex.
Some of this integration work is already underway, but it is
likely to be a few months before the first brokers are able to
start offering Nadex products to their clients. I believe that
the ultimate potential of Nadex could be significant, but this
will not be achieved overnight and we are likely to see the
business build steadily over the next few years.
Over the last fifteen months, we have been progressively
improving our product offering. This began towards the
end of our previous financial year with the introduction of
variable spreads on forex, making our forex offering much
more competitive. We then enhanced our shares offering
with the introduction of tiered-margin rates, enabling us
to reduce margin rates for the vast majority of our clients.
More significantly, we have connected to the main European
Multilateral Trading Facilities, or MTFs, enabling us to pass
on to our clients the benefit of the tighter spreads on UK
and European shares. We believe we are currently the only
spread betting or retail CFD firm connected to these MTFs
and that this makes our pricing significantly more attractive
than that of our competitors. Finally, in the second half of the
year, we improved our equity index offering in Germany, the
UK and Australia by cutting our spreads on the main equity
indices. This has positioned us more competitively and has
driven significant increases in volume. Over the longer term,
we anticipate it driving further market share gains in these
markets.
We are continually developing our award-winning trading
platforms. In a few days we will release a new iPhone App
for our UK spread betting business, which will be available
free from Apple’s App Store. This App provides full dealing
functionality for clients and gives non-clients access to a
selection of live prices, which we hope will make it a useful
client recruitment tool as well as a valuable trading platform.
A CFD version of the App will follow shortly.
We are well placed competitively and have extended our
market lead in several of our key markets over the last year. We
have demonstrated continued growth from our UK business
and strong growth from both Europe and Australia, which are
now businesses of significant scale. These businesses should
all continue to deliver good levels of growth, underpinned
by strong account opening. In the longer term, we have a
significant opportunity in the US with Nadex.
The new financial year has started well, with the elevated
volatility levels of May continuing into early June and helping
to stimulate client activity. It remains difficult, however, to
predict future trends in volatility or client reaction to changing
market and economic conditions.
I look forward to the coming year with confidence.
Tim Howkins, Chief Executive
20 July 2010
Maintaining our product and technological lead over our
competitors is key to the Group’s continued success. The
major part of our IT development is carried out in-house by
our dedicated development team. We continue to increase
our investment in this key area and at the year-end, 184 staff
(2009: 161) were involved in IT development, equivalent to
21% of our total year-end employee headcount (2009: 20%).
New London headquarters
Next month we will be moving to new headquarters in the
City of London. This will give us over 50% more space than our
current offices and a much better working environment. More
importantly we will initially all be on just two adjacent floors,
enhancing internal communication and leading to further
operating efficiencies.
We run regular seminars in our offices and hope that many of
our clients will take the opportunity to visit our new London
headquarters in the coming months for one of these seminars.
We also welcome visits from our institutional shareholders,
believing that time spent on our dealing floor can be helpful
in understanding how our business operates.
Regulation
Our UK regulator, the FSA, has recently published a
consultation paper on the treatment of client money. We give
all of our retail clients in the UK and Europe full client money
protection. In contrast, a number of our competitors do not
fully protect client money, so that their clients may be at risk
of financial loss should the firm fail. We have always taken our
responsibility to protect client money extremely seriously and
I am delighted that the FSA has indicated an intention to force
our competitors to adopt the same high standards that we
adhere to. A similar situation exists in Australia, where most of
our competitors do not afford their clients the same full client
money protection that we do. I am hopeful that our Australian
regulator, ASIC, will also enforce strict client money rules in
due course.
17 | IG Group Holdings plc | Annual Report 2010
17 | IG Group Holdings plc | Annual Report 2010
18
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
This section reviews the Group’s
operating performance and
financial results for the year.
Introduction
This Operating and Financial Review (OFR) has been prepared
solely to provide additional information to shareholders to
assess our strategies and the potential for those strategies to
succeed. The OFR should not be relied on by any other party
or for any other purpose.
The OFR contains certain forward-looking statements. These
statements are made by the Directors in good faith based
on the information available to them up to the time of their
approval of this report. Such statements should be treated
with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information.
The Directors, in preparing the OFR, have sought to comply
with the guidance set out in the Accounting Standards Board’s
Reporting Statement: Operating and Financial Review. The
Directors also believe they have adequately discharged their
responsibilities under Section 417(3) of the Companies Act
2006 in providing this business review.
Our Strategy and Key Performance Indicators are described
on pages 9 to 12, and our business risks and their mitigation
described on pages 33 to 38.
Critical accounting estimates and judgements made, together
with new and amended accounting standards adopted in the
preparation of the Financial Statements, are set out in note 2
to the Financial Statements.
Our business and products
The Group operated in two principal areas of activity
throughout the year: Financial and Sport. Further information
on our business and our competitive advantage is included in
the What we do section on pages 3 to 6.
As such, we need regulatory authorisation to conduct our
business in all of the jurisdictions in which we operate.
Regulatory compliance is vitally important for our business
and we invest a significant amount of resources to ensure
that we comply with both the letter and the spirit of the
regulations that govern our global business.
Financial
Contracts for Difference (CFDs) and spread bets on equities,
equity indices, commodities, forex, interest rates and other
financial markets.
The recent financial crisis and subsequent economic downturn
has increased regulatory scrutiny on firms within the financial
services industry, and there are currently a number of different
policy initiatives and proposals being discussed that may
impact our sector. Examples of such upcoming changes are:
CFDs and spread bets on options and binary options on
certain of these markets.
The operation of a regulated futures and options exchange.
Sport
Spread bets and fixed-odds bets on sporting and other
events and the operation of an online casino.
Competitive environment
We enjoy leading positions in many of the markets in which we
operate, markets that experience high degrees of competition.
We have often been the first entrant in a number of new
countries, and we embrace competition as it serves to expand
the overall market by increasing awareness of the CFD
product.
We have continued to deliver growth through all stages of
the economic cycle, achieving strong financial performance,
high margins and strong cash generation.
Regulatory environment
Our products have several key features which make them
higher risk from a retail client’s perspective: our products are
not listed on any exchange and are not assignable or tradable
with any other third party; our products are derivatives and are
therefore complex in nature; and our products are leveraged
meaning risk to a client’s equity is increased.
In Japan, the Financial Services Agency has announced
leverage limits on forex trading, equity CFDs and index
CFDs. We already operate under existing leverage limits
in certain jurisdictions (e.g. Singapore) which has not had
a material impact on the popularity of the CFD product.
The European Commission is considering regulations on
the clearing of OTC derivatives, aimed at bringing the
G20’s proposed OTC reforms into effect. The aim of these
new regulations is to reduce systemic risk. We will monitor
any proposed legislation and maintain dialogue both
directly and via industry associations with the European
Commission.
The FSA has recently issued revised guidelines on how
spread betting and CFD firms must protect client money.
We already protect our clients’ money to the full extent of
these regulations and therefore these new guidelines will
not impact our business. The new guidelines may, however,
have an impact on the competitive landscape of the UK CFD
and spread-betting industry.
We therefore operate in a dynamic financial services industry
experiencing constant regulatory change and development.
We work closely with our regulators to ensure both that we
operate to the highest regulatory standards and that we can
adapt to regulatory change, however, we can provide no
certainty that potential regulatory changes will not have an
adverse impact on our business.
19 | IG Group Holdings plc | Annual Report 2010
19 | IG Group Holdings plc | Annual Report 2010
20
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Macro-economic
environment
Market conditions, which influence clients’ propensity to trade,
were mixed. The start of the year benefited from continued
strengthening of equity markets, which encouraged clients to
trade equity CFDs and spread bet through the first half of the
financial year. This was followed by a period of range-bound
markets with a tail-off in volatility, resulting in a reduction
in client activity. The year ended strongly, with higher client
activity boosted by increased volatility levels in both equity
and forex markets.
Low volatility of trading revenue
We do not take proprietary market positions based on the
expectation of market movements and this is a significant
contributory factor to trading revenue stability. This is
discussed further in the Our Business Risks section on page 33.
The stability of our revenue is illustrated in the chart below,
which shows the distribution of daily trading revenue during
the financial year. The Group did not experience a single day
of negative trading revenue during the financial year (2009: nil
days).
how did we perform against
our strategy?
Our strategy is detailed on pages 9 and 10. In this section,
we describe how we performed against the key elements of
our strategy.
The Chief Executive’s Review provides an overall assessment of
our progress during the year and prospects for the future with
reference to the business strategies outlined below.
Maintaining market-leading positions
We are the market-leading CFD provider in a number of the
countries in which we operate, as well as being recognised as
the market leader in the UK financial spread betting market.
Independent research(i)(ii) confirmed our market-leading
positions in the UK and Australia. The UK, our most established
market, continues to show good growth evidenced by client
recruitment averaging over 3200 new clients per month, an
increase of 3% on the prior year, a year which had benefited
from periods of extreme volatility. In Australia, we gained a
market-leading position as the primary account provider for
active CFD traders.
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
s
e
c
n
e
r
r
u
c
c
o
y
l
i
a
D
0.0m
0.5m
1.0m
1.5m
2.0m
Daily trading revenue bands (£m)
We also remain the clear market leader in several other
markets including France, Spain and Italy and are challenging
the current market leader in Germany.
Progress in other markets was positive. In Japan, FXOnline
faced a challenging competitive environment of reduced
spreads and aggressive marketing but responded by
repositioning its brand. This was achieved by an increased
focus on the quality of our trade execution and the
introduction of our wide range of CFD and binary products to
the Japanese market, a retail market traditionally focussed on
forex trading. This revised strategy achieved positive returns,
particularly in the second half of the financial year.
Although leverage restrictions are to be introduced on retail
forex and equity CFD trading in Japan, it remains a significant
market opportunity for the Group. Research(iii) on the Japanese
online forex market undertaken in 2009 highlighted our
very high rate of order execution, in contrast to that of our
competitors. This research confirmed that the ‘real’ spread
paid by our clients is extremely competitive in comparison to
our competitors, who tend to advertise lower spreads, but are
often unable to fill client orders at their advertised spreads or
prices.
Expanding our global reach – directly or
through partnership
We now have offices in 14 countries, with clients located in
over 123 countries worldwide.
The Group continues to expand its non-UK office client base
and in the year ended 31 May 2010, revenue from these
clients grew to 43.6% of total trading revenue (2009: 38.0%).
International expansion continues with new offices opened in
Sweden and Portugal, key developments in the Scandinavian
and Iberian markets. We also commenced marketing in New
Zealand and opened a representative office in China.
The Group has exchanged contracts to acquire the business of
Ideal CFD Financial Services (Pty) Limited, a South Africa based
introducing broker of the Group. This acquisition will further
strengthen our position in this high-growth market.
The Group continues to develop its partners business, seeing
41.6% growth in revenue this year. For example, during the
year, we announced a partnership alliance with Monex Inc,
one of Japan’s major online financial services brokers.
We also further enhanced our Partners website dedicated to
highlighting the benefits of partnering with us through our
range of partnership models (see the What we do section on
page 3).
White-labelling opportunities (where our products are
branded and distributed in the name of third parties) continue
to extend the reach of our products.
In the US, we are now allowed to admit futures brokers to the
membership of our Nadex Exchange (prior to this, Nadex was
only permitted to admit retail clients for membership).
Delivering product and technological
innovation
During the year, we introduced our Autochartist pattern
recognition tool, which automatically alerts clients to
customisable charting patterns and trading opportunities.
We will launch a new iPhone App for our UK spread betting
business in the near future, and a CFD version of the App is
expected later in 2010.
The Group’s clients gained access to the best prices from
Europe’s top three Multilateral Trading Facilities (MTFs), namely
Chi-X, Turquoise and BATS. In January 2010, for example, they
accounted for almost 39% of total FTSE 100 liquidity.
Continuing high standards of client
service
Our commitment to client service has been recognised in
recent surveys(i)(ii) and we endeavour to maintain the highest
levels of client service.
We monitor a range of KPIs covering client service and
‘treating customers fairly’ standards in support of this.
(i) Investment Trends: ’2009 UK Spread Betting and CFD Report’ (November 2009).
(ii) Investment Trends: ’May 2010 Australia CFD Report’ (July 2010).
(iii) Yano Research Institute.
21 | IG Group Holdings plc | Annual Report 2010
22
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Key performance indicators
(KPIs)
As described on pages 11 and 12, we utilise both financial and
client KPIs to monitor and control our business performance.
A five-year summary of these KPIs is shown on page 2.
Financial KPIs are discussed in the Financial Review section
and client KPIs in the Client KPIs section.
Financial review
Group income statement (adjusted)
£000
Trading revenue
Interest income on segregated
client funds
Revenue
Interest expense on segregated
client funds
Betting duty
2010
2009
298,551
257,089
5,791
12,888
304,342
269,977
(321)
(4,298)
(5,288)
(7,223)
Trading revenue
The geographical split of trading revenue for the financial
years ending 31 May 2010 and 2009 is shown in the following
charts:
2010 trading revenue
split by geographical region
Sport (UK)
uK
£162.6m
Total
£298.6m
Australia
£45.7m
Europe
(excluding UK)
£47.4m
£5.9m
£13.1m
Japan
£23.9m
Net operating income
299,723
257,466
Rest of the World
Recovery / (impairment) of trade
receivables
1,064
(18,168)
Other administrative expenses
(143,500)
(114,635)
Adjusted operating profit
157,287
124,663
Finance revenue
Finance costs
Adjusted profit before taxation
Tax expense
Adjusted profit for the year
Adjusted diluted earnings per share
2,664
(2,312)
157,639
(46,120)
111,519
30.77p
2,887
(1,678)
125,872
(38,744)
87,128
24.74p
The Group Income Statement (adjusted) shown above and
the calculation of adjusted diluted earnings per share exclude
amortisation and impairment of intangibles arising on
consolidation (and corresponding deferred tax adjustment),
which are included in the statutory Group Income Statement
shown on page 60.
2009 trading revenue
split by geographical region
Sport (UK)
uK
£150.6m
£8.7m
£11.8m
Total
£257.1m
Japan
£27.9m
Australia
£27.9m
Europe
(excluding UK)
£30.2m
Rest of the World
Total trading revenue for the year reached £298.6m (2009:
£257.1m), an increase of 16.1%, reflecting continued growth
in many of our markets. As discussed previously, whereas the
previous financial year benefited from periods of extreme
volatility, market conditions were more mixed during the year.
The start of the year saw rising equity markets which gradually
settled to a period of range-bound market movements.
Towards the end of the financial year, we benefited from an
increase in volatility in both forex and equity markets. Volatility
boosts client activity, trading revenue and new client account
opening rates.
On a like-for-like basis (excluding the impact of FXOnline
which was acquired in October 2008), financial trading
revenue grew by 21.9%.
The UK financial business continues to deliver solid growth,
up 8.0% on the previous year, which had benefited
significantly from periods of extreme volatility and high
levels of client activity.
Although Australia’s 63.4% trading revenue growth benefited
from the strength of the Australian dollar, it mainly reflects
the continued growth opportunity in one of our most
established markets.
Europe (excluding the UK) delivered strong growth of 57.2%.
All of the offices contributed to this growth, with the strongest
growth seen in Germany.
The trading revenue of FXOnline in Japan fell to £23.9m
(2009: £27.9m (8 months)). The business faced a very
challenging competitive environment and re-focussed its
strategy to attract higher value clients with an emphasis on
execution quality and introducing the Group’s range of CFD
contracts to the Japanese market. Following this, FXOnline
delivered sequential revenue growth in each of the last four
months of the year.
Rest of World comprises our Singapore and USA businesses,
which together saw revenue growth of 11.0%.
Overall, 43.6% of trading revenue was generated by
non-UK offices (2009: 38.0%), which reflects our expanding
geographic reach.
The trading revenue of our sport business fell 32.2% compared
to the prior year and accounted for 2.0% of our total trading
revenue (2009: 3.4%).
£48.7m of the total trading revenue (2009: £34.4m) was
derived from our partners business, with particularly strong
growth seen in the UK, Europe and Australia.
23 | IG Group Holdings plc | Annual Report 2010
23 | IG Group Holdings plc | Annual Report 2010
24
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Financial review
(continued)
Impairment of trade receivables
The development of our close-out monitor, the introduction
of tiered-margining, and lower volatility during the financial
year, all contributed to a significant reduction in the level of
doubtful debt provision and write-offs from £18.2m in the
previous year, to a net recovery of £1.1m. These processes are
described in detail in note 34 to the Financial Statements on
page 108.
Other administrative expenses
Other administrative expenses excluding amortisation and
impairment of intangible assets arising on consolidation,
increased by 25.2% to £143.5m (2009: £114.6m) and these
are analysed in the charts below:
Employee remuneration costs increased to £72.1m (2009:
£54.1m), with £11.7m of this increase a result of enhanced
bonus payments driven by improved overall group financial
performance. An increase in average number of employees
to 828 (2009: 761) also contributed to the increase in our
total compensation ratio (i.e. total employee remuneration
expressed as a percentage of total trading revenue) to 24.1%
(2009: 21.0%).
The increase in advertising and marketing costs of £3.6m
reflects initiatives to maximise the recruitment, conversion
and retention of clients globally.
Premises-related costs increased by £4.9m to £11.1m (2009:
£6.2m), reflecting exceptional costs of £4.4m (2009: £nil)
in relation to the relocation of our London headquarters in
2010 and the opening of offices in Sweden and Portugal.
A further £0.5m of exceptional costs arose from accelerated
depreciation, also as a result of this relocation.
2010 Other administrative expenses
2009 Other administrative expenses
Depreciation and
amortisation
Other costs
£24.4m
Depreciation and
amortisation
Other costs
£24.2m
£8.6m
£11.1m
Total
£143.5m
Salaries,
bonus and
LTIP/SIP
£72.1m
£6.4m
£6.2m
Total
£114.6m
Salaries,
bonus and
LTIP/SIP
£54.1m
Advertising &
marketing
£27.3m
Advertising &
marketing
£23.7m
Premises-related
costs
Premises-related
costs
EBITDA increased to £165.9m (2009: £131.1m) driven by the
increase in trading revenue and the significant improvement
in the level of impairment of trade receivables. EBITDA margin
(EBITDA expressed as a percentage of total trading revenue)
increased to 55.6% (2009: 51.0%).
The following table summarises EBITDA margin by region:
£000
UK (including Sport)
Australia
Europe (excluding the UK)
Japan
Rest of World
Group
2010
63.4%
60.0%
45.7%
27.4%
27.1%
55.6%
2009
55.3%
59.6%
40.9%
41.4%
21.0%
51.0%
The UK and Australia, being our more established markets,
currently enjoy higher EBITDA margin levels than our other
regions. In Europe, for example, markets are in their infancy,
and while these businesses reach operating profitability
quickly, initially they have depressed EBITDA margins, as
marketing and other fixed costs are initially high relative to
trading revenue.
Adjusted profit before taxation
Adjusted profit before taxation increased to £157.6m (2009:
£125.9m), a 25.2% increase on the previous year.
Taxation expense
The effective tax rate (i.e. tax expense, excluding deferred tax
adjustments resulting from amortisation of intangibles arising
on consolidation, expressed as a percentage of adjusted
profit before taxation) fell to 29.3% (2009: 30.8%), principally
reflecting an increased proportion of profits flowing from
lower corporation tax rate jurisdictions.
EBITDA margins
In contrast to adjusted profit before taxation discussed above,
which is used to assess overall group performance, we use
EBITDA primarily to assess the regional performance of our
business (see note 4 to the Financial Statements (‘Segment
Information’) on page 75). Adjusted operating profit in the
Group Income Statement is reconciled to EBITDA in the
following table:
£000
2010
2009
Adjusted operating profit
157,287
124,663
Depreciation
6,175
5,402
Amounts written off property,
plant and equipment and
intangible assets
Amortisation of intangible assets
EBITDA
49
2,430
37
984
165,941
131,086
25 | IG Group Holdings plc | Annual Report 2010
26
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Financial review
(continued)
Dividend policy
The Board has adopted a progressive dividend policy, which
reflects the long-term earnings and cash flow potential of the
Group.
Our dividend payout target is in the region of 60% of adjusted
profit after tax. This policy will be kept under review, but our
current intention is to pay out a similar proportion of adjusted
earnings in the future.
The Board has recommended a final dividend of 13.5p, to
bring the total dividend for the financial year ending
31 May 2010 to 18.5p (2009: 15.0p).
Group Statement of Financial Position
Non-current assets
£000
Non-current assets
2010
2009
Property, plant and equipment
9,632
11,632
Intangible assets arising on
consoliation
Intangible assets arising from
software and licences
Deferred tax assets
261,452
256,824
3,876
14,264
3,783
7,562
289,224
279,801
Current assets
Trade receivables
206,243
183,085
Prepayments and other
receivables
7,084
4,928
Cash and cash equivalents
678,564
520,421
As discussed in the Chief Executive’s Review, the Group
continues to invest in technology and IT development to
enhance our capacity and resilience, which are critical to the
success of our business. During the year, we also invested
£4.1m in property, plant and equipment (2009: £5.1m)
including £1.6m in relation to our new London headquarters.
Depreciation charged during the year amounted to £6.2m
(2009: £5.4m).
At the year-end, intangible assets arising on consolidation
totalled £261.5m (2009: £256.8m). This comprises goodwill of
£234.2m (2009 £217.0m), primarily arising on the acquisition
of IG Group Plc and its subsidiaries in 2003, the acquisition
of FXOnline Japan KK in 2008 and £27.3m (2009: £39.8m) in
respect of other intangible assets (namely trade name, client
lists and customer relationships) arising on the acquisition
of FXOnline.
Total assets
Current liabilities
Trade payables
Other payables
Provisions
Income tax payable
Non-current liabilities
Deferred tax liabilities
Provisions
Redeemable preference shares
Total liabilities
NET ASSETS
Capital and reserves
Equity share capital
Share premium
Other reserves
Retained earnings
Shareholders' equity
Minority interests
TOTAL EQUITY
891,891
708,434
1,181,115
988,235
As detailed in note 17 of the Financial Statements, goodwill is
subject to an annual impairment review and no impairments
have been identified as a result of this review (2009: £nil).
FXOnline trade name and customer relationships are
amortised over their useful lives of two and five years
respectively. Amortisation charged in the year amounted
to £17.3m (2009: £14.6m).
Intangible asset additions during the year amounted to
£2.4m (2009: £2.1m) and relate to the acquisition of licences
and software and the capitalisation of internal software
development costs relating to client trading platform
development.
608,140
511,656
44,825
1,377
38,863
27,326
-
36,560
693,205
575,542
11,463
1,779
40
16,740
-
40
13,282
16,780
706,487
592,322
474,628
395,913
18
18
206,246
206,246
79,742
45,281
185,443
141,819
471,449
393,364
3,179
2,549
474,628
395,913
27 | IG Group Holdings plc | Annual Report 2010
28
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Financial review
(continued)
Total available liquidity
At 31 May 2010, the Group had committed facilities with Royal
Bank of Scotland Group plc and Lloyds Banking Group plc
totalling £160.0m (2009: £120.0m) – neither of these facilities
were drawn down during the financial year.
The following table summarises the Group’s working capital
and liquidity as at 31 May 2010:
£000
2010
2009
Amounts due from brokers
203,714
178,261
Amounts due from clients
2,529
4,824
Cash and cash equivalents
678,564
520,421
Amounts due to clients
(608,140)
(511,656)
Other net current liabilities
Net working capital
Undrawn committed facilities
(77,981)
198,686
160,000
(58,958)
132,892
120,000
Total available liquidity
358,686
252,892
Total available liquidity therefore increased by £105.8m at the
year-end.
