AnnuAl RepoRt 2011
IG Group Holdings plc | 31 May 2011
2 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
ContentS
IG GRoup:
WoRld leAdeRS In
SpReAd BettInG And CFdS
cHAIrMAN’S STATEMENT
BuSINESS rEvIEW
What We Do
our Strategy
Delivering our Strategy
our Business Model
chief Executive’s review
operating and Financial review
our Business risks
2
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8
10
18
20
24
42
corPorATE GovErNANcE
Directors’ Statutory report
corporate Governance report
Directors’ remuneration report
Statement of Directors’ responsibilities
Independent Auditors’ report
46-69
46
51
59
68
69
The Business review provides an overview of our operations,
as well as describing our strategy and related Key Performance
Indicators. It also includes the chief Executive’s review, the
operating and Financial review and an explanation of our
principal business risks and how we manage them.
In addition to the Directors’ Statutory report and the Directors’
remuneration report, this section includes a description of our
corporate governance framework and our compliance with the
combined code.
FINANcIAL
STATEMENTS
Group Income Statement
Group Statement of comprehensive Income
Statements of Financial Position
Statements of changes in Equity
cash Flow Statements
Index to Notes to the Financial Statements
Notes to the Financial Statements
72-127
72
73
74
75
77
78
79
INvESTor rESourcES
AND oTHEr INForMATIoN
Five-Year Summary
Examples:
Buying a Spread Bet
Selling a contract for Difference
Glossary of Terms
Global offices
Shareholder and company Information
cautionary Statement
130-143
130
134
136
138
140
142
143
The Financial Statements section contains both Group and
company statutory Financial Statements.
The Investor resources section comprises a five-year summary
of Group financial performance and a range of other useful
material, including examples of spread betting and cFD
trading, a technical glossary, contact details for our global
offices and key shareholder information.
INTroDuc TIoN
IG Group is the leading global provider of contracts for
Difference (cFDs) and spread betting to retail investors(1).
Through our primary businesses, IG Index and IG Markets,
we offer these services to over 130,000 clients across more
than 130 countries.
our award-winning dealing platforms provide clients with easy
access to global financial markets and the flexibility to trade
across multiple asset classes. We offer a range of over 14,000
equity, equity index, commodity, forex, interest rate and binary
contracts, covering most major financial markets.
IG Group Holdings plc is listed on the London Stock Exchange
and is an established member of the FTSE 250. our head office
is in London, with other offices in Amsterdam, Beijing,
chicago, Durban, 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 confidence to our clients and other
counterparties. We have delivered significant revenue and
profit growth since our IPo in 2005.
(1) For detailed practical examples of a spread bet and a CFD trade, please see the
Investor Resources and Other Information section. Definitions can be found in
the Glossary of Terms.
(2) Adjusted profit before taxation excludes both the amortisation and impairment
of goodwill and customer relationships associated with our Japanese business,
IG Markets Securities (formerly FXOnline), and the impairment of goodwill
associated with our Sport business.
(3) Diluted adjusted earnings per share excludes the amortisation and impairment of
intangible assets associated with the Group’s Japanese business and impairment of
the goodwill associated with the Group’s Sport business and related taxation.
2011
2010
2011
2010
Net trading revenue
+7.3%
£320.4m
£298.6m
Adjusted profit before tax(2)
+3.4%
£163.0m
£157.6m
2011
2010
Diluted adjusted earnings per share(3)
+6.1%
32.64p
30.77p
Total dividend per share
+8.1%
20.00p
18.50p
2011
2010
IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
3 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
01
CHAIRMAn’S StAteMent
I am pleased to report another record year for the Group. Our annual net trading
revenue has increased 7.3% to £320.4 million (2010: £298.6 million) whilst diluted
adjusted earnings per share increased 6.1% to 32.64p (2010: 30.77p).
The Group has continued to focus on developing our core
Financial business. The Board decided that the Sport business was
non-core and unlikely to be profitable in the future without greater
investment than was merited by its scale within the Group. Despite
our best efforts we were unable to find a suitable buyer for the
business at a satisfactory price, which led to our announcement
on 9 June 2011 of the sale of our sporting client list to Spreadex
Limited. We are hoping to sell our sports pricing engine to a third
party in the coming months.
We remain focused on evaluating opportunities to enter new
markets whilst ensuring that we continue to develop our
established businesses. To this end we have opened new offices
in the Netherlands and acquired a business in South Africa during
the past year. We have also commenced the rollout of mobile apps
to our clients, which have been very well received. We see this as a
core feature of future client demand.
At the forthcoming AGM, your Board will recommend the payment
of a final dividend of 14.75p per share. This will bring the total
dividends for the year to 20.00p, an increase of 8.1% on last year,
and represents 61.3% of our adjusted earnings for the year. our
policy continues to be to pay approximately 60% of adjusted
earnings, but we recognise that the current year’s earnings were
suppressed by a number of items which are unlikely to recur.
regulation
As the pace of regulatory change continues to grow around the
globe, control of regulatory risk continues to be a strong theme
for the Group. We have remained focused on ensuring that the
Group complies with all regulatory obligations, keeps abreast of
all regulatory changes and contributes meaningfully to regulatory
debate where possible, whilst maintaining constructive and
collaborative relationships with our regulators.
one cannot refer to matters of regulation without commenting
on the Group’s unexpected £4 million charge from the Financial
Services compensation Scheme (FScS) in January this year. This
was our share of a £326 million levy, required by the FScS to
fund compensation claims from customers of various defaulting
investment firms, principally Keydata Investment Services Limited.
We have called on the FScS to be more transparent in the future
when communicating funding needs to firms and we would like
to see the Financial Services Authority (FSA) undertake a thorough
investigation into the circumstances of Keydata’s failure. We have
also asked the FSA to consider whether it is appropriate for
firms who deal as principal, like IG Group, to be included in the
same compensation category as firms who deal as agent and
give advice, given the very different risk profiles of these
business models.
Japan
You are all aware of what a difficult year this has been for IG Group
in Japan. These difficulties, however, pale into insignificance
compared with the earthquake and subsequent tsunami which
devastated parts of North East Japan.
our colleagues in Japan responded magnificently to the grave
difficulties that everyone experienced in the aftermath. I am
pleased to say that none of our colleagues in Tokyo lost a loved
one or member of their respective families in the disaster. We are
all very grateful for the great efforts made by everyone to ensure
that our business continued to run effectively whilst meeting all
Japanese regulatory requirements.
Board evaluation
In 2009 your Board decided to commission The Institute
of chartered Secretaries and Administrators (IcSA), an
external consultant, to conduct a full evaluation of the Board
commensurate with Principle A.6 of the combined code on
corporate Governance. Your Board has decided not to commission
an external review this year, principally because we have two
recently-appointed Board members and believe that it would be
better to wait until they are more established in their roles.
It is the intention of the Board to appoint an external consultant
to evaluate the Board together with the Audit and remuneration
committees in the coming financial year.
We have carried out an internal review of your Board’s activities,
and will continue to make improvements to ensure that the Board
operates as effectively as possible.
remuneration
The remuneration committee, under the chairmanship of
roger Yates, the Senior Independent Director, has reviewed the
remuneration of the Executive and Non-Executive Directors.
We continue with an element of deferral in the bonus structure,
reflecting the Financial Services Authority’s guidance on best
practice and commensurate with our previous commitments.
There are no proposed changes this year to the value-sharing plan,
our long-term incentive scheme, which was inaugurated last year.
There has, however, been a small change in the calibration of the
Executive Directors’ cash bonus, details of which are set out in the
Directors’ remuneration report.
Board composition
I am very pleased to welcome chris Hill and Stephen Hill to the
Board to replace Steve clutton and rob Lucas respectively.
Chairman’s Statement
Diluted adjusted earnings per share(1)
32.64p (+6.1%)
Total dividend per share
20.00p (+8.1%)
Dividend payout ratio
61.3%
chris was previously the cFo of Travelex, the retail currency
and cross-border payments business, and brings considerable
experience of managing international businesses. Stephen has had
an illustrious career including stints as Managing Director of the
Financial Times, taking it through some important changes, and
also as the cEo of Betfair. Stephen is presently a Non-Executive
Director and chairman of the remuneration committee at
channel 4. His expertise and experience of managing businesses
with heavy reliance on the quality and marketing of their products
will add great value to the Board.
Nat le roux has informed the Board of his wish to step down at
the 2012 AGM. Nat’s contribution to the success of IG Group during
his time as cEo and subsequently as Deputy chairman cannot
be overstated.
The effect of these changes means that your Board will be fully
compliant with code Provision A.3.2 of the combined code after
the 2012 AGM.
The Board notes the publication of the Davies review on Women
on Boards in February 2011 and the subsequent consultation
of the Frc on changes to the uK corporate Governance code,
which may result in the code including a recommendation
that companies adopt a boardroom diversity policy. The Board
recognises the importance of gender balance throughout
the Group.
It is the intention to put every Board Director up for re-election
commencing with our 2011 AGM in october, bringing us into
advance compliance with paragraph B.7.1 of the uK corporate
Governance code.
conclusion
our results could not have been achieved without the outstanding
efforts of all our employees throughout the world. I and my fellow
Directors would like to express our gratitude for their personal
contributions to making this another record year of earnings for
the Group.
We all look forward to working towards another successful year
for the Group and all its shareholders.
Jonathan Davie, chairman
19 July 2011
(1) Diluted adjusted earnings per share excludes the amortisation and impairment of
intangible assets associated with the Group’s Japanese business and impairment of
the goodwill associated with the Group’s Sport business and related taxation.
02 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
03
Business Review
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05
05
BUSINESS
REVIEW
WHAT WE Do
our STrATEGY
DELIvErING our STr ATEGY
our BuSINESS MoDEL
cHIEF ExEcuTIvE ’S rEvIEW
oPErATING AND FINANcIAL rEvIEW
our BuSINESS rISKS
04 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
04 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
WHAt We do
Business Review: What We do
IG Group’s core businesses provide online derivatives trading
services to an international retail client base. We provide easy
access to global financial markets via our award-winning
dealing platforms and offer the flexibility to trade across
multiple asset classes from one account.
our HISTorY
Since the first IG Group company, IG Index, was
established in 1974, our operations have expanded and
we are now a multinational organisation supporting over
130,000 clients worldwide.
Through our main businesses, IG Index and IG Markets, we
provide over 14,000 spread betting and cFD products on a
huge range of financial markets, including forex, stock indices,
shares, commodities, binaries, options and interest rates. We
are developing a presence in the united States, through Nadex,
as here the regulatory environment restricts our traditional
products but offers opportunities for growing our unique
derivatives exchange business.
uK spread betting – the largest and longest-running spread
betting company in the world
Multi-award-winning and recognised as the uK’s market
leader by independent research(1)
At the forefront of innovation and a pioneer of new product
features, including a range of new mobile apps
Global cFD trading including Direct Market Access
(DMA) services
clients in 130 countries and a network of global partners
Independently confirmed as the most popular cFD provider
in the uK and Australia(1)(2)
The first and only uS-based retail-oriented exchange to
list binary options and limited-risk derivative contracts on
forex, indices, commodities and economic events
A direct access platform for quick and easy use, with
total transparency
(1) Investment Trends: ‘2010 UK Financial Spread Betting & CFD Trading Report’
(November 2010)
(2) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
06 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
1974
1982
1995
1998
2002
2003
2005
2006
2007
2008
2009
2010
2011
IG Index is founded, becoming the uK’s first financial
spread betting company.
We are the first company in the uK to offer spread
betting on the FT30.
IG Index becomes the first uK company to allow
spread betting on individual shares.
We are the first firm to launch an online dealing
platform for financial spread betting.
IG Markets Australia becomes the country’s first
cFD provider.
our product range expands as Binary Betting
is introduced. IG Group is taken private by
management and cvc capital Partners.
IG Group Holdings plc is relisted on the FTSE.
New offices open in Germany and Singapore.
our browser-based trading platform is launched.
New offices open in the uS, Spain and France.
New office opens in Italy and we acquire Fxonline
in Japan.
PureDMA, the uK’s first browser-based Direct
Market Access (DMA) service is introduced.
Nadex.com is launched in the uS and offices
open in Sweden and Luxembourg.
New office opens in Portugal and we acquire
the South African business Ideal cFDs, a former
introductory broker for IG Markets. An iPhone app is
launched for both IG Index and IG Markets.
New office opens in the Netherlands. We expand
our mobile offering to include DMA and launch
BlackBerry and Android apps. IG Markets sponsors
Team Sky, an elite international cycling team.
07
ouR StRAteGY
Business Review: our Strategy
We aim to maximise return for our shareholders
by focusing on four key strategic objectives.
We use the following set of Key Performance Indicators (KPIs)
to measure our performance across all four objectives.
strategIc objectIve
Key Performance IndIcators (KPIs)
1 maIntaIn our m arKet
LeadIng PosItIons
IG Group is the leading global provider of CFD trading
and spread betting products to retail investors.
We seek to maintain this number one position and
consolidate a decisive retail lead in the major markets
in which we operate.
Having established a market-leading position in several
countries, the Group is now building a growing presence
in a number of our other markets.
We are committed to developing market penetration levels
across all our businesses, as well as targeting new business
opportunities where there is a favourable regulatory
environment and sizeable long-term potential for growth.
2 exPand our
gLobaL reach
3 sustaIn our
technoLogy Lead
revenue and profit generation
‘Net trading revenue’ represents overall Group turnover from commissions,
spreads and financing on client trades, and is our primary KPI. ‘Adjusted
profit before taxation’ and ‘diluted adjusted earnings per share’ are used
to measure the quality of our underlying profitability at Group level,
facilitating year-on-year profitability comparisons.
Net trading revenue (total, daily and
by asset class)
Adjusted profit before taxation (PBT)
Diluted adjusted earnings per share
client trading activity metrics
There are a number of important client trading KPIs with ‘number of active
clients’ and ‘revenue per client’ being the key drivers of revenue growth.
We also commission independent research to evaluate our market share
performance, measured on a primary account basis.
Market share percentage
Number of active clients
Average revenue per client
client money levels
see page 10
Performance in newer markets
We use many of the KPIs listed above to evaluate our success in new
territories. This includes comparing current performance against the
more established markets at a similar stage of maturity.
Geographical profitability evaluation
We measure EBITDA (earnings before interest, taxes, depreciation, and
amortisation) by geographical area on a contribution basis.
Geographic net trading revenue
Active client base growth, relative to
more mature markets
Geographic EBITDA contribution
IG Group has a history of innovation and we are currently
at the forefront of the market in terms of product offering
and technology platforms.
We continue to expand our offering to embrace mobile
technology, while maintaining our current high levels of
platform resilience, speed and quality of trade execution.
Trading systems performance
We carry out ongoing assessments to measure the performance of key
operating systems, especially at peak trading times.
Average trade execution time
Peak orders per second
Technology usage
We observe the deployment and adoption of IT developments closely,
with particular focus currently on customer take-up of mobile technology.
Number of mobile log-ins
Number of mobile deals
4 contInue hIgh LeveLs
of cLIent servIce
08 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
IG Group provides a comprehensive service to clients
globally, including 24-hour support(1), online help portals
and telephone dealing in 11 languages.
We are fully committed to the FSA’s Treating customers
Fairly (TcF) initiative, providing a high level of customer
service to all our clients, while ensuring our pricing strategy
remains competitive, fair and transparent. our unique Price
Improvement technology enables clients to deal at improved
rates if a market level moves favourably during trade execution.
(1) Offered in English and Chinese
Treating customers Fairly (TcF)
We use a scorecard of 25 TcF measures to ensure we treat customers fairly.
Percentage of automated transactions
customer service market research
We commission external research to assess how we perform against peers
and client expectations.
customer surveys including Net
Promoter Score
our performance against these KPIs is detailed within the Delivering
our Strategy section and the operating and Financial review
see page 12
see page 14
see page 16
09
delIveRInG ouR StRAteGY
1
MAIntAIn ouR MARket
leAdInG poSItIonS
rEcoGNISED MArKET LEADEr
our reputation, product range, advanced trading platforms
and financial strength have all contributed to the market
leadership of our businesses in many of the countries in which
we operate, including the uK, Australia, France, Italy and Spain.
retain and develop our existing client base
With an emphasis on innovation, competitive pricing and
customer service, we aim to anticipate and exceed our
clients’ expectations with frequent product reviews and
technological advances
50%
Business Review: delivering our Strategy
Independent research company Investment Trends has
confirmed that IG Markets is the largest single provider of
cFD accounts in the uK and Australia, with a primary account
market share of 27% and 34% respectively, while IG Index is the
uK’s largest spread-betting company, with a market share of
39% of primary accounts.(1)(2)
IG Group and its brands have consistently won industry awards
in recent years, recognising everything from our overall quality
of service, through to technology and top employer awards.
The past financial year has been particularly successful, with
16 distinct industry award wins.
SuSTAINING our LEADErSHIP
our strategy is built upon sustaining our lead in the countries
where we are already at the forefront, while also growing
market share in the less developed markets. We plan to achieve
this in the following ways:
KPI HIGHLIGHTS – MArKET SHArE ExTENDED
KPI highlight – market share extended(1)(2)
FY2010
FY2011
45%
%
e
r
a
h
s
39%
Attract new clients
our market-leading technology platforms, financial strength
and stewardship of client money, together with our range
40%
of educational resources, all provide new clients with an
34%
appropriate environment in which to trade. our strategic
35%
focus is to attract high-net-worth clients who are more suited
30%
to trading rather than simply driving for market share. To this
end, we introduced additional wealth restrictions in 2011
25%
27%
t
e
Target competitor clients
k
r
a
one of our key marketing strategies is to focus on attracting
M
clients looking to switch provider. We accomplish this by
15%
highlighting IG Group’s core differentiating factors, namely –
our reputation, financial strength, excellent client service, large
10%
range of products and superior trading platforms
20%
5%
(1) Investment Trends: ‘2010 UK Financial Spread Betting & CFD Trading Report’
(November 2010)
0%
(2) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
IG Index
IG Markets
UK
IG Markets
Australia
Primary account market share
Market share advantage over nearest competitor
%
e
r
a
h
s
t
e
k
r
a
M
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
39%
FY2010
FY2011
34%
27%
IG Index
IG Markets
UK
IG Markets
Australia
%
e
r
a
h
s
t
e
k
r
a
M
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Nearest competitor
IG
39%
34%
27%
20%
7%
9%
UK Spread
Betting
UK
CFDs
Australia
CFDs
10 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
11
%
e
r
a
h
s
t
e
k
r
a
M
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Nearest competitor
IG
39%
34%
27%
20%
7%
9%
UK Spread
Betting
UK
CFDs
Australia
CFDs
30%22%29%30%22%29%
delIveRInG ouR StRAteGY
Business Review: delivering our Strategy
2
expAnd ouR
GloBAl ReACH
GroWING INTErNATIoNAL PrESENcE
our international network is growing rapidly and in the past
five years we have opened 11 new offices. We developed our
European operations further this year with the opening of an office
in Amsterdam, while the acquisition of the Johannesburg-based
10,000
business Ideal cFDs has provided us with a presence in South Africa.
Australia
Europe (excl. UK)
8,000
We have also developed Nadex, our uS business, to benefit from
recent changes in the regulatory environment which favour
trading across an exchange rather than over-the-counter (oTc).
In addition, PFGBEST, one of the largest non-clearing Futures
commission Merchants (FcMs) in the uS, has now become a
Nadex member and has begun to promote Nadex products
both to its existing clients and to the wider uS retail market.
6,000
4,000
We believe that our products have the potential to reach
market penetration levels similar to those in the uK in the
majority of countries where we have a business presence. Aside
from our newest offices, our fastest growing country market
is in Germany, which has seen a 54% increase in revenue in
the past financial year. The Group’s primary account market
share in Germany(1) is 14% compared to 27% in the uK (cFD
accounts) and 34% in Australia.
2,000
0
(1) Investment Trends: ‘2011 Germany CFD and FX Report’ (March 2011).
Jun-06
N ov-06
Sep-07
A pr-07
Feb-08
Jul-08
D ec-08
M ay-09
Oct-09
Aug-10
M ar-10
Jan-11
M ay-11
KPI highlight – increasing scale in Europe
s
t
n
e
i
l
c
e
v
i
t
c
a
y
l
h
t
n
o
M
INcrEASING BrAND AWArENESS
We have invested in expanding international awareness of
our brands through sponsorship – in particular IG Markets’
increasing involvement in professional-level cycling. The sport’s
audience ties in closely to our core client demographic, and
cycling enjoys high exposure in many of our operating countries.
our investment includes an official partnership with professional
cycling outfit Team Sky, a number of race sponsorship deals, and
the launch of the IG Markets Pro cycling Index – a new ranking
system to recognise the world’s best riders.
PArTNErS AND INSTITuTIoNAL BuSINESS
In addition to our focus on the recruitment and servicing of
direct retail clients, we have a diversified base of over 370
global partners. our partnerships, in which a third party
introduces the client, enable us to achieve increased client
recruitment and a low-cost presence in markets where our
brands are not yet fully established.
cENTrALISED oPErATIoNS
our centralised operating model enables our experienced
management team to control our global operations effectively.
It supports organic growth and ensures that our expansion into
new territories is both low-cost and capital-efficient.
%
e
u
n
e
v
e
r
K
U
-
n
o
N
50%
40%
30%
20%
10%
0%
Active client base growth relative
to more mature market
Australia
Europe (excl. UK)
Geographic net trading revenue (excluding Japan)
Percentage of non-uK revenue
Gro wth Rate (C A G R) 74 %
Co m pound A nnual
10,000
s
t
n
e
i
l
c
e
v
i
t
c
a
y
l
h
t
n
o
M
8,000
6,000
4,000
2,000
FY07
FY08
FY09
FY10
FY11
0
Jun-06
N ov-06
Sep-07
A pr-07
Feb-08
D ec-08
Jul-08
M ay-09
Oct-09
Aug-10
M ar-10
Jan-11
M ay-11
12 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
13
Co m pound A nnual
Gro wth Rate (C A G R) 74 %
%
e
u
n
e
v
e
r
K
U
-
n
o
N
50%
40%
30%
20%
10%
0%
FY07
FY08
FY09
FY10
FY11
delIveRInG ouR StRAteGY
3
SuStAIn ouR
teCHnoloGY leAd
ADvANcED AND roBuST TEcHNoLoGY
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 such features as real-time pricing
and one-click dealing. over 99% of all trades are executed
automatically in less than one tenth of second.
our in-house team of over 200 developers has created
an award-winning online platform that uses innovative
technology to keep us at the forefront of the industry.