Amounts due to and from clients include unrealised profits
and losses on clients’ open positions, realised profits or
losses on closed positions as well as cash balances on clients’
accounts. We hedge the vast majority of financial business
clients’ open positions. Amounts due from brokers represent
cash or treasury bills placed with counterparties in order to
provide initial and variation margin to support these positions.
Cash flow
The following table summarises the Group’s cash flow during
the year, excluding the effect of foreign exchange gains on
cash and cash equivalents.
£000
2010
2009
Net cash flow from operating
activities
Net cash flow from investing
activities
Net cash flow from financing
activities
Net increase in cash and cash
equivalents
186,648
56,759
(2,481)
(58,051)
(59,152)
35,662
125,015
34,370
Cash and cash equivalents increased by £125.0m during the
year (2009: £34.4m), reflecting the cash generative nature of
the business as well as an increase in client balances.
The most significant outflows during the year were £47.7m
in respect of taxation (2009: £20.3m), £57.7m for dividends
(2009: £44.0m) and capital expenditure of £5.0m (2009: £8.0m).
The prior year also saw a cash outflow of £40.6m (net of share
placing proceeds) in respect of the acquisition of FXOnline.
Included in cash and cash equivalents is client money, which is
segregated in trust bank accounts. This amounted to £550.5m
(2009: £421.0m) at the year end, with an equivalent amount
included in amounts due to clients. Although the levels of
client money can vary depending on the overall mix of financial
products being traded by clients, the long-term increase in
the level of client money placed by clients with the Group is
a positive indicator of future client propensity to trade.
Capital and reserves
During the year to 31 May 2010, 1,524,127 ordinary shares
with an aggregate nominal value of £76 were issued following
the exercise of long-term incentive plan awards for a
consideration of £76.
The Group remains debt-free except for £40,000 (2009:
£40,000) of preference shares (see note 23 to the Financial
Statements). Own shares held in employee benefit trusts were
purchased to satisfy future obligations of share incentive plans
(SIP) awards.
Regulatory capital adequacy
Throughout the year, we maintained significant excesses of
capital resources over our capital resources requirement, both
on a consolidated and individual regulated entity basis.
We believe there are significant benefits to being well
capitalised at a time of continuing global economic
uncertainty. We are well placed in respect of any regulatory
changes which may increase our capital or liquidity
requirements, and high levels of liquidity are important in
the event of significant market volatility.
The following table summarises the Group’s capital adequacy
on a consolidated basis. The Group’s capital management is
reviewed further in note 35 to the Financial Statements on
page 120.
£m
Total Tier 1 capital
2010
475.6
2009
396.9
Less: intangible assets (adjusted)
(252.5)
(243.9)
Less: investment in own shares
Total capital resources (CR)
Capital resources requirement -
Pillar 1 (CRR)
Surplus
(1.0)
222.1
(65.7)
156.4
(1.0)
152.0
(60.0)
92.0
CR expressed as a % of CRR
338.1%
253.3%
29 | IG Group Holdings plc | Annual Report 2010
29 | IG Group Holdings plc | Annual Report 2010
30
Business Review: OPERAtING ANd FINANCIAL REVIEW
Operating and Financial Review
(continued)
Client KPIs
Average revenue per financial client
This average increased by 7.2% to £2,425 (2009: £2,263) on a
total basis, and by 4.2% excluding the effect of FXOnline clients.
Number of financial clients dealing
Financial clients dealing, excluding those of FXOnline,
increased to 103,338 (2009: 88,336), a 17.0% growth rate. This
was despite lower financial market volatility than experienced
in the previous financial year. Strong growth was seen in
Europe with a 50.2% increase and 11.4% for spread betting
in the UK. Including FXOnline clients, the overall growth rate
averaged 10.0%.
New financial account openings
Excluding FXOnline in Japan, the total number of new financial
accounts opened increased by 3.6% compared to the previous
year. However, this increase must be seen in the context of
a prior year where total account openings had increased by
44.1%, driven by high levels of market volatility.
In the UK, spread betting account opening was relatively
flat, with total UK growth driven primarily by CFD account
openings.
The number of accounts opened in Australia increased by
9.6% over the previous year.
Total accounts opened, including FXOnline, increased by 9.2%.
Risks and uncertainties
There are a number of potential risks and uncertainties, which
could have a material impact on our long-term performance.
These principal risks are described in the Our Business Risks
section on page 33. Our risk management policies and
procedures are also discussed in the Corporate Governance
Report on page 42.
Corporate Social Responsibility
The Group’s Corporate Social Responsibility Report has been
updated and is published on our corporate website at
www.iggroup.com.
Resources available to
the Group
Our strong reputation for innovation and high levels of
customer service reflect over 30 years of investment in
technology. The vast majority of development is carried out
in-house and our employees continue to be our key resource.
Our employees have extensive knowledge of our key markets
and actively contribute to the development of new products
and services.
Our continued growth is highly dependent upon attracting
and retaining high-calibre employees.
The Group pays performance-related bonuses to most staff
and makes awards under long-term incentive plans (LTIPs)
to key personnel. In addition, the opportunity to acquire
shares under various SIPs has been made available to all UK,
Australian and US staff. These awards reward employees for
past performance and help to retain them in the future. We
also provide a range of other benefits to employees, including
pension contributions and private health insurance.
Inclusive of national insurance and pension costs, employment
costs comprise:
£000
Fixed employment costs
Performance-related bonuses
and commissions:
Pool schemes
Specific schemes
Share-based payment schemes
2010
44,939
2009
40,165
13,889
8,444
4,782
5,136
5,525
3,256
Total employment costs
72,054
54,082
The average number of employees increased in the year
to 828 (2009: 761), with 28.3% of staff based overseas
(2009: 27.3%).
31 | IG Group Holdings plc | Annual Report 2010
31 | IG Group Holdings plc | Annual Report 2010
32
Business Review: OUR BUSINESS RISKS
Our Business Risks
Effective management of our
business risks is critical to the
achievement of our strategy.
This section describes our key
business risks and how we
mitigate them.
IG Group’s risk appetite
Our key risks and their mitigation
Our risk appetite is detailed in our Group Risk Appetite
Statement and is approved by the Board. It describes risk
tolerances for all our business risks and ensures there is a
comprehensive risk-management framework in place to
monitor current risks and identify future risks.
Our risk-management framework is designed to embed
management of business risks throughout the organisation.
The effectiveness of controls is assessed and confirmed by
our assurance functions - Risk Management, Compliance and
Internal Audit.
This approach mitigates our reputational risk that arises as a
result of failure to manage business risks. The Group places
the highest importance on risk management and endeavours
to operate with the highest levels of integrity and ethical
standards in all business activities.
Our financial risks, specifically credit, market and liquidity
risks, are described in further detail in note 34 to the Financial
Statements and in our Pillar 3 Disclosures, a regulatory
disclosure requirement, which can be found at
www.iggroup.com.
The Group’s Risk Management function maintains a register
of all operational risk events and controls to ensure that the
post-mitigation risk is within our risk tolerance.
This process is supported by our rolling three-year Internal
Audit Programme, compliance with the requirements of
the Financial Services Authority (and other local regulatory
requirements), as well as monitoring key risk indicators
derived from our Risk Appetite Statement.
In addition to mitigating individual risks, the Group also
undertakes various stress and scenario testing as part of our
Individual Capital Adequacy Assessment Process (ICAAP)
under the requirements of the FSA. These scenarios stress
the effect on our capital and liquidity adequacy of a series
of combined risk events occurring at the same point in time.
The ICAAP process is described further in our Corporate
Governance Report on page 42.
The tables on pages 35 to 38 analyse in further detail our
principal business risks.
33 | IG Group Holdings plc | Annual Report 2010
33 | IG Group Holdings plc | Annual Report 2010
34
Business Review: OUR BUSINESS RISKS
Our Business Risks
(continued)
Risk
Strategic risk
Regulatory risk
description
Strategic risk can arise from inadequate Board and senior
management processes and external factors that lead to
a failure to identify or implement our strategy.
Regulatory risk is the risk of non-compliance with and
future changes in regulatory rules potentially impacting
the Group’s business in the markets in which it operates.
Operational risk
Operational risk is the risk of loss arising from
inadequate or failed internal processes, people and
systems or from external events.
Mitigation
Strategic risk is mitigated by a process for determining risk appetite and strategy, ongoing challenge of these by the Board
and monitoring of actual results against four-year operating plans.
Our ability to do business is dependent on us obtaining and maintaining the necessary regulatory authorisations and
remaining in compliance with these.
The risk that we do not comply with existing regulations is mitigated by making compliance a priority throughout all levels of
the business and by investing significant resources in our compliance systems and controls.
The risk that existing regulations change such that we can no longer conduct our business efficiently or profitably is
mitigated by maintaining strong relationships with regulators and by contributing to any consultations on proposals that
might affect our business.
The Group’s system of controls is designed to ensure operational risks are mitigated to the level prescribed by our Group Risk
Appetite Statement.
We invest significantly in our IT infrastructure to ensure the availability and reliability of our client dealing platforms. This is
supported by ongoing business continuity planning and testing of disaster recovery facilities, as well as maintaining
BS ISO/IEC 27001:2005 Information Security Management System standards in respect of IT and data security.
Combating online fraud is also paramount and the Group has embedded controls at all process levels to mitigate this risk and
these are constantly evolving. We also use external fraud mitigation software and have built up a highly experienced fraud
prevention capability.
In addition, our success is closely aligned to the abilities and experience of our employees. Our performance could be
adversely affected by the loss of the services of key individuals. In order to mitigate this risk, we seek to create an open and
supportive working environment for our employees. Reward and incentive schemes are regularly reviewed in order to ensure
the Group continues to be successful in attracting and retaining the calibre of employees necessary to meet our objectives,
while aligning these schemes with our risk appetite, compliance and treating customers fairly objectives. The Group also has a
senior management succession plan in place which is regularly updated.
35 | IG Group Holdings plc | Annual Report 2010
35 | IG Group Holdings plc | Annual Report 2010
36
Business Review: OUR BUSINESS RISKS
Our Business Risks
(continued)
Risk
Market risk (1)
Credit risk (1)
description
Market risk is the risk that the fair value of financial
assets and financial liabilities will change due to
adverse changes in market prices, currency or
interest rates.
Credit risk is the risk that a counterparty fails to
perform its obligations which results in financial loss
for the Group. Adverse changes in the credit quality of
individual clients or financial institution counterparties
could affect the recoverability of our assets and
therefore our financial performance.
Liquidity risk (1)
Liquidity risk is the risk that the Group may not be able
to meet payment obligations as they fall due.
Mitigation
Market risk is managed on a group-wide and real-time basis. We do 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 residual net position
in any of the markets on which we offer products. The Group has a formal risk policy which includes limits for any such residual
positions, for every single financial market in which our clients trade, as well as certain groups of markets which the Board
consider to be correlated, all subject to our risk appetite.
Client credit risk arises where client funds deposited with the Group (margin and free equity) are insufficient to cover losses
incurred upon liquidation. In addition, a small number of clients are granted credit limits to cover losses on open positions
and initial margin requirements. The majority of client positions are monitored in real time on the Group’s ‘close-out monitor’
system or hold limited risk accounts with guaranteed stop-losses where clients cannot lose more than their initial deposits. In
addition, in 2009, we introduced tiered-margining, with risk-adjusted margin requirements calculated dependent on such factors
as specific financial instrument volatility and size of the client’s position. For individual equity CFDs and spread bets, this has
resulted in the creation of four margin tiers ranging from 5% in Tier 1 to potentially 90% under Tier 4.
It is our policy that all institutional counterparties holding client money accounts must have minimum Standard and Poor’s
short- and long-term ratings of A-2 and A- respectively. This is also the target minimum ratings for all other banking, as well
as broking counterparies, where our funds on deposit may not be subject to ‘client money protection’. In some operating
jurisdictions, however, it can be problematic to find a banking counterparty satisfying these minimum ratings requirements,
although this risk is mitigated by ensuring balances held with these counterparties are minimised.
Given the very short-term maturity profile of both our financial assets and liabilities, the Group does not have any material
liquidity mismatches with regard to liquidity maturity profiles, nor do we have exposure to assets whose quality is ‘opaque’,
such as a bank’s loan or a security dealer’s mortgage-backed securities portfolio. In contrast, our assets (excluding non-
current assets), consist primarily of cash at bank and on short-term deposit or short-term trade receivables. We also maintain
committed facilities totalling £160.0m (2009: £120.0m) and these are described further in note 34 to the Financial Statements.
Key supplier risk
Key supplier risk is the risk of failure of one of our principal
business partners to provide contractual services.
We conduct initial and ongoing due diligence on key suppliers, in addition to using multiple financial brokers, trading
exchanges and market data information suppliers.
(1) Discussed in further detail in note 34 to the Financial Statements.
37 | IG Group Holdings plc | Annual Report 2010
38
CORPORATE GOVERNANCE: dIRECtORS’ StAtUtORY REPORt
directors’ Statutory Report
The Directors are pleased to submit their Report together with the
group Financial Statements for the year ended 31 May 2010.
The final ordinary dividend, if approved, will be paid on 12 October
2010 to those shareholders on the register at 10 September 2010.
Principal activities
An overview of the principal activities of the Group is provided in
the Business Review section on pages 3 to 6.
Results
The Group’s profit for the year, after taxation amounted to
£101,486,000 (2009: £78,652,000), of which £101,281,000
(£77,986,000) is attributable to the equity members of the
Company.
Dividends
The Directors recommend a final ordinary dividend of 13.5 pence
per share, amounting to £48,750,000, making a total of 18.5 pence
per share and £66,796,000 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
13, is made up of this year’s interim dividend and the final dividend
from the previous year, which were both paid during the year.
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 Business Review section set out on pages 1 to 38.
This section also covers an analysis of the position of the Group at
the year-end and key performance indicators.
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 48 to 56.
Major interests in shares
Notifications shown below have been received by the Company of
shareholdings of three percent or more of its issued ordinary share
capital.
Artemis Investment Management Limited
Lion Trust Investment Services Limited
Investec Asset Management Limited
Standard Life Investments Limited
JP Morgan Chase & Co
Legal & General Group plc
CVC Capital Partners Limited
Reach Capital Management LLC
Prudential plc
No. of shares
As at 16 July 2010
Percentage
No. of shares
As at 31 May 2010
Percentage
18,260,791
17,907,353
17,863,943
17,564,421
15,830,307
14,287,840
13,954,879
11,409,480
11,066,417
5.06%
4.96%
4.95%
4.86%
4.39%
3.96%
3.86%
3.16%
3.06%
18,260,791
17,907,353
17,863,943
17,564,421
15,830,307
14,287,840
13,954,879
11,409,480
11,066,417
5.06%
4.96%
4.95%
4.86%
4.39%
3.96%
3.86%
3.16%
3.06%
Share capital and own shares
Details of the Company’s equity and preference share capital are
given in notes 24 and 23 respectively to the Financial Statements.
Details of the Group’s required regulatory capital are disclosed in
note 35 to the Financial Statements.
The Group purchases its own shares in order to satisfy awards
under the Group’s share incentive plan schemes and the Group
issues shares in respect of Long-Term Incentive Plan schemes.
Details of the shares held by the Group’s Employee Benefit Trusts
and the amounts paid during the year are disclosed in note 25 to
the Financial Statements.
Change of control
Following any future change of control of the Company following
a takeover bid, the Group’s banking facilities will be cancelled and
any obligations will become immediately due and payable.
Branches outside the United Kingdom
In line with strategic objectives, the Group has branches in a
number of overseas jurisdictions including Australia, France,
Germany, Italy, Luxembourg, New Zealand, Portugal, Spain and
Sweden.
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 4.5
creditor days of suppliers’ invoices outstanding at the year-end
(2009: 6) for the Group.
Risk management
The Group’s risk appetite and the risk management framework
along with the Group’s key risks and their mitigation are provided
in the Our Business Risks section of the Business Review on
pages 33 to 38. The principal activities of the Group outlined in
the Business Review give rise to exposure to financial risks in the
ordinary course of business.
The main risks associated with the Group’s financial instruments, as
well as the key operational risks faced by the Group are set out in
note 34 to the Financial Statements and in the Business Review, as
are the policies agreed by the Board for the management thereof.
Donations
The Group made no political donations (2009: £nil). The Group
made charitable donations of £40,355 in the year (2009: £49,912)
as follows:
Gambling Trust
Charity Cricket Tournament
Other
Total:
£18,000
£6,000
£16,355
£40,355
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
on the Group’s performance, development and policies. Line
managers then communicate the points raised in the forum across
the organisation.
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.
Equality and diversity
We are an equal opportunities employer and have extensive
human resource policies in place to ensure that employees can
expect to work in an environment free from discrimination and
harassment.
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.
Corporate governance
The Company’s statement on corporate governance can be found
in the Corporate Governance Report on pages 42 to 47.
39 | IG Group Holdings plc | Annual Report 2010
40
CORPORATE GOVERNANCE: dIRECtORS’ StAtUtORY REPORt
CORPORATE GOVERNANCE: CORPORAtE GOVERNANCE REPORt
directors’ Statutory Report
(continued)
Corporate Social Responsibility
The Group’s Corporate Social Responsibility Report has been
updated and is published on our corporate website at
www.iggroup.com. The report details the Group’s continued
commitment to its business standards and client service,
the Group’s workplace, carbon emissions and endeavours
towards sustainability. It includes a section on the environment
sustainability charter promoted in the fit-out of the Group’s new
headquarters at Cannon Bridge House, that amongst other things
achieved a recycling rate of 94% of the strip-out materials taken
from the site.
Events since the year-end date
On 19 July 2010, IG Markets South Africa Limited, a subsidiary
of the Group, reached agreement to acquire the client list and
business of Ideal CFD Financial Services Pty Limited (Ideal), a South
African based introducing broker of the Group for £1.6 million,
payable in cash. For further details see note 16b of the Financial
Statements.
Annual General Meeting
The Group’s Annual General Meeting will be held on 7 October
2010. A separate circular will be sent to all shareholders which
details the agenda for the AGM.
Auditors
A resolution to re-appoint Ernst & Young LLP as the Group’s auditor
will be put to the forthcoming Annual General Meeting.
Directors’ statement as to disclosure of information to
auditors
The Directors who were members of the Board at the time of
approving the Directors’ Statutory Report are listed on pages 7 and
8. 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.
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
aware of that information.
Going concern
The Directors have prepared the Financial Statements on a going
concern basis which requires the Directors to have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future.
The Directors have reviewed the Group’s processes to control the
financial risks to which the Group is exposed, its available liquidity,
its regulatory capital position and the annual budget. As a result
of this review 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.
By order of the Board
Steve Clutton, Finance Director
20 July 2010
Corporate Governance Report
In 2009, the Board commissioned the Board Evaluation Team of
the Institute of Chartered Secretaries and Administrators (‘ICSA’) to
carry out a thorough evaluation of the performance of the Board.
ICSA’s Board Evaluation Report acknowledged that “the Group has
a Board whose members appear well-qualified and appropriate
to manage the shareholders’ interests”, and the team recognised
the value of having experienced non-executives on the Board
during times of turbulent economic and market conditions. Since
then, the new UK Corporate Governance Code has recognised the
importance of having a Board that has an appropriate balance of
skills, experience, independence and knowledge of the Company
and the Board considers that the number and calibre of the
non-executives and composition of the Board would qualify the
Company to already be compliant with this principle.
We also reported last year that once a replacement for Sir Alan
Budd had been appointed, the Board would seek to appoint an
additional independent non-executive director. The Board was
pleased to report earlier this year the appointment of David Currie
to the Board, effective from the 4th May 2010. Sir Alan Budd retired
from the Board on the same date. The Nomination Committee’s
search for an additional independent non-executive director is
progressing well and further to the Chairman’s Statement, the
Company hopes to be able to make an announcement on a new
appointment to the Board prior to the forthcoming AGM. The
recruitment of this additional independent director, coupled with
the retirement of Robert Lucas, will both mark significant progress
towards further compliance with Provision A.3.2 of the Combined
Code.
Brief biographies of the Directors appear on pages 7 and 8.
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 2008, for the whole year, with
the exception that the Group was not compliant with Provision
A.3.2 throughout the year.
Provision 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 currently comprised of four
Executive Directors and four Non-executive Directors excluding the
Deputy Chairman and the Chairman.
The Deputy Chairman, Nat le Roux is considered a non-
independent director as he is a former Chief Executive of the
Group. The Board considers the value he brings with 17 years’
experience in the uniquely specialised market of spread betting
and Contracts for Difference justifies his position on the Board and
is in the best interests of the Group and its shareholders.
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 major
shareholder, holding 3.86% of the ordinary share capital of
the Company at 31 May 2010 (2009: 8.40%). Robert has been
involved with the IG Group since 2003 and consequently has a
detailed knowledge of the Company and its businesses. He is
valued for his challenging participation at Board meetings, and
his in-depth private equity experience is highly regarded by the
independent non-executive directors. On balance, weighing up all
the considerations and the best interests of the shareholders the
Board considers that Robert’s presence on the Board has been a
positive asset to the Group. However, as noted in the Chairman’s
Statement, Robert Lucas has indicated that he will not seek
re-election at this year’s AGM.
41 | IG Group Holdings plc | Annual Report 2010
42
CORPORATE GOVERNANCE: CORPORAtE GOVERNANCE REPORt
Corporate Governance Report
(continued)
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 57 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
Setting risk appetite and 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
the Board meets when necessary to discuss ad hoc emerging
important issues that require consideration between regular
Board meetings. 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 comprises Roger Yates (Chair),
David Currie, Jonathan Davie and Martin Jackson, who are all
independent directors. It makes recommendations to the Board,
within agreed terms of reference, on an overall remuneration
package for the 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
employee incentive schemes and approves the remuneration of
the Chairman. The Board itself determines the remuneration of the
other Non-executive Directors.
Audit Committee
The Audit Committee members, comprising Martin Jackson
(Chair, with recent and relevant financial experience), Roger Yates
and David Currie, are all independent non-executive directors.
The Finance Director, Group Financial Controller, Head of Internal
Audit, Global Head of Legal and Compliance, Head of UK
Compliance, Company Secretary and the external auditors attend
the Audit Committee by invitation appropriate to the matters
under consideration. Other Directors, representatives from the
Finance Function and other areas of the business attend the Audit
Committee as and when required. The Audit Committee normally
meets four times a year and as and when required.
the workings of the Board and
its committees (continued)
The main duties of the Audit Committee are:
To monitor the integrity of the Financial Statements of the
Group including annual and interim reports, preliminary results
announcements and any other formal announcements relating
to its financial performance, reviewing significant issues and
judgements contained therein.
To keep up-to-date with changes to accounting standards and to
review any changes to accounting polices year on year.
To consider and make recommendations to the Board on the
appointment, re-appointment and removal of the Company’s
external auditors, which is subject to shareholder approval.
To review the effectiveness of the Group’s internal controls and
risk management systems.
To monitor and review the effectiveness of the Group’s Internal
Audit Function.
To review the overall effectiveness of the Group’s implementation
of the FSA’s Treating Customers Fairly (TCF) requirements.
To review the Group’s arrangements for its employees to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters.
The Company Secretary drafts the agenda for each Audit
Committee, ensuring that each item in the terms of reference is
covered at least once in the financial year and more frequently
if required. The agenda is then finalised by the Chair of the Audit
Committee.
Summary of main activities undertaken by the Audit Committee
during the financial year:
Reviewed the annual report and interim results of the Group.
Reviewed key regulatory documents produced by the Group –
Internal Capital Adequacy Assessment Process (ICAAP) and the
Pillar 3 Disclosures prior to formal approval by the Board.
Reviewed the external auditor’s audit planning and other reports,
proposed audit fees and performance of the external auditors
including their independence and objectivity.
Reviewed the policy on the use of external auditors for non-audit
services and reviewed all non-audit services provided by the
external auditors to ensure compliance with the policy as part
of the safeguards in place to ensure the independence of the
audit is not compromised; the policy is available on the Group’s
website at www.iggroup.com.
Reviewed the effectiveness of the Group’s internal controls and
risk management systems.
Reviewed the effectiveness of the Group’s Internal Audit
Function including a review of the three-year rolling internal
audit plan, individual internal audit reports and the report on the
implementation of internal audit recommendations.
Reviewed reports from the Compliance Function.
Reviewed the effectiveness of the Group’s application of the FSA’s
Treating Customers Fairly (TCF) requirements.
Reviewed the Company’s procedures for detecting internal fraud.
Reviewed the Group’s ‘whistle-blowing’ arrangements.
In addition, the members of the Audit Committee meet privately
in separate meetings with the Head of Internal Audit, Head of
Compliance and the external auditor to focus on respective areas
of responsibility and to discuss any potential issues where support
from the Audit Committee may be required to address any issues
arising.
Following each meeting, the Committee reports to the Board on its
activities.
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 candidates. 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
Martin Jackson (Chair)
Sir Alan Budd (1)
Roger Yates
David Currie (2)
Remuneration Committee
Nomination Committee
Roger Yates (Chair)
Sir Alan Budd (1)
Jonathan Davie
Martin Jackson
David Currie (2)
Jonathan Davie (Chair)
Sir Alan Budd (1)
Martin Jackson
Roger Yates
David Currie (2)
Copies of the terms of reference of these Committees can be obtained from the Company Secretary on request and are available in the
Investor Relations section of the Group’s website, at www.iggroup.com.
(1) until 4th May 2010
(2) from 4th May 2010
43 | IG Group Holdings plc | Annual Report 2010
44
CORPORATE GOVERNANCE: CORPORAtE GOVERNANCE REPORt
Corporate Governance Report
(continued)
Relations with shareholders
The Board recognises the importance of communications
with shareholders. The Chairman’s Statement, Chief Executive’s
Review and the 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 on the Group’s 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 and risk
management
The Board of Directors has overall responsibility for the system
of risk management and internal control and has delegated
responsibility to the Audit Committee for reviewing the
effectiveness of the Group’s system of risk management and
internal control 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 assurance,
but not absolute assurance, against the risk of material mis-
statement or loss.
The Audit Committee has reviewed the effectiveness of the
Group’s system of internal control, covering financial, operational
and compliance controls and risk management systems and
no significant weaknesses were identified during this review.
Furthermore, the Audit Committee regularly receives and reviews
reports on internal control from Internal Audit and receives
quarterly reports from the Compliance Function.
Executive Directors and senior managers are responsible for the
day-to-day operation of the Group’s system of internal control
which aims to provide reasonable assurance over the:
Accomplishment of business objectives and goals
Compliance with policies, plans, procedures, laws and
regulations
Reliability and integrity of financial and management
information
Economic and efficient use of resources
Safeguarding of assets
The main features of the Group’s system of internal control are:
Organisation structure
The Group’s organisation charts document the responsibilities
of the Executive Directors and clear reporting lines through the
organisation. The organisation charts are reviewed and changed as
required to meet business requirements.
Risk management framework and risk registers
The Group’s risk appetite and significant risk management policies
are set by the Board. The main risks relate to strategic, market,
credit, liquidity, regulatory, key supplier and operational risk, and
these are expanded upon in the Our Business Risks section of this
report on pages 33 to 38 and financial risk management note
(note 34). The Risk Committee, comprising Chief Executive Officer,
Chief Operating Officer and Finance Director as well as the Dealing,
Credit and Risk Directors, meets regularly to review the risks faced
by the Group, within the parameters set by the Board. The senior
independent director, Roger Yates, also attends Risk Committee
meetings once a month; and minutes of the Risk Committee
meetings are circulated to the Non-executive Directors.
An ongoing process of identifying, evaluating and managing
significant risks using risk registers is co-ordinated by the Risk
Department, headed by the Risk Director. Heads of department
are responsible for departmental risk registers and these are
updated regularly and include appropriate action plans for
improving controls to mitigate risks. The key risks are reviewed
regularly by the Board and the Audit Committee and Internal Audit
carries out an annual review of the risk management process and
reports to the Audit Committee. The risk management process
has been in place for the full year under review and up to the date
of approval of the Annual Report and is in accordance with the
Turnbull guidance “Internal Control: Guidance for Directors on the
Combined Code.”
Internal control and risk
management (continued)
Capital and liquidity adequacy
During the year, the Group has made significant progress in further
developing its Internal Capital Adequacy Assessment Process
(ICAAP), a process required under the rules of the UK’s Financial
Services Authority (FSA), and embedding it further into the Group’s
risk management process. Key developments arising from the
ICAAP have been:
Projection of capital and liquidity adequacy requirements and
stress testing thereof for at least a three-year planning horizon
Significant enhancement of the Group’s stress testing framework
for key business risks including identification of combined risk
stress scenarios
Initiatives to refresh the corporate governance framework, the
Group’s Risk Appetite Statement, key risk indicator (KRI) reporting
and establishment of the Group’s ICAAP and Individual Liquidity
Adequacy Committee (IIC)
Board approval of a revised liquidity management policy under
the requirements of the FSA’s Individual Liquidity Adequacy
Standards regime
The ICAAP is approved at least annually by the Board or more
frequently following any material change to the Group’s operating
plan. The monitoring of the ICAAP is delegated to the IIC which
is responsible for ensuring it is revised as necessary with regard
to all identified group risks. The IIC reports to the Risk Committee,
which uses the ICAAP as a key component in its role of managing
the Group’s risk. Reports from the IIC are also made available to the
Board in their ongoing consideration of ICAAP requirements.
Policy framework
A framework of policies covering HR, compliance, and information
security requirements is in place to provide guidance to all
members of staff. Policies are reviewed and changed as and when
required and a new channel for distributing policies to all staff
across the Group is currently being introduced.
Financial planning and reporting
Business managers across the Group have budget responsibility,
with oversight of budgeting and reporting on performance against
budget undertaken by the Group’s Financial Planning and Analysis
Team.
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.
Full Board
meetings
Nominations
Committee
Audit
Committee
Remuneration
Committee
Jonathan Davie (Chairman)
Tim Howkins (Chief Executive)
Steve Clutton
Peter Hetherington
Andrew Mackay
Sir Alan Budd (1)
Martin Jackson
Nat le Roux
Robert Lucas
Roger Yates
David Currie (2)
7/7
7/7
7/7
6/7
6/7
6/6
7/7
7/7
5/7
7/7
1/1
(1) Sir Alan Budd stepped down from the Board on 4th May 2010.
(2) David Currie was appointed to the Board on 4th May 2010.
3/3
-
-
-
-
2/3
2/3
-
-
3/3
-
-
-
-
-
-
4/4
5/5
-
-
4/5
1/1
3/3
-
-
-
-
2/3
2/3
-
-
3/3
-
45 | IG Group Holdings plc | Annual Report 2010
46
CORPORATE GOVERNANCE: CORPORAtE GOVERNANCE REPORt
CORPORATE GOVERNANCE: dIRECtORS’ REMUNERAtION REPORt
Corporate Governance Report
(continued)
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 July 2010. 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 was carried out using the Audit Committee Institute’s
evaluation questionnaire and a discussion of the results by the Committee took place at a meeting in July 2010. The results were reported
to the Board in July 2010.
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 took place at a meeting in June 2010. The results were reported to the
Board in July 2010.
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: Tim Howkins, Peter Hetherington and Andrew MacKay. David Currie offers himself for election at the AGM.
Robert Lucas has expressed his intention to step down from the Board at the next AGM on 7 October after seven years’ service to the Board. As
previously mentioned, the Nomination Committee is progressing its search for an additional independent Non-executive Director.
As previously announced, Steve Clutton will also be retiring from the Board and will not therefore be offering himself for re-election at the AGM.
directors’ Remuneration Report
This report has been prepared by the Board following the
provisions in Schedules 5 and 8 to the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008
and gives details of the remuneration and service contracts of the
Directors.
Tim Howkins
- from £325,000 to £400,000 (1)
Peter Hetherington
- from £200,000 to £240,000 (2)
Andrew MacKay
- from £230,000 to £270,000
Chief Financial Officer
- from £215,000 to £280,000
Information not subject to audit
The Remuneration Committee, whose composition is set out
on page 44, 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
At upper quartile for above target performance
The Board itself determines the remuneration of the Non-executive
Directors.
Basic salary
During the year, the Remuneration Committee commissioned
external advisors to carry out a comprehensive annual review of
the remuneration of the Executive Directors and of the Chairman.
As regards to the former, the review benchmarked the salary and
total remuneration of the Company’s Executive Directors against
three comparison groups: FTSE 101-250 companies, FTSE 350
financial services companies and a tailored peer group comprising
20 companies with similar market capitalisation selected from
the financial, technology and entertainment sectors. The review
considered the entire remuneration package for Executive
Directors; salary, bonus and LTIPs and revealed an under rewarding
of the Executive Directors by between 15% and 23% below the
median. The Committee therefore recommended increasing the
Executive Director remuneration to just below the bottom quartile
of the comparison benchmark data for executive director pay.
While the Remuneration Committee was sensitive to investor
concern about executive pay, it felt that there was a particularly
strong case for increases in salary given the Company’s impressive
performance in the past year. To the credit of the Executive
Directors and the Company as a whole, during a period of slow
economic growth in the UK, the Group has been and remains
a successful, growing business as revealed in the results shown
elsewhere in this Annual Report. Therefore the Remuneration
Committee approved the following salary increases for the
Executive Directors effective from 1st June 2010:
The Remuneration Committee also decided to bring the
Chairman’s salary more into line with the median for non-executive
chairmen based upon a benchmark comparison against a tailored
comparable group, FTSE 101-250 companies and FTSE 350 financial
services companies; in each case the Chairman’s salary was in the
fourth quartile. Accordingly, his salary has risen to £160,000 from
£120,000, with effect from 1 June 2010.
The Board commissioned external advisors to benchmark the Non-
executive Directors’ remuneration against a tailored comparable
group and their remuneration was found to be in the fourth
quartile. In recognition of the increasing commitment required
from its Non-executive Directors, the Board decided to increase
the remuneration of the Non-executive Directors for the first time
since 2005, to a uniform rate of £50,000, with the exception of the
Audit Committee chairman (Martin Jackson), who shall receive an
additional £12,500, bringing his remuneration to £62,500. These
changes took effect from 1 June 2010.
Performance-related bonuses
The annual cash bonus for the Group’s Executive Directors is
calculated by reference to growth in diluted adjusted earnings per
share (EPS). Last year the Remuneration Committee was faced with
the challenge of calibrating the bonus scheme against a much
more difficult financial background and one in which the Group
was not immune. Accordingly for the year ended 31 May 2010, this
required an EPS growth of 15% to achieve a maximum bonus, set
at 200% of salary. For the same period, no bonus was payable if EPS
growth was below 2.5%. As shown elsewhere in the Annual Report,
actual EPS growth for the year was 24.4% which resulted in a
bonus of 200% of salary for each of the Executive Directors. In cash
terms, the total bonuses payable to the four Executive Directors
was £1.8m compared to £0.5m in the previous year. As reported
last year, in light of emerging FSA remuneration guidelines the
Remuneration Committee decided to introduce an element of
deferral into the cash bonus scheme: the first £100,000 of any
bonus to be paid in cash; one third of the resulting balance would
also be paid in cash and the remaining two thirds deferred for 12
months and provided in shares. Notwithstanding the foregoing,
Steve Clutton will receive his entire performance bonus in cash.
(1) In 2009 Tim Howkins deferred for 12 months an increase in his salary from £265,000
to £325,000.
(2) Peter Hetherington is paid a reduced pro rata salary of £240,000 based upon a
£300,000 full time equivalent salary to reflect his flexible working arrangements.
Any bonus payments are based on his full-time equivalent salary.
47 | IG Group Holdings plc | Annual Report 2010
48
CORPORATE GOVERNANCE: dIRECtORS’ REMUNERAtION REPORt
directors’ Remuneration Report
(continued)
Information not subject to
audit (continued)
For the year which began on 1 June 2010, the Remuneration
Committee recalibrated the bonus scheme to a more stretching
target; to achieve a maximum bonus, again set at 200% of salary,
the Committee has set a target of 17.5% EPS growth or higher. At
12.5% EPS growth a bonus of 100% of salary is payable and below
5% growth, no bonus is paid. The Committee feels that the new
targets represent an appropriate balance between a stretching
objective and one which is not completely unachievable. The
Committee considered the higher EPS growth targets appropriate
for the current financial year reflecting the previous year’s
performance but tempered by conditions of residual economic
uncertainty.
The Remuneration Committee retains the right to reduce the
bonuses payable if it considers that the formula has not produced
an appropriate result.
The cash element of performance-related bonuses is paid in full
within three months of the year-end.
Long-term incentive plans
During the year the Committee carried out a review of long-term
incentive arrangements. As a result of this review, and following
discussions with our shareholders, the Committee is proposing to
introduce a new value-sharing plan to replace the existing LTIPs.
Shareholder approval for this new plan is being sought at the 2010
AGM and the first awards will be made shortly afterwards.
The new value-sharing plan will comprise annual awards, providing
executives with a pre-defined number of shares for each £1m of
surplus shareholder value created over three years above a hurdle.
For Executive Directors, 60% of the shares will vest on growth in
market capitalisation plus net equity cashflows to shareholders
(i.e. total shareholder return (TSR)), over and above the equivalent
return from investing in the FTSE 350 Financial Services Index and
40% of shares would vest on growth in profit before taxation (times
a fixed multiple plus net equity cashflows to shareholders) over
and above a hurdle return of 12% pa.
2010 awards will be 400 shares per £1m of surplus shareholder
value created over three years for the CEO, and 250 shares per £1m
for each of the other Executive Directors. The number of shares
that can be earned will be capped when the surplus shareholder
value created reaches 100% of the Group’s starting market
capitalisation, and 50% of any shares earned under the plan will be
deferred for one year.
The Remuneration Committee believes that adjusted profit
before taxation is the best internal measure of the Group’s
financial performance as it is highly visible internally, and regularly
monitored and reported. The use of relative TSR introduces an
element of relative performance into our remuneration package,
which is intended to improve robustness to general stock market
movements, and focus more closely on the value created for
shareholders by management over and above that delivered by
peers. We believe that the proposed blend of measures provides
strong alignment with shareholder interests and a good balance
between internal and external performance and between absolute
and relative performance.
The new value-sharing plan will succeed the Long-Term Incentive
Plan (LTIP) under which awards were made during the years
ended 31 May 2005, 2007, 2008, 2009 and 2010 which vest(ed) on
publication of the results for the financial years to 31 May 2008,
2009, 2010, 2011 and 2012 respectively. The Committee does not
intend to make any further awards under the existing plan.
IG Group will continue to abide by a 10% in 10 years dilution limit
and will purchase shares in the market to satisfy awards under this
plan, as necessary, to manage within this.
LTIP awards are discussed further in note 27 to the Financial
Statements.
Information not subject to audit (continued)
Long-term incentive plans (continued)
The vesting criteria of these plans are based on compound annual growth rate in adjusted diluted earnings per share and share price
growth over the relevant three-year period as shown in the table below:
Year of award
Scheme
Base
period
(year ended
31 May)
Base
earnings
per share
(pence)
Measurement
period
(year ending
31 May)
31 May 2010
Share price growth award
2009
N/A*
2012
31 May 2010
Earnings per share award
2009
24.74
2012
31 May 2009
Share price growth award
2008
N/A*
2011
31 May 2009
Earnings per share award
2008
20.28
2011
31 May 2008
Share price growth award
2007
N/A*
31 May 2008
Earnings per share growth award
2007
14.52
2010
2010
31 May 2007
Senior management award
2006
10.88
2009
31 May 2007
Executive award
2006
10.88
31 May 2005
Senior management IPO high growth award
2005
6.75
2009
2008
Compound
annual
growth
<22.5%
22.5-100%
<12%
12-18%
18-25%
% of award
vesting
Nil
0-100%
Nil
0-50%
50-100%
<22.5%
22.5-100%
Nil
0-100%
<12%
12-18%
18-25%
<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%
Nil
0-50%
50-100%
Nil
0-100%
Nil
37.5-75%
75-100%
Nil
0-40%
40-70%
70-90%
90-100%
Nil
0-100%
Nil
0-100%
* share price growth is determined on a base share price of 310.9 pence (2008), 306.8 pence (2009) and 225.0 pence (2010).
In all cases, vesting is pro-rata between the lower and upper limits.
In order to obtain tax-favoured treatment for the Group and
participants, up to 100% of the ultimate value of the LTIP awards
made in the year ended 31 May 2010 (‘2010 LTIP’), which is
conditional on the performance conditions noted above, will be
delivered to the participants using HM Revenue and Customs
(‘HMRC’) approved options. The HMRC approved options have
been granted to participants subject to the rules of the IG Group
Limited Executive Share Option Scheme (‘Approved Plan’) which
has been updated and re-approved by HMRC. These approved
options have exactly the same vesting and exercise conditions
as the 2010 LTIP awards. In order to ultimately exercise a 2010
LTIP award, a participant will have to first exercise the respective
Approved Plan option and use the IG Group Limited shares
acquired as ultimate payment for that 2010 LTIP award.
The Company operates a Share Incentive Plan (SIP) for all UK
employees except for Executive Directors who are not able to
participate in the scheme.
49 | IG Group Holdings plc | Annual Report 2010
50
CORPORATE GOVERNANCE: dIRECtORS’ REMUNERAtION REPORt
directors’ Remuneration Report
(continued)
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. The Group has decided to
re-introduce subsidised health club membership to all staff from
1 June 2010.
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 with IG Group Limited (a wholly owned intermediate
holding company) for the benefit of the Company and the
Group, 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:
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 three 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)
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
D A Currie
31 May
2010
Ordinary
shares
31 May
2010
Preference
shares
31 May
2009
Ordinary
shares
31 May
2009
Preference
shares
600,000
3,800,000
17,169
250,000
867,687
27,438
-
47,312
100,000
25,000
-
-
10,000
-
10,000
10,000
-
-
-
10,000
-
-
1,000,000
4,601,291
17,169
976,620
2,010,680
27,438
-
47,312
222,100
25,000
-
-
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 2010 was 380.10p and the high and low share prices in the year were
430.00p and 217.75p 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 rebased to 100 as at 27 April 2005 in order to aid comparison and are presented to 16 July 2010.
Total shareholder return
IG Group Holdings plc
FTSE 250
450
400
350
300
250
200
150
100
50
M
a
y
-
0
5
N
o
v
-
0
5
M
a
y
-
0
6
N
o
v
-
0
6
M
a
y
-
0
7
N
o
v
-
0
7
M
a
y
-
0
8
N
o
v
-
0
8
M
a
y
-
0
9
N
o
v
-
0
9
M
a
y
-
1
0
51 | IG Group Holdings plc | Annual Report 2010
52
CORPORATE GOVERNANCE: dIRECtORS’ REMUNERAtION REPORt
directors’ Remuneration Report
(continued)
Information subject to audit
Directors’ remuneration
This section of the report sets out the remuneration of the Directors for the year ended 31 May 2010. The remuneration of the Directors
who served during the year was as follows:
Information subject to audit (continued)
Pension entitlements
T A Howkins
S Clutton
P G Hetherington
A R MacKay
There were no contributions made for the Non-executive Directors during the year ended 31 May 2010.
Executive directors:
T A Howkins
S Clutton
P G Hetherington
A R MacKay
Non-executive directors:
J R Davie
Sir Alan Budd (5)
D M Jackson
R R Lucas (4)
N B le Roux
R P Yates
D A Currie (5)
Performance related
bonuses (2)
Basic
salary and
fees
£000
Other
benefits and
payments (1)
£000
Paid in
cash
£000
Deferred
into shares
£000
Pension
elections (3)
£000
Year ended
2010
£000
Year ended
2009
£000
265
215
200
230
910
120
32
40
30
35
35
3
1,205
1
1
1
3
6
-
-
-
-
-
-
-
6
243
430
200
220
1,093
-
-
-
-
-
-
-
287
-
200
240
727
-
-
-
-
-
-
-
-
-
(40)
(25)
(65)
-
-
-
-
-
-
-
796
646
561
668
431
325
252
288
2,671
1,296
120
32
40
30
35
35
3
80
35
40
30
35
35
-
1,093
727
(65)
2,966
1,551
(1) All Executive Directors are entitled to receive professional subscriptions, private health cover and health club membership.
(2 ) The first £100,000 of performance-related bonuses plus one third of the balance are paid to the Executive Directors in cash; the remaining two thirds of the balance is deferred
into IG Group Holdings plc ordinary shares for 12 months.
(3) 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.
(4) Fees of £30,000 (2009: £30,000) relating to the services of Robert Lucas as a director of the Company were paid to CVC Capital Partners Limited.
(5) David Currie commenced his employment and Sir Alan Budd terminated his employment on the 4 May 2010.
There was no compensation for loss of office paid during the year (2009: £nil).
2010
£000
40
32
75
63
2009
£000
40
30
66
52
210
188
53 | IG Group Holdings plc | Annual Report 2010
54
CORPORATE GOVERNANCE: dIRECtORS’ REMUNERAtION REPORt
directors’ Remuneration Report
(continued)
Information subject to audit (continued)
Interests in Long-Term Incentive Plans
Awards under the Group’s LTIPs have been made to each of the Executive Directors. The awards made and those that have lapsed or been
exercised during the year, together with the maximum numbers of shares that can vest are detailed below. The share price on the date of
awards vesting in the year were 275.75p (7 August 2009) and 320.00p (4 October 2009).
Share price
at award
date
Award date
Number
as at
31 May
2009
Number
awarded
during the
year
Number
lapsed
during the
year
Number
exercised
during the
year
Number
as at
31 May
2010
T A Howkins
Senior management IPO high
growth award
16 May 2005
112.50p
134,769
Executive award
7 August 2006
217.00p
122,120
Earnings per share award
23 July 2007
312.25p
169,736
Share price growth award
23 July 2007
312.25p
169,736
Earnings per share award
30 September 2008
313.75p
174,917
Share price growth award
30 September 2008
313.75p
174,918
-
-
-
-
-
-
Earnings per share award
25 September 2009
318.80p
Share price growth award
25 September 2009
318.80p
-
-
166,248
166,249
-
(134,769)
(75,307)
(46,813)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
169,736
169,736
174,917
174,918
166,248
166,249
S Clutton
Senior management award
4 October 2006
261.75p
76,409
Executive award
4 October 2006
261.75p
229,226
Earnings per share award
23 July 2007
312.25p
96,077
Share price growth award
23 July 2007
312.25p
96,077
Earnings per share award
30 September 2008
313.75p
132,013
Share price growth award
30 September 2008
313.75p
132,014
-
-
-
-
-
-
Earnings per share award
25 September 2009
318.80p
Share price growth award
25 September 2009
318.80p
-
-
134,881
134,881
(20,630)
(55,779)
(141,356)
(87,870)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96,077
96,077
132,013
132,014
134,881
134,881
761,816
269,762
(161,986)
(143,649)
725,943
Information subject to audit (continued)
Interests in Long-Term Incentive Plans (continued)
Share price
at award
date
Award date
Number
as at
31 May
2009
Number
awarded
during the
year
Number
lapsed
during the
year
Number
exercised
during the
year
Number
as at
31 May
2010
P G Hetherington
Executive award
7 August 2006
217.00p
82,949
Earnings per share award
23 July 2007
312.25p
76,861
Share price growth award
23 July 2007
312.25p
76,861
Earnings per share award
30 September 2008
313.75p
105,611
Share price award
30 September 2008
313.75p
105,611
-
-
-
-
-
Earnings per share award
25 September 2009
318.80p
Share price growth award
25 September 2009
318.80p
-
-
125,471
125,471
(51,152)
(31,797)
-
-
-
-
-
-
-
-
-
-
-
-
-
76,861
76,861
105,611
105,611
125,471
125,471
447,893
250,942
(51,152)
(31,797)
615,886
A R MacKay
Executive award
7 August 2006
217.00p
69,124
Earnings per share award
23 July 2007
312.25p
86,469
Share price growth award
23 July 2007
312.25p
86,469
Earnings per share award
30 September 2008
313.75p
125,413
-
-
-
-
-
(42,626)
(26,498)
-
-
-
-
-
-
-
-
-
-
-
-
-
86,469
86,469
125,413
125,413
144,291
144,292
Earnings per share award
25 September 2009
318.80p
Share price growth award
25 September 2009
318.80p
-
-
144,291
144,292
Gains made by Directors on share options
The table below shows gains made by individual Directors from the exercise of share options during the year. The gains are calculated by
reference to the share price as at the respective exercise date, although the shares may have been retained.