Some of the platform’s key features include:
Fully-customisable interface, enabling clients to monitor
their favourite markets with ease
Trading tools including reuters news feeds, research and
market analysis
Extensive charting packages with real-time charts, inbuilt
trading pattern software and the ability to amend orders
directly through the charts
Direct Market Access (DMA) capability, enabling clients to
trade straight into the order book of equity exchanges and
view the full market depth
ExTENSIvE MoBILE SoLuTIoNS
Mobile technology is a major focus of development, and in the
past year we have released apps for the iPhone, Android and
BlackBerry phones, including the uK’s first mobile DMA service
for cFDs. clients have adopted our apps at an impressive rate,
with almost 14% of client-initiated deals now being made via
mobile and around 10% of new account applications being
made on mobile devices. The profile since January 2010 is
displayed opposite.
We also provide a mobile dealing platform optimised for
touchscreen technology, enabling clients to make full use of
our advanced platform features from smartphones and other
mobile devices.
FINANcIAL STrENGTH FAcILITATES
ProDucT INNovATIoN
IG Group is strongly capitalised, debt-free and highly cash
generative, providing us with the scale and competitive
advantage to focus on technological development. We have
built a team of developers with a strong history of innovation
working alongside our dealing team. The Group has been
at the forefront of introducing new products which have
subsequently been adopted by the rest of the industry – for
example spread betting on shares, Guaranteed Stops, Binary
Bets, custom Bets and online DMA solutions.
14 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Business Review: delivering our Strategy
KPI highlight – growing importance of mobile dealing
Number and percentage of mobile deals since January 2010
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Number of mobile deals
Percentage of mobile deals
Jan-10
Feb-10
M ar-10
A pr-10
M ay-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
N ov-10
D ec-10
Jan-11
Feb-11
M ar-11
A pr-11
M ay-11
Jun-11
16%
14%
12%
10%
8%
6%
4%
2%
0%
15
delIveRInG ouR StRAteGY
4
ContInue HIGH levelS oF
ClIent SeRvICe
coMMITMENT To TrEATING cuSToMErS FAIrLY
At IG Group, we are very proud of our excellent reputation for
client service and customer support, and we believe that these
high standards are a key differentiator between us and our
competitors. As part of our dedication to our clients, we are
fully committed to the FSA’s ‘Treating customers Fairly’ (TcF)
initiative and have developed a scorecard of 25 measures to
monitor how we treat our clients.
central to the Group’s TcF policy is the quality of our order
execution. We offer near-instantaneous execution, with
around 99% of client orders accepted automatically. We never
re-quote prices and, within our set margin of tolerance, we
will accept orders even if the market moves. our innovative
Price Improvement technology enables customers to receive
a better price if one becomes available as a trade is executed.
coMPETITIvE AND TrANSPArENT PrIcING
We offer transparent prices that are competitively low, while
maintaining our trademark quality of service and trade
execution. We offer spreads starting from just one pip on
the major currency pairs, while our commission rates start at
0.1% for uK equities.
To provide our clients with better prices and greater liquidity,
we source prices from Europe’s top Multilateral Trading
Facilities (MTFs) – chi-x, Turquoise and BATS – as well as from
the major European exchanges, such as the London Stock
Exchange and Euronext. This enables us to offer the narrowest
market spreads derived from the best bid and offer prices
available in the underlying market.
16 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Business Review: delivering our Strategy
‘client money’ bank accounts. The FSA has recently tightened
client money rules and this has not had a significant effect
upon the Group as we were already operating in accordance
with best practice in this area.
NET ProMoTEr ScorE
Independent research company Investment Trends has
measured customer satisfaction among spread betting and
cFD trading clients via the Net Promoter Score (NPS) method.
researchers asked clients if they would recommend their
provider to a friend or colleague. The study found that
IG Index currently has the highest NPS of all uK spread betting
companies(1), while IG Markets has the leading NPS among
cFD providers in the uK(1), Australia(2) and Singapore(3).
The Net Promoter Score (NPS) is calculated by asking respondents:
‘How likely are you to recommend this company to a friend or
colleague?’ Respondents reply on a 0-10 scale, with the final NPS
calculated as the percentage of promoters (those answering 9 or
10) minus the percentage of detractors (those answering 0 to 6).
cLIENT SuPPorT AND EDucATIoN
We provide extensive educational resources for
clients, including:
Industry average*
IG Markets
Nearest competitor
An introductory education programme promoting
responsible trading
A wide range of client seminars and webinars, available
online and in person
Daily research bulletins on major financial markets,
including equities, commodities and forex
Live news feeds from reuters
A comprehensive online help portal
regular technical analysis and in-depth research from
both our in-house team and third party sources
+27
+14
cLIENT MoNEY ProTEcTIoN
IG Group adopts a best-practice approach to client money
protection. We follow the client asset rules set by the uK’s
Financial Services Authority (FSA) and similar rules of other
regulators in whose jurisdiction we operate. In the uK, Europe,
uS and Asia Pacific we segregate all retail clients’ funds into
-5
-10
0
10
20
30
(1) Investment Trends: ‘2010 UK Financial Spread Betting & CFD Trading Report’
(November 2010)
(2) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
(3) Investment Trends: ‘2010 Singapore FX & CFD Report’ (September 2010)
KPI highlight – Net Promoter Score
uK spread betting
uK cFD trading
IG Index
Nearest competitor
Industry average*
IG Markets
Nearest competitor
Industry average*
+22
+8
+27
+14
-15
-5
-20
0
-10
* Weighted by primary market share
10
20
30
-10
0
10
20
30
17
IG Index
Nearest competitor
Industry average*
+22
+8
-15
-20
-10
0
10
20
30
ouR BuSIneSS Model
Business Review: our Business Model
Our businesses provide a platform that harnesses demand for retail financial
derivatives trading. The recruitment and retention of clients is supported by our range
of products, advanced technology, competitive pricing, customer service, financial
strength and business expertise. Our system of controls to monitor and manage risk
ensures we generate high-quality earnings through each of our revenue sources.
cLIENTS
over 49,000 clients recruited in 2011 financial year
over 130,000 clients trading in 2011 financial year
14 international sales offices
online presence in over 130 countries
370 business partners to extend global reach
OUR BUSINESSES
COMMERCIAL MODEL
QuALITY oF EArNINGS
risk averse model: our hedging ensures profit is
made whether markets go up or down, as long
as clients are trading
No loss-making days since May 2008
rEvENuE SourcES
An initial spread or commission for each trade
client funding charges to reflect leveraged trading
Additional charges for Guaranteed Stops
Interest on cash balances
revenue is earned across multiple asset classes
rISK MANAGEMENT
Scale of operations promotes natural hedging
opportunities: client positions often balance each
other out
IG Group’s liquidity enables funding of large hedging
positions with brokers when necessary
clients provide margin up-front and are closed out
of positions if margin is significantly eroded
real-time mark-to-market trading platform calculates
client profit and loss continuously, to mitigate
excessive losses
TEcHNoLoGY &
PrIcING
Award-winning trading
platform
Focus on mobile technology
competitive pricing
including Price
Improvement technology
cLIENT
FocuS
24/7 customer service
comprehensive education
and support
Treating customers Fairly
(TcF) initiative ensures
continued quality service
BuSINESS
ExPErTISE
Market leader for 37 years
Multi-award-winning
company
recognised as a top
employer with high-
quality employees
FINANcIAL
STrENGTH
FTSE 250 company
regulatory capital
surplus
Facilitates IT investment
and product excellence
For detailed practical examples of a spread bet and a cFD trade,
please see the Investors resources section, pages 134-137.
Forex • Indices • Shares • Commodities • Binaries
Options • Interest Rates • Bonds • ETFs • Sectors
18 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
19
CHIeF exeCutIve’S RevIeW
Through the year we have extended our share in some of our largest markets and
have taken a number of steps to further strengthen our competitive position. We
remain committed to investing in our technology and we enter the coming year well
positioned to build on our high levels of client service and to maintain and build on
our market-leading position across our geographical markets.
In the last year we have taken a number of major steps
to further improve our competitive positioning. We have
relocated our London head office and data centre, made
important advances in our technology offering, achieved
market share gains in some of our largest markets and
restructured our Japanese business. In the few weeks since
the year-end we have shut our Sport business and have
restructured responsibilities within the senior management
team. All of these are important developments which will help
us to continue to maintain and build on the Group’s leading
market position. I discuss each of them below.
primary accounts, while our nearest competitor has 20%.
our European businesses grew revenue by 21%, made up of
33% growth in active clients and a 9% fall in revenue per client.
Germany was the fastest growing of our European offices with
revenue growth of 54%. An 11% increase in revenue per client
contributed to this growth. Market research indicates that we
are the second largest cFD provider in Germany, and that we
are gaining market share rapidly. Europe now contributes over
18% of Group revenue and is likely to become an increasingly
material contributor to Group revenue and revenue growth
over the next few years.
revenue(1) growth this year was 7%, which is much lower than
I believe the Group is capable of in a more normal economic
and market environment. underlying growth in client numbers
was stronger than revenue growth in virtually every market
in which we operate. For the Group as a whole the number
of clients trading in the year was 11% higher than in the
previous year, and excluding Japan it was 13% higher. In the
first half of the year we faced a headwind of falling volatility
and a backdrop of poor economic conditions in many of the
countries in which we operate, and these factors undoubtedly
had an adverse effect on revenue per client. In our third
quarter we saw a slight improvement in revenue per client for
the Group as a whole. revenue per client was down 3% in the
final quarter of the year, but this was largely due to a single
weak month in April when dull markets were combined with
an extended uK holiday period. We achieved our best monthly
revenue on record in March 2011.
PErForMANcE oF our MAIN BuSINESS uNITS
our uK financial business, which represents 52% of revenue,
achieved revenue growth of 3%. This was made up of 8%
growth in active clients, offset by a 5% fall in revenue per client.
This fall in revenue per client was weighted towards the first
half of the year, and in the third quarter revenue per client rose
slightly when compared to the same quarter a year before,
suggesting that our clients were becoming accustomed to
lower levels of market volatility. The final quarter of the year
was impacted by a poor April.
our Australian business, which represents 15% of revenue,
achieved revenue growth of 4%. This was made up of 11%
growth in active clients offset by a 6% fall in revenue per client.
revenue per client recovered well in the final quarter of the
year and was at its highest level for the year in May. recent
market research indicates that we have extended our market
lead over the last year, and that we now have a 34% share of
our Japanese business operates in an extremely challenging
competitive and regulatory environment and made up only
7% of revenue for the year. The imposition of leverage limits on
forex in August 2010 and on equity indices in January 2011 had
a significant impact, and as a result revenue was 14% lower than
in the previous year. There remains a further leverage restriction
to come on forex in August 2011, but there are some signs that
the Japanese regulators may revisit the appropriateness of the
current regime. Furthermore, a new tax regime under which
our products will be treated in the same way as exchange-listed
instruments will come into force on 1 January 2012. I am hopeful
that we might, in due course, see Japanese regulation begin
to move in a direction which provides improved consumer
protection while at the same time better suiting our existing
business model. During the year we re-branded our Japanese
business as IG Markets Securities.
As previously announced, during the year we wrote off
the entire goodwill and other intangibles relating to our
Japanese business – a non-cash cost of £143 million. This
has no impact on the Group’s cash flow, regulatory capital or
dividend capacity.
INTErNATIoNAL ExPANSIoN coNTINuES
In September 2010 we acquired the client list and business
of our South African white label partner, Ideal cFDs. We now
trade in South Africa under the IG Markets brand. The owner
of Ideal cFDs initially had a 20% minority interest in our South
African subsidiary, but by mutual agreement we exercised
our option over half of that interest during April 2011, for £1.2
million, and they now have a 10% interest. We anticipate that
we will acquire this remaining 10% interest in January 2013
based on a multiple of profits generated in the period from
acquisition until November 2012. our South African offices in
Johannesburg and Durban are now fully integrated into the
Group and are showing initial signs of encouraging growth.
(1) ‘Revenue’ throughout the Chief Executive’s Review refers to net trading revenue,
which is trading revenue excluding interest on segregated client funds and is net
of introducing broker commissions.
Business Review: Chief executive’s Review
European contribution to Group revenue
18%
Growth in active clients (excluding Japan)
+13.5%
Percentage of clients using mobile devices
30%
revenue for the nine months since acquisition was £2.75
million. revenue from our white label with Ideal cFDs was
previously included within revenue from the uK office and
amounted to £1.8 million in the prior year and £0.5 million in
the first quarter of the 2011 financial year.
In May 2011 we opened an office in Amsterdam. The
Netherlands has an active online trading culture, which
we believe is currently poorly serviced by opaquely-priced
exchange-traded derivative products. We regard this as a
good indicator that there will be strong demand for our cFD
products, which have completely transparent pricing. It is
only a few weeks since our Dutch office opened, but we are
encouraged by its early performance.
We continue to explore opportunities to expand
further geographically.
THE uS
our uS exchange, Nadex, has seen encouraging growth in
volumes of clients coming to it direct. We continue to view
brokers as our main route to market, and the technological
process of getting our first such broker live has been
frustratingly slow, but PFGBEST have, within the last few days,
begun to promote Nadex products both to their existing clients
and to the wider uS retail market. They are at the final stages of
testing the technology by offering our products to their clients
within their demo platform and expect to go fully live shortly.
It is much too early to assess the scale of opportunity which
PFGBEST represents. Having successfully completed the first
integration of a broker to Nadex we would expect that future
integrations will be somewhat easier. We are in discussions
with other brokers, but it is unlikely that these will commit to
the necessary work until we have more evidence of the level of
uptake from PFGBEST clients. I continue to believe that there
is a significant opportunity for us in the uS which will come to
fruition over the next few years.
During the year we closed IG Markets Inc, our uS forex broker,
which was generating negligible revenue, to enable us to
concentrate exclusively on Nadex.
20 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
21
CHIeF exeCutIve’S RevIeW
(continued)
Business Review: Chief executive’s Review
betting business and have progressively rolled it out across all
of our businesses worldwide. our cFD iPhone app gives clients
the ability to have Direct Market Access to an aggregate order
book formed from the primary stock exchange and the main
alternative execution venues, a combination of features which
we believe to be unique. During the year we also released a
Blackberry app and since the year-end we have released an
app for Android devices. We have been pleased with the initial
take-up, and usage of these apps is steadily increasing. Last
month almost 14% of all client-initiated deals were done using
mobile devices; around 30% of our active clients use mobile
devices to place some of their trades; and over 10% of account
applications are made using mobile devices. We will continue
to invest heavily in ongoing development of our mobile
offering, which we believe will become increasingly important.
We are currently developing an app for Windows Phone 7
devices and for tablets, including the iPad.
over the last two years we have been building our own charts
package, to reduce our dependency on a third-party charting
package provider. This should produce cost savings for us
over the longer term, and our clients will also benefit from a
much closer integration between dealing and charts. The first
stage of this development has gone live in some of the smaller
countries in which we operate and will be progressively rolled
out worldwide in the coming months. We have capitalised
a total of £2.5 million of development costs relating to this
project over the last two financial years, which we will now
start to amortise over a three-year period.
HIGH LEvELS oF cLIENT SErvIcE
our substantial investment in technology enables us to offer
unrivalled quality of pricing and execution to our clients. We
have been progressively improving the level of automation
of our dealing and in May 99.93% of internet deals were
automatically processed, with no human intervention and no
re-quotes. At peak load in that month we were processing 347
client orders per second.
We also remain the only spread betting or cFD provider to
offer Price Improvement, whereby we pass on a better price to
our client if it becomes available while the client order is being
executed. In addition, unlike some of our competitors, we will
never fill a client order at a worse price than that requested by
the client. We are also the only spread betting or cFD provider
to source prices from and route execution for equities into
Multilateral Trading Facilities, allowing our clients to benefit
from greater liquidity and narrower market spreads as a result.
MANAGEMENT cHANGES
chris Hill joined us as cFo in April. He brings extensive
experience of managing international businesses and is a
valuable addition to our senior management.
over the last few weeks I have made a number of changes
to responsibilities within my senior management team.
The aim of these changes is to ensure that we are taking a
consistent approach in each of our offices worldwide where
it is appropriate to do so, while being sensitive to local
regulatory and cultural differences. A key aspect of this is
that Peter Hetherington, our chief operating officer, has
taken charge of all of our sales offices, ensuring that they all
operate in a standardised way and maximise revenue through
concentrating on client on-boarding, retention and value.
The other significant change at Board level is that Andrew
MacKay has assumed the newly-formed role of Director of
corporate Strategy. We believe that there are a number of
potentially significant opportunities for both geographic and
product expansion which will help to drive our future growth,
which Andrew will be focusing on in the coming months.
currENT TrADING AND ouTLooK
The new financial year has started well, with revenue from
our financial business higher than in June 2010, despite
substantially lower levels of market volatility.
our ongoing investment in technology and our commitment
to fair, transparent execution continue to drive market share
gains in a number of our key markets, leaving us well placed for
future profitable growth.
Tim Howkins, chief Executive
19 July 2011
ExTrABET
During the year we ran an extensive sales process to sell our
Sport business, extrabet, as a going concern. We were unable
to find a buyer on acceptable terms and as a result we decided
prior to the year-end to sell extrabet’s client list. This sale, to
Spreadex Limited, was completed during June. We have now
closed our Sport business, but are in discussions with a number
of potential purchasers of our pricing engine software.
The decision to close extrabet will allow us to focus exclusively
on our much larger and more profitable Financial business, as
well as greatly improve our IT maintenance windows with the
removal of a business which was busiest during the weekends.
We have incurred approximately £2.5 million of cash costs
relating to the closure of extrabet, principally redundancy and
property-related costs. In addition we have written off the
goodwill associated with our Sport business of £5.25 million, a
non-cash cost which has no impact on the Group’s cash flow,
regulatory capital or dividend capacity.
INvESTMENT IN TEcHNoLoGY
We continue to invest heavily in technology, which we see
as a key competitive differentiator and driver of long-term
profitable growth. During the year, in conjunction with the
relocation of our head office, we built and equipped a new
data centre. We spent a total of almost £5.0 million during
the year on hardware and a further £5.0 million on software
licences, the majority of which was for a three-year enterprise
licence for customer relationship Management software.
However, our largest IT investment is in our people. We now
have approximately 350 staff within our IT department,
representing over a third of our global workforce. The total
employment costs for this IT team exceeded £23.5 million in
the year, compared to £18.7 million the year before.
our IT department covers both ongoing support of existing
software and channels and the development of new features
and distribution channels. over the last year we have made
significant advances in two areas: mobile and charts.
We have almost 40 people working on our mobile platforms,
a level of investment which few of our competitors can match.
We released our first iPhone app a year ago for our uK spread
22 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
23
opeRAtInG And FInAnCIAl RevIeW
This section reviews the Group’s operating performance
and financial results for the year.
our STrATEGY AND our BuSINESS
IG Group’s overall business strategy is set out earlier in the
Business review, along with our plan to deliver that strategy
and the Group’s business model. The key business risks arising
from our strategy, as well as their mitigation, are explained
following this operating and Financial review.
Additionally a worked example of a cFD trade and a spread bet
are provided in the Investor resources and other Information
section that follows the Group Financial Statements.
coMPETITIvE ENvIroNMENT
IG Group has established leading positions in many of the
markets in which it operates. We are the market leader in the
uK and in Australia, where we extended our lead this year.
We are number two in Germany, but are taking market share
from our competition.
We have often been the first entrant in 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
with high margins and strong cash generation. our high levels
of client service and financial strength are appealing to our
clients and ensure that we are well placed to deal with changes
in the regulatory environment. our technology platforms,
which offer efficient dealing, liquidity and competitive pricing,
are all accessible via browser or mobile and provide us with a
competitive advantage in winning and retaining clients.
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 (apart from Nadex products) and
are not assignable or tradable with any other third party;
they are derivatives; and they are leveraged. consequently we
require regulatory authorisation to conduct our business in
jurisdictions where we operate. There are a large number of
rules that attach to our various regulatory authorisations, and
compliance with these rules is fundamental to the business.
We therefore invest significant resources to ensure that we
comply with both the letter and the spirit of regulations that
govern our global business.
Since the financial crisis, we have seen the pace of regulatory
change quicken and the level of regulatory intervention
increase. There are currently a number of different policy
initiatives and proposals being discussed that may impact or
have already impacted our sector, as described below:
The FSA recently issued a discussion paper containing
several policy proposals about the extent to which it should
be permitted to intervene in product design where there is
evidence that such intervention is required in order to prevent
consumer detriment. We have shared our views with the FSA
on this approach as we do not consider that our clients suffer
detriment and will monitor developments carefully.
The European commission is reviewing the Markets in
Financial Instruments Directive (MiFID), with draft legislative
proposals due for release in the second half of 2011. Based
on early policy proposals of the commission, we do not
Business Review: operating and Financial Review
believe that the MiFID review will pose a threat to our
uK and European businesses but we are monitoring the
situation carefully.
The Australian Securities and Investments commission
(ASIc) has undertaken a large amount of policy work in our
industry over the past year. We expect a number of changes
to come into effect in the coming year as a result of this,
including regulatory capital changes, disclosure changes
and client suitability changes. We have engaged with ASIc
thoroughly on these issues and we do not expect that these
changes will have a substantial impact on our business.
During the year, the Monetary Authority of Singapore (MAS)
brought in guidance encouraging firms to undertake client
suitability assessments during the account application
process to determine whether their services are suitable for
each individual client. We have implemented MAS’ guidance
within our own Singapore business; the impact of doing so
has not been material.
our Japanese business operates in an increasingly difficult
regulatory environment, with progressive leverage limits
being introduced on trading in forex, equity indices,
equities and other asset classes during the year. In light of
the significant adverse impact of these regulatory changes
we fully impaired the carrying value of the goodwill and
customer relationships associated with our Japanese
business as at 30 November 2010.
In addition, the following events occurred during the year and
had an impact upon the Group’s regulatory environment:
The FSA recently tightened client money rules and this has
not had a significant effect upon the Group as we already
segregated all uK, Europe, uS and Asia Pacific retail client
funds into ‘client money’ bank accounts and were already
operating in accordance with best practice in this area.
During the year, the Financial Services compensation
Scheme (FScS) issued an interim levy related to the
continuing costs of Keydata Investment Services Limited and
other failed investment intermediary firms. Being classified
as an investment intermediary under FScS rules, we were
required to take part in this levy, our share of which was
£4.1 million, significantly higher than in prior years.