492,888
288,583
(42,626)
(26,498)
712,347
T A Howkins
S Clutton
P G Hetherington
A R MacKay
N B le Roux
On behalf of the Board
Steve Clutton, Finance Director
20 July 2010
2010
£000
676
534
117
94
-
2009
£000
639
-
781
703
382
1,421
2,505
946,196
332,497
(75,307)
(181,582)
1,021,804
Share price growth award
30 September 2008
313.75p
125,413
55 | IG Group Holdings plc | Annual Report 2010
56
CORPORATE GOVERNANCE: StAtEMENt OF dIRECtORS’ RESPONSIBILItIES
CORPORATE GOVERNANCE: INdEPENdENt AUdItOR’S REPORt tO thE MEMBERS
OF IG GROUP hOLdINGS PLC
Statement of directors’ Responsibilities
Independent Auditor’s Report
to the Members of IG Group holdings plc
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 responsible for the maintenance and integrity
of the Company’s website and legislation in the United Kingdom
governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
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
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 2006 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.
directors’ statement pursuant
to the disclosure and
transparency Rules
Each of the Directors, whose names and functions are listed
on pages 7 and 8, confirms that, to the best of each person’s
knowledge and belief:
The Financial Statements, prepared in accordance with IFRSs as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
and the undertakings included in the consolidation as a whole;
and
The Business Review and the Directors’ Statutory Report
contained in the Annual Report include a fair review of the
development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as whole, together with a description of the
principal risk and uncertainties that they face.
By order of the Board
Steve Clutton, Finance Director
20 July 2010
Opinion on Financial Statements
In our opinion:
The Financial Statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31 May
2010 and of the Group’s profit for the year then ended
The Group Financial Statements have been properly prepared in
accordance with IFRSs as adopted by the European Union
The Parent Company Financial Statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006
The Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
The part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006
The information given in the Directors’ Statutory Report for the
financial year for which the Financial Statements are prepared is
consistent with the Financial Statements
The information given in the Corporate Governance Statement
set out on pages 42 to 47 in the Corporate Governance Report
with respect to internal control and risk management systems in
relation to financial reporting processes and about share capital
structures is consistent with the Financial Statements
We have audited the Financial Statements of IG Group Holdings plc
for the year ended 31 May 2010 which comprise the Group Income
Statement, Group and Parent Company Statements of Financial
Position, the Group Statement of Comprehensive Income, the Group
and Parent Company Statements of Changes in Shareholders’ Equity,
the Group and Parent Company Cash Flow Statements and the related
notes 1 to 36. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union and,
as regards the Parent Company Financial Statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
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 auditor’s 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
As explained more fully in the Statement of Directors’
Responsibilities set out on page 57 the Directors are responsible
for the preparation of the Financial Statements and for being
satisfied that they give a true and fair view. Our responsibility is to
audit the Financial Statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give reasonable
assurance that the Financial Statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate
to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the Financial Statements.
57 | IG Group Holdings plc | Annual Report 2010
58
CORPORATE GOVERNANCE: INdEPENdENt AUdItOR’S REPORt tO thE MEMBERS
OF IG GROUP hOLdINGS PLC
FINANCIAL STATEMENTS: GROUP INCOME StAtEMENt
Independent Auditor’s Report
to the Members of IG Group holdings plc (continued)
Group Income Statement
for the year ended 31 May 2010
Matters on which we are required to report by
exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
Adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
The Parent Company Financial Statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
Certain disclosures of Directors’ remuneration specified by law
are not made; or
We have not received all the information and explanations we
require for our audit; or
A Corporate Governance Statement has not been prepared by
the Company.
Under the Listing Rules we are required to review:
The Directors’ statement, set out on page 41, in relation to going
concern; and
The part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the June
2008 Combined Code specified for our review.
Simon Michaelson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
20 July 2010
Trading revenue
Interest income on segregated client funds
Revenue
Interest expense on segregated client funds
Betting duty
Net operating income
Recovery / (impairment) of trade receivables
Other administrative expenses
Operating profit
Finance revenue
Finance costs
Profit before taxation
Tax expense
Profit for the period
Profit for the period attributable to:
Equity holders of the parent
Minority interests
Earnings per ordinary share
Basic
Diluted
Note
3
3
5
5, 6
9
10
11
Note
12
12
Before
certain
items (1)
£000
298,551
5,791
304,342
(321)
(4,298)
299,723
1,064
(143,500)
157,287
2,664
(2,312)
157,639
(46,120)
2010
Certain
items (1)
£000
-
-
-
-
-
-
-
(17,298)
(17,298)
-
-
(17,298)
7,265
Before
certain
items (1)
£000
257,089
12,888
269,977
(5,288)
(7,223)
257,466
(18,168)
(114,635)
124,663
2,887
(1,678)
125,872
(38,744)
Total
£000
298,551
5,791
304,342
(321)
(4,298)
299,723
1,064
(160,798)
139,989
2,664
(2,312)
140,341
(38,855)
2009
Certain
items (1)
£000
-
-
-
-
-
-
-
(14,613)
(14,613)
-
-
(14,613)
6,137
Total
£000
257,089
12,888
269,977
(5,288)
(7,223)
257,466
(18,168)
(129,248)
110,050
2,887
(1,678)
111,259
(32,607)
111,519
(10,033)
101,486
87,128
(8,476)
78,652
111,314
205
(10,033)
-
101,281
205
86,462
666
(8,476)
-
77,986
666
111,519
(10,033)
101,486
87,128
(8,476)
78,652
2010
28.19p
28.00p
2009
22.42p
22.31p
(1) Certain items comprise amortisation and impairment of intangibles arising on consolidation and related taxation.
All of the Group’s revenue and profit for the year and prior year relate to continuing operations. The comparative Group Income Statement has
been restated such that interest on segregated client funds is included within operating profit rather than finance revenue or costs. Refer to
notes 2 and 3 for more information.
The notes on pages 67 to 120 are an integral part of these Financial Statements.
Notes:
1. The maintenance and integrity of the IG Group Holdings plc web site is the responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
59 | IG Group Holdings plc | Annual Report 2010
60
FINANCIAL STATEMENTS: StAtEMENtS OF FINANCIAL POSItION
FINANCIAL STATEMENTS: GROUP StAtEMENt OF COMPREhENSIVE INCOME
Statements of Financial Position
at 31 May 2010
Group Statement of Comprehensive Income
for the year ended 31 May 2010
Profit for the period
Other comprehensive income:
Foreign currency translation on overseas subsidiaries
Other comprehensive income for the period
Total comprehensive income for the period
Total comprehensive income attributable to:
Equity holders of the parent
Minority interests
The notes on pages 67 to 120 are an integral part of these Financial Statements.
2010
£000
£000
2009
£000
101,486
£000
78,652
27,434
32,752
27,434
128,920
128,290
630
128,920
32,752
111,404
110,423
981
111,404
Assets
Non-current assets
Property, plant and equipment
Intangible assets arising on consolidation
Intangible assets arising from software & licences
Investment in subsidiaries
Deferred tax assets
Current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
TOTAL ASSETS
Liabilities
Current liabilities
Trade payables
Other payables
Provisions
Income tax payable
Non-current liabilities
Deferred tax liabilities
Provisions
Redeemable preference shares
Total liabilities
Capital and reserves
Equity share capital
Share premium
Other reserves
Retained earnings
Shareholders’ equity
Minority interests
Total equity
Note
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
14
15
15
16
11
18
19
20
21
22
11
11
22
23
24
24
26
9,632
261,452
3,876
-
14,264
11,632
256,824
3,783
-
7,562
-
-
-
428,853
-
-
-
-
424,071
-
289,224
279,801
428,853
424,071
206,243
7,084
678,564
183,085
4,928
520,421
-
576,920
8
-
96,943
122
891,891
708,434
576,928
97,065
1,181,115
988,235
1,005,781
521,136
608,140
44,825
1,377
38,863
511,656
27,326
-
36,560
-
573,276
-
3,387
-
120,042
-
-
693,205
575,542
576,663
120,042
11,463
1,779
40
16,740
-
40
13,282
16,780
-
-
40
40
-
-
40
40
706,487
592,322
576,703
120,082
18
206,246
79,742
185,443
471,449
3,179
18
206,246
45,281
141,819
393,364
2,549
18
206,246
14,991
207,823
429,078
-
18
206,246
10,400
184,390
401,054
-
474,628
395,913
429,078
401,054
TOTAL EQUITY AND LIABILITIES
1,181,115
988,235
1,005,781
521,136
Tim Howkins, Director
Steve Clutton, Director
The notes on pages 67 to 120 are an integral part of these Financial Statements.
61 | IG Group Holdings plc | Annual Report 2010
62
FINANCIAL STATEMENTS: StAtEMENtS OF ChANGES IN ShAREhOLdERS’ EQUItY
Statements of Changes in Shareholders’ Equity
for the year ended 31 May 2010
Statements of Changes in Shareholders’ Equity
for the year ended 31 May 2010
Group
At 1 June 2008
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Shares issued
Share issue costs
Minority interest arising on acquisition
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based
payments recognised directly in shareholders’ equity
Purchase of own shares
Equity dividends paid
Movement in shareholders’ equity
Equity
share
capital
£000
Note 24
16
-
-
-
2
-
-
-
-
-
-
2
Share
premium
£000
Note 24
125,235
-
-
Other
reserves
£000
Note 26
11,576
-
32,437
Retained
earnings
£000
Shareholders’
equity
£000
Minority
interests
£000
Total
equity
£000
107,849
77,986
-
244,676
77,986
32,437
-
32,437
77,986
110,423
82,199
(1,188)
-
-
-
-
-
-
-
-
3,256
(1,730)
(258)
-
-
-
-
-
-
-
(44,016)
82,201
(1,188)
-
3,256
(1,730)
(258)
(44,016)
40
666
315
981
-
-
1,528
-
-
-
-
244,716
78,652
32,752
111,404
82,201
(1,188)
1,528
3,256
(1,730)
(258)
(44,016)
81,011
33,705
33,970
148,688
2,509
151,197
At 31 May 2009
18
206,246
45,281
141,819
393,364
2,549
395,913
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based
payments recognised directly in shareholders’ equity
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid
Movement in shareholders’ equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,009
101,281
-
101,281
27,009
27,009
101,281
128,290
4,782
2,861
(175)
(16)
-
-
-
-
4,782
2,861
(175)
(16)
-
(57,657)
(57,657)
205
425
630
-
-
-
-
-
101,486
27,434
128,920
4,782
2,861
(175)
(16)
(57,657)
34,461
43,624
78,085
630
78,715
At 31 May 2010
18
206,246
79,742
185,443
471,449
3,179
474,628
The notes on pages 67 to 120 are an integral part of these Financial Statements.
Company
At 1 June 2008
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Shares issued
Share issue costs
Equity-settled employee share-based payments
Purchase of own shares
Equity dividends paid
Movement in shareholders’ equity
At 31 May 2009
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Equity-settled employee share-based payments
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid
Movement in shareholders’ equity
At 31 May 2010
Equity
share
capital
£000
Note 24
16
-
-
-
2
-
-
-
-
2
Share
premium
£000
Note 24
125,235
-
-
Other
reserves
£000
Note 26
7,402
-
-
Retained
earnings
£000
Total
equity
£000
176,806
51,600
-
309,459
51,600
-
-
-
51,600
51,600
82,199
(1,188)
-
-
-
81,011
-
-
3,256
(258)
-
2,998
-
-
-
-
(44,016)
82,201
(1,188)
3,256
(258)
(44,016)
7,584
91,595
18
206,246
10,400
184,390
401,054
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
81,090
-
81,090
-
81,090
81,090
4,782
(175)
(16)
-
-
-
-
(57,657)
4,782
(175)
(16)
(57,657)
4,591
23,433
28,024
18
206,246
14,991
207,823
429,078
The notes on pages 67 to 120 are an integral part of these Financial Statements.
63 | IG Group Holdings plc | Annual Report 2010
64
FINANCIAL STATEMENTS: CASh FLOW StAtEMENtS
FINANCIAL STATEMENTS: INdEx tO NOtES tO thE FINANCIAL StAtEMENtS
Cash Flow Statements
for the year ended 31 May 2010
Operating activities
Operating profit
Adjustments to reconcile operating profit to net cash flow from operating activities:
Net interest income on segregated client funds
Depreciation of property, plant and equipment
Total amortisation of intangible assets
Non-cash foreign exchange gains in operating profit
Share-based payments
Write off - property, plant and equipment
(Recovery) / impairment of trade receivables
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Increase in provisions
Cash generated from operations
Income taxes paid
Interest received on segregated client funds
Interest paid on segregated client funds
Net cash flow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Payments to acquire intangible fixed assets
Purchase of subsidiary undertaking
Investment in subsidiary undertaking
Net cash acquired on purchase of subsidiary undertaking
Net cash flow from investing activities
Financing activities
Interest paid
Equity dividends paid to equity holders of the parent
Proceeds from the issue of shares
Purchase of own shares
Payment of redeemable preference share dividends
Net cash flow from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange gains on cash and cash equivalents
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
Note
139,989
110,050
(3,530)
(2,556)
(5,470)
6,175
19,728
(11,382)
4,782
49
(1,064)
(19,162)
92,153
3,156
228,954
(47,719)
5,745
(332)
(7,600)
5,402
15,597
(4,640)
3,256
36
18,168
88,686
(159,585)
-
69,370
(20,274)
12,670
(5,007)
-
-
-
-
-
-
-
96,461
(34,293)
-
58,638
-
-
-
-
-
-
-
-
-
-
77,919
(795)
-
74,568
-
-
-
186,648
56,759
58,638
74,568
2,557
(2,669)
(2,369)
-
-
-
3,429
(5,897)
(2,142)
(121,643)
-
68,202
(2,481)
(58,051)
1
-
-
-
-
-
1
(1,317)
(57,657)
-
(175)
(3)
(1,074)
(44,016)
81,013
(258)
(3)
(918)
(57,657)
-
(175)
(3)
1,065
-
-
-
(111,234)
-
(110,169)
(1,059)
(44,016)
81,013
(258)
(3)
(59,152)
35,662
(58,753)
35,677
125,015
520,421
33,128
34,370
471,722
14,329
(114)
122
-
76
46
-
Cash and cash equivalents at the end of the period
19
678,564
520,421
8
122
The comparative Group Cash Flow Statement has been restated such that interest on segregated client funds is included within net cash
flow from operating activities. Refer to notes 2 and 3 for more information.
The notes on pages 67 to 120 are an integral part of these Financial Statements.
Index to Notes to the Financial Statements
for the year ended 31 May 2010
note
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
Authorisation of Financial Statements and statement of compliance with IFRS
Accounting policies
Revenue
Segment information
Operating profit
Exceptional items
Auditors’ remuneration
Staff costs
Finance revenue
10. Finance costs
11. Taxation
12. Earnings per ordinary share
13. Dividends
14. Property, plant and equipment
15.
Intangible assets
16.
Investments in subsidiaries
17.
Impairment of goodwill
18. Trade receivables
19. Cash and cash equivalents
20. Trade payables
21. Other payables
22. Provisions
23. Redeemable preference shares
24. Equity share capital
25. Own shares held in Employee Benefit Trusts
26. Other reserves
27. Employee share plans
28. Capital commitments
29. Obligations under leases
30. Contingent liabilities
31. Transactions with Directors
32. Related party transactions
33. Financial instruments
34. Financial risk management
35. Capital management and resources
36. Subsequent events
67
67
74
75
78
78
79
79
80
80
81
84
85
86
87
88
90
92
92
92
93
93
94
95
96
97
99
102
102
103
103
103
104
108
120
120
65 | IG Group Holdings plc | Annual Report 2010
66
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
1. Authorisation of Financial
Statements and statement of
compliance with IFRS
The Financial Statements of IG Group Holdings plc (the Company)
and its subsidiaries (together the Group) for the year ended
31 May 2010 were authorised for issue by the Board of Directors
on 20 July 2010 and the Statements of Financial Position 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 2010 and applied in accordance with the provisions
of the Companies Act 2006. 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 2010.
The Group has presented its consolidated income statement in a
columnar format. This enables the Group to continue its practice
of improving the understanding of its results by presenting profit
for the year before amortisation and impairment of intangibles
arising on consolidation (‘certain items’). This is the profit measure
used to calculate adjusted EPS (see note 12) and is considered
to be the most appropriate measure as it better reflects the
Group’s underlying cash earnings. Profit before amortisation and
impairment of intangibles arising on consolidation is reconciled to
profit before tax on the face of the income statement.
The amortisation of separately identifiable intangible assets and
any impairment of goodwill (including any tax effect) is included in
the income statement within the column ‘certain items’. Intangible
assets arising on consolidation represent goodwill and other
separately identifiable intangible assets on business combinations
since 1 June 2004.
As permitted by Section 408(1)(b), (4) of the Companies Act 2006,
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 £81,090,000 (2009:
£51,600,000). A statement of comprehensive income for
IG Group Holdings plc has also not been presented in these
Financial Statements. No items of other comprehensive income
arose in the year (2009: £nil).
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.
Going concern
The Directors have prepared the Financial Statements on a going
concern basis which requires the Directors to have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
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 16.
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 between Group entities,
including unrealised profits arising from them, are eliminated on
consolidation.
On acquisition, the assets, liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. The cost of an acquisition is measured at the fair value
of consideration paid including an estimate of any contingent or
deferred consideration and the directly attributable costs of the
acquisition. Contingent or deferred consideration is re-measured
at each statement of financial position date. 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.
2. Accounting policies
(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 statement of financial position,
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.
Foreign currencies
The functional currency of each company in the Group is that of
the country of incorporation (as disclosed in note 16) as this is
consistent with the primary economic environment in which the
entity operates. 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 statement of financial
position date, monetary assets and liabilities denominated in
foreign currencies are retranslated at the functional currency
rate of exchange prevailing on the same 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 statement of financial position 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.
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 statement of financial position
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 2, 3 or 5 years
- over 4 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 (fair value of consideration paid) 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. 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 are accounted for 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 statement
of financial position 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. 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.
67 | IG Group Holdings plc | Annual Report 2010
68
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
2. Accounting policies
(continued)
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.
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 such as a trade name or customer relationship is
recognised at fair value 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
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 over their expected
useful lives, as follows:
Client lists
Development costs
Software and licences
- straight-line basis over the expected
trading life of up to 5 years
- straight-line basis over 3 years
- straight-line basis over the contract
term of up to 5 years
Trade names
- sum of digits method over 2 years
Customer relationships - sum of digits method over 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 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 (or at least annually for goodwill), 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.
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.
2. Accounting policies
(continued)
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
instruments are disclosed in note 33 to the Financial Statements.
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
statement of financial position. 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
derivative exposures arising from open client positions, which are
also classified as held for trading.
All financial instruments at fair value through the profit and loss are
carried in the statement of financial position 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.
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 or 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.
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.
69 | IG Group Holdings plc | Annual Report 2010
70
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
2. Accounting policies
(continued)
The Group holds money on behalf of clients in accordance with
the client money rules of the UK’s Financial Services Authority
(FSA) and other regulatory bodies. This money is included within
cash and cash equivalents on the statement of financial position
and the corresponding liability to clients is included in trade and
other payables. The return received on managing client balances is
included within operating income.
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.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable that
an outflow of resources will be required to settle the obligation;
and the amount can be reliably estimated. Where material,
provisions are discounted and recognised at the present value of
expenditures expected to settle the obligation with the unwind of
the discount recognised as an interest expense.
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 statement of financial position 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.
71 | IG Group Holdings plc | Annual Report 2010
The carrying amount of deferred tax assets is reviewed at each
statement of financial position 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 statement of financial
position 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 statement of
financial position; 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.
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.
2. Accounting policies
(continued)
Finance revenue and interest income on segregated client funds 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. Interest income on segregated client funds
is disclosed within revenue and therefore operating profit as this is
consistent with the nature of the Group’s operations.
Dividends receivable are recognised when the shareholder’s right
to receive the payment is established.
Operating profit
Operating profit is the sum of 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 or loss on sale of property, plant and equipment and other
administrative expenses.
Exceptional items
Exceptional items are those items of income and expense
that the Group considers are material and/or of such a nature
that they merit separate presentation in order to aid a reader’s
understanding of the Group’s financial performance.
Finance costs and interest expense on segregated
client funds
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.
Interest expense on segregated client funds is disclosed within
operating profit as this is consistent with the nature of the Group’s
operations.
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 a Long-Term Incentive Plan (LTIP) 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 statement of financial position 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
statement of financial position date is recognised in the income
statement as part of administrative expenses, with a corresponding
entry in equity.
Changes in accounting policies
The accounting policies adopted in the preparation of Financial
Statements are consistent with those followed in the preparation
of the Group’s Annual Report for the year ended 31 May 2009,
other than as set out below:
The Group has made presentational changes in order to disclose
interest income and expense on segregated client funds within
operating profit as opposed to finance revenue or finance costs.
This change has been made in order to present operating profit on
a basis more consistent with the nature of Group’s operations and
to increase comparability with the Group’s peers. This has resulted
in an increase in reported operating profit and revenue for the year
ended 31 May 2010 of £5,470,000 and £5,791,000 respectively and
of £7,600,000 and £12,888,000 for the year ended 31 May 2009
respectively. There has been a corresponding decrease in finance
costs and finance revenue for each year. There is no change to
profit before taxation or on earnings per share for either of these
years.
New and amended standards adopted by the Group
The following new or amended standards have been adopted by
the Group:
IFRS 7 ‘Financial Instruments – Disclosures (amendment)’: The
amended standard requires enhanced disclosures about fair
value measurement and liquidity risk. As a disclosure standard
the adoption of IFRS 7 has had no impact on the results or the
financial position of the Group.
IFRS 8 ‘Operating Segments’: This new standard replaces IAS 14
‘Segment Reporting’ and requires a “management approach”
under which segment information is presented on the
same basis as that used for internal reporting purposes. As a
disclosure standard, the adoption of IFRS 8 has had no impact
on the results or the financial position of the Group. A revised
segmental note along with restated comparative information is
disclosed in note 4. The adoption of IFRS 8 has also required the
Group to review the identification of cash-generating units for
the purposes of the goodwill impairment review exercise - see
note 17.
IAS 1 (revised), ‘Presentation of Financial Statements’: The revised
standard prohibits the presentation of non-owner items of
income and expense in the consolidated statement of changes
in equity, requiring such items to be presented in a statement of
comprehensive income. As a disclosure standard the adoption of
IAS 1 (revised) has had no impact on the results or the financial
position of the Group.
72
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
2. Accounting policies (continued)
The following new standards and interpretations are also effective for accounting periods beginning 1 June 2009 but have not had a
material impact on the presentation of, nor the results or financial position of the Group:
IFRS 2 (Amendment) “Share-based payment”. 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.