During the year, the decision was taken to close
IG Markets Inc, our retail forex business in the uS, in order
to concentrate on Nadex, our exchange business. This has
resulted in our surrendering IG Markets Inc’s regulatory
membership with the National Futures Association. Similarly,
the decision was taken to close extrabet, our sport betting
and casino business. This will result in our surrendering
extrabet Limited’s FSA and Gambling commission
authorisations. This has had the effect of reducing the
Group’s regulatory complexity and therefore reducing
our operational and regulatory risk.
We operate in a dynamic financial services industry and we
experience 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.
rESourcES AvAILABLE To THE GrouP
The Group has a strong, debt-free balance sheet and a history
of profitability, enabling continued investment in each of
our key brands, growth in our international reach and the
development of our advanced and robust technology.
The Group has significant capital resources and the surplus
over the capital resources requirement is disclosed later in
this section under regulatory capital resources.
our award-winning dealing platforms, our market-leading
brands and our active client base are all highlighted
within the What We Do and our Strategy sections of the
Business review.
our continued growth is highly dependent upon attracting
and retaining high-calibre employees. our employee numbers
and remuneration levels are discussed in detail later in the
operating and Financial review. The Group’s employees
have extensive knowledge of our key markets and actively
contribute to the development of new products and services.
The Group’s reputation for innovation and high levels of
customer service reflects over 30 years of investment in
technology. The vast majority of technology development
is carried out in-house and our employees continue to be
our key resource.
24 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
25
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW
An overview of the Group’s financial performance is provided
in both the chairman’s Statement and the chief Executive’s
review. The following section provides a more detailed analysis
of the Group’s financial performance for the year ended 31 May
2011, including a discussion of the Key Performance Indicators
(KPIs) used to monitor and control our business.
The critical accounting estimates and judgments that impact
the Group’s financial performance, together with new and
amended accounting standards adopted in the preparation of
the Financial Statements, are set out in note 37 to the Financial
Statements.
regulatory capital resources
£263.6m (+18.7%)
Total dividend per share
+8.1%
Dividend payout ratio(1)
61.3%
(1) Calculated as total dividend per share divided by diluted adjusted earnings
per share.
Summary Group Income Statement
£000
Net trading revenue(2)
2011
2010
320,392
298,551
other net operating income
4,863
1,172
Net operating income
325,255
299,723
operating expenses
(151,642)
(133,782)
EBITDA
173,613
165,941
Depreciation, amortisation and
amounts written off property,
plant and equipment
(10,583)
(8,654)
Interest (paid) / received
(30)
352
Adjusted profit before tax(3)
163,000
157,639
Amortisation and impairment
of intangibles
(155,953)
(17,298)
Profit before taxation
7,047
140,341
Tax expense
(32,339)
(38,855)
(Loss) / profit for the period
(25,292)
101,486
Diluted adjusted earnings
per share
32.64p
30.77p
Total dividend per share
20.00p
18.50p
(2) Net trading revenue is trading revenue excluding interest on segregated client
funds and is net of introductory broker commissions.
(3) Adjusted profit before taxation excludes both the amortisation and impairment
of goodwill and customer relationships associated with our Japanese business,
IG Markets Securities (formerly FXOnline), and the impairment of goodwill
associated with the Sport business.
Business Review: operating and Financial Review
Net trading revenue grew 7.3% to
£320.4m in mixed market conditions
KPI: net trading revenue
clients can trade on a number of different asset classes from
one account and this is a major competitive advantage. As a
result, our clients’ trading patterns vary with volatility across all
the markets in which we offer products. The year ended 31 May
2011 saw mixed market conditions across asset classes which
drove differing levels of client activity.
The profile of the vIx (the chicago Board options Exchange
Market volatility Index measure of the implied volatility of the
S&P 500), which focuses on equity markets, highlights that
volatility has trended back to a more normal level after the
extremes of october 2008 to March 2009. Subsequent spikes
have occurred in May and June 2010 and in March 2011, and
these have driven record levels of client activity.
The first few months of the financial year saw strengthening
equity markets, which encouraged clients to trade equity cFDs
and spread bet on shares. This was then followed by a period
of range-bound markets with a tail-off in volatility, resulting
in a reduction of activity. In a similar manner, Fx revenues in
the year were closely correlated with the Deutsche Bank Fx
volatility index. Finally, several markets including oil, gold
and silver all saw heightened volatility towards the end of the
financial year and this boosted activity. As a result March 2011
provided the Group’s highest ever monthly net trading revenue.
I
I
x
e
d
x
n
e
I
d
X
n
V
X
g
n
V
i
s
g
o
n
l
i
C
s
o
C
I
l
x
e
d
x
n
e
I
d
y
n
t
i
I
l
i
y
t
a
t
i
l
l
o
i
t
V
a
X
o
F
V
X
F
l
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Jun-07
Jun-07
16
15
16
14
15
13
14
12
13
11
12
10
11
9
10
8
9
7
8
6
7
6
M ay-10
M ay-10
vIx volatility FY08-FY11
Sep-07
Sep-07
D ec-07
D ec-07
M ar-08
M ar-08
Jun-08
Jun-08
Sep-08
Sep-08
D ec-08
D ec-08
M ar-09
M ar-09
Jun-09
Jun-09
Sep-09
Sep-09
D ec-09
D ec-09
M ar-10
M ar-10
Jun-10
Jun-10
Sep-10
Sep-10
D ec-10
D ec-10
M ar-11
M ar-11
M ay-11
M ay-11
Deutsche Bank Fx volatility Index FY11
Jun-10
Jun-10
Jul-10
Jul-10
Aug-10
Aug-10
Sep-10
Sep-10
Oct-10
Oct-10
N ov-10
N ov-10
D ec-10
D ec-10
Jan-11
Jan-11
Feb-11
Feb-11
M ar-11
M ar-11
A pr-11
A pr-11
M ay-11
M ay-11
26 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
27
Business Review: operating and Financial Review
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
Net trading revenue grew in all regions except Japan
KPI: geographic net trading revenue
Given the scale of revenue growth in the prior year, which
was driven by significant levels of market volatility in the final
quarter, and the current year impact of leverage restrictions in
Japan, the Group faced a tough set of comparatives during the
2011 financial year. Excluding Japan, revenue from the financial
business increased by 9% with Europe and the rest of the
World providing the highest growth rates. Growth rates of net
trading revenue by region are highlighted below.
The uK, our largest market, saw a less favourable share trading
environment for the cFD business but spread betting revenue
grew 6% year on year. The comparatives are affected by the
acquisition of Ideal cFDs, our South African white label partner,
which was previously included in the uK and is now reported
in rest of the World. revenue from our white label with Ideal
cFDs was previously included within revenue from the uK
office and amounted to £1.8 million in the prior year and
£0.5 million in the first quarter of the 2011 financial year.
our Australian business had a strong final quarter, leaving it
well positioned for the new financial year with overall revenue
growing by 4% to £47.6 million (2010: £45.7 million) for the year.
The European businesses grew revenue by 21% to £57.5 million
(2010: £47.4 million) driven by a strong performance in Germany,
which was the fastest growing of our European offices with
revenue growth of 54%. our French business grew by 17%,
whilst Italy and Spain performed well under very challenging
economic conditions. Europe now contributes 18% of Group
revenue and is likely to become an increasingly significant
contributor to Group revenue growth over the next few years.
our Japanese business operates in an extremely challenging
competitive and regulatory environment. The imposition of
leverage limits on forex in August 2010 and on equity indices
in January 2011 had a severe impact on revenue, which was
14% lower than in the previous year.
The rest of the World revenue grew 52% to £19.9 million
(2010: £13.0 million) due to a strong performance in Singapore
which was up 38% and the acquisition of the South African
white label partner, Ideal cFDs, previously reported in the uK.
Excluding the impact of the acquisition, the rest of the World
annual revenue growth was 31%. This growth rate is diluted
by changes in the uS which saw us close our oTc business to
allow management to focus on the Nadex exchange business
which, as reported elsewhere, has made encouraging progress
in the financial year.
)
m
£
(
e
u
n
e
v
e
R
180
160
140
120
100
80
60
40
20
0
+3%
Geographic net trading revenue
FY2009
FY2010
FY2011
+4%
+21%
-14%
+52%
UK
Australia
Europe
Japan
Rest of the World
changes in revenue by asset class
reflect individual market movements
KPI: net trading revenue by asset class
The changing mix of revenues by asset class from the prior to
the current year reflects our wide product offering that can
provide our clients with interesting trading opportunities
under a range of market conditions. Equity indices remain our
highest revenue-generating asset class, with forex second,
despite a reduced contribution during the year. commodities
increased their contribution, reflecting the volatility seen in oil,
gold and silver markets, while shares remained flat.
FY11 Financial revenue £312.7m
2011
2010
22% Shares
36% Equity Indices
26% Forex
11% commodities
Binaries
5%
FY10 Financial revenue £292.6m
23% Shares
35% Equity Indices
29% Forex
9% commodities
Binaries
4%
28 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
29
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
Active clients grew 13% (excluding Japan) and
revenue per client was stable
rates of account opening and propensity to trade are heavily
influenced by underlying market conditions, as highlighted
earlier in this section, as well as our own and competitor
activity. The primary drivers of the Group’s financial revenue
are the number of active clients and the average revenue per
client. These are discussed in turn below. A five-year summary
of other client metrics is provided in the Investor resources
and other Information section.
Number of active clients – continued growth
despite tough comparatives
KPI: number of active clients
During the year the number of active financial clients,
excluding Japan, increased 13% to 117,252 (2010: 103,338).
Europe saw strong growth with a 33% increase and the rest
of the World grew 28%. Both Australia and uK spread betting
delivered double digit growth but the uK cFD business saw a
lower growth rate as a result of less favourable equity trading
conditions compared to the prior year. Including Japanese
clients, the overall growth rate averaged 11%.
The profile of active clients over the last three years is
illustrated below. The more volatile conditions experienced
in March 2011 attracted a record number of clients trading
in any one month, surpassing the previous record month of
May 2010 and, in turn, resulted in our highest ever monthly
net trading revenue.
Business Review: operating and Financial Review
Quality of earnings demonstrated through
low volatility of trading revenue
KPI: daily net trading revenue
The stability of our revenue is illustrated in the chart below,
which shows the distribution of daily net trading revenue
during the financial year. This demonstrates the quality of
the Group’s earnings and also the effectiveness of our systems
and processes of market risk management. 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.
The Group did not experience a single loss-making day during
the financial year. our last loss-making day was a bank holiday
in May 2008.
KPI: average revenue per client
Average revenue per financial client (total revenue divided
by the number of active clients) varied during the year across
products and geographies.
over the course of the financial year, the average revenue
from uK spread betting and Australian clients was stable,
although the uK cFD business was impacted by the fading of
the favourable equity environment in the prior financial year.
overall, revenue per client in the uK was down 6% and up 1%
in Australia.
3,000
Total Financial (excl Japan)
2,000
2,500
)
£
European revenue per client fell 6.1% during the financial
(
t
n
year and this reflected both variations across asset classes and
e
i
l
c
geographies. In particular, Germany, which is characterised by
r
e
p
a lower average revenue per client than its European peers,
e
u
increased average revenue per client by 11%. This was offset by
n
e
falls in France, Italy and Spain.
v
e
R
1,500
1,000
500
Lower revenue per client levels in Japan reflected the impact of
new leverage restrictions introduced in stages over the course
of the financial year.
H 2-11
H 1-10
H 1-09
H 2-10
H 1-11
H 2-09
Monthly revenue vs active clients trading FY09-FY11
Average revenue per client FY09-FY11
Daily net trading revenue FY11
Financial revenue
Clients trading (excl. Japan)
Clients trading (Japan)
35
30
25
20
15
10
)
m
£
(
e
u
n
e
v
e
r
l
a
i
c
n
a
n
F
i
5
Jun-08
Sep-08
D ec-08
M ar-09
Jun-09
Sep-09
D ec-09
M ar-10
Jun-10
Sep-10
D ec-10
M ar-11
80
70
60
50
40
30
20
10
C
l
i
e
n
t
s
i
t
r
a
d
n
g
(
0
0
0
s
)
All Financial business (excl. Japan)
)
£
(
t
n
e
i
l
c
r
e
p
e
u
n
e
v
e
R
3,000
2,500
2,000
1,500
1,000
500
0
H 1-09
H 2-09
H 1-10
H 2-10
H 1-11
H 2-11
s
y
a
d
f
o
r
e
b
m
u
N
18
16
14
12
10
8
6
4
2
0
£0.0 m
Daily Mean £1.22m
£0.5 m
£1.0 m
£1.5 m
£2.0 m
£2.5 m
30 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
31
UK SB UK CFD Australia Europe Japan UK SB UK CFD Australia Europe Japan
opeRAtInG And FInAnCIAl RevIeW
(continued)
Business Review: operating and Financial Review
FINANcIAL rEvIEW (continued)
Sports – extrabet
The Group’s Sport business, extrabet, generated £7.7 million
of revenue in the current year (2010: £5.9 million) benefitting
significantly from the impact of the football World cup in June
2010. The Sport business represented less than 2.5% of the
Group’s current year revenue.
As discussed in the Business review and elsewhere in the
operating and Financial review, the Group has now completed
a redundancy consultation process with the employees of
extrabet prior to the closure of the business.
other net operating income
other net operating income includes betting duties paid by
the Group in relation to spread betting clients, and interest
earned on segregated clients’ funds net of interest paid to
those clients. This is broken out in detail on the statutory
Income Statement. Betting duties were £4.1 million and saw
a decrease of £0.2 million from the prior year. Net interest
income on segregated client funds increased to £8.9 million
(2010: £5.5 million) as a result of significant growth in the level
of client funds held and marginally better deposit rates.
Adjusted administrative expenses
Adjusted administrative expenses, which exclude amortisation
and impairment of intangible assets arising on consolidation,
increased by £19.8 million to £162.2 million (2010: £142.4 million).
underlying operating expenses, which also exclude depreciation,
amortisation and amounts written off property, plant and
equipment and exceptional items, increased by £18.6 million to
£148.0 million. The underlying operating costs are analysed in
the table below:
Adjusted administrative expenses
£000
2011
2010
Employee remuneration costs
74,726
72,054
Advertising and marketing
32,025
27,297
Premises related costs
9,410
6,669
IT, market data and communications
12,728
11,785
Legal and professional
regulatory fees
3,897
4,605
5,976
1,378
Bad and doubtful debts
(2,209)
(1,064)
other costs
11,445
6,636
underlying operating expenses
147,998
129,360
Depreciation, amortisation and
amounts written off property, plant
and equipment
Exceptional items (including
depreciation)
10,001
8,202
4,226
4,874
Total adjusted administrative expenses
162,225
142,436
Employee remuneration and advertising and marketing
costs comprise 72.1% of underlying operating costs in
the current year.
Employee remuneration costs
Employee remuneration costs increased to £74.7 million
(2010: £72.1 million), primarily resulting from an increase in
the average number of employees to 952 (2010: 828) reflecting
the investment in our platform and technological innovation
referred to in the chief Executive’s review. The increase in total
remuneration cost was mitigated by an £8.1 million reduction
in performance-related bonus and commissions payments.
As a result our total compensation ratio (i.e. total employee
remuneration expressed as a percentage of net trading
revenue) decreased to 23.3% (2010: 24.1%).
The Group pays performance-related bonuses to most staff
and makes awards under long-term incentive and value
sharing plans to key personnel. In addition, the opportunity to
acquire shares under various share incentive plans (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, employee
remuneration costs comprise:
£000
2011
2010
Fixed employment costs
56,226
44,939
Performance-related bonuses and
commissions:
Pool schemes
Specific schemes
9,505
13,889
4,770
8,444
Share-based payment schemes
4,225
4,782
Total employee remuneration costs
74,726
72,054
The average number of employees increased in the year to 952
(2010: 828), with year-end headcount being 989 (2010: 886).
An analysis of year-end headcount by geographic segment is
provided below.
Year-end number of employees
2011
2010
central
uK
Australia
Europe
Japan
rest of the World
Group
648
100
71
73
37
60
550
93
68
69
64
42
989
886
The Group employs a centralised operating model whereby
market risk is managed principally in the uK, switching to
Australia outside of uK hours. The headcount associated
with these operations is included in the central segment,
together with senior management, finance, middle office, IT
development, Hr, marketing and other support functions. At
31 May 2011 the Group employed 260 staff in IT development
roles (2010: 184 staff ), reflecting the significant level of
continued investment in our technology platforms.
other notable changes in the year include the reduction of
headcount in Japan, following action taken to significantly
reduce our Japanese cost base with the aim of ensuring
continuing profitability of this business, and the increase in
the rest of the World segment following the acquisition of
our South African business along with its 15 staff.
32 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
33
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
Marketing costs
The increase in advertising and marketing costs to
£32.0 million reflects initiatives to maximise the recruitment,
conversion and retention of clients globally, with spend
increasing across each of our businesses with the exception of
Japan. We have seen an increase in spend on Tv and outdoor
advertising in our larger markets, while online channels have
seen increased efficiency through the use of new technologies
to optimise our websites and through bringing paid search to
an in-house team.
Additionally we have invested in expanding international brand
awareness through sponsorship. During the year IG Markets has
become increasingly involved in professional-level cycling. The
sport’s audience ties in closely to our core client demographic,
and cycling enjoys high exposure in many of our operating
countries. our investment includes an official partnership
with professional cycling outfit Team Sky, a number of race
sponsorship deals, and the launch of the IG Markets
Pro cycling Index – a new ranking system to recognise the
world’s best riders.
Business Review: operating and Financial Review
other expenses
Premises-related costs increased by £2.7 million to £9.4 million
(2010: £6.7 million), reflecting the move to our new London
headquarters from August 2010, where we have additional
office space to accommodate the growth in headcount, as
well as the full-year impact of opening offices in Sweden
and Portugal. Additionally we opened a new office in the
Netherlands and added two offices in South Africa during the
financial year.
IT, market data and communication costs include the cost of IT
maintenance and short-term license arrangements as well as
market data fees from exchanges.
The significant increase in regulatory fees is primarily a result of
the interim levy imposed on certain investment management
firms by the Financial Services compensation Scheme (FScS)
related to the failure of Keydata Investment Services Limited
and other failed investment intermediary firms. Being classified
as an investment intermediary under FScS rules, we were
required to take part in this levy, our share of which was
£4.1 million – significantly higher than the prior year interim
levy of £0.3 million.
The full-year impact of use of our close-out monitor, which
automatically reduces our exposure to bad debts, and the
introduction of tiered-margining, contributed to limiting the
levels of new bad debt arising in the year to £1.2 million and
an overall net recovery of £2.2 million (2010: £1.1 million) in
relation to bad and doubtful debts. The management of credit
risk is described in detail in note 33 to the Financial Statements.
other costs include bank charges, training, travel, recruitment
and irrecoverable sales taxes. The increase in other costs
primarily results from irrecoverable sales taxes. In the prior
year, the Group benefitted from sales tax rebates in overseas
locations of £1.6 million and a lower effective vAT rate in
the uK. uK vAT is payable on the bulk of the Group’s uK and
European advertising and marketing, IT, market data and legal
and professional fees. The uK vAT rate averaged 18.5% in the
year ended 31 May 2011 compared to 16.0% in the prior year.
Depreciation, amortisation and amounts written off property,
plant and equipment increased to £10.0 million reflecting
investment over the period in IT systems, the move to our
new London headquarters and the acquisition of the client
list acquired with our South African business (Ideal cFDs). The
amortisation charge associated with this client list was
£1.2 million in the year.
Exceptional items included in adjusted profit before tax
Exceptional items
£000
relocation of the Group’s London
headquarters
2011
2010
1,752
4,874
closure of the Group’s Sport business
2,474
-
Total exceptional items included in
adjusted profit before tax(1)
4,226
4,874
(1) The above exceptional items exclude the impairment of intangible
assets associated with the Japanese and Sport businesses, which are not
reported in adjusted profit before tax, of £148.4 million (see note 4 to
the Financial Statements).
The relocation of the Group’s London headquarters in August
2010 resulted in an onerous lease charge for the excess office
space arising from the overlap of the lease period for the new
London headquarters with that of the Group’s existing London
premises, as well as accelerated depreciation of leasehold
improvements and other asset obsolescence. No further
exceptional costs associated with the relocation are anticipated.
During the financial year, the Directors decided that the Group
should investigate selling or closing the Sport business in order
to allow management to focus exclusively on the continuing
expansion and development of our Financial business. The
Group was unable to secure a sale of the business in its entirety
as a going concern on acceptable terms, and consequently
the Group commenced a redundancy consultation process,
subsequently completed on 12 July 2011, with the employees
of extrabet prior to the closure of the business. As a result
exceptional closure-related costs of £2.5 million, including
redundancy (£0.7 million) and onerous lease charges
(£1.3 million), have been incurred in the year.
The goodwill and intangible asset impairment charges of
£5.25 million and £143.1 million associated with the closure of
the Sport business and impairment of our Japanese business
are reported outside of adjusted profit before tax and are
therefore excluded from the table above.
34 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
35
Business Review: operating and Financial Review
Taxation expense
The effective rate of tax increased in the year to 458.9%;
however this includes the impact of the Japanese and Sport
related goodwill impairments of £128.2 million, which are not
allowable expenses for the purposes of taxation. Adjusting
for these items, the effective rate of taxation decreased to
23.9% (2010: 27.7%), reflecting both the relative impact of tax
adjustments in respect of prior years on these periods and an
increased proportion of profits flowing from lower corporation
tax rate jurisdictions in the year ended 31 May 2011.
The calculation of the Group’s tax charge involves a degree
of estimation and judgement, in particular with respect
to certain items whose tax treatment cannot be finally
determined until resolution has been reached with the
relevant tax authority. Further detail is provided in note 9
to the Financial Statements.
(6.1% growth) in the year ended 31 May 2011, from 30.77p
the prior year, and excludes amortisation and impairment
of intangible assets associated with the Group’s Japanese
business and impairment of the goodwill associated with
the Group’s Sport business and related taxation. Diluted
adjusted earnings per share (refer to note 10 to the Financial
Statements) is used as a primary measure of our underlying
profitability, and the annual Directors’ performance-related
bonuses are calculated by reference to this measure.
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.
Diluted adjusted earnings per share
KPI: diluted adjusted earnings per share
Diluted adjusted earnings per share increased to 32.64p
The Board has recommended a final dividend of 14.75p, to
bring the total dividend for the financial year ending 31 May
2011 to 20.00p (2010: 18.5p), an increase of 8.1%.
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
EBITDA margins
KPI: geographic ebItda contribution
We use EBITDA contribution, which includes an allocation of
central costs, primarily to assess the regional performance of our
businesses (see note 2 to the Financial Statements).
EBITDA increased to £173.6 million (2010: £165.9 million)
driven by the increase in net trading revenue and adjusted
administrative expenses discussed earlier in the operating
and Financial review. EBITDA margin (EBITDA expressed as a
percentage of net trading revenue) marginally decreased to
54.2% (2010: 55.6%).
The following table summarises EBITDA margin by region:
Segment
uK (including Sport)
Australia
Europe
Japan
rest of the World
Group
EBITDA margin
by region
2011
2010
63.0%
63.4%
57.3%
60.0%
42.4%
45.7%
22.2%
27.4%
36.8%
27.1%
54.2%
55.6%
The uK and Australia currently have higher EBITDA margin levels
than our other regions because they operate in more established
markets. In Europe, for example, markets are in early stages
of development, and while these businesses reach operating
profitability quickly, initially they have depressed EBITDA
margins, as marketing and other costs are initially high relative
to net trading revenue.
Adjusted profit before taxation
KPI: adjusted profit before taxation
Adjusted profit before taxation grew 3.4% to £163.0 million
(2010: £157.6 million). Adjusted profit before taxation excludes
both the amortisation and impairment of goodwill and customer
relationships associated with our Japanese business, IG Markets
Securities (formerly Fxonline), and the impairment of goodwill
associated with the Sport business.
Profit before tax
Including the amortisation and impairment of goodwill and
customer relationships associated with IG Markets Securities
of £150.7 million and the impairment of goodwill associated
with the Sport business of £5.25 million, the Group made a
statutory profit before tax of £7.0 million (2010: £140.3 million).
Goodwill and customer relationships
impairment – Japan
our Japanese business, IG Markets Securities, operates in an
increasingly difficult regulatory environment, particularly with
the progressive introduction of leverage limits on trading in
forex, equity indices, equities and other asset classes during the
year. As expected, the introduction of a restriction on forex to 50
times leverage from 1 August 2010, and on equity indices to 10
times leverage from 1 January 2011, had an adverse impact on
volumes and revenues. There is one further scheduled leverage
restriction to come into effect on 1 August 2011, when forex will
be reduced to a maximum of 25 times leverage.
In the light of the significant adverse impact of these regulatory
changes, we performed an impairment review of the carrying
value of the goodwill and customer relationships associated
with the business as at 30 November 2010. As required by
accounting standards we based this impairment review on a
forecast which assumed the continuation of the cost-base at
the end of November 2010, but with an assumption of reduced
revenue. These assumptions resulted in the full impairment
of both the goodwill (£123.0 million) and the customer
relationships (£20.1 million). These exceptional charges have
had no impact on the Group’s cash flow, regulatory capital
position or distributable reserves.
Since November we have taken action to reduce our Japanese
cost base significantly. These cost reductions should ensure
the continuing profitability of this business, albeit at lower
margins than the rest of the Group. The future for the forex and
cFD industry in Japan is uncertain – as discussed in the chief
Executive’s review.
Goodwill impairment – Sport business
As noted earlier, the Group has completed a redundancy
consultation process with the employees of extrabet prior
to the closure of the business. As a result, the goodwill of
£5.25 million associated with the Sport business has been
fully impaired at the year-end.
36 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
37
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
Summary Group Statement of Financial Position
£000
2011
2010
Property, plant and equipment
16,761
9,632
Intangible assets
Deferred tax assets
non-current assets
117,202
265,328
11,264
14,264
145,227 289,224
Trade and other receivables
278,303
213,327
cash and cash equivalents
124,528
128,097
current assets
totaL assets
402,831 341,424
548,058 630,648
Trade and other payables
128,639
102,498
Provisions
Income tax payable
1,427
1,377
37,060
38,863
current liabilities
167,126 142,738
Deferred tax liabilities
Provisions
-
11,463
1,991
1,779
redeemable preference shares
40
40
non-current liabilities
2,031
13,282
total liabilities
total equity
169,157 156,020
378,901
474,628
totaL eQuIty and LIabILItIes
548,058 630,648
Non-current assets
As discussed in the chief Executive’s review, the Group
continues to invest in technology both to enhance our
clients’ experience and to improve the capacity and resilience
of our dealing platforms, each of which are critical to the
success of our business. capitalised investment in relation
to development costs and software and licences amounted
to £7.1 million (2010: £2.4 million) largely relating to the
development of the client trading platform and a three-year
enterprise licence for customer relationship Management
software. During the year we also invested £14.3 million in
property, plant and equipment (2010: £4.1 million) including
£4.9 million in relation to IT equipment and £9.0 million in
relation to our new London headquarters.
Intangible assets include goodwill of £107.4 million
(2010: £234.2 million), primarily arising on the acquisition of
IG Group plc and its subsidiaries in 2003 and the goodwill
(£1.9 million) and client list (£1.5 million) arising on the
acquisition of our South African business (refer to note 14a to
the Financial Statements) in the year. As detailed in note 15 to
the Financial Statements the goodwill and client list associated
with IG Markets Securities (formerly Fxonline) and the Group’s
Sport business extrabet have been fully impaired in the period.
current assets
Trade and other receivables include amounts due from brokers
and represent cash placed with counterparties in order to
provide initial and variation margin in relation to the Group’s
market risk management. Amounts due from brokers have
increased to £267.8 million (2010: £203.7 million) as a result of
larger share positions at the year-end, and therefore the Group
has a higher collateral requirement with brokers. Broker margin
rates have remained consistent over the period. cash and cash
equivalents are discussed in the cash Flow section.
Liabilities
Trade and other payables include amounts due to clients in
relation to title transfer funds as well as accruals and other
payables. Title transfer funds held and thus the related payable
to clients have increased over the year, largely following the
acquisition of our South African business where the majority
of client monies are held on a title transfer basis.
Provisions relate solely to the onerous lease liability for the
Group’s former headquarters.
Following the amortisation and impairment of the intangible
assets associated with IG Markets Securities (formerly
Fxonline) in the year, the related deferred taxation liability
has been released.
client money
KPI: client money levels
Total monies held on behalf of clients at year-end was £782.4
million (2010: £612.9 million) of which £714.7 million (2010:
£550.5 million) is segregated in trust bank accounts and treated
as ‘segregated client money’ and therefore excluded from the
Group Statement of Financial Position. The remaining monies
held on behalf of clients of £67.7 million (2010: £62.4 million)
represents ‘title transfer funds’ which are held under a Title
Transfer collateral Arrangement (TTcA) by which professional
or corporate clients agree that full ownership of such monies
is unconditionally transferred to the Group. Monies subject
to title transfer arrangements are included in the Group
Statement of Financial Position.
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.
Business Review: operating and Financial Review
Available liquidity – Group cash generation funds
increased broker margin requirement
‘own funds’, which excludes all monies held on behalf of
clients, increased to £324.6 million (2010: £269.4 million) in the
year to 31 May 2011, reflecting the cash generative nature of
the business. However, ‘net own cash available’ fell to £107.3
million (2010: £114.7 million) following an increase in broker
margin requirements in relation to the higher year-end shares
position. ‘Net own cash available’ disclosed in the table below
represents the Group’s available cash resources excluding all
monies held on behalf of clients and after the payment of
broker margin.
£000
2011
2010
own cash and title transfer funds
124,528
128,097
Amounts due from brokers
267,792
203,714
available cash resources
392,320 331,811
Analysed as:
own funds
Title transfer funds
available liquidity
Available cash resources
324,618
269,406
67,702
62,405
392,320
331,811
Less broker margin requirement
(217,360)
(154,694)
net available cash
174,960 177,117
Less title transfer funds(1)
(67,702)
(62,405)
net own cash available
107,258 114,712
of which declared as dividend
(53,368)
(48,758)
committed banking facilities
180,000
160,000
total available liquidity
(including facilities)
233,890 225,954
(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.
Total available liquidity is stated inclusive of committed
banking facilities of £180.0 million (2010: £160.0 million) –
none of which were drawn during the current or prior financial
year. The Summary Group cash Flow Statement presented
in the following section provides an explanation of the
movement in ‘own funds’ for the year.
38 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
39
opeRAtInG And FInAnCIAl RevIeW
(continued)
FINANcIAL rEvIEW (continued)
Summary Group cash Flow Statement
The following cash Flow Statement summarises the Group’s
cash generation during the year and excludes all cash flows
in relation to monies held on behalf of clients. Additionally
amounts due from brokers have been treated as cash
equivalents and included within ‘own funds’. For an explanation
of the derivation of ‘own funds’ please refer to the table
presented in the Available Liquidity section.
£000
2011
2010
operating activities
Adjusted profit before tax
163,000
157,639
Depreciation and amortisation
10,866
8,605
other non-cash items
(1,563)
(4,866)
Net finance costs / (revenue)
30
(352)
Income taxes paid
(43,502)
(47,719)
Net interest income on segregated
client funds
7,854
5,413
own funds generated from operations
136,685 118,720
Movement in working capital
6,083
30,728
outflow from investing and
financing activities
(95,278)
(61,633)
Increase in own funds
47,490
87,815
own funds at 1 June
269,407
178,090
Exchange gains on own funds
7,721
3,501
own funds at 31 may
324,618 269,406
own funds generated from operations were £136.7 million
(2010: £118.7 million) during the year, reflecting the
cash-generative nature of the business. As noted above,
‘own funds’ represents our own cash and cash equivalents
inclusive of margin held at brokers and excludes all amounts
held on behalf of clients.
cash conversion, calculated as own funds generated from
operations divided by adjusted profit before tax, increased in
the year to 83.9% (2010: 75.3%) largely due to the higher level
of non-cash items reported within adjusted profit before tax.
The most significant operating outflows during the year were
£43.5 million in respect of taxation (2010: £47.7 million).
‘own funds’ increased by £47.5 million (2010: £87.8 million)
after adjustments for movements in working capital balances
and significant outflows in relation to investing and financing
activities. The outflow from investing and financing activities
includes £19.9 million in relation to capital expenditure
(2010: £5.0 million) largely on the new London headquarters
and IT equipment, as well as the final 2010 and interim
2011 dividend payments which totaled £67.7 million
(2010: £57.7 million). The current year also saw a cash
outflow of £2.7 million in respect of the acquisition of our
South African business and £5.1 million in relation to the
acquisition of the minority interest of IG Markets Securities
(formerly Fxonline).
Business Review: operating and Financial Review
regulatory capital resources
Throughout the year, we maintained a significant excess 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 34 to the Financial Statements.
£m
Total Tier 1 capital
2011
2010
380.1
475.6
Less: Intangible assets (adjusted)
(115.3)
(252.5)
Less: Investment in own shares
(1.2)
(1.0)
total capital resources (cr)
263.6
222.1
capital resources requirement (crr)
(89.6)
(65.7)
surplus
174.0
156.4
cr expressed as a % of crr
294.2% 338.1%
corPorATE SocIAL rESPoNSIBILITY
An overview of our commitment to corporate and social
responsibility is included within the Directors’ Statutory
report and in more detail on our corporate website at
www.iggroup.com.
PrEPArATIoN oF THE oPErATING AND
FINANcIAL rEvIEW
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.
40 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
41
ouR BuSIneSS RISkS
Effective management of our business risks is critical to the delivery of our strategy.
This section describes our key business risks and how we manage them. Our
risk management policies and procedures are also discussed in the Corporate
Governance Report.
our rISK APPETITE
In providing products and services to our customers, we are
exposed to a number of operational risks and financial risks
(including credit, market and liquidity risks). We must also
observe legal and regulatory requirements in each market
that we operate.
The Board is responsible for establishing our overall appetite
for risk, which is detailed and approved in the risk Appetite
Statement. We measure and manage our risk appetite using a
set of key risk indicators (KrIs) which either hold a numerical
value or relate to a specific risk event. Taken together, the KrIs
are a balanced mix of quantitative and qualitative measures
that provide an important indication of increasing or reducing
risk levels.
our rISK MANAGEMENT FrAMEWorK
our risk management framework is designed to embed
management of business risks throughout the organisation.
This approach also mitigates our reputational risk that arises
from a failure to manage risk effectively.
our Key rIsKs and theIr mItIgatIon
As the nature of our operations has not significantly altered
during the year, our liquidity, credit and market risks are largely
unchanged, as detailed below. An overview of the changes
in the regulatory environment in which we operate is given
earlier in the operating and Financial review.
Strategic
Strategic risk can arise from inadequate Board and senior
management processes as well as external factors that lead
to a failure to identify or implement our strategy.
The Board monitors the risks associated with our strategy and
maintains an awareness of any external factors which may
impact on its delivery.
regulatory
regulatory risk is the risk of non-compliance with and
future changes in regulatory rules potentially impacting our
businesses in the markets in which they operate.
responsibility for risk management resides at all levels
within the Group, starting with the Board of Directors. The
effectiveness of the risk management framework and system
of internal controls is monitored and confirmed by our
assurance functions of risk, compliance and Internal Audit.
our corporate governance structure, including details of how
the Board delegates responsibility for internal control and risk
management to our Audit and risk committees, is described
in detail in the corporate Governance report.
We maintain ongoing relationships with the regulatory
authorities that oversee the Group’s activities from a legal
and regulatory viewpoint, and invest significant resource in
compliance systems and controls. This covers both existing
regulations and the monitoring of emerging new regulations
to ascertain their potential impact on the Group. We also
regularly contribute to consultations on proposals that might
affect our businesses. A regulatory overview is provided in the
operating and Financial review.
We monitor the regulatory capital requirements of our
businesses on an ongoing basis in accordance with the
requirements of the regulators in whose jurisdictions we
operate. our capital management objectives and policies are
disclosed in note 34 to the Financial Statements.
In addition to the management of individual risks, the Group
undertakes various stress and scenario testing as part of the
Internal capital Adequacy Assessment Process (IcAAP) and
Individual Liquidity Adequacy Assessment (ILAA), prepared
according to FSA requirements. The scenarios stress test the
effect on capital and liquidity of a series of combined risk
events occurring simultaneously.
our financial risks, specifically credit, market and liquidity
risk are described in further detail in note 33 to the Financial
Statements and in our Pillar 3 Disclosures, an FSA regulatory
disclosure requirement, which can be found at
www.iggroup.com.
Business Review: our Business Risks
Liquidity
Liquidity risk is the risk that the Group may not be able to meet
payment obligations as they fall due.
The short-term maturity profile of our financial assets and
liabilities means that there are no material liquidity maturity
mismatches. our available liquidity and ‘net own cash available’
figures are monitored on a daily basis and are described in
the Available Liquidity section of the operating and Financial
review, as well as in the Liquidity risk section of note 33 to the
Financial Statements.
Market
Market risk is the risk that the fair value of financial assets and
financial liabilities will change due to adverse movements in
market prices, currency values or interest rates.
Market risk is managed on a real-time basis, with all client
positions monitored against market risk limits set by the risk
committee. The Group operates within these limits by hedging
the market risk exposure as and when required. We do not take
proprietary positions based on the expectation of
market movements.
credit
credit risk is the risk that a counterparty fails to perform
its obligations, resulting in financial loss. Adverse changes
in the credit quality of individual clients or institutional
counterparties could affect the recoverability of our assets and
therefore our financial performance.
We offer a number of risk management tools that enable
clients to manage their exposure to credit risk, including:
Guaranteed and non-guaranteed stops
Limit orders
In addition, we manage our overall credit risk exposure through:
real-time monitoring of client positions via our
‘close-out monitor’
Tiered margining with risk-adjusted margin requirements
based on the volatility of the underlying financial instrument
and size of the client position
using bank and broker counterparties that satisfy minimum
credit rating requirements
operational
operational risk is the risk of financial loss arising from
inadequate or failed internal processes, people and systems or
from external events.
our risk management framework enables our staff to monitor
operational risks relating to systems, processes, people and
external events. our system of internal controls aims to reduce,
but not eliminate altogether, operational risk exposure – this is
described further in the corporate Governance report.
The availability and reliability of our client dealing platforms
is key to delivering our strategy and we make significant
investment in our IT infrastructure to ensure the platforms
remain robust. This is supported by ongoing business
continuity planning and regular testing of our disaster
recovery facilities and procedures, as well as maintaining the
ISo27001:2005 Information Security Management System
standards in respect of IT and data security.
42 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
43
Corporate Governance
CORPORATE
GOVERNANCE
DIrEc TorS’ STATuTorY rEPorT
corPorATE GovErNANcE rEPorT
DIrEc TorS’ rEMuNEr ATIoN rEPorT
STATEMENT oF DIrEc TorS’ rESPoNSIBILITIES
INDEPENDENT AuDITorS’ rEPorT
46
51
59
68
69
45
45
44 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
44 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
dIReCtoRS’ StAtutoRY RepoRt
The Directors are pleased to submit their report together with
the Group Financial Statements for the year ended 31 May 2011.
Principal activities
An overview of the principal activities of the Group is provided
in the Business Review.
Branches outside the united Kingdom
In line with strategic objectives, the Group has branches in
a number of overseas jurisdictions including Australia, New
Zealand, South Africa, France, Germany, Italy, Luxembourg, the
Netherlands, Portugal, Spain and Sweden.
review of business and future developments
A review of the Group’s progress, outlining developments during
the year and giving an indication of future developments, is
provided in the Business Review. The Business Review also covers
an analysis of the financial position of the Group at the year-end
and Key Performance Indicators.
risk management
An overview of the Group’s risk appetite and the risk management
framework, along with the Group’s key risks and their mitigation, is
provided in the Our Business Risks section of the Business Review.
The Corporate Governance Report provides an explanation of the
Group’s governance and control frameworks including the roles
and responsibilities of each of the Board, Audit Committee and
Risk Committee.
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 policies agreed by the Board to manage
these risks, are detailed in note 33 to the Financial Statements.
results
The Group’s statutory loss for the year after taxation amounted
to £25,292,000 (2010: profit of £101,486,000), of which a loss of
£25,453,000 (2010: profit of £101,281,000) is attributable to the
equity members of the Company.
The Group’s adjusted profit before taxation which excludes
amortisation and impairment of intangible assets associated with the
Group’s Japanese business and impairment of the goodwill associated
with the Group’s Sport business was £163,000,000 (2010: £157,639,000).
related party transactions
Details of related party transactions are set out in note 31 to the
Financial Statements.
Subsequent events
On 8 June 2011 the Group reached agreement to sell the majority
of the client list relating to extrabet’s sport spread betting and
fixed odds betting business to Spreadex Limited. The terms of the
sale are such that the Group will receive semi-annual payments
for the next three years, calculated by reference to the revenue
that the acquirer generates from clients on the list.
On 12 July 2011 the Group completed the redundancy
consultation process with the employees of extrabet. As a result
of this any extrabet employees unable to find a role within the
Group will be made redundant as of 19 July 2011.
Dividends
The Directors recommend a final ordinary dividend of 14.75 pence
per share, amounting to £53,368,000, making a total of 20.00 pence
per share and £72,337,000 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
11, is made up of this year’s interim dividend and the final dividend
from the previous year, which were both paid during the year.
The final ordinary dividend, if approved, will be paid on 11 October
2011 to those shareholders on the register at 9 September 2011.
Directors and their interests
Profiles of the Directors who held office at the end of the year
are given below, and details of the service contracts for those
Directors are shown in the Directors’ Remuneration Report.
Details of the Directors’ interests in the share capital of the
Company are set out in the Directors’ Remuneration Report.
BoArD oF DIrEc TorS
Jonathan Davie Non-Executive Chairman
Tim Howkins Chief Executive
Christopher Hill Chief Financial Officer
Peter Hetherington Chief Operating Officer
Andrew MacKay Director of Corporate Strategy
47
48
49
50
51
David Currie Non-Executive Director
Martin Jackson Non-Executive Director
Stephen Hill Non-Executive Director
Nat le Roux Non-Executive Deputy Chairman
Roger Yates Senior Independent Non-Executive Director
52
53
54
55
56
Corporate Governance: directors’ Statutory Report
Share capital
Details of the Company’s equity and preference share capital are given
in notes 23 and 22 respectively to the Financial Statements. Details of
the Group’s required regulatory capital are disclosed in note 34 to the
Financial Statements and in the Operating and Financial Review.
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 24 to the Financial Statements.
change of control
Following any future change of control of the Company, the
Group’s banking facilities, which are currently undrawn (refer to
note 33 to the Financial Statements), will be cancelled and any
obligations will become immediately due and payable.
Annual General Meeting
The Group’s Annual General Meeting will be held on 6 October 2011.
Details of the resolutions to be proposed at the Annual General
Meeting are set out in a separate circular sent to all shareholders.
registered number
The registered number of IG Group Holdings plc is 04677092.
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 5.5
creditor days of suppliers’ invoices outstanding at the year-end
(2010: 4.5) for the Group.
Donations
The Group made no political donations in the year (2010: £nil).
The Group made charitable donations of £119,036 in the year
(2010: £40,335) as follows:
Japanese earthquake relief fund
The Gambling Trust
The Entrepreneurs Foundation
Employee-matched giving (various causes)
Specialist schools
Cricket Foundation
Other
2011
37,286
26,288
20,000
11,750
10,500
5,000
8,212
Major interests in shares
Notifications shown below have been received by the Company of shareholdings of three percent or more of the issued ordinary
share capital.
as at 15 july 2011
as at 31 may 2011
no. of shares
percentage
no. of shares
percentage
18,569,208
18,150,880
18,144,994
18,119,287
17,863,943
17,774,188
17,564,421
15,830,307
14,287,840
11,851,906
11,066,417
5.13%
5.01%
5.01%
5.00%
4.93%
4.91%
4.85%
4.37%
3.94%
3.27%
3.05%
12,956,579
17,841,957
18,144,994
18,119,287
17,863,943
17,774,188
17,564,421
15,830,307
14,287,840
11,851,906
11,066,417
3.58%
4.93%
5.01%
5.00%
4.93%
4.91%
4.85%
4.37%
3.94%
3.27%
3.05%
BlackRock Inc.
Massachusetts Financial Services Company
Artemis Investment Management Limited
Cantillon Capital Management LLC
Investec Asset Management Limited
Ameriprise Financial Inc. and its group
Standard Life Investments Limited
JP Morgan Chase & Co
Legal & General Group plc
Ignis Investment Services Limited
Prudential plc
Jonathan Davie
non-executive chairman, 64 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 Chairman of First Avenue
Partners, an alternatives advisory boutique.
46 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
46 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
47
47
dIReCtoRS’ StAtutoRY RepoRt
(continued)
corporate governance
The Company’s statement on corporate governance can be found
in the Corporate Governance Report.
Auditors
In the course of the current financial year, the Group’s Audit
Committee decided it was desirable to put the Group’s audit
appointment out to a competitive tender process.