IAS 32 (Amendment) “Financial Instruments: Presentation” and IAS 1 (Amendment) “Presentation of Financial Statements – Puttable
Instruments and Instruments with obligations arising on Liquidation”.
IAS 36 (Amendment) “Impairment of assets”. The amendment requires that where fair value less costs to sell is calculated based on
discounted cash flows disclosures equivalent to those for a value-in-use calculation should be made.
IAS 38 (Amendment) “Intangible Assets”. The amendment allows the recognition of a prepayment only in the event that payment has
been made in advance of obtaining right of access to goods or receipt of services.
IAS 19 (Amendment) “Employee benefits”. The amendment clarifies certain accounting and valuation of defined benefit plans and alters
the distinction of short-term and long-term employee benefits.
IAS 39 (Amendment) “Financial Instruments: Recognition and Measurement”. The amendment clarifies certain definitions and aligns the
example of a segment with IFRS 8.
IAS 23 (Amendments) “Borrowing Costs”. The amendments to the standard require 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.
IAS 16 (Amendment) “Property plant and equipment” and consequential amendment to IAS 7 “Statement of cash flows”. The
amendment relates to entities whose ordinary activities are renting and subsequently selling assets.
IAS 28 (Amendment) “Investments in Associates”. The amendment requires that the investment in an associate is treated as a single
asset for the purposes of impairment testing.
IAS 29 (Amendment) “Financial reporting in hyperinflationary economies”.
IAS 31 (Amendment) “Interests in joint ventures”.
IAS 38 (Amendment) “Intangible Assets”. The amendment deletes wording that states that there is ‘rarely, if ever’ support for use of a
method of amortisation that results in a lower rate than the straight-line method.
IAS 40 (Amendment) “Investment Property”. The amendment brings property that is under construction or development for future use
as an investment property within the scope of IAS 40.
IAS 41 (Amendment) “Agriculture”. The amendment relates to the valuation methodologies for biological assets.
IAS 20 (Amendment) “Accounting for government grants and disclosure of government assistance”. The amendment relates to
accounting for the benefit of a below market rate government loan.
IFRIC 15 “Agreements for the Construction of Real Estate”.
IFRIC 17 “Distributions of Non-cash Assets to Owners”.
The following standards, amendments and interpretations have been published and are mandatory for the Group’s accounting periods
beginning or after 1 June 2010 or later period, but the Group has not early adopted them:
IAS 27 (revised) “Consolidated and separate Financial Statements”. 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. The Group will apply IFRS 3 (revised) prospectively to all
transactions with non-controlling interests from 1 July 2010.
IFRS 3 (revised) “Business combinations”. The revised standard requires that all acquisition costs be expensed and that all payments
to purchase a business are to be recorded at fair value at the acquisition date. Any contingent payments are classified as debt and
re-measured through the income statement. Non-controlling interests may be measured either at fair value or at the non-controlling
interest proportionate share of the acquiree’s net assets. The Group will apply IFRS 3 (revised) prospectively to all business combinations
from 1 July 2010.
2. Accounting policies (continued)
IAS 38 (amendment) “Intangible assets”. The amendment clarifies guidance in measuring fair value of an intangible asset acquired in
a business combination and permits grouping of intangible assets as a single asset if each asset has similar useful economic lives. The
Group will apply the amendment from the same date as IFRS 3 (revised). The amendment will not impact the Group’s currently held
intangible assets.
IFRS 5 (amendment) “Measurement of non-current assets (or disposal groups) classified as held for sale”. The amendment provides
clarification to the existing standard disclosure requirements and will not result in a material impact to the Group’s Financial Statements.
The Group will apply IFRS 5 (amendment) from 1 July 2010.
IAS 1 (amendment) “Presentation of Financial Statements”. The amendment provides clarification that the potential settlement of a
liability by the issue of equity is not relevant to its classification as current or non-current. The Group will apply IAS1 (amendment) from
1 July 2010. It is not expected to have a material impact on the Group’s Financial Statements.
IFRS 2 (amendments) “Group cash-settled share-based payment transactions”. The amendments include IFRIC 8 and 11 and expand the
guidance in IFRIC 11 to address the classification of group arrangements not previously covered. The new guidance is not expected to
have a material impact on the Group’s Financial Statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the year-end and the amounts reported for revenues and expenses during the year. The nature of estimates
means that actual outcomes could differ from those estimates.
In the Directors’ opinion, the accounting estimates or judgements that have the most significant impact on the Financial Statements are the
impairment of trade receivables (see note 5), the calculation of the Group’s taxation charge (see note 11(c) and 11(f )), the measurement and
impairment of goodwill (see note 17), the estimation of the onerous lease liability (see note 22), the estimation of share-based payment costs
(see note 27) and the assessment of net market risk and associated disclosures (see note 34).
3. Revenue
Trading revenue represents the net trading income from financial instruments carried at fair value through profit and loss. Revenue from
external customers includes interest income on segregated client funds and is analysed as follows:
Trading revenue
Financial
Spread betting
Contracts for difference
Binaries
Total Financial
Sport
Total trading revenue
Interest income on segregated client funds
Revenue from external customers
In addition to the above finance revenue is disclosed in note 9.
2010
£000
2009
£000
104,605
177,414
10,600
109,396
128,945
10,005
292,619
248,346
5,932
8,743
298,551
257,089
5,791
12,888
304,342
269,977
73 | IG Group Holdings plc | Annual Report 2010
74
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
4. Segment information
The Group has adopted IFRS 8 ‘Operating Segments’, which replaced IAS 14 ‘Segment Reporting’, from 1 June 2009 and has restated the
segment results from 31 May 2009 accordingly. There is no effect on the overall results of the Group. IFRS 8 requires the Group’s segmental
information to be disclosed consistent with the basis of internal reports regarding components of the Group that are regularly reviewed
by the Chief Operating Decision Maker (CODM) in order to assess the performance and to allocate resources to those ‘operating segments’.
The Group considers the Executive Directors of the IG Group Holdings plc Board to be the CODM. The Group has determined its operating
segments based on the management information received on a regular basis by the CODM. The Group has offices in the UK, Australia,
France, Germany, Italy, Luxembourg, Spain, Sweden, Japan, Singapore and the United States. Operating segments that do not meet the
quantitative thresholds required by IFRS 8 have been aggregated within the Europe and ‘Rest of World’ segments as appropriate.
The Group has also early adopted the ‘IFRS Improvements Standard’ issued in April 2009 that provides an amendment to IFRS 8 such that
segment assets are not required to be disclosed as segment assets are not reported to the CODM.
In contrast the predecessor standard required the Group to identify the primary segments (business segment) and secondary segments
(geographical) using a risk and rewards approach.
Under IFRS 8, the significant changes in the information presented are that:
Revenues are reported by the location of the office whereas previously they were reported by location of the client
The Australian and Japanese segments that were previously reported within an aggregated Asia Pacific segment are separately reported
The ‘Rest of World’ segment comprises the Group’s Singapore and US operations
Segment contribution, being segment trading revenue less directly incurred costs, as the measure of segment profit and loss reported
to the CODM, has been disclosed
The UK segment derives its revenue from financial spread bets, fixed odd bets on financial markets, Contracts for Difference (CFDs),
margined forex and binary options. The UK segment also includes the sport business which derives its revenue from spread bets and
fixed odds bets on sporting and other events and the operation of an online casino. The Australian, Japanese and European segments
derive their revenue from CFDs, margined forex and binary options. The ‘Rest of World’ segment derives its revenue from the operation of a
regulated futures and options exchange as well as CFDs, margined forex and binary options.
The Board envisages that the reportable segments may change as overseas businesses move towards operational maturity, breaking
through the quantitative thresholds of IFRS 8. The segments will be reviewed annually and the comparatives restated to reflect any
reclassifications within the segmental reporting.
The Group employs a centralised operating model whereby market risk is managed principally in the UK, switching to Australia outside
of UK hours. The costs associated with these operations are included in the Central segment, together with central costs of senior
management, finance, middle office, IT development, HR, marketing and other support functions. As the Group manages risk and hedges
on a group-wide portfolio basis, the following segmental revenue analysis involves the use of an attribution methodology. Interest income
and expense on segregated client funds is managed and reported to the CODM centrally and thus has been reported in the Central
segment. In the following analysis, the Central segment costs have been further allocated to the other reportable segments based on
segment trading revenue, in order to provide segment EBITDA.
4. Segment information (continued)
Year ended 31 May 2010
Segment trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Betting duty
Net operating income
Segment contribution (1)
Allocation of central costs
Segment EBITDA (2)
UK
£000
Australia
£000
168,477
-
168,477
-
(4,298)
45,660
-
45,660
-
-
Europe
£000
47,431
-
47,431
-
-
Japan
£000
23,946
-
23,946
-
-
Rest of
World
£000
13,037
-
13,037
-
-
Central
£000
-
5,791
5,791
(321)
-
Total
£000
298,551
5,791
304,342
(321)
(4,298)
164,179
45,660
47,431
23,946
13,037
5,470
299,723
135,543
35,226
29,803
10,662
5,761
(51,054)
165,941
(28,810)
(7,808)
(8,111)
(4,095)
(2,230)
51,054
-
106,733
27,418
21,692
6,567
3,531
Depreciation and amortisation
(3,520)
(982)
(855)
(19,237)
(1,309)
Amounts written off, property, plant and equipment
Operating profit
Net finance revenue
Profit before taxation
-
-
165,941
(25,903)
(49)
139,989
352
140,341
(1) Segment contribution includes exceptional items of £4,874,000 disclosed in note 6 which relate to the UK (£2,958,000) and Central (£1,916,000) segments.
(2) EBITDA represents operating profit before depreciation, amortisation of intangible assets, amortisation and impairment of intangibles arising on consolidation and amounts written
off property, plant and equipment and intangible assets.
75 | IG Group Holdings plc | Annual Report 2010
76
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
4. Segment information (continued)
Year ended 31 May 2009
Segment trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Betting duty
Net operating income
Segment contribution
UK
£000
Australia
£000
Europe
£000
Japan (2)
£000
159,304
-
159,304
-
(7,223)
27,945
-
27,945
-
-
30,170
-
30,170
-
-
27,926
-
27,926
-
-
Rest of
World
£000
11,744
-
11,744
-
-
Central
£000
-
12,888
12,888
(5,288)
-
Total
£000
257,089
12,888
269,977
(5,288)
(7,223)
152,081
27,945
30,170
27,926
11,744
7,600
257,466
108,583
20,246
16,232
15,166
3,985
(33,126)
131,086
Allocation of central costs
(20,527)
(3,601)
(3,887)
(3,598)
(1,513)
33,126
-
Segment EBITDA (1)
88,056
16,645
12,345
11,568
2,472
Depreciation and amortisation
(4,374)
(472)
(361)
(15,186)
(606)
Amounts written off property, plant and equipment
Operating profit
Net finance revenue
Profit before taxation
-
-
131,086
(20,999)
(37)
110,050
1,209
111,259
(1) EBITDA represents operating profit before depreciation, amortisation of intangible assets, amortisation and impairment of intangibles arising on consolidation
and amounts written off property, plant and equipment and intangible assets.
(2) Results for the Japanese segment include the results of FXOnline Japan KK from the date of acquisition (2 October 2008).
5. Operating profit
This is stated inclusive of exceptional items and after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of intangible assets
Amortisation of intangible assets arising on consolidation
Operating lease rentals for land and buildings
(Recovery) / impairment of trade receivables
Foreign exchange differences
Advertising and marketing
Property, plant and equipment written off
Group
2010
£000
2009
£000
6,175
2,430
17,298
6,738
(1,064)
(522)
27,297
49
5,402
984
14,613
3,385
18,168
735
23,682
36
All of the above, except foreign exchange differences are included in administrative expenses within the Income Statement. Foreign
exchange differences are included in revenue.
6. Exceptional items
In the year to 31 May 2010, exceptional items have been incurred by the Group and reported within operating profit in relation to the
pending relocation of the Group’s London headquarters. No exceptional items were reported in the year ended 31 May 2009.
Exceptional items included in operating profit
Onerous lease provision for excess office space (1)
Double premises costs and dilapidations on London offices (2)
Accelerated depreciation (3)
Total exceptional items
Tax credit on exceptional items
Total exceptional items after tax
2010
£000
3,156
1,266
452
4,874
(1,365)
3,509
(1) The excess office space results from the overlap of the lease period for the new London headquarters with that of the Group’s existing London premises. Refer to note 22 for futher
information.
(2) Double premises costs including rent, rates and service charges were paid in the year for both the existing and new London offices.
(3) Accelerated depreciation of leasehold improvements and other assets that are obsolete post the Group’s London headquarters move.
77 | IG Group Holdings plc | Annual Report 2010
78
9. Finance revenue
Interest receivable from brokers
Interest receivable from clients
Bank interest receivable
10. Finance costs
Interest payable to clients
Interest payable to brokers
Bank interest payable
Dividend on redeemable preference shares
Other charges
Group
2010
£000
2009
£000
(restated)
406
509
1,749
2,664
710
1,285
892
2,887
Group
2010
£000
2009
£000
(restated)
168
163
68
3
1,910
2,312
-
599
150
3
926
1,678
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
7. Auditors’ remuneration
Audit fees
Group audit
Other fees to auditors:
Statutory and regulatory audit of subsidiaries of the Company pursuant to legislation
Additional costs in relation to the prior year statutory and regulatory audit of subsidiaries of the Company
Other services supplied pursuant to legislation
All other services
8. Staff costs
The staff costs for the year including Directors were as follows:
Wages and salaries
Social security costs
Other pension costs
Group
2010
£000
311
187
-
11
13
211
2009
£000
352
173
21
17
61
272
Group
2010
£000
2009
£000
61,662
6,629
3,763
46,015
5,008
3,059
72,054
54,082
Staff costs 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
Group
2010
£000
2009
£000
22,333
4,782
10,661
3,256
27,115
13,917
The Directors’ emoluments for the year ended 31 May 2010 and the comparative year can be found in the Directors’ Remuneration Report
on page 48.
The average monthly number of employees was made up as follows:
Dealing, sales and client support
Management and administration including IT
Group
2010
Number
2009
Number
529
299
828
464
297
761
79 | IG Group Holdings plc | Annual Report 2010
80
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
11. 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 11(b))
11. taxation (continued)
(c) Deferred income tax assets
The deferred income tax assets included in the Statement of Financial Position are as follows:
Decelerated capital allowances
Tax losses available for offset against future tax
Doubtful debt provision
Share-based payments
Other
Group
2010
£000
1,693
6,401
600
4,282
1,288
14,264
2009
£000
1,345
2,699
675
2,388
455
7,562
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 sufficient future operating profits in those entities. A deferred tax asset is recognised where it is considered to
be probable 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.
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 assets included in the Statement of Financial Position is as follows:
Group
2010
£000
2009
£000
46,797
2,175
916
30,895
4,578
2,391
49,888
37,864
(11,033)
(5,257)
38,855
32,607
(b) Reconciliation of the total tax charge
The tax expense in the Income Statement for the year is marginally lower than the standard rate of corporation tax in the UK of 28% (2009: 28%).
The differences are reconciled below:
Accounting profit before income tax
Accounting profit multiplied by the UK standard rate of corporation tax of 28% (2009: 28%)
Expenses not deductible for tax purposes
Lower taxes on overseas earnings
Adjustment in respect of prior years
Total tax expense reported in the Income Statement
The effective tax rate is 27.7% (2009: 29.3%).
2010
£000
2009
£000
140,341
111,259
39,295
1,844
(3,200)
916
31,153
309
(1,246)
2,391
38,855
32,607
At the beginning of the year
Income Statement credit / (charge)
Tax credited / (debited) directly to equity
Acquired on acquisition
Foreign currency adjustment
At the end of the year
Group
2010
£000
7,562
3,768
2,861
-
73
2009
£000
8,053
(880)
(1,730)
1,719
400
14,264
7,562
81 | IG Group Holdings plc | Annual Report 2010
82
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
11. taxation (continued)
(d) Deferred income tax liabilities
The deferred income tax liabilities included in the Statement of Financial Position are as follows:
At the beginning of the year
Acquisition of a subsidiary
Foreign currency adjustment
Income Statement charge
At the end of the year
Group
2010
£000
2009
£000
16,740
-
1,988
(7,265)
-
18,257
4,620
(6,137)
11,463
16,740
A deferred tax liability of £18.3 million was recognised in the year ended 31 May 2009 in respect of separately identifiable intangible assets
arising on the acquisition of FXOnline. This decreased by £1.5 million to 31 May 2009 (£6.1 million reduction as a result of the amortisation
of the underlying intangibles less £4.6 million foreign currency translation gain). This decreased by a further £5.3 million to 31 May 2010
(£7.3 million reduction as a result of the amortisation of the underlying intangibles less £2.0 million foreign currency translation gain).
(e) Deferred income tax – Income Statement charge
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
Doubtful debt provision
Other
Amortisation of intangibles arising on acquisition
The deferred tax credited/(debited) to equity during the year is as follows:
Share-based payments
Group
2010
£000
2009
£000
348
3,702
(967)
(75)
760
7,265
528
1,940
(2,359)
675
(1,664)
6,137
11,033
5,257
2,861
(1,730)
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. taxation (continued)
(f ) Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the geographic location of the Group’s earnings, the transfer pricing policies,
the tax rates in those locations, changes in tax legislation, future planning opportunities, the use of brought forward tax losses and the
resolution of open tax issues.
The calculation of the Group’s total tax charge involves a degree of estimation and judgement with respect of the recognition of deferred
tax assets (refer to note 11(c)) and of certain items whose tax treatment cannot be finally determined until resolution has been reached
with the relevant tax authority. The Group holds tax provisions in respect of the potential tax liability that may arise on these unresolved
items, however, the amount ultimately paid may be materially lower than the amount accrued and could therefore improve the overall
profitability and cash flows of the Group in future periods.
12. Earnings per ordinary share
The Income Statement may only disclose basic and diluted EPS. The Group has also calculated an adjusted EPS measurement ratio as the
Directors consider it is the most appropriate measurement, since it better reflects the business’s underlying cash earnings.
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 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 ordinary
shares arising from share schemes. Adjusted earnings is based on earnings before amortisation and impairment of intangibles arising on
consolidation.
The following reflects the income and share data used in the earnings per share computations:
Earnings attributable to equity shareholders of parent
Amortisation and impairment of intangibles arising on consolidation net of tax and minority interests
Adjusted earnings
Weighted average number of shares
Basic and adjusted
Dilutive effect of share-based payments
Diluted
Earnings per share
Basic
Diluted
Basic adjusted
Diluted adjusted
Group
2010
£000
2009
£000
101,281
10,033
77,986
8,476
111,314
86,462
359,256,823 347,904,665
2,489,555
1,627,469
361,746,378 349,532,134
28.19p
28.00p
30.98p
30.77p
22.42p
22.31p
24.85p
24.74p
83 | IG Group Holdings plc | Annual Report 2010
84
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
13. dividends
Declared and paid during the year:
Final dividend for 2009 at 11.00p per share (2008: 9.00p)
Interim dividend for 2010 at 5.00p per share (2009: 4.00p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2010 at 13.50p per share (2009: 11.00p)
Company and Group
2009
£000
2010
£000
39,611
18,046
29,636
14,380
57,657
44,016
48,750
39,554
14. Property, plant and equipment
Group
Cost:
At 1 June 2008
Foreign currency adjustment
Additions
Acquisition of subsidiary
Written off
At 31 May 2009
Foreign currency adjustment
Additions
Written off
At 31 May 2010
Depreciation:
At 1 June 2008
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2009
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2010
Net book value - 31 May 2010
Net book value - 31 May 2009
Net book value - 1 June 2008
Leasehold
improvements
£000
Office
equipment,
fixtures
& fittings
£000
Computer
and other
equipment
£000
Assets in
the course of
construction
£000
5,905
166
2,102
204
(2)
8,375
179
624
(949)
8,229
1,742
24
1,390
-
3,156
128
2,245
(946)
4,583
3,646
5,219
4,163
706
53
469
127
(3)
1,352
(33)
304
(160)
1,463
107
7
233
(3)
344
141
293
(144)
634
829
1,008
599
12,927
565
2,549
1,158
(3,104)
14,095
550
1,569
(4,047)
12,167
7,865
116
3,779
(3,070)
8,690
323
3,637
(4,017)
8,633
3,534
5,405
5,062
Total
£000
19,538
784
5,120
1,489
(3,109)
23,822
696
4,120
(5,156)
23,482
9,714
147
5,402
(3,073)
12,190
592
6,175
(5,107)
13,850
-
-
-
-
-
-
-
1,623
-
1,623
-
-
-
-
-
-
-
-
-
1,623
9,632
-
-
11,632
9,824
Assets in the course of construction (AICC) represent the costs associated with the fit out of the Group’s new London headquarters. AICC
will be transferred to the appropriate asset class and depreciation commenced once the fit out is complete and the office available for use.
85 | IG Group Holdings plc | Annual Report 2010
86
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
15. Intangible assets
Intangible assets arising on
consolidation
Cost:
At 1 June 2008
Foreign currency adjustment
External purchases
Acquisition of subsidiary
Written off
At 31 May 2009
Foreign currency adjustment
External purchases
Written off
At 31 May 2010
Amortisation:
At 1 June 2008
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2009
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2010
Net book value - 31 May 2010
Net book value - 31 May 2009
Net book value - 1 June 2008
Client lists and
customer
relationships
£000
Trade
name
£000
Goodwill
£000
110,025
19,819
-
87,121
-
216,965
17,193
-
-
234,158
-
-
-
-
-
-
-
-
-
234,158
216,965
110,025
850
9,666
-
42,691
-
53,207
8,471
-
-
-
176
-
778
-
954
154
-
-
61,678
1,108
850
(1,114)
14,046
-
13,782
3,762
16,879
-
-
(47)
567
-
520
130
419
-
34,423
1,069
27,255
39,425
-
39
434
-
Intangible assets arising
from software
and licences
Development
costs
£000
Software
and
licences
£000
3,160
(5)
99
-
(2,357)
897
13
821
(843)
888
3,114
(1)
38
(2,357)
794
2
87
(841)
42
846
103
46
3,677
176
2,041
429
(436)
5,887
285
1,567
(1,142)
6,597
1,692
5
946
(436)
2,207
161
2,343
(1,144)
3,567
3,030
3,680
1,985
Total
£000
117,712
29,832
2,140
131,019
(2,793)
277,910
26,116
2,388
(1,985)
304,429
5,656
(1,157)
15,597
(2,793)
17,303
4,055
19,728
(1,985)
39,101
265,328
260,607
112,056
Customer relationships and trade name, acquired with FXOnline on 2 October 2008, are amortised on a sum of digits basis over five and
two years respectively.
16. Investment in subsidiaries
At cost:
At the beginning of the year
Investment relating to equity-settled share-based payments for subsidiary employees
Increase in investment in IG Group Limited
At the end of the year
The following companies are all owned directly or indirectly by IG Group Holdings plc:
Company
2010
£000
2009
£000
424,071
4,782
-
309,581
3,256
111,234
428,853
424,071
Name of Company
Subsidiary undertakings held directly:
IG Finance
IG Group Limited
IG Jersey Cashbox Limited
Subsidiary undertakings held indirectly:
IG Index Limited
IG Markets Limited
extrabet Limited
extrabet Financial Limited
IG Markets South Africa Limited
IG Australia Pty Limited
IG Asia Pte Limited
IG Markets Inc
North American Derivatives Exchange, Inc
FXOnline Japan KK
Market Data Limited
Market Risk Management Inc
IG Infotech (India) Private Limited
IG Nominees Limited
Country of
incorporation
Holding
Voting rights
Nature of business
UK
UK
Jersey
Ordinary shares
Ordinary shares
Ordinary shares
UK
UK
UK
UK
UK
Australia
Singapore
USA
USA
Japan
UK
USA
India
UK
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100% (1)
100%
100%
100%
100%
100%
100% (2)
100%
100%
100%
100%
87.5%
100%
100%
100%
100%
Financing
Holding company
Dormant
Spread betting
Margin trading and foreign exchange
Spread betting and fixed odds bookmaker
Fixed odds bookmaker
Margin trading
Australia sales and marketing office
Margin trading and foreign exchange
Futures broker and USA sales office
Exchange
Margin trading and foreign exchange
Data distribution
Market maker
Software development
Nominee company
(1) IG Group Limited’s preference shares are 100% held within the IG Group of companies.