Upon careful consideration of proposals from three candidate
firms, including the incumbent auditors, the Committee made
a recommendation to the Board that PricewaterhouseCoopers
LLP be appointed as the Group’s auditor. The Board agreed to
this recommendation, and effective from 8 December 2010, the
Board accepted the resignation of Ernst & Young LLP and the
appointment of PricewaterhouseCoopers LLP as the Group’s
auditor until the conclusion of the Company’s next forthcoming
AGM in October 2011, when a resolution to re-appoint
PricewaterhouseCoopers LLP will be put to shareholders.
Directors’ statement as to disclosure of information
to auditors
So far as each person who was a Director at the date of approving
this report is aware, there is no relevant audit information, being
information needed by the auditors in connection with preparing
their report, of which the auditors are unaware. Each Director
has taken all the steps that he is obliged to take as a Director in
order to make him aware of any relevant audit information and to
establish that the 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.
corporate and social responsibility
The Group is committed to ensuring that its interactions with
employees, clients, suppliers, shareholders, society and the wider
environment are managed responsibly. This commitment has
been a key feature of the Group’s values since its inception in
1974. A sense of responsibility underlies all our businesses and
is manifested in everything from our dealings with clients to
conscientiousness about the environmental impact we make.
In the following pages we provide an overview of our corporate
and social responsibility report. The Group’s full corporate and
social responsibility report is published on our corporate website
at www.iggroup.com.
Business standards
The Group applies high standards across its businesses, and these
standards frequently exceed local regulatory requirements of the
jurisdictions in which we operate. We also support and adhere
to high standards of corporate governance – as set out in the
Corporate Governance Report and the Statement by the Directors
in Compliance with the Combined Code.
A reputation for honesty and transparency is vital in the financial
derivatives industry, and the Group’s commitment to these
values is a cornerstone of our success. The Group maintains high
standards of corporate behaviour throughout our businesses and
operations. This is embodied within each of the following service
offerings and behaviours.
Commitment to Treating Customers Fairly (TCF):
As set out in the Business Review we are fully committed to the
FSA’s Treating Customers Fairly (TCF) initiative and have developed
a scorecard of 25 measures to monitor how we treat our clients.
Corporate Governance: directors’ Statutory Report
Central to the Group’s TCF policy is the quality of our order
execution. We offer near-instantaneous execution, with
around 99% of client orders accepted automatically. We never
re-quote prices and, within our set margin of tolerance, we
will accept orders even if the market moves. Our innovative
Price Improvement technology enables customers to receive a
better price if one becomes available as a trade is executed.
Client support and education:
We provide extensive educational resources for clients, including
an introductory education programme promoting responsible
trading and a wide range of client seminars and webinars,
available online and in person.
Client suitability:
We have a number of procedures to ensure that our products
reach the right audience and that our clients understand how our
products work:
Our products are not suitable for everyone. It is for this reason that
we apply strict rules to ensure we only promote our products to
the right audience. We also apply strict rules to ensure that any
promotion is clear, fair and not misleading and contains a balanced
description of the risks alongside the benefits of our product.
Before we allow clients to open an account, we will undertake an
assessment to determine whether our products are appropriate or
suitable for the client in question. This involves asking the client about
their trading knowledge and experience and about their income/
savings. Based on the results of this assessment, we may choose to
provide the client with a warning about the appropriateness of the
account, or we may decline to open an account.
Limiting client losses:
We have a number of service offerings that aim to limit
client losses, for example we offer clients the ability to
include Guaranteed Stops on positions so that the maximum
possible loss to the client is known at the outset of the trade.
Additionally, our Close-Out Monitor (COM), which automatically
liquidates client positions where their margin has been
significantly eroded, also aims to limit potential client losses. At
31 May 2011, 98.8% of all client accounts were either subject
to Guaranteed Stops or the automatic COM procedure. Further
details are set out in note 33 to the Financial Statements.
Protection of our clients’ data and funds:
We prioritise the security of our clients’ information and funds and
we have achieved the ISO 27001 certificate for Information Security.
client services
Impeccable client service is at the heart of our commitment to the
responsible treatment of all our clients. Our large team of highly-
trained, dedicated client service staff delivers a professional and
responsive value-based approach to client service. Almost 10% of
the Group’s total global staff is engaged in client services.
operations and environment
As a business which conducts over 90% of its client trades
online, we do not see ourselves as a significant emitter of
environmentally harmful substances. However, we do understand
that our operations have an impact on the environment and
we are committed to taking greater consideration of our
environmental footprint.
Further details on our commitment to the environment can be
found in our full corporate and social responsibility report on
our corporate website at www.iggroup.com. The report details
the Group’s carbon emissions, the use of email statements, and
endeavours towards sustainability including a section on the
environment sustainability charter promoted in the fit-out of
the Group’s new UK head office at Cannon Bridge House, that
amongst other things achieved a recycling rate of 94% of the
strip-out materials taken from the site.
Workplace
The Group is rapidly growing and provides a fast-moving and
successful working environment. Our employees have pride in
what we have achieved and a strong sense of belonging.
The Group pays performance-related bonuses to most staff and
makes awards under long-term incentive and value sharing plans
to key personnel. In addition, the opportunity to acquire shares
under various share incentive plans 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.
Tim Howkins
chief executive, 48 years old
Tim has a first class degree in Mathematics and Computer Science from Reading. He qualified as a Chartered
Accountant with Ernst & Young and is also a member of the Chartered Institute of Taxation. Tim was one of a group
of partners and staff who left Ernst & Young in 1990 to form Rees Pollock, a firm of Chartered Accountants targeted at
entrepreneurial, owner-managed businesses. Tim was a partner in Rees Pollock for seven years and was the partner
responsible for IG Group’s audit. He then joined IG Group as Finance Director in 1999, and became Chief Executive in
2006. Tim is a member of the Board and Executive Committee of the Futures and Options Association.
Christopher Hill
chief financial officer, 40 years old
Christopher has an MA in Modern History from Oxford University. He is a Chartered Accountant and an associate
member of the Association of Corporate Treasurers. Before joining IG Group, he was Chief Financial Officer of Travelex,
a group providing cross-border payment and foreign exchange services to corporate and retail customers. Prior to
joining Travelex in 2007, Christopher worked at VWR international, a global laboratory supply company (from 2005 to
2007), at General Electric (from 2000 to 2005) and at Arthur Andersen (from 1992 to 2000).
48 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
48 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
49
49
dIReCtoRS’ StAtutoRY RepoRt
(continued)
Employee involvement
The Group prides itself on being an open, non-hierarchical
organisation with direct and open access amongst all teams and at
all levels. In response to the expanding size of the Group during the
year, the policy of providing employees with information about the
Group continued through quarterly management forums facilitated
by the Chief Executive. These included updating line managers
on business results and on current initiatives across the Group
on a quarterly basis. Employees are encouraged to make these
sessions as interactive as they can by challenging ideas, presenting
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 Chief Executive also runs
these sessions for all Head Office employees every six months to
ensure that employees get the opportunity to hear the ‘view from
the top’. The recent series of meetings in June 2011 were filmed
for the first time so that all of our overseas offices could also be
involved in this communication.
The Group’s intranet is utilised to communicate with employees.
The home page of the intranet is updated weekly to provide
details of employee news (for example new starters, leavers, role
changes) as well as employee challenges or any Company awards.
Employees participate directly in the success of the business
through the Group’s performance-related bonus schemes and
employee share plans. We have around 35 to 40% of eligible
employees participating in our partnership share schemes.
Top employer
Our positive working culture was recognised when IG Group was
named one of Britain’s Top Employers for the third year running in
2011. The award, by the Corporate Research Foundation, was based
on a strong performance in each of the surveyed categories: pay
and benefits, training and development, corporate culture, and
particularly in career development.
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. 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.
Society
We are keen to encourage employees to engage in activities
that help their development and support local communities.
For example, we match any funds employees have raised for
sponsored events. A summary of our charitable donations,
including the employee matched giving, is provided earlier
in the Directors’ Statutory Report.
Our Absence Management Policy also offers the opportunity for
employees to take up voluntary work, for which we grant additional
leave on a like-for-like basis up to a maximum of five matched days
per annual leave year.
By order of the Board
christopher hill, Chief Financial Officer
19 July 2011
CoRpoRAte GoveRnAnCe RepoRt
Corporate Governance: Corporate Governance Report
STATEMENT BY THE DIrEc TorS IN coMPLIANcE
WITH THE coMBINED coDE
The Corporate Governance Report, together with the Remuneration
Report, details how the Company has applied the principles and
complied with the provisions of the June 2008 Combined Code on
Corporate Governance, for this financial year, a copy of which can be
found on the Financial Reporting Council website www.frc.org.
The Board has reviewed the new UK Corporate Governance Code,
which applies to accounting periods beginning on or after 29
June 2010, and which will apply to the Company for the year
ending 31 May 2012.
The Board is satisfied that the Company complied with the provisions
of the Combined Code for the whole year, with the exception that the
Company was not compliant with paragraph A.3.2 throughout the year.
Paragraph A.3.2 of the Combined Code requires that at least half
of the Board, excluding the Chairman, are independent Non-
Executive Directors. The Board is 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 18 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, who resigned from the Board in October 2010, was
considered to be a non-independent Non-Executive Director
as he represented funds managed or advised by CVC Capital
Partners Limited and associates (CVC), a major shareholder,
holding 2.93% of the ordinary share capital of the Company at 31
May 2011 (2010: 3.86%).
Following the appointment of David Currie from 4 May 2010, the Board
remained committed to becoming compliant with the Combined
Code by undertaking a search to appoint an additional independent
Non-Executive Director, and the Board was pleased to announce the
appointment of Stephen Hill with effect from 28 April 2011.
Nat le Roux has informed the Board of his wish to step down at
the 2012 AGM. The effect of these changes means that the Board
will be fully compliant with Code Provision A.3.2 of the Combined
Code after the 2012 AGM.
It is the intention of the Board to put every member up for
re-election commencing with the 2011 AGM in October,
bringing the Company into advance compliance with
paragraph B.7.1 of the new UK Corporate Governance Code.
Profiles of the Directors who held office at the end of the year are
shown on pages 46-56.
THE WorKINGS oF THE BoArD AND ITS
coMMITTEES
The Board
Composition of the Board
During the year, the Company was headed by an experienced Board
of Directors consisting of an independent Non-Executive Chairman,
a non-independent Non-Executive Deputy Chairman, four Executive
Directors, including the Group Chief Executive Officer, and as of
28 April 2011, four independent Non-Executive Directors.
Christopher Hill, the Group’s Chief Financial Officer was appointed
on 26 April 2011 and replaces Steven Clutton who resigned on
2 August 2010. Stephen Hill was appointed as an independent
Non-Executive Director on 28 April 2011.
The division of responsibilities between the Chairman and
the Chief Executive is clearly defined in writing and has been
approved by the Board. With the exception of the Deputy
Chairman, all the Non-Executive Directors are independent of
management, and are considered by the Board to be to be free
from any business or other relationships which could interfere
with the exercise of their independence.
Senior Independent Director
Roger Yates is the Senior Independent Director and provides an
additional contact point for shareholders if the normal contact
channels are inappropriate.
Peter Hetherington
chief operating officer, 42 years old
Peter read Economics at Nottingham University and has a Masters in Finance from the London Business School. Peter
was an officer in the Royal Navy before joining IG Index, as a graduate trainee, in 1994. He became Head of Financial
Dealing in 1999 and was appointed as Chief Operating Officer of IG Group in 2002.
Andrew MacKay
director of corporate strategy, 45 years old
Andrew has a Masters in History from St Andrews University and completed the Law Society Finals examination at
the College of Law in London. He qualified as a lawyer with Linklaters and worked there for seven years, principally
in the litigation and financial services practices. In 1998, Andrew moved to LIFFE as Market Investigations Manager
before joining IG Group as Legal Counsel in March 1999. Andrew was appointed a Director of IG Group in 2003.
Andrew served as the Group’s Head of Asia Pacific for three years before recently returning to London to lead the new
Corporate Strategy team.
50 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
50 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
51
51
CoRpoRAte GoveRnAnCe RepoRt
(continued)
THE WorKINGS oF THE BoArD AND ITS
coMMITTEES (coNTINuED)
Re-election of Directors
In accordance with the Combined Code and the Company’s Articles
of Association, all Directors are subject to election by shareholders at
the first opportunity following their appointment and subsequently,
must seek re-election at least once every three years.
While the Company is still required to report against the Combined
Code for the year ended 31 May 2011, the Board has taken the decision
to comply with the recommendations for the annual re-election
of Directors in the new UK Corporate Governance Code which will
apply to the Company for the year ending 31 May 2012. In addition
to Christopher Hill and Stephen Hill, who offer themselves for election
following their appointment in April 2011, all Directors will stand for
re-election at the Annual General Meeting on 6 October 2011.
Role of the Board
The powers of the Board are set out in the Company’s Articles
of Association, which are available on the Company’s website
at www.iggroup.com. The Articles may be amended by way of
a special resolution of the members of the Company. The Board
may exercise all powers conferred on it by the Articles and in
accordance with the Companies Act 2006, and other
applicable legislation.
The Board is responsible to shareholders for the proper management
of the Group. 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.
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
Approving changes relating to the Group’s capital structure
including reduction of capital, share issues (except under
employee share plans) and share buybacks including the use
of treasury shares
Reviewing operational and financial performance
Setting risk appetite and approving any changes to the Group’s
risk management policy which materially increases the risk
profile of the Group
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
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
Information provided to the Board
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. To enable the Board to exercise its judgement
in the discharge of 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, at the Company’s expense.
Corporate Governance: Corporate Governance Report
Induction and training
New Directors to the Board are provided with appropriate
training and briefings to familiarise them with their duties and the
Group’s business, operations, risks and governance arrangements.
The induction programme includes meetings with senior
management. All Directors receive, during their term of office,
regular briefings on changes and developments in the Group’s
business and on any legislative and regulatory changes which are
relevant to the Group.
Conflicts of interest
In accordance with the Companies Act 2006, all Directors must
disclose both the nature and extent of any potential or actual
conflicts with the interests of the Company. The Articles of
Association allow the Board to authorise potential conflicts that
may arise and to impose such conditions or limitations as it
thinks fit.
Insurance and indemnities
The Group purchases appropriate liability insurance for all
Directors and officers.
Board evaluation
During the year the Chairman led the Board in conducting an
internal evaluation of its effectiveness and of the effectiveness
of its committees and individual Directors. This was done by way
of a questionnaire which was completed by each Director, and
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 2011.
The new UK Corporate Governance Code and the Financial
Reporting Council’s Guidance on Board Effectiveness
require the Board to evaluate performance annually, with an
external assessment performed every three years. 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 in 2009,
and the Board intends to use an external facilitator to conduct an
evaluation of its effectiveness in 2012.
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.
committees
To support the principles of good corporate governance, the
Board manages the Group through Board meetings and a
number of committees, each of which has terms of reference
and meets regularly. 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
corporate website, at www.iggroup.com. The minutes of each of
the committee meetings are made available to all Directors, and
the Board receives an update from each Chairman following each
committee meeting.
The following committees deal with specific aspects of the
Group’s affairs:
Remuneration Committee
The Remuneration Committee comprises Roger Yates (Chair),
Jonathan Davie, Martin Jackson, David Currie and Stephen Hill,
who are all independent Non-Executive 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 the Group Remuneration Policy, 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
Non-Executive Directors.
David Currie
non-executive director, 64 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, and a founder and
Chairman of the International Centre of Financial Regulation and Chairman of Independent Audit from 2003 to 2007.
Between 2001 and 2007 David was the Dean of Cass Business School. He is currently a Non-Executive Director of Royal
Mail Holdings plc, BDO LLP, the Dubai Financial Services Authority and the London Philharmonic Orchestra, as well
as Chairman of Semperium PPP Investment Partners. David has recently been appointed as a panel member to the
Leveson inquiry into media ethics.
52 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
52 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Martin Jackson
non-executive director, 62 years old
Martin was appointed a Non-Executive Director of IG Group and Chairman of the Audit Committee in April 2005.
He was the Group Finance Director of Friends Provident plc between 2001 and 2003, of Friends Provident Life Office
between 1999 and 2001, and of London & Manchester Group plc from 1992 to 1998 (up until 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.
53
53
CoRpoRAte GoveRnAnCe RepoRt
(continued)
THE WorKINGS oF THE BoArD AND ITS
coMMITTEES (coNTINuED)
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 2011. The results were
reported to the Board in July 2011.
Nomination Committee
The Nomination Committee comprises Jonathan Davie (Chair),
David Currie, Martin Jackson and Roger Yates, and considers
appointments to the Board, meeting as necessary. The
Nomination Committee is responsible for nominating candidates
to fill Board vacancies and for making recommendations on Board
composition and balance.
The Nomination 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.
Audit Committee
The Audit Committee is chaired by Martin Jackson, who has
recent and relevant financial experience, and also comprises
David Currie and Roger Yates. All are independent Non-Executive
Directors. The Chief Financial Officer, 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 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 review and monitor the external auditor’s independence
and objectivity and the effectiveness of the audit process
To consider and make recommendations to the Board on the
appointment, re-appointment and removal of the Company’s
external auditors, which are 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
To report to the Board, identifying any matters in respect of
which it considers that action or improvement is needed and
make recommendations as to the steps to be taken
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
Put the Group’s audit appointment out to a competitive tender
process; reviewed and approved the proposed audit fee and
terms of engagement for the financial year ended 31 May 2011
Reviewed the external auditors’ audit planning and other
reports, proposed audit fees and performance of the external
auditors including their independence and objectivity
Corporate Governance: Corporate Governance Report
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 supported by an external evaluation
of the internal controls and risk management systems
Reviewed the effectiveness of the Group’s Internal Audit
Function, supported by an external evaluation, including a
review of the three-year rolling internal audit plan, individual
internal audit reports and reports on the implementation of
internal audit recommendations
Reviewed reports from the Compliance Functions
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
Reviewed the Group’s Anti-Bribery policy and Gifts and
Hospitality policy
In addition, the members of the Audit Committee meet privately in
separate meetings with Head of Internal Audit, Head of Compliance
and external auditors to focus on respective areas of responsibility,
and to discuss any potential issues where support from the Audit
Committee may be required.
Following each meeting, the Audit Committee reports to the
Board on its activities.
Attendance at Board and committee meetings
The number of full Board and committee meetings attended by each Director during the year is 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)
Steven Clutton(1)
David Currie
Peter Hetherington
Christopher Hill(2)
Stephen Hill(3)
Martin Jackson
Robert Lucas(4)
Andrew Mackay
Nat le Roux
Roger Yates
6/6
6/6
1/1*
6/6
5/6
1/1*
0/1*
6/6
2/2*
5/6
5/6
6/6
1/1
-
-
1/1
-
-
-
1/1
-
-
-
1/1
-
-
-
4/4
-
-
-
4/4
-
-
-
4/4
3/3
-
-
2/3
-
-
-
1/3
-
-
-
3/3
*for those Directors in office for part of the financial year the maximum number of meetings is reduced to show those for which the individual was a Director or Committee member.
(1) Steven Clutton resigned from the Board on 2 August 2010
(3) Stephen Hill was appointed to the Board on 28 April 2011
(2) Christopher Hill was appointed to the Board on 26 April 2011
(4) Robert Lucas resigned from the Board on 7 October 2010
Stephen Hill
non-executive director, 51 years old
Stephen has extensive experience in media and online businesses, having worked as the CEO of the Financial Times for
Pearson Plc between 1996 and 2002, and as the CEO of Betfair Limited from 2003 to 2005. Stephen is an experienced
Non-Executive Director and has previously served on the boards of RSA Insurance Group plc, Psion plc and as
Chairman of Interactive Data Corp. Stephen is now Chairman and CEO of the Harbour Group, a private investment
company, and Trustee and Treasurer of the Royal National Institute for Deaf People – Action on Hearing Loss, where he
chairs the Audit and Investment Committees. Stephen also currently serves on the Advisory Board of the Cambridge
University Judge Business School and is on the Board of Channel Four Television Corp.
54 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
54 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Nat le Roux
non-executive deputy chairman, 54 years old
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
(1) Sir Alan Budd stepped down from the Board on 4th May 2010.
independent Director of the London Metal Exchange, where he chairs the Audit and Risk Committees.
(2) David Currie was appointed to the Board on 4th May 2010.
55
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CoRpoRAte GoveRnAnCe RepoRt
(continued)
THE WorKINGS oF THE BoArD AND ITS
coMMITTEES (coNTINuED)
External auditors
As noted in the Directors’ Statutory Report, the Group’s Audit
Committee decided it was desirable to put the Group’s audit
appointment out to a competitive tender process during the year,
which resulted in the appointment of PricewaterhouseCoopers LLP
as the Group’s auditor. As a part of the tender process, the Audit
Committee reviewed and approved the proposed audit fee and
terms of engagement for the financial year ended 31 May 2011. The
Audit Committee also recommended to the Board that it proposes
to shareholders that PricewaterhouseCoopers LLP be appointed
as the Group’s external auditor for the financial year ending
31 May 2012. The Audit Committee also monitored the balance
of audit and non-audit fees to ensure that the independence and
objectivity of PricewaterhouseCoopers LLP is maintained.
As part of its consideration of the annual Financial Statements, the
Audit Committee has reviewed and is satisfied that the auditors
have remained independent of the Group during the financial
year, and have continued to remain so to the date of this report.
Review of the Audit Committee’s performance
During the year the Audit Committee reviewed its performance.
The review was carried out using an evaluation questionnaire, and a
discussion of the results by the committee took place at a meeting
in July 2011. The results were reported to the Board in July 2011.
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 Group’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. The Annual
Report and Accounts and notice of the Annual General Meeting are
sent, or made available on the website, to shareholders at least 20
working days prior to the meeting being held.
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.
rISK MANAGEMENT AND INTErNAL coNTroL
The Group is exposed to a number of business risks in providing
products and services to our clients. These risks are outlined in the
Our Business Risks section of the Operating and Financial Review.
The Board of Directors is responsible for establishing the overall
appetite for these risks, which is detailed and approved in the Risk
Appetite Statement, and for the framework of risk management and
control that is designed to embed the management of business risk
throughout the Group.
The Board reviews and challenges the risk management framework
on an annual basis and more frequently through the Audit
Committee. Management are responsible for the day-to-day
implementation of the risk management framework as well as a
system of internal controls.
Roger Yates
senior Independent non-executive director, 54 years old
Roger joined the Board as Senior Independent Non-Executive 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 latterly, CEO of Pioneer Investments, a part of the UniCredit Group.