(2) On completion of the acquisition of the business of Ideal CFD Financial Services Pty Limited (see note 16(b)) the Group’s ownership interest will reduce to 80%.
87 | IG Group Holdings plc | Annual Report 2010
88
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
16. Investment in subsidiaries (continued)
Subsidiary undertakings held indirectly (continued):
Name of Company
IG Finance Two
IG Finance Three
IG Finance Four
IG Finance Five Limited
IG Finance Six Limited
IG Finance Seven Limited
IG Finance Eight Limited
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings Limited
IG US Holdings Inc
Market Data Japan KK
IG Markets Japan KK
Blackfriars AG
Country of
incorporation
Holding
Voting rights
Nature of business
UK
UK
UK
UK
UK
UK
UK
Gibraltar
Gibraltar
Gibraltar
USA
Japan
Japan
Germany
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares (1)
Ordinary shares
Ordinary shares
Ordinary Shares
Ordinary Shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Holding company
Holding company
Holding company
Non-trading
Dormant
(1) Fox Japan Holdings Limited’s preference shares are 100% held within the IG Group of companies.
Employee Benefit Trusts:
IG Group Holdings plc Inland Revenue Approved Share Incentive Plan (UK Trust)
IG Group Limited Employee Benefit Trust (Jersey Trust)
16(a) Acquisition of FXOnline Japan KK
On 2 October 2008, the Group acquired 87.5% of the issued share capital of FXOnline Japan KK (FXOnline), a leading privately owned
Japanese online retail FX provider, for a total consideration of ¥22.2 billion (£117.6 million). The Group also has a call option to acquire the
remaining 12.5% of the issued share capital exercisable from January 2011 according to a pre-agreed formula that is linked to the future
performance of FXOnline.
Goodwill of £87.1 million arose on the acquisition of FXOnline relating to certain intangible assets that cannot be individually separated
and reliably measured and includes the future growth potential of the business. There has not been an amendment to the fair value of the
acquired assets in the year ended 31 May 2010 in relation to this acquisition.
16(b) Acquisition of the client list and business of Ideal CFD Financial Services Pty Limited
On 19 July 2010, IG Markets South Africa Limited (IGSA), a subsidiary of the Group, reached agreement to acquire the client list and
business of Ideal CFD Financial Services Pty Limited (Ideal), a South African based introducing broker of the Group for £1.6 million,
payable in cash. The Group has a call option, and the vendor a put option over the 20% of IGSA that transferred to the vendor of Ideal on
completion, exercisable in January 2013, based on a multiple of eight times average pro forma annual post-tax profits of IGSA over the
period from completion to 30 November 2012, subject to a cap.
17. Impairment of goodwill
Goodwill has been allocated for impairment testing purposes to the cash-generating units (CGUs), as follows:
Cash-generating unit
UK - Financial
UK - Sport
Australia - Financial
US - Nadex
Japan - FXOnline
Group
2010
£000
2009
£000
(restated)
100,012
5,250
934
5,226
122,736
100,012
5,250
934
4,690
106,079
234,158
216,965
Goodwill arising on the purchase of IG Group plc by IG Group Holdings plc on 5 September 2003 of £105,262,000 was previously
allocated according to the profitability of the Financial and Sport CGUs at that date. On adoption of IFRS 8, the Group has reviewed
the identification of the CGUs. The Financial CGU previously identified with goodwill of £100,946,000 is considered to relate to the UK -
Financial and Australia - Financial segments identified under IFRS 8 and had been restated accordingly. Goodwill disclosed as Australia
– Financial arose on the acquisition of the minority interest in IG Australia in the year ended 31 May 2006. Goodwill arising on the
acquisitions of each of Nadex (formerly HedgeStreet) and FXOnline has been allocated to the separate US and Japanese CGUs respectively,
as these businesses generate largely independent cash flows.
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.
The estimated recoverable amount of each CGU is based on value-in-use calculated as the total of the present value of projected five-year
future cash flows and a terminal value.
89 | IG Group Holdings plc | Annual Report 2010
90
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
17. Impairment of goodwill (continued)
Key assumptions used in value-in-use calculations
The calculation of value-in-use for the CGUs is most sensitive to the following assumptions:
Growth rates used to extrapolate cash flows beyond the four-year plan period (2009: three-year period)
The discount rate
The long-term growth rate used for the terminal value calculation
Client recruitment rates
Average revenue per client
Projected future cash flows for each CGU were based on the Board approved four-year plan (2009: three-year period) comprising a one-year
budget and three-year forecast (2009: two-year forecast) which reflect past experience as well as future expected trends. Cash flows beyond
the relevant plan period were estimated using a range of Board approved subsequent growth rates in order to allow for differing growth
scenarios. This methodology is consistent with that used for the 31 May 2009 year-end impairment review. These ranges are disclosed in the
table below and are consistent with the long-term growth rates of the Group’s businesses measured over a five-year period.
The cash flows for the US and Japanese CGUs were translated into sterling using period end exchange rates.
The cash flows were discounted using pre-tax discount rates as disclosed in the table below. These were derived using region specific,
market-based cost of equity and debt assumptions in order to reflect both the financing cost and risk associated with each CGU. The long-
term growth rates (g) used in the terminal value calculations are disclosed below and are equivalent to, or lower than the respective long-term
growth rate for the economy in which the CGU operates.
Cash-generating unit
Financial (UK and Australia)
Sport
US
Japan
2010
2009
Discount
rate
Discount
rate
2010
Years 4-5
growth
rate
2009
Years 3-5
growth
rate
12.3%
12.3%
17.7%
16.6%
15.0%
15.0%
19.8%
17.5%
4%
2%
20%
12%
4-8%
0-5%
15-30%
5-10%
2010
2009
g
2.0%
2.0%
2.5%
1.5%
g
2.0%
2.0%
3.0%
1.5%
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.
On the basis of the results of the above analysis there was no impairment of goodwill during the year.
Sensitivity to changes in assumptions
The Directors have performed a sensitivity analysis around the cash flow assumptions and have concluded that no reasonably possible
change in key assumptions would cause the carrying amount of any CGU to exceed its recoverable amount.
18. trade receivables
Amounts due from brokers
Amounts due from clients
19. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Own cash and title transfer funds (1)
Segregated client funds (2)
Total cash and cash equivalents
Group
2010
£000
2009
£000
203,714
2,529
178,261
4,824
206,243
183,085
Group
2010
£000
2009
£000
123,674
4,423
95,560
3,847
128,097
99,407
550,467
421,014
678,564
520,421
Company
2010
£000
8
-
8
-
8
2009
£000
122
-
122
-
122
(1) Title transfer funds are held by the Group under a Title Transfer Collateral Arrangement (TTCA) by which a client agrees that full ownership of such monies is unconditionally
transferred to the Group.
(2) Segregated client funds comprise retail client funds held in segregated client money accounts or money market facilities established under the UK’s Financial Services
Authority (FSA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates.
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.
Net interest income on segregated client funds amounted to £5,470,000 (2009: £7,600,000).
Undrawn committed borrowing facilities amounted to £160 million (2009: £120 million) at the year-end.
20. trade payables
Amounts due to clients
Group
2010
£000
2009
£000
608,140
511,656
91 | IG Group Holdings plc | Annual Report 2010
92
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
21. Other payables
Accruals
Other taxes and social security
Amounts due to group companies (note 32)
Dividends on redeemable preference shares
22. Provisions
At the beginning of the year
Income Statement charge
At the end of the year
Current
Non-current
Total
Group
2010
£000
2009
£000
43,450
1,372
-
3
26,131
1,192
-
3
Company
2010
£000
2,492
-
570,781
3
2009
£000
962
-
119,077
3
44,825
27,326
573,276
120,042
Group
2010
£000
-
3,156
3,156
1,377
1,779
3,156
The provision held as at 31 May 2010 represents the Group’s obligations for onerous lease commitments arising from the move of the
Group’s London headquarters less amounts considered recoverable by management through potential sublet income. The actual cost of
the onerous leases could differ from the estimates made. The provision will be utilised over the remaining term of the Group’s existing
London office leases.
23. Redeemable preference shares
Authorised:
Preference shares of £1 each
Allotted, called up and fully paid:
Preference shares of £1 each
Company and Group
2009
£000
2010
£000
40
40
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% (2009: 8%).
93 | IG Group Holdings plc | Annual Report 2010
94
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
24. 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:
(i) Ordinary shares (0.005p)
At 1 June 2008
Issued during year (net of issue costs)
At 31 May 2009
Issued during year (net of issue costs)
At 31 May 2010
(ii) B shares (0.001p)
At 31 May 2009 and 31 May 2010
Company and Group
2009
£000
2010
£000
25
-
25
25
-
25
Number of
shares
Ordinary
share
capital
£000
Share
premium
£000
327,500,959
32,083,377
359,584,336
1,524,127
361,108,463
65,000
16
2
18
-
18
-
125,235
81,011
206,246
-
206,246
-
During the year to 31 May 2010, 1,524,127 ordinary shares with an aggregate nominal value of £76 were issued following the exercise of
Long-Term Incentive Plan awards for a consideration of £76.
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.
25. 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:
1,217,574 (2009: 1,172,840) ordinary shares of 0.005p each
Purchased during the year:
59,682 (2009: 79,345) ordinary shares of 0.005p each
Exercised during the year:
142,815 (2009: 34,611) ordinary shares of 0.005p each
At the end of the year:
1,134,441 (2009: 1,217,574) ordinary shares of 0.005p each
Company and Group
2009
£000
2010
£000
962
704
175
258
(164)
-
973
962
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 2010, 614,560 ordinary shares (2009: 702,333) were held in the trust
and at the year-end have reduced shareholders’ equity by £946,952 (2009: £952,699). These include 221,019 ordinary shares (2009: 201,719)
which were not allocated to employees and are available for future SIP awards. The market value of the shares held conditionally at the
statement of financial position date was £2,335,942 (2009: £1,587,273).
The Group has a Jersey resident Employee Benefit Trust which holds shares in the Company. At the statement of financial position date,
the trust held 512,075 (2009: 512,075) ordinary shares which are available to satisfy awards under the SIP and LTIP schemes. The shares
held at the statement of financial position date have reduced shareholders’ equity by £26 (2009: £26). The market value of the shares held
conditionally at the statement of financial position date was £1,946,397 (2009: £1,157,290).
The Group has an Australian resident Employee Equity Plan Trust in order to hold shares in the Company in respect of awards under a share
incentive plan (SIP). At 31 May 2010, 7,806 ordinary shares (2009: 3,166) were held in the trust and at the statement of financial position
date have reduced shareholders’ equity by £26,052 (2009: £9,004). These include nil ordinary shares (2009: nil) which were not allocated to
employees and are available for future SIP awards. The market value of the shares held conditionally at the statement of financial position
date was £29,671 (2009: £7,155).
Upon flotation of the Company on 4 May 2005, 5,861,497 ordinary shares and cash of £2.4 million 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 2010, 2,994 (2009: 777) B shares were sold by B shareholders to the Trust. The Trust sold 365,162 (2009:
94,767) ordinary shares in order to realise the funds necessary to purchase these B shares. The Trust unconditionally held 62,605 (2009:
59,611) B shares at the statement of financial position date. The Trust also held 2,395 (2009: 5,389) B shares and 292,105 (2009: 657,267)
ordinary shares which it may sell in order to satisfy its obligations to B shareholders, all of whom are current or former employees.
95 | IG Group Holdings plc | Annual Report 2010
96
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
26. Other reserves
The share-based payment reserve relates to the estimated cost of equity-settled employee share plans based on a straight-line basis over
the vesting period and the associated credit for the excess of the tax deduction for employee share-based payments over the amounts
charged to the Income Statement. The foreign currency translation reserve includes amounts in relation to the translation of overseas
subsidiaries.
Group
At 1 June 2008
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based payments recognised directly in
equity (note 11(c))
Foreign currency translation on overseas subsidiaries
Purchase of treasury shares
At 31 May 2009
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based payments recognised directly in
equity (note 11(c))
Foreign currency translation on overseas subsidiaries
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of treasury shares
At 31 May 2010
Share-
based
payments
Note 27
£000
12,280
3,256
(1,730)
-
-
13,806
4,782
2,861
-
(164)
(16)
-
21,269
Foreign
currency
translation
£000
-
-
-
32,437
-
32,437
-
-
27,009
-
-
-
59,446
Own shares
held in
Employee
Benefit
Trusts
Note 25
£000
(704)
-
-
-
(258)
(962)
-
-
-
164
-
(175)
(973)
Total
other
reserves
£000
11,576
3,256
(1,730)
32,437
(258)
45,281
4,782
2,861
27,009
-
(16)
(175)
79,742
26. Other reserves (continued)
Company
At 1 June 2008
Equity-settled employee share-based payments
Purchase of treasury shares
At 31 May 2009
Equity-settled employee share-based payments
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of treasury shares
At 31 May 2010
Share-
based
payments
Note 27
£000
Own shares
held in
Employee
Benefit
Trusts
Note 25
£000
8,106
3,256
-
11,362
4,782
(164)
(16)
-
15,964
(704)
-
(258)
(962)
-
164
-
(175)
(973)
Total
other
reserves
£000
7,402
3,256
(258)
10,400
4,782
-
(16)
(175)
14,991
97 | IG Group Holdings plc | Annual Report 2010
98
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
27. Employee share plans
The Company operates two employee share plans: a Share Incentive Plan (SIP) and a Long-Term Incentive Plan (LTIP), both of which are
equity-settled. The expense recognised in the Income Statement in respect of share-based payments was as follows:
Equity-settled share-based payment schemes
Group
2010
£000
4,782
4,782
2009
£000
3,256
3,256
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 the Group 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.
All UK employees, except Executive Directors, are invited to participate in the SIP. The award made in May 2005 awarded a total of
94,267 free shares which vested immediately, and a further 470,758 additional free shares which vested after three years. Awards made
subsequent to this date invited all UK employees to subscribe for up to £1,500 of partnership shares, which the Company offered to
match on a one-for-one basis up to a maximum of £1,500, except for the award in August 2006, which was on a two-for-one basis, up to a
maximum of £3,000. All matching shares vest after three years.
On 22 July 2009, the Company invited all UK employees to subscribe for up to £1,500 of partnership shares when the share price was
£2.88. The Group offered to match every partnership share with one matching share up to a maximum of £1,500. The matching shares vest
after three years.
SIP awards made to non-UK staff
On 27 January 2009, the Company invited all Australian employees to subscribe for up to A$3,000 of partnership shares when the share
price was £2.84. The Group offered to match every partnership share with one matching share up to a maximum of A$3,000. The matching
shares vest after three years.
On 9 February 2010, the Company invited all Australian employees to subscribe for up to A$3,000 of partnership shares when the share
price was £3.67. The Group offered to match every partnership share with one matching share up to a maximum of A$3,000. The matching
shares vest after three years.
A SIP for USA employees was implemented during the year. Each scheme runs for six months, with the employees investing a maximum of
5% of salary into the plan. At the end of each scheme, the employees are invited to purchase shares in IG Group Holdings plc at a discount
of 15% to the scheme price, which is the lower of the opening price of the period and the closing price. The schemes in the year ran from
1 June 2009 to 30 November 2009 and from 1 December 2009 to 31 May 2010.
LTIP awards
LTIPs allow the award of nil cost or nominal cost shares which are legally classified as options. 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 diluted adjusted earnings per share over the three-year vesting period and also for awards granted after 1 June 2007, share
price growth over a defined six week period. 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 48 to 56.
On 16 May 2005 awards were made to staff, conditional upon growth in normalised earnings per share in the three years to 31 May 2008.
These awards vested on 21 July 2008.
27. Employee share plans (continued)
On 7 August 2006, awards were made to staff, conditional upon growth in diluted adjusted earnings per share in the three years to
31 May 2009. A further award was made on 4 October 2006. These awards vested on 21 July 2009.
On 23 July 2007, awards were made to staff, conditional upon growth in diluted adjusted earnings per share in the three years to
31 May 2010 and upon growth in the IG Group Holdings plc share price between the average over the six weeks ending 31 May 2007 and
the average over the six weeks ending 31 May 2010. The share price growth over this period was 27.8%, resulting in 6.9% of awards vesting.
Further awards were made on 14 August 2007, 21 August 2007, and 31 January 2008. Awards vest three years from the date of grant.
On 30 September 2008, awards were made to staff, conditional upon growth in diluted adjusted earnings per share in the three years to
31 May 2011 and upon growth in the IG Group Holdings plc share price between the average over the six weeks ending 21 October 2008
and the average over the six weeks ending 31 May 2011. These awards will vest on 30 September 2011, subject to performance conditions.
On 25 September 2009, when the share price was 318.80p, awards were made to staff, conditional upon growth in diluted adjusted
earnings per share in the three years to 31 May 2012 and upon growth in the IG Group Holdings plc share price between the average over
the six weeks ending 31 May 2009 and the average over the six weeks ending 31 May 2012. The awards will vest on 25 September 2012,
subject to performance conditions.
The maximum numbers of shares that vest based on the awards made are as follows:
Type of award
SIP
LTIP
LTIP
SIP
LTIP
SIP
LTIP
LTIP
LTIP
LTIP
SIP
LTIP
SIP
SIP
LTIP
SIP
Share
price at
award
Expected
vesting date
At the start
of the year
No.
Awarded
during the
year
No.
Lapsed
during the
year
No.
Exercised
during the
year
No.
At the end
of the year
No.
120.0p
112.25p
217.0p
237.61p
261.75p
336.09p
312.25p
311.0p
304.0p
364.0p
328.0p
313.75p
284.0p
288.0p
318.80p
367.0p
04 May 2008
21 Jul 2008
07 Aug 2009
24 Aug 2009
04 Oct 2009
23 Jul 2010
23 Jul 2010
14 Aug 2010
21 Aug 2010
31 Jan 2011
22 Jul 2011
30 Sep 2011
27 Jan 2012
22 Jul 2012
25 Sep 2012
09 Feb 2013
199,051
763,418
1,036,730
172,832
427,143
53,966
2,337,342
30,547
100,428
45,610
75,265
3,132,290
3,166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
55,042
3,871,154
4,640
–
–
(374,968)
(1,262)
(215,855)
(4,391)
(197,758)
–
–
–
(7,913)
(129,890)
–
(5,734)
(90,182)
–
(79,237)
(722,752)
(657,725)
(49,296)
(143,649)
(6,690)
–
–
–
–
(6,550)
–
–
(1,042)
–
–
119,814
40,666
4,037
122,274
67,639
42,885
2,139,584
30,547
100,428
45,610
60,802
3,002,400
3,166
48,266
3,780,972
4,640
Award date
04 May 2005
16 May 2005
07 Aug 2006
24 Aug 2006
04 Oct 2006
23 Jul 2007
23 Jul 2007
14 Aug 2007
21 Aug 2007
31 Jan 2008
22 Jul 2008
30 Sep 2008
27 Jan 2009
22 Jul 2009
25 Sep 2009
09 Feb 2010
Year ended 31 May 2010
Year ended 31 May 2009
8,377,788
3,930,836
(1,027,953)
(1,666,941)
9,613,730
10,245,447
3,211,635
(788,214)
(4,291,080)
8,377,788
The weighted average fair values of the awards made were as follows:
Year ended 31 May 2010
Year ended 31 May 2009
At the beginning
of the year
Awarded
during the
year
Lapsed
during the
year
Exercised
during the
year
At the end
of the year
212.24p
221.97p
227.07p
158.79p
223.90p
167.94p
182.36p
123.14p
100.47p
212.24p
99 | IG Group Holdings plc | Annual Report 2010
100
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
27. Employee share plans (continued)
Liability for cash-settled awards
The carrying amount of the liability for the cash-settled Shadow SIP scheme at 31 May 2010 is £nil (2009: £nil). The amount of cash-settled
awards which were exercised in the year to 31 May 2010 was £nil (2009: £143,344). No awards were granted in the year (2009: nil).
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 £8,725,451 (2009: £5,856,709) 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 for awards granted in the year ended 31 May 2008, were legally
categorised as options and the fair value was calculated using a Black-Scholes option pricing model using the inputs below.
LTIP awards made in the year ended 31 May 2009 and 2010 are under two performance conditions. For those awards under earnings
per share, 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. For those awards under the share price criteria, the fair value was calculated using a Monte-Carlo pricing
model using the inputs below.
Grant date
Share price at grant date (pence)
Expected life of awards (years)
Risk-free Sterling interest rate (%)
Expected volatility (%)
Expected dividend yield (%)
16 May
2005
112.25p
3.18
5.00
34
3.73
7 Aug
2006
217.00p
2.97
5.00
32
3.04
23 July
2007
312.25p
3.00
5.75
32
3.42
30 Sept
2008
25 Sept
2009
313.75p
3.00
4.06
40
5.50
318.80p
3.00
1.91
56
4.71
28. Capital commitments
Capital expenditure contracted for at the year-end but not yet incurred is as follows:
Property, plant and equipment
Intangible assets
Group
2010
£000
2009
£000
6,611
220
6,831
347
299
646
Capital commitments for property, plant and equipment at 31 May 2010 primarily relate to the costs associated with the fit out of the
Group’s new London headquarters.
The Company had no capital commitments at 31 May 2010 (2009: £nil).
29. Obligations under leases
Operating lease agreements
The Group and Company have 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:
Group
Future minimum payments due:
Not later than one year
After one year but not more than five years
After more than five years
Company
Future minimum payments due:
Not later than one year
After one year but not more than five years
After more than five years
2010
£000
3,003
10,636
14,770
2009
£000
2,739
8,168
5,653
28,409
16,560
2010
£000
2009
£000
-
2,343
10,353
12,696
-
-
-
-
101 | IG Group Holdings plc | Annual Report 2010
102
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
30. Contingent liabilities
At 31 May 2010, the Group or Company had no contingent liabilities (2009: nil).
31. transactions with directors
The Group had no transactions with its Directors other than those disclosed in the Directors’ Remuneration Report on pages 48 to 56.
32. Related party transactions
32(a) Group
During the year, fees amounting to £30,000 (2009: £30,000) were paid to CVC Capital Partners Limited relating to the services of Robert
Lucas as a Director of IG Group Holdings plc. Funds managed or advised by CVC Capital Partners Limited or its affiliates held 3.86% of the
ordinary share capital of the Company at 31 May 2010 (2009: 8.40% 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 48 to 56 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
2010
£000
2,966
210
1,671
4,847
2009
£000
1,551
188
940
2,679
There were no further related party transactions during the year or the preceding year.
32(b) Company
The Company pays for certain expenses incurred by subsidiaries and received preference dividends from IG Group Limited of £83 million
(2009: £54 million).
The Company had the following amounts outstanding with subsidiaries at the year-end:
Loans to related parties
Loans from related parties
All amounts remain outstanding at the statement of financial position date and are repayable on demand.
2010
£000
2009
£000
575,823
570,781
96,569
119,077
33. Financial instruments
Accounting classifications and fair values - Group
The table below sets out the classification of each class of financial assets and liabilities and their fair values (excluding accrued interest).
The Group considers the carrying value of all financial assets and liabilities to be a reasonable approximation of fair value and represents
the Group’s maximum credit exposure without taking account of any collateral held or other credit enhancements.
‘Cash and cash equivalents’ represent cash held on demand and on deposit with financial institutions.
‘Trade receivables - due from brokers’ represent balances with brokers where the combination of cash held on account (disclosed
as loans and receivables) and the valuation of financial derivative open positions (disclosed as held for trading) results in an amount
due to the Group. These positions are held to hedge client market exposures and hence are considered to be held for trading and are
accordingly accounted for at fair value through profit and loss (FVTPL). These transactions are conducted under terms that are usual and
customary to standard margin trading activities and are reported net in the consolidated statement of financial position as the Group
has both the legal right and intention to settle on a net basis.
‘Trade receivables - due from clients’ represent balances owed to the Group by clients. Open client positions that are neither past
due nor impaired are disclosed as held for trading, while receivables in respect of closed client positions are disclosed as loans and
receivables.
‘Trade payables - due to clients’ represent balances where the combination of client cash held on account (disclosed as loans and
receivables) and the valuation of financial derivative open positions (disclosed as held for trading) results in an amount payable by the
Group. Trade payables – due to clients are reported net in the consolidated statement of financial position as the Group has both the
legal right and intention to settle on a net basis.
‘Redeemable preference shares’ are disclosed in note 23.
Classification of financial instruments:
Group
As at 31 May 2010
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Non-exchange traded instruments
Exchange-traded instruments
Total trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Redeemable preference shares
FVTPL -
Held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
Fair value
£000
-
678,564
(21,647)
1,263
(20,384)
1,143
199,694
24,404
224,098
1,386
(19,241)
904,048
(170,010)
-
778,150
-
(170,010)
778,150
-
-
-
-
-
-
-
40
40
678,564
678,564
178,047
25,667
203,714
2,529
178,047
25,667
203,714
2,529
884,807
884,807
608,140
40
608,140
40
608,180
608,180
103 | IG Group Holdings plc | Annual Report 2010
104
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
33. Financial instruments (continued)
Accounting classifications and fair values - Group (continued)
33. Financial instruments (continued)
Accounting classifications and fair values - Group (continued)
Financial instrument valuation hierarchy
The fair value of cash and cash equivalents held by the Group and the cash element of the trade receivables and trade payables
approximates to the book value due to the short-term maturity of these balances and is therefore excluded from the following table.
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
Group
As at 31 May 2009
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Non-exchange traded instruments
Exchange-traded instruments
Total trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Redeemable preference shares
FVTPL -
Held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
Fair value
£000
-
520,421
(18,720)
634
(18,086)
1,466
124,973
71,374
196,347
3,358
(16,620)
720,126
(121,800)
-
633,456
-
(121,800)
633,456
-
-
-
-
-
-
-
40
40
520,421
520,421
106,253
72,008
178,261
4,824
106,253
72,008
178,261
4,824
703,506
703,506
511,656
40
511,656
40
511,696
511,696
Group
As at 31 May 2010
Financial assets
Trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Level 1 (1)
£000
Level 2 (2)
£000
Level 3 (3)
£000
1,263
-
(21,647)
1,143
1,263
(20,504)
-
-
(170,019)
(170,019)
-
-
-
9
9
Total fair
value
£000
(20,384)
1,143
(19,241)
(170,010)
(170,010)
(1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes the Group’s exchange-traded open hedging positions.
(2) Valued using techniques where a price is derived based significantly on observable market data. For example, where an active market for an identical financial instrument to
the product offered by the Group to its clients or used by the Group to hedge its market risk does not exist. This category includes all open financial client positions (excluding
binaries) and the Group’s open non-exchange traded instrument hedging positions.
(3) Valued using techniques that incorporate information other than observable market data that is significant to the overall valuation. This category includes the Group’s sport
and leisure bets and binary bets which are valued using a combination of inputs including historical data.
The amounts due from brokers disclosed in the table above represent the fair value of the Group’s open hedging positions. The fair
value of the Group’s open hedging position varies significantly from the fair value of the related client positions as a result of the Group’s
settlement terms with its brokers, whereby hedging positions are settled and re-opened on a more frequent basis than the underlying
client position.
There have been no changes in the valuation techniques for any of the Group’s financial instruments held at fair value in the period.
During the year ended 31 May 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or
out of Level 3 fair value measurements.
105 | IG Group Holdings plc | Annual Report 2010
106
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
33. Financial instruments (continued)
Accounting classifications and fair values - Group (continued)
Reconciliation of the movement in Level 3 of the valuation hierarchy
Group
Financial liabilities
Trade payables – due to clients
At 1 June
2009
£000
Gains or
losses in
revenue (1)
£000
Closed
positions (2)
£000
Transfers
£000
At 31 May
2010 (3)
£000
13
13
16,532
(16,536)
16,532
(16,536)
-
-
9
9
(1) Disclosed in trading revenue in the Income Statement. This represents client positions that have closed in the period as well those open at the period end.
(2) Value of client positions that have settled in the period.
(3) Value of open client positions at the period end disclosed in trading revenue in the Income Statement.
The impact of a reasonably possible alternative valuation assumption on the valuation of trade payables – due to clients reported within
Level 3 of the valuation hierarchy is not significant.
Accounting classifications and fair values - Company
The table below sets out the classification of each class of financial assets and liabilities and their fair values (excluding accrued interest):
Company
As at 31 May 2010
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
Fair value
£000
-
-
8
-
-
40
8
40
8
40
33. Financial instruments (continued)
Accounting classifications and fair values - Company (continued)
Company
As at 31 May 2009
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
Fair value
£000
-
-
122
-
-
40
122
122
40
40
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 £298,551,000 (2009:
£257,089,000).
Finance revenue (see note 9) totalled £2,664,000 (2009: £2,887,000). The entire amount represents interest income on financial assets not
at fair value through profit or loss and includes interest receivable in respect of non-segregated client balances, part of which is held with
brokers.
Finance costs (see note 10) totalled £2,312,000 (2009: £1,678,000). An amount of £1,399,000 represents interest expense on financial
liabilities not at fair value through profit or loss (2009: £751,000). The remainder, £913,000 (2009: £927,000) represents fee expense arising
from maintaining the Group’s committed bank facilities.
34. Financial risk management
The Group’s Internal Capital Adequacy Assessment Process (ICAAP) provides an ongoing assessment of the risks the Group believes have
the potential to have a significant detrimental impact on its financial performance and future prospects and describes how the Group
mitigates these risks subject to the Group’s risk appetite.
The Board sets the strategy and policies for the management of these risks and delegates the management and monitoring of these risks
to the Risk and Audit Committees.
Financial risks arising from financial instruments are analysed into market, credit, concentration and liquidity risks, and these are discussed
below.
(i) 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. This
is analysed into market price, currency and interest rate risk components.
The Group’s market risk is managed on a group-wide basis and exposure to market risk at any point in time depends primarily on short-
term market conditions and the levels of client activity. The Group does not take proprietary positions based on an expectation of market
movements. However, not all net client exposures are hedged and, as a result, the Group may have a residual net position in any of the
financial or sport markets in which it offers products.
The Group’s market risk policy incorporates a methodology for setting market position limits, consistent with the Group’s risk appetite, for
each financial market in which the Group’s clients can trade, as well as certain markets which the Board consider to be correlated. These
limits are determined based on the Group’s clients’ trading levels, volatilities and the market liquidity of the underlying financial product or
asset class and represent the maximum long and short client exposure that the Group will hold without hedging the net client exposure.
The Group’s real-time market position monitoring system allows it to continually monitor its market exposure against these limits. If
exposures exceed these limits, the Group’s market risk policy requires that sufficient hedging is undertaken to bring the exposure back
within the defined limit.
There is a significant level of ‘natural’ hedging arising from the Group’s global client base pursuing varying trading strategies which results
in a significant ‘portfolio hedging effect’. This effect reduces the Group’s net market exposure prior to the Group hedging any residual net
client exposures, as well as minimising concentration risk within the market risk portfolio.
107 | IG Group Holdings plc | Annual Report 2010
108
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
34. Financial risk management (continued)
The exposure to interest rate derivatives and commodities at the year-end is as follows:
Where the Group has positions in markets for which it has not been possible or cost-effective to hedge, the Risk Committee determines
the appropriate action and reviews these exposures regularly, subject to the risk management framework approved by the Board.
Interest rate derivatives
Commodities
2010
£000
8,381
4,999
2009
£000
2,805
5,509
Sport spread bets and binary bets (sport and financial) are typically 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 hedge specific 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.
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.
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 statement of financial position date may therefore not be 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.
a) Market price risk
This is the risk that the fair value of a financial instrument fluctuates as a result of changes in market prices other than due to the effect of
currency or interest rate risks.
Equity market price risk:
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. The equity exposure at the year-end 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
2010
£000
8,781*
16,500
15,813
2009
£000
8,868
15,000
15,000
* The average equity exposure for the year has been disclosed as this is considered more representative of the Group’s typical exposure than the year-end equity exposure of
£473,000.
The Group has no significant concentration of market risk.
No sensitivity analysis is presented for equity market price risk as the impact of reasonably possible market movements on the Group’s
revenue and equity are not significant being below the Group’s average daily revenue from financial instruments (2010: £1,148,000; 2009:
£989,000). 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.
Other market price risk:
The Group also has market price risk as result of its trading activities (offering bets and contracts for difference (CFDs) on interest rate
derivatives and commodities) which is hedged as part of the overall market risk management. The exposure is monitored on a Group-wide
basis and is hedged 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.
No sensitivity analysis is presented for other market price risk as the impact of reasonably possible market movements on the Group’s
revenue are not significant. Changes in risk variables have no direct impact on the Group’s equity as the Group has no financial
instruments designated in hedging relationships.
b) Foreign currency risk
The Group is exposed to two sources of foreign currency risk.
i) Translational foreign currency risk
Translation exposures arise from financial and non-financial items held by an entity with a functional currency different from the Group’s
presentation currency. The functional currency of each company in the Group is that denominated by the country of incorporation as
disclosed in note 16. The Group does not hedge translational exposures as they do not have a significant impact on the Group’s capital
resources.
ii) Transactional foreign currency risk
Transactional foreign currency exposures represent financial assets or liabilities denominated in currencies other than the functional
currency of the transacting entity. Transaction 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 Group monitors transactional foreign currency risks including currency statement of financial position 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 year-end was as follows:
US Dollar
Euro
Australian Dollar
Yen
Other
2010
£000
(1,778)
(1,596)
862
6,826
(3,859)
2009
£000
(2,095)
(98)
237
(209)
1,068
No sensitivity analysis is presented for foreign exchange risk as the impact of reasonably possible market movements on the Group’s
revenue are not significant. Changes in risk variables have no direct impact on the Group’s equity as the Group has no financial
instruments designated in hedging relationships.
109 | IG Group Holdings plc | Annual Report 2010
110
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
c) Non-trading interest rate risk
The Group also has interest rate risk relating to financial instruments not held at fair value through profit and loss. These exposures are not
hedged.
The interest rate risk profile of the Group’s financial assets and liabilities as at each year-end was as follows:
Group
Fixed rate
Redeemable preference shares (8%)
Floating rate
Cash and cash equivalents
Trade receivables
Trade payables
Within 1 year
2010
£000
2009
£000
More than 5 years
2009
£000
2010
£000
Total
2010
£000
2009
£000
-
-
(40)
(40)
(40)
(40)
678,564
206,243
(608,140)
520,421
183,085
(511,656)
-
-
-
-
-
-
678,564
206,243
(608,140)
520,421
183,085
(511,656)
276,667
191,850
(40)
(40)
276,627
191,810
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 within trade payables.
Interest rate risk sensitivity analysis
A non-traded interest rate risk sensitivity analysis has been performed on net interest income on segregated client funds on the basis of a
0.25% per annum fall and a 1.25% rise in interest rates at the beginning of the year. The impact of such a fall in interest rates would reduce
net interest income on segregated client funds by approximately £0.5 million per annum. The impact of such a rise in interest rates would
increase net interest income on segregated client funds by approximately £5.0 million per annum.
(ii) 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. The Group’s credit risk is managed on a group-wide basis.
The Group’s principal sources of credit risk are financial institution and client credit risk.
a) Financial institution credit risk
Financial institution credit risk is managed in accordance with the Group’s ‘Counterparty Credit Management Policy’.
Financial institutional counterparties are subject to a credit review when a new relationship is entered into and this is updated semi-
annually (or more frequently as required e.g. on change in the financial institution’s corporate structure or a downgrading of its credit
rating). Proposed maximum exposure limits for these financial institutions are then reviewed and approved by the Risk Committee and
exposures are reported against these limits on a daily basis.
As part of its management of concentration risk, the Group is also committed to maintaining multiple brokers for each asset class. Where
possible, the Group negotiates for its funds to receive client money protection which can reduce credit exposure.
In respect of financial institution credit risk, the following key metrics are monitored on a daily basis:
balances held with financial institution counterparties are reported against concentration limits approved by the Group’s Risk
Committee
any change in short- and long-term credit rating of financial institutions
any change in credit default swap (CDS) basis points spread specific to the financial institution
34. Financial risk management (continued)
It is the Group’s policy that all financial institutional counterparties holding client money accounts must have minimum Standard and
Poor’s short- and long-term ratings of A-2 and A- respectively. This is also the target minimum ratings for the Group’s bank accounts held
with financial institutions but not subject to ‘client money protection’, although, in some operating jurisdictions, it can be problematic to
find a banking counterparty satisfying these minimum ratings requirements. This risk is mitigated by ensuring balances held with these
counterparties are minimised.
The Group also actively manages the credit exposure to each of its broking counterparties by only keeping minimum required balances at
each broker.
In addition, deposits are typically made on an overnight basis only which enables the Group to react immediately to any downgrading of
credit rating or material widening of CDS spreads.
b) Client credit risk
The Group operates a real-time mark-to-market trading platform with client profits and losses being credited and debited automatically to
their account.
Client credit risk principally arises when a client’s total funds deposited with the Group (margin and free equity) are insufficient to cover
any trading losses incurred. In addition, a small number of clients are granted credit limits to cover open losses and margin requirements
as described below.
In particular, client credit risk can arise where there are significant, sudden movements in the market i.e. due to high general market
volatility or specific volatility relating to an individual financial instrument the client has an open position in.
The principal types of client credit risk exposure are managed under the Group’s ‘Client Credit Management Policy’ and depend on the
type of account and any credit offered to clients as follows:
Limited risk accounts
The Group’s products are margin-traded. If the market moves adversely by more than the client’s initial margin deposit, the Group is
exposed to client credit risk.
The Group mitigates this risk on some account and trade types by designating them as limited risk accounts. This involves setting a level in
advance at which the deal will be ‘closed-out’, meaning a maximum client loss can be calculated at the opening of the trade.
The maximum loss is then the amount the client is required to deposit to open the trade, meaning the client can never lose more than
their initial margin deposit. In further mitigation, a significant portion of the client base is managed on the Group’s ‘close-out monitor’ (see
below) and the client position will be closed-out if the initial margin is eroded by a specified percentage and the account is not re-funded
by the client.
Credit accounts
Clients holding other types of accounts are permitted to deal in circumstances where they may be capable of suffering losses greater than
the funds they have deposited 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 can offer credit limits with the result any ‘open loss’ can be paid subject to agreed credit terms. These accounts typically only
create a credit exposure when the client’s loss exceeds their initial margin deposit. A client has to deposit an initial margin when opening
the trade so the Group is not exposed to credit risk if the client closes the trade before any loss exceeds the initial margin deposit.
In addition to clients waiving paying some or all of any ‘open losses’ on a trade, the Group can also offer clients credit in respect of their
initial margin. This is a permanent waiving of initial margin requirements while the limit is active on the account subject to the credit limit.
Credit limits are only granted following provision by the client of evidence of their available financial resources and credit accounts limits
are continuously reviewed by the Group’s Credit Department.
The ‘close-out monitor’
The Group’s management of client credit risk is supported by a significantly automated liquidation process, the ‘close-out monitor’ (COM),
whereby accounts which have broken the liquidation threshold are automatically identified. This has resulted in significantly improved
client liquidation times and reduced credit risk exposure for the Group.
The majority of client positions are monitored on the Group’s real-time COM system or are limited risk accounts with guaranteed ‘stop-
losses’. As at 31 May 2010, 95.7% (2009: 93.7%) of financial client accounts are subject to the automatic COM procedure or are ‘limited risk’
accounts.
111 | IG Group Holdings plc | Annual Report 2010
112
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
(ii) Credit risk (continued)
The Group has an extensive training program for clients (‘TradeSense’) which aims to educate clients in all aspects of trading and risk
management and encourage them to collateralise their accounts at an appropriate level.
If the margin of a client who is not subject to COM liquidation process is eroded, the client is requested to deposit additional funds up to
at least the required margin level and may also be restricted from increasing their market positions. If subsequently, the client’s intra-day
losses increase such that their total equity falls below the specified liquidation level, the position is subject to same-day liquidation.
Introduction of risk-based tiered margins
The Group has introduced a tiered-margin requirement for equities and other instruments (tiered deposits) with risk-adjusted margin
requirements dependent on several factors including for example financial instrument volatility and average daily turnover of the
underlying instrument.
This has resulted in potential margin requirement of up to 90% of the value of the notional client position for large client positions but a
reduced margin requirement for smaller client positions.
These tiered deposits have, in addition to the COM discussed above, contributed to the further mitigation of the Group’s client
counterparty credit risk exposure.
Management of client collateral
The Group also accepts collateral from clients in the form of shares or other securities which mitigate the Group’s credit risk. Clients retain
title to the securities lodged whilst their trading account is operating normally, but are required to sign a collateral agreement which will
allow the Group to take title and sell the securities in the event of the client defaulting on any margin obligations.
Securities accepted as collateral are normally restricted to FTSE 100 stocks (although some FTSE 250 stocks may be accepted) and UK Gilts.
The collateral value assigned to the client account is updated daily, and each security is assigned a ‘haircut’ value e.g. a client is typically
allowed to use 80% of a FTSE 100 share’s current market value and 90% of a UK Gilt market value.
Clients are only permitted to use non-cash collateral value to cover initial margin requirements, and losses in excess of cash held are due
and payable as part of the normal margining process.
The fair value of collateral held at 31 May 2010 against amounts due from clients was £2,823,000 (2009: £595,000).
113 | IG Group Holdings plc | Annual Report 2010
34. Financial risk management (continued)
The following tables present further detail on the Group’s and the Company’s exposure to credit risk. External credit ratings (Standard and
Poor’s long-term ratings or equivalent) are available for exposures to brokers and banks, and these are shown. No external credit rating of
clients and certain of the Group’s sport related brokers is available and therefore the balances are classified as 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. The analysis of
neither past due nor impaired credit exposures in the following table excludes retail client funds held in segregated client money accounts
or money market facilities established under the UK’s Financial Services Authority (FSA) ‘CASS’ rules and similar rules of other regulators
in whose jurisdiction the Group operates. Under these rules, client money funds held with trust status are protected in the event of the
insolvency of the Group.
Cash and cash
equivalents
2010
£000
2009
£000
Trade receivables –
due from brokers
2009
£000
2010
£000
Trade receivables –
due from clients
Collateral held at
fair value
2010
£000
2009
£000
2010
£000
2009
£000
Group
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
> 12 months
Neither past due nor impaired
Credit rating:
AA+
AA to AA-
A+ to A-
BBB+ to BBB-
Unrated
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,447
114,091
348
211
-
11,823
86,953
182
449
-
119,507
80,538
871
2,798
-
87,264
88,054
1,078
1,865
128,097
99,407
203,714
178,261
Total carrying amount
128,097
99,407
203,714
178,261
22,240
(21,461)
26,458
(23,897)
779
2,561
535
-
-
-
72
607
-
-
-
-
1,143
1,143
2,529
695
7
65
-
30
797
-
-
-
-
1,466
1,466
4,824
-
-
-
-
-
-
-
-
-
-
-
-
-
2,823
2,823
2,823
12
-
12
-
-
-
-
-
-
-
-
-
-
583
583
595
114
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
(ii) Credit risk (continued)
Company
Neither past due nor impaired
Credit rating:
AA- to A+
Cash and cash
equivalents
2010
£000
2009
£000
8
8
122
122
Impairment of trade receivables due from clients
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:
Group
Balance at 1 June
Impairment loss for the year
- gross charge for the year
- recoveries
Write-offs
Foreign exchange
Balance at 31 May
2010
£000
23,897
2,441
(3,505)
(1,367)
(5)
2009
£000
5,864
22,544
(4,376)
(438)
303
21,461
23,897
34. Financial risk management (continued)
(iii) Concentration risk
Concentration risk is defined as all risk exposures with a loss potential which is large enough to threaten the solvency or the financial
position of the Group. In respect of financial risk, such exposures may be caused by credit risk, market risk, liquidity risk or a combination or
interaction of those risks.
The following table analyses the Group’s credit exposures, at their carrying amounts, by geographical region and excludes retail client
funds held in segregated client money accounts or money market facilities established under the UK’s Financial Services Authority (FSA)
‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates.
Analysis of credit exposures at carrying amount by geographical segment:
Group
As at 31 May 2010
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
UK
£000
Europe
£000
Australia
£000
Japan
£000
Rest of
World
£000
Total
£000
83,699
80,027
2,298
3,054
89,197
66
1,790
23,004
165
17,656
-
-
21,898
11,486
-
128,097
203,714
2,529
Total financial assets
166,024
92,317
24,959
17,656
33,384
334,340
Group
As at 31 May 2009
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
UK
£000
Europe
£000
Australia
£000
Japan
£000
Rest of
World
£000
Total
£000
62,565
59,874
4,618
14,183
88,514
18
348
16,036
111
13,880
147
-
8,431
13,690
77
99,407
178,261
4,824
Total financial assets
125,057
102,715
16,495
14,027
22,198
282,492
The Group’s largest credit exposure to any one individual broker at 31 May 2010 was £44,170,000 or 22% of the exposure to all brokers
(2009: £49,529,000, 27%). Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at 31 May 2010 was
£43,302,000 or 34% of the exposure to all banks (2009: £50,602,000, 51%). The Group has no significant exposure to any one particular
client or group of connected clients.
All of the Company’s credit exposures arise in the UK at both 31 May 2010 and 31 May 2009.
115 | IG Group Holdings plc | Annual Report 2010
116
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
(iv) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by
delivering cash or other financial assets.
Management of liquidity risk
Liquidity risk is managed centrally and on a group-wide basis. The Group’s approach to managing liquidity is to ensure it will have
sufficient liquidity to meet its broker margin requirements and other financial liabilities when due, under both normal circumstances and
stressed conditions.
The Group does not have any material liquidity mismatches with regard to liquidity maturity profiles due to the very short-term nature of
its financial assets and liabilities. Liquidity risk can, however, arise as a result of the Group adopting what it considers to be best industry
practice in placing all retail client funds in segregated client money accounts or money market facilities (as previously discussed). A result
of this policy is that short-term liquidity ‘gaps’ can potentially arise in periods of very high client activity or significant increases in global
financial market levels.
During these periods, the Group is required to fund higher margin payments to brokers to hedge increased underlying client positions.
This additional requirement is funded from the Group’s own available cash resources while these retail client positions are open, as retail
client funds remain in segregated client money bank accounts.
In order to mitigate this and other liquidity risks, the Group regularly stress and scenario tests its three-year liquidity forecast to validate the
correct level of committed bank facilities held. At the year end, these amounted to £160.0 million (2009: £120.0 million) provided by Lloyds
Banking Group plc (£100.0 million (2009: £100.0 million)) and The Royal Bank of Scotland Group plc (£60.0 million (2009: £20.0 million)).
These committed bank facilities were not drawn down during the financial year (2009: drawn down for 24 days with an average drawdown
of £37.2 million and a maximum drawdown of £88.0 million).