56 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
56 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Corporate Governance: Corporate Governance Report
risk Appetite
The Group’s Risk Appetite is articulated in Key Risk Indicators (KRIs)
and each KRI has either a numerical measure or relates to a specific
risk event. Taken together the KRIs are a balanced mix of quantitative
and qualitative measures which provide an important indication of
increasing or reducing levels of risk. KRIs are developed based on:
Measures adopted by the Board to ensure a low level of volatility in
revenues and earnings
Measures covering regulatory requirements
Measures adopted by the Board to encourage trust from
shareholders and clients
Measures to promote orderly business operations to ensure
confidence in the business by staff and business partners
risk management framework
The risk management framework operates at three levels within
the Group:
1) Board-level review and challenge
2) Executive Risk Committee and the assurance functions of Risk,
Compliance and Internal Audit
3) Internal controls implemented by management
The Board reviews and challenges the risk management
framework and the Audit Committee monitors the ongoing
process of identifying, evaluating and managing all significant
risks throughout the Group. The Audit Committee normally meets
four times a year, and as and when required, and receives periodic
reports from the external and internal auditors concerning risk
management and internal control.
Management has established a Risk Committee to monitor the
implementation of the risk management framework as well as the
system of internal controls. The Risk Committee is an executive
committee and comprises the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer and Chief Risk Officer
as well as the Dealing and Operations Director, Risk Director, the
Treasurer and the Regulatory Controller. The Risk Committee
meets weekly, and as and when required, 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 meetings are
circulated to the Non-Executive Directors.
The responsibilities of the Risk Committee include:
Reviewing the overall level of risk faced by the Group, whilst
paying due consideration to the interests and obligations of
Group companies, shareholders and customers
Recommending overall risk appetite, tolerance, scenarios and
planning to the Board
In addition to the management of individual risks, the Group
undertakes various stress and scenario testing as part of the
Individual Capital Adequacy Assessment Process (ICAAP) and
Individual Liquidity Adequacy Assessment (ILAA) prepared
according to the requirements of the FSA. The scenarios stress
test the effect on capital and liquidity of a series of combined risk
events occurring simultaneously. Both assessments are overseen
by the ICAAP and ILAA Committees, to which Nat le Roux, Martin
Jackson and Stephen Hill all contribute via a non-executive
working group.
The Risk and Compliance functions are responsible for coordinating
the processes of identifying, evaluating, managing and monitoring
risks using departmental risk registers. Heads of Department are
responsible for the maintenance of these registers and, where
necessary, taking action to mitigate risks and enhance the
control environment. The Risk Department consolidates the key
operational and business risks from the detailed departmental risk
registers and reports to the Risk Committee.
Internal controls
Management have designed and implemented a system of internal
controls to manage, rather than eliminate, the risk of failure to achieve
business objectives and provides reasonable, but not absolute,
assurance against the risk of material misstatement or loss. A policy
framework has been implemented across the Group to support the
adoption of risk management practices and controls.
The framework covers HR, compliance and information security
policies which provide guidance to all members of staff. An online
Policy Matters tool allows for the effective distribution of new or
changed policies to ensure that all relevant staff have read and
confirmed (electronically) their understanding of the policy.
The system of internal controls includes, but is not limited to:
Compliance with policies, plans, procedures, laws and regulations
Safeguarding of assets
Reliability and integrity of financial and management information
57
CoRpoRAte GoveRnAnCe RepoRt
(continued)
review of risk management and internal controls
The risk management framework 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.’
The Board of Directors and the Audit Committee have reviewed
the effectiveness of management’s system of internal control,
covering financial, operational and compliance controls and
risk management systems, and no significant weaknesses were
identified during this review.
Accountability and audit
The Statement of Directors’ Responsibilities in respect of the
Financial Statements is set out immediately prior to the Financial
Statements, and a statement regarding the use of the going
concern basis in preparing these Financial Statements is given in
the Directors’ Statutory Report.
The Independent Auditors’ Report, which sets out the auditor’s
reporting responsibilities, is also given immediately prior to the
Financial Statements.
Internal control over financial reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
controls over financial reporting are carried out under the
supervision of the Chief Financial Officer, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of the consolidated Financial Statements for external
reporting purposes, in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union
and the International Accounting Standards Board (IASB).
Internal controls over financial reporting focus on the most
material financial statement line items and include policies and
procedures that pertain to the maintenance of records that, in
reasonable detail:
Accurately and fairly reflect transactions and dispositions
of assets
Provide reasonable assurances that transactions are recorded
as necessary to permit preparation of Financial Statements
in accordance with IFRS, and that receipts and expenditures
are being made only in accordance with authorisations of
management and the Directors
Provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or
disposition of assets that could have a material effect
on the Financial Statements
The Annual Report is reviewed by the Audit Committee and the Board
prior to publication.
Internal control systems, no matter how well designed, have
inherent limitations and may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that internal controls may become
inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
dIReCtoRS’ ReMuneRAtIon RepoRt
Corporate Governance: directors’ Remuneration Report
This report sets out the Group’s remuneration policy and details
the remuneration of each of the Directors for the financial year
ended 31 May 2011. It has been prepared in accordance with the
Companies Act 2006, the Combined Code and Schedules 5 and 8
to the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008.
INForMATIoN NoT SuBJEc T To AuDIT
The Remuneration Committee, whose composition is set out
in the Corporate Governance Report, is responsible for making
recommendations to the Board on the Group’s remuneration
policy. Within the terms of the policy, the Remuneration
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 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 Remuneration Committee determines the remuneration of
the Chairman, while the Chairman and the Executive members
of the Board determine the remuneration of the Non-Executive
Directors. No Director or manager is involved in any decisions as
to their own remuneration.
Details of the number of meetings and attendance at
committee meetings during the year are set out in the
Corporate Governance Report.
During the year, the Remuneration Committee received advice
from external advisors Kepler Associates.
remuneration principles
The Remuneration Committee has agreed that the following
principles should apply to all matters relating to remuneration of
Group employees:
Remuneration should recognise and reward good and
excellent performance of employees that helps drive the
sustainable growth of the Group
Remuneration should be focused on retaining proven
senior management
Remuneration should be consistent with regulatory and
corporate governance requirements
Remuneration should be used to achieve effective
risk management
Remuneration should never be used to reward behaviour
that exposes the Group to risks outside its risk appetite
Remuneration should be aligned with the best interests of the
Company’s shareholders
Remuneration should be straightforward, making it
understandable for employees and easy for the Group
to monitor
Variable remuneration should not be guaranteed for new staff
unless it is exceptional, and if it is provided it must be limited to
their first year
remuneration regulation
During the year, the Remuneration Committee ensured the
Group’s approach to remuneration was structured in accordance
with the FSA’s Remuneration Code (the FSA Code). Code Staff are
defined as the Group’s employees whose professional activities
could have a material impact on the Group’s risk profile, and who
fall into the Code Staff categories set down by the FSA Code.
Code Staff have been identified, made aware of the implications
of their status and their remuneration has been reviewed by the
Remuneration Committee during the financial year.
A summary of the ways in which the Remuneration Committee
is committed to ensuring remuneration arrangements are in
accordance with the FSA Code is provided below:
At least 40% of variable remuneration of Code Staff is deferred
over three to five years, with awards vesting no faster than on
a pro-rata basis (and the first vesting no earlier than one year
after the award). Where the amount of variable remuneration is
more than £500,000, at least 60% is deferred
At least 50% of variable remuneration is paid in non-cash form
The allocation of variable remuneration takes into account all
types of current and future risks
Mechanisms are in place to adjust awarded but unvested
variable remuneration, in particular where there is evidence
of employees’ misbehaviour or material error, or where the
firm suffers material financial downturn or material failure in
risk management
Appropriate ratios of variable to fixed remuneration are set,
and there is an appropriate balance between the elements.
The level of fixed remuneration is sufficient to allow no variable
remuneration to be paid where appropriate
There is a clear written remuneration policy in place which is
communicated to employees and ensures the implications of
their status is understood
The disclosure of the aggregate remuneration of Code Staff is set
out later in this report.
58 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
59
dIReCtoRS’ ReMuneRAtIon RepoRt
(continued)
INForMATIoN NoT SuBJEc T To AuDIT
(coNTINuED)
Directors’ remuneration
Basic salary
During the year, the Remuneration Committee commissioned
external advisors Kepler Associates 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 total
remuneration package for the Chief Executive Officer (salary,
bonus and LTIPs) and revealed this fell below the median
remuneration paid to chief executive officers in the comparable
groups. The Remuneration Committee recommended increasing
the Chief Executive Officer’s salary to £414,000.
The review revealed the total remuneration package for
Executive Directors fell between median and upper quartile.
The Remuneration Committee recommended the salaries for
the Chief Operating Officer and Head of Asia Pacific be increased
to reflect the changes to the responsibilities of executive
management for the next financial year. Peter Hetherington, Chief
Operating Officer, will take leadership of all of the Group’s revenue
generating business units, and Andrew Mackay, who has been
Head of Asia Pacific for the last three years, will return to London
as Director of Corporate Strategy and lead the Group’s efforts
to identify further opportunities for geographic and product
expansion.
The Remuneration Committee approved the following salary
increases for the Executive Directors effective from 1 June 2011:
Tim Howkins
christopher Hill
Peter Hetherington
Andrew MacKay
- from £400,000 to £414,000
- from £280,000 to £289,800
- from £240,000 to £248,400(1)
- from £270,000 to £279,450
(1) Peter Hetherington is paid a reduced pro rata salary of £248,400 based upon a
£310,500 full-time equivalent salary to reflect his flexible working arrangements.
Any bonus payments are based on his full-time equivalent salary.
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 of FTSE 101-
250 companies and FTSE 350 financial services companies.
In each case the Chairman’s salary was just above the
lower quartile. Accordingly, the Remuneration Committee
recommended the Chairman’s salary is increased from
£160,000 to £180,000, with effect from 1 June 2011.
Last year, the Board commissioned external advisors Kepler
Associates 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
receives an additional £12,500, bringing his remuneration to £62,500.
These changes took effect from 1 June 2010.
There are no proposed changes to the Non-Executive Directors’
fees for the next financial year.
Performance-related bonuses
The annual bonus for the Group’s Executive Directors is calculated
by reference to growth in diluted adjusted earnings per share
(EPS). During the financial year ended 31 May 2011, the bonus
scheme approved by the Remuneration Committee required an
EPS growth of 17.5% to achieve a maximum bonus, set at 200%
of salary. At 12.5% EPS growth a bonus of 100% of salary was
payable and below 5% growth, no bonus was payable, with linear
growth between these parameters. The Committee felt these
targets represented a stretching, but not completely unachievable,
objective. As shown elsewhere in the Annual Report, actual EPS
growth for the year was 6.08%, which resulted in a bonus of 14.36%
of salary for each of the Executive Directors. In cash terms, the total
performance-related bonuses payable to the Executive Directors
were £143,000 compared to £1.8 million in the previous year.
For the year beginning 1 June 2011, the Remuneration Committee
has recalibrated the bonus scheme to reflect current performance
and economic conditions. The Committee feels that these targets
represent an appropriate balance between a stretching target and
one which is not completely unachievable given current economic
conditions. The approved profile is as follows:
growth in ePs
bonus as a percentage of salary
0%
2%
7%
12%
15%
-
50%
100%
150%
200%
Last year the Remuneration Committee introduced an element of
deferral into the cash bonus scheme and these arrangements, which
are in line with the final FSA rules on disclosure of remuneration
published in December 2010, continue unchanged this year: the first
£100,000 of any bonus plus one third of the reminder to be paid in
cash, the balance being deferred for 12 months and provided in shares.
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 elements of performance-related
bonuses are paid in full within three months of the year-end.
Corporate Governance: directors’ Remuneration Report
Long-term incentive plans
The Group operates long-term incentive plans (LTIPs) for management, including the Executive Directors. Awards were made under the
LTIPs 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, 2011and 2012 respectively. LTIP awards are discussed further in note 26 to the Financial Statements. No
future awards are expected to be made under LTIPs.
The vesting criteria of these plans are based on compound annual growth rate in diluted adjusted 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)
compound
annual
growth
% of award
vesting
31 May 2010
Share price growth award
2009
N/A(1)
31 May 2010
Earnings per share award
2009
24.74
31 May 2009
Share price growth award
2008
N/A(1)
31 May 2009
Earnings per share award
2008
20.28
31 May 2008
Share price growth award
2007
N/A(1)
31 May 2008
Earnings per share award
2007
14.52
2012
2012
2011
2011
2010
2010
<22.5%
22.5-100%
<12%
12-18%
18-25%
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%
Nil
0-50%
50-100%
Nil
0-100%
Nil
37.5-75%
75-100%
(1) 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.
Value-sharing plan (VSP)
During the year ended 31 May 2010, the Committee carried out a review of long-term incentive arrangements, and as a result of this
review, and following discussions with our shareholders, the Committee proposed to introduce a new value-sharing plan (VSP) to replace
the existing LTIPs. Shareholders approved this new plan at the 2010 AGM, and the first awards were made on 29 October 2010.
The VSP comprises annual awards, providing the Executive Directors and other senior staff with a pre-defined number of shares for each
£1.0 million of surplus shareholder value created over three years above a hurdle. Surplus value is calculated under two criteria:
(i)
Value created from the difference between the total shareholder return (TSR) of IG Group Holdings plc and that of the FTSE350
Financial Services Index, multiplied by IG Group Holdings plc starting market capitalisation, defined as the average market
capitalisation in the three months to 31 May 2010
(ii) Growth in profit before taxation (PBT) times a fixed multiple determined by IG Group Holdings plc starting market capitalisation, plus
net equity cash flows to shareholders above a hurdle return. For the 2010 VSP, the hurdle return was 12% per annum, with the multiple
being 10.467, based on the financial year ended 31 May 2010
60 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
61
dIReCtoRS’ ReMuneRAtIon RepoRt
(continued)
Corporate Governance: directors’ Remuneration Report
The Executive Directors have elected to do the following:
Interests in share capital
INForMATIoN NoT SuBJEc T To AuDIT
(coNTINuED)
For Executive Directors, 60% of the shares will vest on the TSR
measure and 40% of shares will vest on the PBT measure. Note that
the 60/40 ratio between TSR and PBT applies only to Executive
Directors. Code Staff and other senior staff are paid on a either a
50/50 or 40/60 split between TSR and PBT.
The Remuneration Committee believes that profit before taxation
(excluding impairment of goodwill and intangibles) is the best
internal measure of the Group’s financial performance as it is
highly visible and regularly monitored and reported. The use of
relative TSR introduces an element of relative performance into
the Group’s 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. The Remuneration
Committee believes that the blend of PBT and TSR measures
provides strong alignment with shareholder interests and a
good balance between internal and external performance and
between absolute and relative performance.
LTIP awards and the value-sharing plan are discussed further in
note 26 to the Financial Statements.
tim howkins
christopher hill
Peter hetherington
andrew macKay
Restrict pension contribution to £50,000
and receive the balance of the pension
contribution as an additional cash payment
Receive the full pension contribution
Receive the entire pension contribution as
an additional cash payment
Receive the full pension contribution
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:
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 re-introduced subsidised
health club membership to all staff from 1 June 2010.
Executive Directors:
tim howkins
christopher hill
Peter hetherington
andrew macKay
12 April 2005
18 January 2011
12 April 2005
12 April 2005
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.
The Non-Executive Directors were each appointed for an initial
term of twelve 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.
Effective from 1 April 2011, the Government introduced new
limits on tax-efficient contributions to pensions, which make
contributions above £50,000 tax-ineffective. In light of this, the
Remuneration Committee agreed that the Executive Directors
would be given the option to take part or all of their pension
entitlement of 15% of basic salary in cash. This additional cash
payment is counted in lieu of pension, and will not be counted as
base salary for the purposes of calculating other benefits, such as
the cash bonus scheme. This was put in place with effect from
1 April 2011.
J R Davie
T A Howkins
S Clutton (resigned from the Board on 2 August 2010)
P G Hetherington
A R MacKay
D M Jackson
R R Lucas (resigned from the Board on 7 October 2010)
N B le Roux
R P Yates
D A Currie
C F Hill
S G Hill
31 may
2011
ordinary
shares
31 may
2011
Preference
shares
31 may
2010
ordinary
shares
31 may
2010
Preference
shares
530,000
3,800,000
N/A
200,833
494,690
-
N/A
75,000
25,000
-
-
-
-
10,000
N/A
10,000
10,000
-
N/A
10,000
-
-
-
-
600,000
3,800,000
17,169
250,000
867,687
-
47,312
100,000
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 2011 was 449.0p and the high and low share prices in the year were 553.0p
and 379.2p 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 from 1 June 2006. The most appropriate benchmarks are considered by the Directors to be:
The FTSE 250, as it represents a broad equity market index of which the Company is a constituent member
The FTSE 350 Financial Services Index, given this is the benchmark index for the Group’s value sharing plan
The figures have been rebased to 100 as at 1 June 2006 in order to aid comparison and are presented to 18 July 2011.
305
280
255
230
205
180
155
130
105
80
55
30
IG Group
FTSE 250
FTSE 350 Financial Services Index
6
0
-
n
u
J
6
0
-
c
e
D
7
0
-
n
u
J
7
0
-
c
e
D
8
0
-
n
u
J
8
0
-
c
e
D
9
0
-
n
u
J
9
0
-
c
e
D
0
1
-
n
u
J
0
1
-
c
e
D
1
1
-
n
u
J
62 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
63
dIReCtoRS’ ReMuneRAtIon RepoRt
(continued)
INForMATIoN SuBJEc T To AuDIT
Directors’ remuneration
This section of the report sets out the remuneration of the Directors for the year ended 31 May 2011. The remuneration of the Directors
who served during the year was as follows:
Executive Directors:
T A Howkins(4)
S Clutton(5)
P G Hetherington
C F Hill(6)
A R MacKay
Non-Executive Directors:
J R Davie
D M Jackson
R R Lucas(7)
N B le Roux
R P Yates
D A Currie
A Budd(8)
S Hill(9)
Performance-related bonuses(2)
other
benefits
and
payments(1)
£000
basic salary
and fees
£000
Paid in
cash
£000
deferred
into shares
£000
Pension
elections(3)
£000
year ended
2011
£000
year ended
2010
£000
402
36
240
28
270
976
160
63
11
50
50
50
-
4
1
175
1
270
5
452
-
-
-
-
-
-
-
-
57
-
43
4
39
143
-
-
-
-
-
-
-
-
1,364
452
143
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(34)
-
(30)
(64)
-
-
-
-
-
-
-
-
460
211
250
302
284
796
646
561
-
668
1,507
2,671
160
63
11
50
50
50
-
4
120
40
30
35
35
3
32
-
(64)
1,895
2,966
(1) All Executive Directors are entitled to receive professional subscriptions, private health cover and health club membership. This includes the cash element of the compensation
for loss of office of £174,000 paid to S Clutton.
(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) T A Howkins has elected from 1 April 2011 to restrict his pension contribution to £50,000 and receive the remainder of the allowance as additional salary.
(5) S Clutton resigned from the Board on 2 August 2010. This includes the cash element of the compensation for loss of office of £174,000 paid to S Clutton.
(6) C F Hill was appointed to the Board on 26 April 2011. C F Hill was granted an additional bonus on appointment of £270,000, of which £157,000 is payable in cash and
remainder deferred into shares of the Company vesting of July 2012.
(7) Fees of £10,583 (2010: £30,000) relating to the services of R R Lucas as a Director of the Company were paid to CVC Capital Partners Limited. R R Lucas resigned from the Board
on 7 October 2010.
(8) A Budd terminated his employment on 4 May 2010.
(9) S Hill was appointed to the Board on 28 April 2011.
compensation for loss of office
Included in the Directors’ remuneration for the year are amounts paid as compensation for loss of office to S Clutton, who resigned from
the Board on 2 August 2010. Amounts paid as compensation for loss of office comprised:
Compensation for loss of office, including payment in lieu of notice, of £174,000 (disclosed under ‘other benefits and payments’)
Gains associated with the early exercise of the long-term incentive plans in relation to the 2008 and 2009 financial years, pro-rata for the vesting
period served in office. This exercise was based on the average daily closing share price of the Company for the six-week period to 31 January
2011 for the share price growth award, and on earnings per share for the year ended 31 May 2010 for the earnings per share awards. This
resulted in the early award under the 2008 and 2009 LTIP plans of a total of 261,094 shares in the Company and a gain of £1,191,000
Legal fees paid by the Company on behalf of S Clutton in relation to his loss of office of £12,604
Total compensation for loss of office was therefore £1,365,000, exclusive of the legal fees paid. There was no compensation for loss of office
paid in the prior year.
64 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
Corporate Governance: directors’ Remuneration Report
Pension entitlements
T A Howkins
S Clutton(1)
P G Hetherington
A R MacKay
C F Hill(2)
2011
£000
2010
£000
58
5
74
73
4
40
32
75
63
-
214
210
(1) S Clutton resigned from the Board on 2 August 2010.
(2) C F Hill was appointed to the Board on 26 April 2011.
There were no contributions made for the Non-Executive Directors during the year ended 31 May 2011.
Interests in value sharing plan and in long-term incentive plans
T A Howkins
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Value sharing profit award – 3 year
Value sharing profit award – 4 year
Total shareholder return award – 3 year
Total shareholder return award – 4 year
share price
at award
date
number as
at 31 may
2010
award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2011
23 Jul 2007
23 Jul 2007
30 Sep 2008
30 Sep 2008
25 Sep 2009
25 Sep 2009
29 oct 2010
29 oct 2010
29 oct 2010
29 oct 2010
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
169,736
169,736
174,917
174,918
166,248
166,249
-
-
-
-
-
-
-
-
-
-
117,511
117,512
176,267
176,268
(18,064)
(158,035)
-
-
-
-
-
-
-
-
1,021,804
587,558
(176,099)
-
-
-
-
-
-
-
-
-
-
-
151,672
11,701
174,917
174,918
166,248
166,249
117,511
117,512
176,267
176,268
1,433,263
share price
at award
date
number as
at 31 may
2010
award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2011
S Clutton(1)
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
(1) S Clutton resigned from the Board on 2 August 2010.
23 Jul 2007
23 Jul 2007
30 Sep 2008
30 Sep 2008
25 Sep 2009
25 Sep 2009
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
96,077
96,077
132,013
132,013
134,881
134,881
725,942
-
-
-
-
-
-
-
(10,225)
(89,454)
(42,567)
(79,233)
(76,808)
(74,087)
(85,852)
(6,623)
(89,446)
(52,780)
(58,073)
(60,794)
(372,374)
(353,568)
-
-
-
-
-
-
-
65
dIReCtoRS’ ReMuneRAtIon RepoRt
(continued)
INForMATIoN SuBJEc T To AuDIT (coNTINuED)
Interests in value sharing plan and in long-term incentive plans (continued)
P G Hetherington
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Value sharing profit award – 3 year
Value sharing profit award – 4 year
Total shareholder return award – 3 year
Total shareholder return award – 4 year
A R MacKay
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Earnings per share award
Share price growth award
Value sharing profit award – 3 year
Value sharing profit award – 4 year
Total shareholder return award – 3 year
Total shareholder return award – 4 year
share price
at award
date
number as
at 31 may
2010
award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2011
23 Jul 2007
23 Jul 2007
30 Sep 2008
30 Sep 2008
25 Sep 2009
25 Sep 2009
29 oct 2010
29 oct 2010
29 oct 2010
29 oct 2010
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
76,861
76,861
105,611
105,611
125,471
125,471
-
-
-
-
-
-
-
-
-
-
73,445
73,445
110,167
110,168
(8,179)
(71,562)
-
-
-
-
-
-
-
-
(68,682)
(5,299)
-
-
-
-
-
-
-
-
-
-
105,611
105,611
125,471
125,471
73,445
73,445
110,167
110,168
615,886
367,225
(79,741)
(73,981)
829,389
share price
at award
date
number as
at 31 may
2010
award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2011
23 Jul 2007
23 Jul 2007
30 Sep 2008
30 Sep 2008
25 Sep 2009
25 Sep 2009
29 oct 2010
29 oct 2010
29 oct 2010
29 oct 2010
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
86,469
86,469
125,413
125,413
144,291
144,292
-
-
-
-
-
-
-
-
-
-
73,445
73,445
110,167
110,168
(9,202)
(80,508)
-
-
-
-
-
-
-
-
(77,267)
(5,961)
-
-
-
-
-
-
-
-
-
-
125,413
125,413
144,291
144,292
73,445
73,445
110,167
110,168
712,347
367,225
(89,710)
(83,228)
906,634
Corporate Governance: directors’ Remuneration Report
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.
T A Howkins
S Clutton(1) (resigned from the Board on 2 August 2010)
P G Hetherington
A R MacKay
C F Hill (appointed to the Board on 26 April 2011)
2011
£000
-
1,634
366
368
-
2,368
2010
£000
676
534
117
94
-
1,421
(1) Includes a gain of £1,191,000 made following the early exercise under the 2008 and 2009 LTIP plans of a total of 261,094 shares in the Company which has been disclosed as
compensation for loss of office.
rEMuNErATIoN coDE DIScLoSurE
code Staff aggregate remuneration
The aggregate remuneration paid to senior management and members of Code Staff whose actions have a material impact on the risk
profile of the firm are disclosed in the following table:
Fixed remuneration (£000s)
Variable remuneration (£000s)
Share based payment schemes(1) (£000s)
Number of staff
executive
directors
other code
staff
1,090
413
4,303
4
850
398
1,824
6
total
1,940
811
6,127
10
(1) Represents the fair value at date of award and not the actual gain made on exercise of share based payments or the income statement charge taken in the period.
By order of the Board
christopher hill, Chief Financial Officer
19 July 2011
66 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
67
StAteMent oF dIReCtoRS’ ReSponSIBIlItIeS
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group and Company Financial
Statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (IFRS) as adopted by
the European Union.
The Directors are required to prepare Financial Statements for each financial year which present fairly the financial position of the
Company and of the Group and the financial performance of the Group and cash flows of the Group and of the Company for that period.
In preparing those Financial Statements, the Directors are required to:
Select suitable accounting policies and then apply them consistently
Make judgements and accounting estimates that are reasonable and prudent
State whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and
explained in the Financial Statements
Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure
that the Financial Statements and the Directors’ Remuneration Report 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 Company and the Group
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are provided in the Corporate Governance Report, confirms that, to the best of
their knowledge:
The Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of
the assets, liabilities, financial position and loss of the Group
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 Group, together with a description of the principal risks and uncertainties that
it faces
By order of the Board
christopher hill, Chief Financial Officer
19 July 2011
Independent AudItoRS’ RepoRt to tHe
MeMBeRS oF IG GRoup HoldInGS plC
Corporate Governance: Independent Auditors’ Report
We have audited the Financial Statements of IG Group Holdings plc for
the year ended 31 May 2011 which comprise Group Income Statement,
Group Statement of Comprehensive Income, Statements of Financial
Position, Statements of Changes in Equity, Cash Flow Statements and the
related notes. 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.
respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set
out on page 68, 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 and express an opinion on 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 Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the
company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
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.
In addition, we read all the financial and non-financial information
in the Chairman’s Statement and the Business Review to identify
material inconsistencies with the audited Financial Statements.
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
opinion on Financial Statements
In our opinion:
The Group 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 2011 and of the Group’s loss and Group’s and parent
company’s cash flows 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 lAS Regulation
opinion on other matters prescribed by the companies
Act 2006
In our opinion:
The audited section of the Directors’ Remuneration Report has been
properly prepared in accordance with the Companies Act 2006
The information given in the Directors’ 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
with respect to internal control and risk management systems
and about share capital structures is consistent with the Financial
Statements
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 audited
section of the Directors’ Remuneration Report 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 parent company
Under the Listing Rules we are required to review:
The Directors’ statement, set out on page 48, in relation to
going concern
The sections of the Corporate Governance Statement relating
to the company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review
Certain elements of the report to shareholders by the Board on
Directors’ remuneration
darren Ketteringham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
19 July 2011
68 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
69
Financial Statements
FINANCIAL
STATEMENTS
GrouP INcoME STATEMENT
GrouP STATEMENT oF coMPrEHENSIvE INcoME
STATEMENTS oF FINANcIAL PoSITIoN
STATEMENTS oF cHANGES IN EQuITY
cASH FLoW STATEMENTS
INDEx To NoTES To THE FINANcIAL STATEMENTS
NoTES To THE FINANcIAL STATEMENTS
72
73
74
75
77
78
79
71
71
70 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
70 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
GRoup StAteMent oF CoMpReHenSIve InCoMe
for the year ended 31 May 2011
Financial Statements
(Loss) / profit for the year
other comprehensive (expense) / income:
Foreign currency translation on overseas subsidiaries
Other comprehensive (expense) / income for the year
total comprehensive (expense) / income for the year
total comprehensive (expense) / income attributable to:
Equity holders of the parent
Non-controlling interests
The notes on pages 79 to 127 are an integral part of these Financial Statements.
2011
£000
£000
2010
£000
£000
(25,292)
101,486
(344)
27,434
(344)
(25,636)
(25,797)
161
(25,636)
27,434
128,920
128,290
630
128,920
2011
certain
items(1)
£000
-
-
-
-
-
-
-
-
-
before
certain
items(1)
£000
344,427
5,791
350,218
(321)
(45,876)
(4,298)
total
£000
353,246
9,124
362,370
(176)
(32,854)
(4,085)
325,255
299,723
320,392
4,863
298,551
1,172
2010
(restated)
certain
items(1)
£000
-
-
-
-
-
-
-
-
-
total
£000
344,427
5,791
350,218
(321)
(45,876)
(4,298)
299,723
298,551
1,172
GRoup InCoMe StAteMent
for the year ended 31 May 2011
Trading revenue
Interest income on segregated client funds
revenue
Interest expense on segregated client funds
Introducing broker commissions
Betting duty
net operating income
Analysed as:
net trading revenue
Other net operating income
Administrative expenses
operating profit
Finance revenue
Finance costs
Profit before taxation
Tax expense
(Loss) / profit for the year
(Loss) / profit for the year attributable to:
Equity holders of the parent
Non-controlling interests
(Loss) / earnings per ordinary share
Basic
Diluted
note
before
certain
items(1)
£000
353,246
9,124
362,370
(176)
(32,854)
(4,085)
2
325,255
320,392
4,863
1, 2
3, 4
7
8
9
note
10
10
(162,225)
(155,953)
(318,178)
(142,436)
(17,298)
(159,734)
163,030
2,402
(2,432)
163,000
(43,991)
(155,953)
-
-
(155,953)
11,652
7,077
2,402
(2,432)
7,047
(32,339)
157,287
2,664
(2,312)
157,639
(46,120)
(17,298)
-
-
(17,298)
7,265
139,989
2,664
(2,312)
140,341
(38,855)
119,009
(144,301)
(25,292)
111,519
(10,033)
101,486
118,848
161
119,009
(144,301)
-
(144,301)
(25,453)
161
(25,292)
111,314
205
111,519
(10,033)
-
(10,033)
101,281
205
101,486
2011
(7.05p)
(7.05p)
2010
28.19p
28.00p
(1) Certain items comprise amortisation and impairment of intangible assets associated with the Group’s Japanese business and impairment of the goodwill associated with the
Group’s Sport business and related taxation. Refer to notes 3 and 4 for more information.
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 trading revenue is reported gross of introducing broker commission with an equal expense disclosed in
arriving at net operating income. Refer to note 37 for more information.
The notes on pages 79 to 127 are an integral part of these Financial Statements.
72 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
73
StAteMentS oF FInAnCIAl poSItIon
at 31 May 2011
StAteMent oF CHAnGeS In equItY
for the year ended 31 May 2011
Financial Statements
Assets
non-current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Deferred tax assets
current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
totaL assets
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
Non-controlling interests
total equity
totaL eQuIty and LIabILItIes
group
2011
£000
2010
£000
(restated)
company
2011
£000
2010
£000
note
12
13
14
9
16
17
19
20
21
9
21
22
23
23
25
16,761
117,202
-
11,264
9,632
265,328
-
14,264
-
-
433,078
-
-
-
428,853
-
145,227
289,224
433,078
428,853
270,104
8,199
124,528
206,243
7,084
128,097
-
64,254
304
-
576,920
8
402,831
341,424
64,558
576,928
548,058
630,648
497,636
1,005,781
83,490
45,149
1,427
37,060
57,673
44,825
1,377
38,863
-
6,512
-
3,547
-
573,276
-
3,387
167,126
142,738
10,059
576,663
-
1,991
40
2,031
11,463
1,779
40
13,282
-
-
40
40
-
-
40
40
169,157
156,020
10,099
576,703
18
206,246
80,173
92,263
378,700
201
18
206,246
79,742
185,443
471,449
3,179
18
206,246
18,899
262,374
487,537
-
18
206,246
14,991
207,823
429,078
-
378,901
474,628
487,537
429,078
548,058
630,648
497,636
1,005,781
group
at 1 june 2009
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity-settled employee share-based payments (note 26)
Excess of tax deduction benefit on share-based
payments recognised directly in shareholders’
equity (note 9)
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 11)
Movement in equity
at 31 may 2010
(Loss) / profit for the year
Other comprehensive (expense) for the year
Total comprehensive (expense) / income for the year
Equity-settled employee share-based payments (note 26)
Excess of tax deduction benefit on share-based
payments recognised directly in shareholders’
equity (note 9)
Acquisition of non-controlling interest (note 14b)
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 11)
Movement in equity
at 31 may 2011
equity
share
capital
£000
(note 23)
share
premium
£000
(note 23)
other
reserves
£000
(note 25)
retained
earnings
£000
shareholders’
equity
£000
non-
controlling
interests
£000
total
equity
£000
18
206,246
45,281
141,819
393,364
2,549
395,913
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,009
101,281
-
101,281
27,009
27,009
101,281
128,290
4,782
-
4,782
2,861
(175)
(16)
-
-
-
-
(57,657)
2,861
(175)
(16)
(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
18
206,246
79,742
185,443
471,449
3,179
474,628
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(344)
(25,453)
-
(25,453)
(344)
(344)
(25,453)
(25,797)
4,225
-
4,225
(831)
(2,302)
(291)
(26)
-
-
-
-
-
(67,727)
(831)
(2,302)
(291)
(26)
(67,727)
161
-
161
-
-
(3,139)
-
-
-
(25,292)
(344)
(25,636)
4,225
(831)
(5,441)
(291)
(26)
(67,727)
431
(93,180)
(92,749)
(2,978)
(95,727)
18
206,246
80,173
92,263
378,700
201
378,901
The notes on pages 79 to 127 are an integral part of these Financial Statements.
The notes on pages 79 to 127 are an integral part of these Financial Statements. The comparative Group Statement of Financial Position
has been restated to reflect the change in accounting policy for segregated client funds. Refer to note 37 for more information.
Tim Howkins
Chief Executive
Christopher Hill
Chief Financial Officer
74 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
75
StAteMent oF CHAnGeS In equItY
for the year ended 31 May 2011
CASH FloW StAteMentS
for the year ended 31 May 2011
company
at 1 june 2009
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity-settled employee share-based payments (note 26)
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 11)
Movement in equity
at 31 may 2010
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity-settled employee share-based payments (note 26)
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 11)
Movement in equity
at 31 may 2011
equity
share
capital
£000
(note 23)
share
premium
£000
(note 23)
other
reserves
£000
(note 25)
retained
earnings
£000
total
equity
£000
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122,278
-
122,278
-
122,278
122,278
4,225
(291)
(26)
-
-
-
-
(67,727)
4,225
(291)
(26)
(67,727)
3,908
54,551
58,459
18
206,246
18,899
262,374
487,537
The notes on pages 79 to 127 are an integral part of these Financial Statements.
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
Proceeds on disposal of property, plant and equipment
Payments to acquire intangible fixed assets
Purchase of a minority interest
Purchase of a client list and business
Net cash flow from investing activities
Financing activities
Interest paid
Equity dividends paid to equity holders of the parent
Purchase of own shares
Payment of redeemable preference share dividends
Net cash flow from financing activities
Financial Statements
note
18
18
group
2011
£000
2010
£000
(restated)
119,636
(43,503)
8,015
(161)
129,126
(47,719)
5,745
(332)
company
2011
£000
68,641
-
-
-
2010
£000
58,638
-
-
-
83,987
86,820
68,641
58,638
2,046
(15,387)
313
(4,521)
(5,072)
(2,739)
2,557
(2,669)
-
(2,369)
-
-
(25,360)
(2,481)
1
-
-
-
-
-
1
1
-
-
-
-
-
1
(1,897)
(67,727)
(291)
(3)
(1,317)
(57,657)
(175)
(3)
(325)
(67,727)
(291)
(3)
(918)
(57,657)
(175)
(3)
(69,918)
(59,152)
(68,346)
(58,753)
Net (decrease) / increase in cash and cash equivalents
(11,291)
25,187
296
(114)
Cash and cash equivalents at the beginning of the year
Exchange gains on cash and cash equivalents
128,097
7,722
99,407
3,503
8
-
cash and cash equivalents at the end of the year
17
124,528
128,097
304
122
-
8
The notes on pages 79 to 127 are an integral part of these Financial Statements. The comparative Group Cash Flow Statement has been
restated to reflect the change in accounting policy for segregated client funds. Refer to note 37 for more information.
76 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
77
Index to noteS to tHe FInAnCIAl StAteMentS
notes to the Financial Statements
Note
1. Net trading revenue
2. Segment information
3. Operating profit
4. Exceptional items
5. Auditors’ remuneration
6. Staff costs
7. Finance revenue
8. Finance costs
9. Taxation
10. Earnings per ordinary share
11. Dividends
12. Property, plant and equipment
13. Intangible assets
14. Investments in subsidiaries
15. Impairment of goodwill
16. Trade receivables
17. Cash and cash equivalents
18. Cash generated from operations
19. Trade payables
20. Other payables
21. Provisions
22. Redeemable preference shares
23. Equity share capital
24. Own shares held in Employee Benefit Trusts
25. Other reserves
26. Employee share plans
27. Capital commitments
28. Obligations under leases
29. Litigation
30. Transactions with Directors
31. Related party transactions
32. Financial instruments
33. Financial risk management
34. Capital management and resources
35. Subsequent events
36. Authorisation of Financial Statements and statement of compliance with IFRS
37. Accounting policies
Page
79
80
81
82
83
83
84
84
85
88
88
89
90
91
94
96
96
97
97
98
98
98
99
100
101
102
105
105
105
105
106
107
110
120
120
120
120
1. NET TrADING rEvENuE
Net trading revenue represents trading revenue from financial instruments carried at fair value through profit and loss net of introductory
broker commission as this is consistent with the management information received by the Chief Operating Decision Maker. Revenue from
external customers includes interest income on segregated client funds and is analysed as follows:
net trading revenue
Financial
Spread betting
Contracts for Difference
Binaries
Total Financial
Sport(1)
total net trading revenue
Interest income on segregated client funds
revenue from external customers
2011
£000
2010
£000
109,796
188,201
14,724
312,721
7,671
104,605
177,414
10,600
292,619
5,932
320,392
298,551
9,124
5,791
329,516
304,342
(1) As discussed in notes 4 and 35, on 8 June 2011 the Group reached agreement to sell the majority of the client list relating to extrabet’s sport spread betting and fixed odds
betting and has subsequently closed the Sport business.
In addition to the above, finance revenue is disclosed in note 7. The Group does not derive more than ten percent of external revenue from
any one single customer.
78 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
79
noteS to tHe FInAnCIAl StAteMentS
(continued)
2. SEGMENT INForMATIoN
The segment information is presented as follows:
Segment net trading revenue has been disclosed net of introductory broker commission as this is consistent with the management
information received by the Chief Operating Decision Maker (CODM)
Net trading revenue is reported by the location of the office
The Europe segment comprises the Group’s operations in each of France, Germany, Italy, Luxembourg, the Netherlands, Portugal, Spain
and Sweden
The Rest of the World segment comprises the Group’s operations in each of South Africa, Singapore and the United States
Segment contribution, being segment net trading revenue less directly incurred costs, as it is the measure of segment profit and loss
reported to the (CODM)
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 derived 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 the World segment derives its revenue from the operation of a
regulated futures and options exchange as well as from CFDs, margined forex and binary options.
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 are managed and reported to the CODM centrally and thus have 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 net trading revenue, in order to provide segment EBITDA.
year ended 31 may 2011
Segment net 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(2)
Allocation of central costs
segment ebItda(3)
uK
£000
australia
£000
174,837
-
174,837
-
(4,085)
47,607
-
47,607
-
-
europe
£000
57,464
-
57,464
-
-
japan
£000
20,606
-
20,606
-
-
rest of the
World(1)
£000
19,878
-
19,878
-
-
central
£000
-
9,124
9,124
(176)
-
total
£000
320,392
9,124
329,516
(176)
(4,085)
170,752
47,607
57,464
20,606
19,878
8,948
325,255
143,822
36,449
35,444
8,557
11,156
(61,815)
173,613
(33,734)
(9,185)
(11,087)
(3,976)
(3,833)
61,815
-
110,088
27,264
24,357
4,581
7,323
Depreciation and amortisation
Impairment of intangible assets
(5,119)
(5,250)
(1,227)
-
(1,349)
-
(8,599)
(143,108)
(2,167)
-
Profit on disposal of property, plant and equipment
operating profit
Net finance costs
Profit before taxation
-
-
-
173,613
(18,461)
(148,358)
283
7,077
(30)
7,047
notes to the Financial Statements
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 the
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
year ended 31 may 2010
Segment net 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)
Depreciation and amortisation
(3,520)
(982)
(855)
(19,237)
(1,309)
Loss on disposal of 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 £4,422,000 disclosed in note 4, which relate to the UK (£2,958,000) and Central (£1,464,000) segments.
(2) EBITDA represents operating profit before depreciation, amortisation and impairment of intangible assets and amounts written off property, plant and equipment and
intangible assets.
3. oPErATING ProFIT
this is stated inclusive of exceptional items and after charging / (crediting):
Amortisation of customer relationships and trade names (Japan)(1)
Impairment of customer relationships and goodwill(1)
Depreciation of property, plant and equipment
Amortisation of intangible assets
Advertising and marketing
Net recovery of impaired trade receivables
Interim FSCS levy(2)
Operating lease rentals for land and buildings
(Profit) / loss on disposal of property, plant and equipment
Foreign exchange differences(3)
group
2011
£000
2010
£000
7,595
148,358
7,086
3,780
32,025
(2,162)
4,053
6,016
(283)
(1,080)
17,298
-
6,175
2,430
27,297
(1,064)
280
6,738
49
(522)
(1) Disclosed within the column ‘certain items’ in the consolidated Income Statement. ‘Certain items’ include both the amortisation and impairment of intangible assets associated
with the Group’s Japanese business, IG Markets Securities (formerly FXOnline), and the impairment of the goodwill associated with the Group’s Sport business, extrabet. Refer
to note 4 for further details of the impairments arising in the year.
(2) The interim levy imposed on certain investment management firms by the Financial Services Compensation Scheme (FSCS) related to the continuing costs of Keydata
Investment Services Limited and other failed investment intermediary firms represented a significant increase in FSCS levies paid by the Group.
(3) All of the above, except foreign exchange differences, are included in administrative expenses within the Income Statement. Foreign exchange differences are included
in revenue.
(1) The Rest of the World segment includes the Group’s South African business which generated net trading revenue of £2.75 million in the nine months following acquisition. In
the year ended 31 May 2010 net trading revenue, generated via the former introductory broker of the Group that was acquired during the year (refer to note 14), of £1.8 million
was reported in the UK segment.
(2) Segment contribution includes exceptional items of £3,644,000 (2010: £4,422,000) disclosed in note 4, which relate to the UK £2,284,000 (2010: £2,958,000) and Central
£1,360,000 (2010: £1,464,000) segments.
(3) EBITDA represents operating profit before depreciation, amortisation and impairment of intangible assets and amounts written off property, plant and equipment and
intangible assets.
80 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
81
noteS to tHe FInAnCIAl StAteMentS
(continued)
4. ExcEPTIoNAL ITEMS
In the year ended 31 May 2011, exceptional items were incurred in relation to the impairment of goodwill and customer relationships
associated with the acquisition of the Group’s Japanese business, IG Markets Securities (formerly FXOnline). For details of the goodwill
impairment review performed please refer to note 15.
Additionally in the year ended 31 May 2011, exceptional items were incurred in relation to the Group’s Sport business.
In the years ended 31 May 2011 and 31 May 2010, exceptional items were incurred in relation to the relocation of the Group’s
London headquarters.
exceptional items included in operating profit
Impairment of goodwill in relation to the Japanese business(1)
Impairment of Japanese customer relationships(1)
Impairment of goodwill in relation to the Sport business(2)
Other charges in relation to the closure of the Sport business(2)
Relocation of the Group’s London headquarters(3)
Total exceptional items
Deferred tax credit on exceptional items(1)
Tax credit on exceptional items
Total exceptional items after tax
2011
£000
122,960
20,148
5,250
2,474
1,752
152,584
2010
£000
-
-
-
4,874
-
4,874
(8,462)
(1,169)
-
(1,365)
142,953
3,509
Each of the impairment charges discussed above (totalling £148.4 million, 2010: £nil) as well as the amortisation of the Japanese customer
relationships (see note 3, 2011: £7.6 million, 2010: £17.3 million) have been disclosed in the Group Income Statement in the column ‘certain
items’ consistent with the Group’s established accounting policy and presentation.