The key measure used by the Group for managing liquidity risk is the level of total available liquidity. For this purpose total available
liquidity is defined as working capital, being the net of cash and cash equivalents, all trade receivables, trade payables and other net
current liabilities, plus undrawn committed facilities.
Total available liquidity at each year-end was as follows:
Cash and cash equivalents
Amounts due from brokers
Amounts due from clients
Trade payables
Other net current liabilities
Net working capital
Undrawn committed facilities
Total available liquidity
2010
£000
678,564
203,714
2,529
(608,140)
276,667
2009
£000
520,421
178,261
4,824
(511,656)
191,850
(77,981)
(58,958)
198,686
132,892
160,000
358,686
120,000
252,892
In the Directors’ opinion the Group has sufficient liquid funds available to meet all operational requirements in the event of a large market
movement. Liquidity management is also dependent on credit risk management previously described.
34. Financial risk management (continued)
(iv) Liquidity risk (continued)
Derivative and non-derivative cash flows by remaining contractual maturity - Group
The following tables present the undiscounted cash flows receivable and payable (excluding interest payments) by the Group under
derivative and non-derivative financial assets and liabilities allocated to the earliest period in which the Group can be required to pay
although the remaining contractual maturities maybe longer.
Amounts payable on demand:
As at 31 May 2010
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Derivative
£000
Non-
derivative
£000
Total
£000
-
(20,384)
1,143
678,564
224,098
1,386
678,564
203,714
2,529
(19,241)
904,048
884,807
170,010
(778,150)
(608,140)
170,010
(778,150)
(608,140)
150,769
125,898
276,667
Derivative trade receivables and payables disclosed in the table above represent the Group’s open positions with brokers and clients
respectively. Non-derivative trade receivables and payables disclosed in the table above represent cash margin held at brokers, closed
client debtors, and client trading margin held on deposit respectively. Derivative and non-derivative cash flows are presented alongside
each other in the table above as they result from the same underlying trading relationship and as the Group has both the legal right and
intention to settle on a net basis.
Trade receivables are disclosed as repayable on demand as when client positions are closed the 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.
Trade payables are disclosed in the table above as repayable on demand as 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.
117 | IG Group Holdings plc | Annual Report 2010
118
FINANCIAL STATEMENTS: NOtES tO thE FINANCIAL StAtEMENtS
Notes to the Financial Statements
(continued)
34. Financial risk management (continued)
(iv) Liquidity risk (continued)
Derivative and non-derivative cash flows by remaining contractual maturity - Group (continued)
Amounts payable on demand:
As at 31 May 2009
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Financial liabilities
Trade payables – due to clients
Amounts payable over 5 years:
Derivative
£000
Non-
derivative
£000
Total
£000
-
(18,086)
1,466
520,421
196,347
3,358
520,421
178,261
4,824
(16,620)
720,126
703,506
121,800
(633,456)
(511,656)
121,800
(633,456)
(511,656)
105,180
86,670
191,850
35. Capital management and resources
Capital management
The Group is supervised on a consolidated basis by the UK’s Financial Services Authority (FSA). The Group’s subsidiaries in the United
States, Singapore, Australia and Japan are also regulated. Individual capital requirements in these jurisdictions are taken into account when
managing the Group’s capital resources.
The Group’s regulatory capital resources management objective is to ensure that the Group complies with the regulatory capital resources
requirement set by the FSA and other global regulators in jurisdictions in which the Group’s entities operate.
The Group’s capital management policy aims to maximise returns on equity while maintaining a strong capital position to enable the
Group to take advantage of growth opportunities, whether organic or by acquisition. The Group does not seek to generate higher returns
on equity by introducing leverage through, for example, the use of long-term debt finance.
The Group’s 2009 ICAAP was approved by the Board in December 2009. There have been no capital requirement breaches during the
financial year. The Group also regularly undertakes three-year stress and scenario testing of its main financial and operational risks to
project its future capital and liquidity adequacy requirements.
The Group’s ‘Pillar 3 Disclosures’ are published on its website www.iggroup.com and these provide additional information on the Group’s
enterprise-wide risk management framework and its management of regulatory capital on a consolidated and solo entity basis.
Capital resources
The Group had significant surplus regulatory capital resources over the regulatory capital resources requirement throughout the year. In
calculating the capital requirement, the Group has adopted the standardised approach to credit risk and the basic indicator approach to
operational risk.
At the year-end, under FSA rules, consolidated capital resources calculated as a percentage of our Pillar 1 consolidated capital resources
requirement represented 338.1% (2009: 253.3%). Total regulatory capital resources as at 31 May 2010 were £222.1 million (2009: £152.0
million). An analysis of the Group’s consolidated capital resources and capital resources requirement is provided in the Operating and
Financial Review.
The Group has non-derivative cash flows payable over 5 years in relation to the redeemable preference shares at 31 May 2009 and 2010, as
disclosed in note 23.
Derivative and non-derivative cash flows by remaining contractual maturity - Company
The maturity of the Company’s non-derivative cash flows is shown in the following table. There were no Company derivative cash flows as
at 31 May 2010 (2009: £nil).
36. Subsequent events
On 19 July 2010, IG Markets South Africa Limited, a subsidiary of the Group, reached agreement to acquire the client list and business of
Ideal CFD Financial Services Pty Limited (Ideal), a South African based introducing broker of the Group. Refer to note 16(b) for more detail.
Company
As at 31 May
Financial assets
Cash and cash equivalents
Financial liabilities
Redeemable preference shares
On demand
Over 5 years
Total
2010
£000
2009
£000
2010
£000
2009
£000
2010
£000
2009
£000
8
8
-
-
122
122
-
-
-
-
(40)
(40)
-
-
(40)
(40)
8
8
(40)
(40)
122
122
(40)
(40)
119 | IG Group Holdings plc | Annual Report 2010
120
OTHER INFORMATION: GLOSSARY OF tERMS USEd
Glossary of terms Used
AGM
APB
ASIC
Binary options
Annual General Meeting
Auditing Practices Board
Australian Securities and Investment Commission
A special form of spread bet with only two outcomes at expiry – if a specific result is achieved, the bet
is closed at a level of 100. If the result is not achieved, the bet closes at 0. Binary bets therefore have
something in common with a traditional fixed-odds bet, except that the Group makes a continuous price
for the binary, between 0 and 100, allowing closure of the bet before the final settlement to crystallise any
running profits or losses before expiry.
CFTC
US Commodity Futures Trading Commission
‘Close-out’ monitor
Combined Code
The Group’s automated client liquidation system (see also the Our Business Risks section in the Business
Review and note 34 – Financial Instruments).
The Combined Code on Corporate Governance (Combined Code) sets out standards of good practice in
relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.
Provision A.3.2 - at least half the board, excluding the chairman, should comprise non-executive directors
determined by the board to be independent.
Principle A.6 - Performance Management - The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and individual directors.
Company
IG Group Holdings plc
Consolidated regulatory
capital resources
Tier 1, Tier 2, and Tier 3 capital are calculated under the GENPRU rules of the UK’s Financial Services Authority.
Contract for Difference
(CFD)
A CFD is an agreement to exchange the difference in value of a financial instrument at the time in which the
contract is opened, and the time at which it is closed. Examples on pages 123 to 126 illustrate buying and selling CFDs.
DMA
FIX
FSA
IAS
Direct Market Access allows clients to send orders directly into the order book of a stock exchange.
The Financial Information eXchange (“FIX”) Protocol is a series of messaging specifications for the electronic
communication of trade-related messages. It has been developed through the collaboration of various
financial institutions.
The UK’s Financial Services Authority
International Accounting Standard
ICAAP
ICSA
IFRIC
IFRS
IIC
LIBOR
LTIP
MTF
OTC
Internal Capital Adequacy Assessment Process
Institute of Chartered Secretaries and Administrators
International Financial Reporting Interpretations Committee
International Financial Reporting Standards (as adopted by the EU)
The Group’s ICAAP and Individual Liquidity Adequacy Committee.
London inter-bank offered rate
Long-term incentive plan
Multilateral trading facility
‘Over the counter’ means non-exchange traded financial instruments.
Pillar 1 – Capital resources Minimum FSA specified rule-based capital requirements for credit, market and operational risk under FSA’s
requirement
BIPRU Rulebook.
Pillar 3 Disclosures
Public disclosure of capital adequacy to facilitate the wider market’s role in ensuring regulated firms hold
appropriate levels of capital - disclosed on the Group’s corporate website (www.iggroup.com).
Pip
A ‘percentage in point’ is generally, though not always, the fourth decimal place, i.e. 0.0001.
Risk appetite statement
Approved by the Group’s Board of Directors and sets out the level of risk that the Group is willing to take in
pursuit of its business objectives.
Spread bet
SIP
Systemic risk
Tiered-margining
TSR
Variation margin
A bet on the outcome of an event. The ‘spread’ is a range of outcomes, and the ‘bet’ is on whether the
outcome of the event will be above or below the spread. The pay out is based on the accuracy of the bet.
Share Incentive Plan
The risk of collapse of an entire financial system, as opposed to specific risk associated with any one
individual company.
Four margin tiers ranging from 5% in Tier 1 (small trade sizes) to potentially 90% under Tier 4. The margin
calculations are dependent on various factors including specific financial instrument volatility.
Total Shareholder Return
Initial margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the
credit risk of his counterparty. The variation margin is not collateral, but a daily payment of running profits
and losses on the open position.
121 | IG Group Holdings plc | Annual Report 2010
122
OTHER INFORMATION: GLOSSARY OF tERMS USEd
Glossary of terms Used
(continued)
Example - buying a CFd
Step 1
Step 3
Step 5
Introduction
In this example, you buy 10,000 CFDs in A plc (assumed to be
a FTSE 100 share) on Day 1 (on 25 May 2010), as you expect
that A plc’s share price will rise. On Day 2, however, the share
price has actually fallen, and you decide to sell 10,000 A plc
CFDs to close your position and minimise your losses, as you
now believe the share price will continue to fall. Your loss is
the difference between the selling and buying prices, plus
transaction and other costs (illustrated opposite).
As long as your contract is open, your account will show any
‘running’ loss or any ‘running’ profit on your open CFD position,
but this is not illustrated. You must also have deposited
sufficient funds to cover any running losses.
You are also required to have funds deposited on your
account before you can begin to trade. In this example, we
assume you have deposited £1,000.
It is important to note that you can make losses in excess of
your initial deposit, if the market moves against you.
Day 1 - opening the position
The quoted bid/offer price for A plc is 126.85p/126.95p.
Trade details
Buy 10,000 A plc CFDs at 126.95p (the
offer price)
Your initial margin
requirement (i)
£634.75 (calculated as 10,000 x
126.95p x 5%)
Commission (ii)
£12.70 (calculated as 10,000 x
126.95p x 0.10%)
(i) the margin level depends on the size of your CFD position and other factors such as
the volatility and liquidity of the underlying share.
(ii) commissions are variable, but for UK FTSE 100 CFDs (as assumed for A plc), this was
0.1% on the 25 May 2010.
In addition, financing is charged on bought CFD positions held
open overnight, which for UK FTSE 100 CFDs, means those open at
10pm UK time. In this example, the financing charge is the current
one-month sterling LIBOR rate of 0.57%, plus a 2.5% additional
margin (both correct as at 25 May 2010), which results in a total
financing charge of 3.07% being applied to your CFD contract
value. This is re-calculated daily.
Day 2 - closing the position
On Day 2, you decide to close the position as you believe the
share price may fall further. The bid/offer price at that point is
122.30p/122.40p.
Trade
Sell 10,000 CFDs at 122.30p (the bid price)
Closing Price (Day 1)
127.35p
Commission
£12.23 (calculated as 10,000 x
122.30p x 0.10%)
Daily interest
charged
£1.07 (calculated as (10,000 X
127.35p X 3.07%)/365 days)
Loss per individual
CFD contract
4.65p (the difference between the
selling and buying price =
122.30p - 126.95p)
Gross loss on the
trade (£)
£465.00
(calculated as 10,000 x 4.65p)
Step 2
Step 4
Calculating your profit or loss
On Day 1 when you open the trade, you are required to have
the initial margin for this trade in your account which equals
£634.75 in this example (calculated in Step 1). The available
funds in your account therefore fall from £1,000 to £352.55
(i.e. £1,000 - £634.75 - £12.70).
We will also reflect the impact of any corporate action on
the underlying share, such as a dividend. In this example, we
assume that A plc goes ex-dividend on 26 May 2010, paying a
net dividend of 7p on the same day.
Your account is therefore credited (with this dividend
adjustment) to reflect the underlying market price of the
share.
Buying commission (Step 1)
Financing charge (Step 3)
Dividend adjustment (Step 4)
Selling commission (Step 5)
Dividend per underlying A plc share
Net 7p
Dividend adjustment on 10,000 A plc CFDs
£700.00
Gross loss (Step 5)
Net Profit (£)
(12.70)
(1.07)
700.00
(12.23)
(465.00)
209.00
123 | IG Group Holdings plc | Annual Report 2010
124
OTHER INFORMATION: GLOSSARY OF tERMS USEd
Glossary of terms Used
(continued)
Example - selling a CFd
Introduction
In this example, you sell 10,000 CFDs in A plc (assumed to be a
FTSE 100 share) on Day 1 (on 25 May 2010), as you expect that A
plc’s share price will fall. On Day 2, the share price has fallen, and
you decide to buy 10,000 A plc CFDs to close your position as you
now believe that A plc’s share price will rise.
As long as your contract is open, your account will show any
‘running’ loss or any ‘running’ profit on your open CFD position, but
this is not illustrated. You must also have deposited sufficient funds
to cover any running losses.
You are also required to have funds deposited on your account
before you can begin to trade. In this example, we assume you
have deposited £1,000.
It is important to note that you can make losses in excess of your
initial deposit, if the market moves against you.
Step 1
Step 3
Step 5
Day 1 - opening the position
The quoted bid/offer price for A plc is 126.85p/126.95p.
Trade details
Sell 10,000 A plc CFDs at 126.85p (the
bid price)
Your initial margin
requirement (i)
£634.25 (calculated as 10,000 x
126.85p x 5%)
Commission (ii)
£12.69 (calculated as 10,000 x
126.85p x 0.10%)
(i) the margin level depends on the size of your CFD position and other factors such as
the volatility and liquidity of the underlying share.
(ii) commissions are variable, but for UK FTSE 100 CFDs (as assumed for A plc), this was
0.1% on the 25 May 2010.
In addition, financing is paid in respect of sold CFD positions held
open overnight, which for UK FTSE 100 CFDs, means those open
at 10pm UK time. In this example, the financing charge is the net
of the current one-month sterling LIBOR rate of 0.57% less a 2.5%
additional margin (both correct as at 25 May 2010), which results
in a net financing charge of 1.93% being applied to your CFD
contract value - this is re-calculated daily.
Day 2 - closing the position
On Day 2, you decide to close the position as you believe the
share will now continue to rise. The bid/offer price at that
point is 122.30p/122.40p.
Trade
Buy 10,000 CFDs at 122.40p (the offer
price)
Closing Price (Day 1)
127.35p
Commission
£12.24 (calculated as 10,000 x
122.40p x 0.10%)
Daily interest
charged
£0.67 (calculated as (10,000 X
127.35p X 1.93%)/365 days)
Profit per individual
CFD contract
4.45p (the difference between the
selling and buying price =
126.85p - 122.40p)
Gross profit on the
trade (£)
£445.00 (calculated as 10,000 x
4.45p)
Step 2
Step 4
Calculating your profit or loss
On Day 1 when you open the trade, you are required to have
the initial margin for this trade in your account which equals
£634.25 in this example (calculated in Step 1). The available
funds in your account therefore fall from £1,000 to £353.06
(i.e. £1,000 - £634.25 - £12.69).
We will also reflect the impact of any corporate action on
the underlying share, such as a dividend. In this example, we
assume that A plc goes ex-dividend on 26 May 2010, paying a
net dividend of 7p on the same day.
When you sell a CFD and the share goes ex-dividend, the
dividend value (here £700.00) is debited from your account.
This reflects the fall in the underlying market price of the
share.
Dividend per underlying A plc share
Net 7p
Dividend adjustment on 10,000 A plc CFDs
£700.00
Buying commission (Step 1)
Financing charge (Step 3)
Dividend adjustment (Step 4)
Selling commission (Step 5)
Gross profit (Step 5)
Net Loss (£)
(12.69)
(0.67)
(700.00)
(12.24)
445.00
(280.60)
125 | IG Group Holdings plc | Annual Report 2010
126
telephone
Contact
Website
Asia Pacific
telephone
Contact
Website
OTHER INFORMATION: GLOBAL OFFICES
Global Offices
UK
London (headquarters)
IG Index Limited
Cannon Bridge House
25 Dowgate Hill
LONDON
EC4R 2YA
IG Markets Limited
Cannon Bridge House
25 Dowgate Hill
LONDON
EC4R 2YA
Extrabet Limited
Friars House
157-168 Blackfriars Road
LONDON
SE1 8EZ
+44 (0)20 7896 0011
helpdesk@igindex.co.uk
www.igindex.co.uk
+44 (0)20 7896 0011
helpdesk@igmarkets.com
www.igmarkets.co.uk
+44 (0)20 7896 0011
helpdesk@extrabet.com
www.extrabet.com
Europe (excluding UK)
Düsseldorf
IG Markets Limited
Zweigniederlassung Deutschland
Berliner Allee 10
40212 Düsseldorf
GERMANY
+49 (0) 211 88 23 70 00
info@igmarkets.de
www.igmarkets.de
Lisbon
IG Markets Limited
Av. Eng. Duarte Pacheco
Amoreiras, Torre 1
60 andar, Escritório 5/6
1070-101 Lisboa
PORTUGAL
+351 800 814 763
info@igmarkets.pt
www.igmarkets.pt
Luxembourg
IG Markets Limited
15, rue du fort Bourbon
L1249
LUXEMBOURG
Madrid
IG Markets Limited
Marqués de la Ensenada, Nª16
1ª planta, Oficina 18
28004 Madrid
SPAIN
Milan
IG Markets Limited
Via Cesare Correnti, 12
20123 Milano
ITALY
Paris
IG Markets Limited
17 avenue George V
75008 Paris
FRANCE
Stockholm
IG Markets Limited
Stureplan 2
114 35 Stockholm
SWEDEN
+352 24 87 11 17
info@igmarkets.lu
www.igmarkets.lu
+34 91 414 15 15
atencionalcliente@igmarkets.es
www.igmarkets.es
+39 800 897 582
italiandesk@igmarkets.it
www.igmarkets.it
+33 (0)1 70 70 81 18
info@igmarkets.fr
www.igmarkets.fr
+46 (0)8 5051 5000
kundservice@igmarkets.se
www.igmarkets.se
Beijing
IG Markets Limited Beijing Representative Office
St Regis Hotel Office Building
Room 901
9th Floor
No 21 Jian Guo Men Wai Avenue
Chao Yang District
Beijing
P.R. CHINA 100020
+86 10 8532 3886
Melbourne
IG Markets Limited
Level 7
417 St Kilda Road
Melbourne VIC 3004
AUSTRALIA
+61 (3) 9860 1711
Singapore
IG Markets Limited
22-03 Chevron House
30 Raffles Place
SINGAPORE 048622
+65 6390 5118
RepOffice@igmarkets.com.cn
www.igmarkets.com.cn/en
helpdesk@igmarkets.com.au
www.igmarkets.com.au
helpdesk@igmarkets.com.sg
www.igmarkets.com.sg
Tokyo
FX Online
Shiodome
City Center 10F
1-5-2 Higashi-shinbashi
Minato-ku, Tokyo 105-7110
JAPAN
North America
Chicago
Nadex, Inc.
311 South Wacker Drive
Suite 2675
Chicago, IL 60606
USA
IG Markets Inc.
311 South Wacker Drive
Suite 2650
Chicago
IL 60606
USA
Africa
South Africa
IG Markets South Africa Limited
Royal Melbourne
Fourways Golf Park
Roos Street
Fourways
Johannesburg
SOUTH AFRICA
+81 3 6704 8500
info@fxonline.co.jp
www.fxonline.co.jp/en
+1 312 884 0100
customerservice@nadex.com
www.nadex.com
+1 312 981 8040
clientservices@igmarkets.com
www.igmarkets.com/fx
+27 (0)11 467 8500
helpdesk@igmarkets.co.za
www.igmarkets.co.za
127 | IG Group Holdings plc | Annual Report 2010
128
oTher InForMATIon: SHAREHOLDER INFORMATION
oTher InForMATIon: COMPANY INFORMATION AND CAUTIONARY STATEMENT
Shareholder Information
Company Information
Receiving shareholder
information by email
You may supply the Company with an email address for the
purpose of receiving shareholder information, as an alternative
to posting whenever shareholder communications are added to
the Company website by visiting www.capitashareportal.com and
registering online for electronic communications (‘e-coms’).
If you subsequently wish to change your election, or receive
documents or information by post, you can do so by contacting
the Company’s registrars at:
Annual shareholder calendar
(a) Company reporting
Final results announced
Annual Report published
20 July 2010
August 2010
1st Interim Management Statement
6 September 2010
Annual General Meeting
Interim results announced
7 October 2010
18 January 2011
2nd Interim Management Statement
7 March 2011
(b) Dividend payment
Interim
Final
Interim report
March
October
As part of our e-coms programme, we have decided not to
produce a printed copy of our Interim Report. Instead the Interim
Report will be published on our website and will be available
around mid January each year.
Capita Registrars
Shareholder Administration Support
34 Beckenham Road
Beckenham
Kent BR3 9ZA
Receiving shareholder
information by means of
our corporate website
For many shareholders, it will be convenient to access shareholder
information on our corporate website at www.iggroup.com. We
will notify you by post, or by email if you have elected for e-coms,
when shareholder information has been placed on the website
and indicate where on the site you can access it.
2010 Final Dividend Dates
Ex dividend date
Record date
Last day to elect for DRIP
AGM
Payment date
8 September 2010
10 September 2010
17 September 2010
7 October 2010
12 October 2010
129 | IG Group Holdings plc | Annual Report 2010
Directors
Executive directors
T A Howkins (Chief Executive)
S Clutton
P G Hetherington
A R MacKay
Non-executive directors
J R Davie (Chairman)
D Currie
D M Jackson
R R Lucas
N B le Roux (Deputy Chairman)
R P Yates (Senior Independent Director)
Company Secretary
G Abbi
Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF
Bankers
Lloyds Banking Group plc
10 Gresham Street
London EC2V 7AE
Royal Bank of Scotland Group plc
280 Bishopsgate
London EC2M 4RB
Solicitors
Linklaters
1 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
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Registered Office
Cannon Bridge House
25 Dowgate Hill
London EC4R 2YA
Registered Number
04677092
Cautionary Statement
Certain statements included in our 2010 Annual Report, or
incorporated by reference to it, may constitute ‘forward-looking
statements’ in respect of the Group’s operations, performance,
prospects and/or financial condition.
This report does not constitute or form part of any offer or
invitation to sell, or any solicitation of any offer to purchase any
shares or other securities in the Company and nothing in this
report should be construed as a profit forecast.
By their very nature, forward-looking statements involve
uncertainties because they relate to events, and depend
on circumstances, that will or may occur in the future. If the
assumptions on which the Group bases its forward-looking
statements change, actual results may differ from those expressed
in such statements. The forward-looking statements contained
herein reflect knowledge and information available at the date
of this presentation and the Group undertakes no obligation to
update these forward-looking statements.
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Annual Report
IG Group Holdings plc | 31 May 2010
IG Group Holdings plc
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
Tel: + 44 (0)20 7896 0011
Fax: + 44 (0)20 7896 0010
www.iggroup.com
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printed on recycled paper.