(1) The goodwill and customer relationships associated with the Japanese business are considered to be impaired following regulatory change in the Japanese market. The
impairment charge disclosed as exceptional is exclusive of the amortisation (£7.6 million) charged in the accounting period immediately prior to impairment. The deferred tax
credit on the exceptional items solely relates to the customer relationships. For further detail of the impairment review performed refer to note 15.
(2) During the year, the Directors decided that the Group should investigate selling or closing the Sport business, extrabet, in order to allow management to focus exclusively
on the continuing expansion and development of the Financial business. The Group was unable to secure a sale of the Sport business in its entirety as a going concern on
acceptable terms and consequently, the Group commenced a redundancy consultation process, subsequently completed on 12 July 2011, with the employees prior to the
closure of the business. As a result exceptional costs have been incurred in relation to the impairment of the goodwill associated with the Sport business (£5.25 million) and
other closure-related costs including redundancy (£0.7 million) and onerous lease charges (£1.3 million).
(3) Includes costs arising in relation to an onerous lease charge for the excess office space resulting from the overlap of the lease period for the new London headquarters with
that of the Group’s previous London premises, double premises costs and accelerated depreciation of leasehold improvements and other assets that are obsolete following the
Group’s London headquarters move.
82 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
5. AuDITorS’ rEMuNEr ATIoN
audit fees
Fees payable to the Company’s auditors for the audit of the
parent company and consolidated Financial Statements
other fees to auditors:
Statutory and regulatory audit of subsidiaries and
branches of the Company pursuant to legislation
Other services supplied pursuant to legislation
Other services relating to taxation
- Compliance related services
- Advisory related services
Services relating to corporate finance transactions
All other services
notes to the Financial Statements
group
2011
£000
2010
£000
182
311
97
66
224
202
269
87
945
187
11
-
-
-
13
211
PricewaterhouseCoopers LLP were appointed as the Group’s auditors in December 2010 following a competitive tender process. The fees
disclosed above are in relation to the full year ended 31 May 2011. Of the total non-audit fees or fees unrelated to the audit (£782,000) paid
to PricewaterhouseCoopers, £427,000 was committed prior to their appointment as the Group’s auditors.
6. STAFF coSTS
The staff costs for the year, including Directors, were as follows:
Wages and salaries
Social security costs
Other pension costs (in relation to direct contribution schemes)
group
2011
£000
2010
£000
64,540
6,493
4,418
61,662
6,629
3,763
75,451
72,054
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
2011
£000
2010
£000
14,275
4,225
22,333
4,782
18,500
27,115
The Directors’ emoluments, including compensation for loss of office, for the year ended 31 May 2011 and the prior year can be found in
the Directors’ Remuneration Report. The average monthly number of employees, including Directors, was made up as follows:
Dealing, sales and client support
Management and administration including IT
group
2011
number
2010
number
595
356
951
529
299
828
83
noteS to tHe FInAnCIAl StAteMentS
(continued)
7. FINANcE rEvENuE
Interest receivable from brokers
Interest receivable from clients
Bank interest receivable
Other finance revenue
8. FINANcE coSTS
Liquidity facility arrangement and non-utilisation fees
Interest payable to clients
Interest payable to brokers
Bank interest payable
Dividend on redeemable preference shares
Other charges
group
2011
£000
1,167
211
642
382
2,402
2010
£000
406
509
1,749
-
2,664
group
2011
£000
2010
£000
1,085
136
196
29
3
983
2,432
913
168
163
68
3
997
2,312
Interest payable to clients relates to interest paid or accrued to clients in relation to title transfer funds (refer to note 17).
9. TAxATIoN
9(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 9(b))
notes to the Financial Statements
group
2011
£000
2010
£000
42,501
1,573
(2,309)
46,797
2,175
916
41,765
49,888
(9,426)
(11,033)
32,339
38,855
9(b) reconciliation of the total tax charge
The tax expense in the Income Statement for the year is different to the standard rate of corporation tax in the UK of 27.67% (2010: 28%).
The differences are reconciled below:
Accounting profit before income tax
Accounting profit multiplied by the UK standard
rate of corporation tax of 27.67% (2010: 28%)
Goodwill impairment not deductible for tax purposes
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
2011
£000
2010
£000
7,047
140,341
1,950
35,471
1,826
(4,599)
(2,309)
39,295
-
1,844
(3,200)
916
32,339
38,855
The effective tax rate is 458.9% (2010: 27.7%); however this includes the impact of the Japanese and Sport related goodwill impairments
of £128.2 million which are not allowable expenses for the purposes of taxation. Excluding the effect of these items, the effective rate of
taxation is 23.9% (2010: 27.7%).
84 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
85
noteS to tHe FInAnCIAl StAteMentS
(continued)
9. TAxATIoN (coNTINuED)
9(c) Deferred income tax assets
The deferred income tax assets included in the Statement of Financial Position are as follows:
9(e) Deferred income tax – Income Statement credit
Decelerated capital allowances
Tax losses available for offset against future tax
Doubtful debt provision
Share-based payments
Other
group
2011
£000
1,662
4,829
-
3,713
1,060
2010
£000
1,693
6,401
600
4,282
1,288
11,264
14,264
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:
At the beginning of the year
Income statement (charge) / credit
Tax (debited) / credited directly to equity
Foreign currency adjustment
At the end of the year
9(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
Foreign currency adjustment
Income statement credit
At the end of the year
group
2011
£000
14,264
(2,226)
(831)
57
2010
£000
7,562
3,768
2,861
73
11,264
14,264
group
2011
£000
2010
£000
11,463
189
(11,652)
16,740
1,988
(7,265)
-
11,463
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 liability has decreased in the current and prior periods as a result of the amortisation and/or
impairment of the underlying intangibles.
notes to the Financial Statements
group
2011
£000
2010
£000
(31)
(1,572)
262
(600)
(285)
11,652
348
3,702
(967)
(75)
760
7,265
9,426
11,033
(831)
2,861
The deferred income tax credit 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 (debited) / credited to equity
during the year is as follows:
Share-based payments
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.
The effect of the change in UK corporation tax to 26% from 1 April 2011 on the deferred tax assets is a deferred income tax charge of
£444,000 (2010: £nil), which is included in the movements above.
9(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 9(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.
On 1 April 2011 the UK corporation tax rate was reduced from 28% to 26%. Accordingly the Group’s UK earnings will be taxable at a lower
rate than has previously been applied. Deferred tax assets relating to UK have accordingly been re-measured at 26% as at 31 May 2011.
86 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
87
noteS to tHe FInAnCIAl StAteMentS
(continued)
10. EArNINGS PEr orDINArY SHArE
The Income Statement may only disclose basic and diluted earnings per share (EPS). The Group has also calculated an adjusted EPS
measurement ratio as the Directors consider it is the most appropriate measure, since it better reflects the business’ underlying cash earnings.
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the Company 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 excludes the amortisation and impairment of intangible assets associated with the Group’s Japanese
business and impairment of the goodwill associated with the Group’s Sport business and related taxation.
The following reflects the income and share data used in the earnings per share computations:
Earnings attributable to equity shareholders of the Company
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
(Loss) / earnings per share
Basic
Diluted
Basic adjusted
Diluted adjusted
11. DIvIDENDS
Declared and paid during the year:
Final dividend for 2010 at 13.50p per share (2009: 11.00p)
Interim dividend for 2011 at 5.25p per share (2010: 5.00p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2011 at 14.75p per share (2010: 13.50p)
group
2011
£000
2010
£000
(25,453)
101,281
144,301
10,033
118,848
111,314
360,860,327 359,256,823
2,489,555
3,205,368
364,065,695 361,746,378
(7.05p)
(7.05p)
32.93p
32.64p
28.19p
28.00p
30.98p
30.77p
company and group
2010
£000
2011
£000
48,758
18,969
39,626
18,031
67,727
57,657
53,368
48,758
The final dividend for 2011 of 14.75p per share amounting to £53,368,000 was approved by the Board on 19 July 2011 and has not been
included as a liability at 31 May 2011. This dividend will be paid on 11 October 2011 to those members on the register at the close of
business on 9 September 2011.
notes to the Financial Statements
office
equipment,
fixtures &
fittings
£000
computer
and other
equipment
£000
assets
in the
course of
construction
£000
Leasehold
improvements
£000
8,375
179
624
(949)
8,229
63
1,477
8,776
(3,321)
1,352
(33)
304
(160)
1,463
(18)
350
489
(126)
14,095
550
1,569
(4,047)
12,167
(140)
4,858
9
(1,956)
-
-
1,623
-
1,623
-
7,651
(9,274)
-
15,224
2,158
14,938
3,156
128
2,245
(946)
4,583
30
2,965
(3,321)
4,257
344
141
293
(144)
634
4
417
(126)
8,690
323
3,637
(4,017)
8,633
(38)
3,704
(1,926)
929
10,373
10,967
1,229
3,646
5,219
829
1,008
4,565
3,534
5,405
total
£000
23,822
696
4,120
(5,156)
23,482
(95)
14,336
-
(5,403)
32,320
12,190
592
6,175
(5,107)
13,850
(4)
7,086
(5,373)
15,559
16,761
-
-
-
-
-
-
-
-
-
-
-
1,623
9,632
-
11,632
12. ProPErTY, PLANT AND EQuIPMENT
group
Cost:
At 1 June 2009
Foreign currency adjustment
Additions
Written off
At 31 May 2010
Foreign currency adjustment
Additions
Transfers between categories
Written off
At 31 May 2011
Depreciation:
At 1 June 2009
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2010
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2011
Net book value – 31 May 2011
Net book value – 31 May 2010
Net book value – 1 June 2009
Assets in the course of construction (AICC) at 31 May 2010 represented the costs associated with the fit out of the Group’s new London
Headquarters. AICC was transferred to the appropriate asset class and depreciation commenced once the fit out was completed and the
office available for use. The fit out assets will be depreciated over their useful economic life or the lease term, whichever is shorter.
88 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
89
noteS to tHe FInAnCIAl StAteMentS
(continued)
13. INTANGIBLE ASSETS
cost:
At 1 June 2009
Foreign currency adjustment
Additions
Written off
At 31 May 2010
Foreign currency adjustment
Acquisition of a business (note 14)
Adjustment to deferred contingent
consideration
Additions
Written off
client lists and
customer
relationships
£000
goodwill
£000
trade
name
£000
development
costs
£000
software
and
licences
£000
216,965
17,193
-
-
234,158
1,647
1,843
(2,010)
-
-
53,207
8,471
-
-
61,678
1,168
2,673
-
-
-
954
154
-
-
1,108
(11)
-
-
-
-
At 31 May 2011
235,638
65,519
1,097
amortisation:
At 1 June 2009
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2010
Foreign currency adjustment
Provided during the year
Impairment (note 15)
Written off
At 31 May 2011
Net book value – 31 May 2011
Net book value – 31 May 2010
Net book value – 1 June 2009
-
-
-
-
-
-
-
128,210
-
128,210
107,428
234,158
216,965
13,782
3,762
16,879
-
34,423
664
8,750
20,148
-
520
130
419
-
1,069
(9)
37
-
-
63,985
1,097
1,534
27,255
39,425
-
39
434
total
£000
277,910
26,116
2,388
(1,985)
304,429
2,624
4,516
(2,010)
7,074
(165)
5,887
285
1,567
(1,142)
6,597
(113)
-
-
5,349
(118)
11,715
316,468
2,207
161
2,343
(1,144)
3,567
(58)
2,523
-
(118)
5,914
5,801
3,030
3,680
17,303
4,055
19,728
(1,985)
39,101
597
11,375
148,358
(165)
199,266
117,202
265,328
260,607
897
13
821
(843)
888
(67)
-
-
1,725
(47)
2,499
794
2
87
(841)
42
-
65
-
(47)
60
2,439
846
103
14. INvESTMENT IN SuBSIDIArIES
at cost:
At the beginning of the year
Investment relating to equity-settled share-based
payments for subsidiary employees
At the end of the year
notes to the Financial Statements
company
2011
£000
2010
£000
428,853
424,071
4,225
4,782
433,078
428,853
The following companies are all owned directly or indirectly by IG Group Holdings plc:
name of company
subsidiary undertakings held directly:
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
IG Markets Securities Limited
(formerly FXOnline Japan)
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
Jersey
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%(1)
100%
100%
100%
100%
100%
90%(2)
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding company
Dormant
Spread betting
Margin trading and foreign exchange
Spread betting and fixed odds bookmaker
Non-trading
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) Both IG Group Limited and Fox Japan Holdings have preference shares in issue. These are 100% held within the IG Group of companies.
(2) The Group has a call option and the vendor a put option over the outstanding 10% of IG Markets South Africa (refer to note 14a).
Development costs are entirely internally generated intangible assets. The client list acquired with the business of Ideal CFDs (refer to note
14a) is being amortised on a sum of digits basis over three years.
90 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
91
noteS to tHe FInAnCIAl StAteMentS
(continued)
14. INvESTMENT IN SuBSIDIArIES (coNTINuED)
Subsidiary undertakings held indirectly (continued):
name of company
subsidiary undertakings held indirectly
(continued):
IG Finance
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
IG Finance Nine Limited
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings
IG US Holdings Inc
Market Data Japan KK
FXOnline Japan Co., Limited
(formerly IG Markets Japan KK)
Blackfriars AG
country of
incorporation
holding
voting rights
nature of business
uK
uK
uK
uK
uK
uK
uK
uK
uK
Gibraltar
Gibraltar
Gibraltar
uSA
Japan
Japan
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
ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%(1)
100%
100%
100%
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Holding company
Holding company
Holding company
Non-trading
Germany
ordinary shares
100%
Dormant
(1) Both IG Group Limited and Fox Japan Holdings have preference shares in issue. These 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)
notes to the Financial Statements
14(a) Acquisition of the client list and business of Ideal cFD Financial Services Pty Limited
On 1 September 2010, subsequent to the Group obtaining regulatory approval in South Africa, the Group completed the acquisition of the
client list and business of Ideal CFD Financial Services Pty Limited (Ideal), a South African introductory broker of the Group, for £4.5 million,
comprising £1.6 million paid in cash and £2.9 million payable on exercise of the symmetrical put and call options discussed below. Revenue
for the nine months since completion to 31 May 2011 was £2.75 million.
At the time of producing the interim Financial Statements the Group had not completed the fair value exercise and accordingly the book
and fair values of the assets of the acquired business have been updated in the following disclosure.
net assets acquired
Client list
Cash and cash equivalents
Amounts due to clients
Total assets acquired
Fair value of consideration
Goodwill arising on acquisition
acquisition
date fair
value
£000
2,673
4,177
(4,177)
2,673
4,516
1,843
book value
£000
-
4,177
(4,177)
-
-
-
The fair value adjustment relates solely to the recognition of a separately identifiable intangible asset arising on acquisition that meets the
identification and measurement requirements of IAS 38. This comprises the fair value of the client list of Ideal which is being amortised
using the sum of digits method over three years. The Directors consider no other separately identifiable intangible assets to have arisen on
the acquisition. A deferred taxation liability has not been recognised in relation to the recognition of the client list as there is no difference
between the fair value of the acquired asset and its tax base. In the period from completion to 31 May 2011, £1.2 million of amortisation
has been charged in the Group Income Statement in relation to the acquired client list.
At acquisition the Group had a call option and the vendor a put option over the 20% of IG Markets South Africa Limited (IGSA), a subsidiary
of the Group, that transferred to the vendor of Ideal on completion. The present value of the forecast redemption amount of the options of
£2.9 million was initially recorded as a liability in the Group Statement of Financial Position as at 30 November 2010.
On 19 April 2011 the Group acquired an additional 10% of IGSA for £1.2 million. This has no impact on the goodwill or other fair values
disclosed in the table above. Following this further acquisition the Group has a call option and the vendor a put option over 10% of IGSA,
the present value of the forecast redemption amount is recorded under other payables as a liability in the Group Statement of Financial
Position as at 31 May 2011. These options are exercisable in January 2013, based on a multiple of eight times average pro forma annual
post-tax profits of IGSA over the period from 1 September 2010 to 30 November 2012, subject to a cap.
14(b) Acquisition of IG Markets Securities Limited (formerly Fxonline Japan)
The Group exercised the call option over the remaining 12.5% of the issued share capital of IG Markets Securities Limited (formerly
FXOnline Japan) in the year. The exercise price was consistent with the formula agreed at the time of the original acquisition and based on
performance for the 12-month period ended 30 November 2010. The surplus of the exercise price over the non-controlling interest has
been recorded within other equity in the Group Statement of Financial Position.
92 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
93
noteS to tHe FInAnCIAl StAteMentS
(continued)
15. IMPAIrMENT oF GooDWILL
15(a) Analysis of goodwill
Goodwill has been allocated for impairment testing purposes to the cash-generating units (CGUs), as follows:
UK – Financial
UK – Sport
Australia – Financial
US – Nadex
Japan – IG Markets Securities (formerly FXOnline)
South Africa – Ideal CFDs
group
2011
£000
2010
£000
100,012
-
934
4,618
-
1,864
100,012
5,250
934
5,226
122,736
-
107,428
234,158
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. Goodwill disclosed as Australia – Financial arose on the
acquisition of the non-controlling interest in IG Australia in the year ended 31 May 2006. Goodwill arising on the acquisitions of each of
Nadex (formerly HedgeStreet), IG Markets Securities (formerly FXOnline), and Ideal CFDs has been allocated to the separate US, Japanese
and South African CGUs respectively, as these businesses generate largely independent cash flows.
15(b) Impairments in the year ended 31 May 2011
(i) Goodwill and customer relationships – Japan:
An impairment review of the goodwill and customer relationships associated with the Japanese business was performed as at
30 November 2010, triggered by regulatory change in the Japanese market. Consistent with the review performed at 31 May 2010,
the estimated recoverable amount of the Japanese business was based upon value-in-use calculated as the total of the present value
of projected five-year future cash flows and a terminal value.
As anticipated at May 2010, the first of several regulatory restrictions on leverage for forex products, which came into force in August 2010,
had an adverse impact on client activity levels and revenue. At 30 November 2010, further leverage restrictions already announced and
effective in January 2011 and August 2011 for equity indices and forex respectively were also expected to have a significant impact on the
future revenues of this business. Accordingly, client recruitment rates and average revenue per client assumptions, utilised in the value-in-
use calculation for the Japanese business, were lowered consistent with the leverage impact experienced in the period.
A pre-tax discount rate of 17.8% (2010: 16.6%) was used to discount the cash flows and a long-term growth rate of 1.5% (2010: 1.5%) was
utilised in the terminal value calculation.
As a result the net book values of the goodwill and customer relationships (£123.0 million and £20.1 million respectively) associated with
the Group’s Japanese business have been fully impaired.
The impairment charges discussed above and the associated reduction in the deferred tax liability of £8.5 million have been disclosed in
the Group Income Statement in the column ‘certain items’ consistent with the Group’s established accounting policy and presentation.
(ii) Goodwill – Sport
The Group commenced a redundancy consultation process, subsequently completed on 12 July 2011, with the employees of its Sport
business, extrabet, prior to the closure of the business. As a result the goodwill associated with the Sport CGU was impaired to nil as at
31 May 2011, as the Directors consider there is no expected future value in the goodwill.
The impairment charge of £5.25 million has been disclosed in the Group Income Statement in the column ‘certain items’ consistent with
the Group’s established accounting policy and presentation.
notes to the Financial Statements
15(c) Impairment testing at period end
The goodwill associated with the UK, Australian, US and South African CGUs has been subject to impairment test at 31 May 2011 as set out
in the following disclosures.
Methodology utilised in the impairment testing
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.
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
The discount rate
The long-term growth rate used for the terminal value calculation
Client recruitment and retention rates
Average revenue per client
Projected future cash flows for each CGU were based upon the Board-approved four-year plan, comprising a one-year budget and three-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 2010 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 South African 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)
US
South Africa
2011
2010
discount
rate
discount
rate
2011
years 4-5
growth
rate
2010
years 4-5
growth
rate
12.3%
18.6%
23.3%
12.3%
17.7%
N/A
4%
33%
24%
4%
20%
N/A
2011
2010
g
2.0%
2.0%
4.9%
g
2.0%
2.5%
N/A
Client recruitment and retention 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 on the assumptions utilised and have concluded that no reasonably possible change in
key assumptions would cause the carrying amount of any CGU to exceed its recoverable amount.
94 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
95
noteS to tHe FInAnCIAl StAteMentS
(continued)
16. TrADE rEcEIvABLES
18. cASH GENErATED FroM oPErATIoNS
Amounts due from brokers
Amounts due from clients
17. cASH AND cASH EQuIvALENTS
Gross cash and cash equivalents(1)
Less: Segregated client funds(2)
Own cash and title transfer funds(3)
Analysed as:
Cash at bank and in hand
Short-term deposits
group
2011
£000
2010
£000
267,792
2,312
203,714
2,529
270,104
206,243
company
2011
£000
2010
£000
304
-
304
304
-
8
-
8
8
-
group
2011
£000
2010
£000
(restated)
839,202
(714,674)
678,564
(550,467)
124,528
128,097
124,528
-
123,674
4,423
operating activities
Operating profit
Adjustments to reconcile operating profit to net cash
flow from operating activities:
Net interest income on segregated client funds
Amortisation of customer relationships and trade names (Japan)
Impairment of customer relationships and goodwill
Depreciation of property, plant and equipment
Amortisation of intangible assets
Non-cash foreign exchange gains in operating profit
Share-based payments
Write off - property, plant and equipment
Recovery of trade receivables
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Increase in provisions and other non-cash items
Other non-cash items
notes to the Financial Statements
note
3
3
3
3
26
12
group
2011
£000
2010
£000
(restated)
company
2011
£000
2010
£000
7,077
139,989
(5,320)
(3,530)
(8,948)
7,595
148,358
7,086
3,780
1,727
4,225
30
754
(66,578)
12,801
262
1,467
(5,470)
17,298
-
6,175
2,430
(11,382)
4,782
49
2,441
(22,667)
(7,675)
3,156
-
-
-
-
-
-
-
-
-
-
67,776
6,185
-
-
-
-
-
-
-
-
-
-
96,461
(34,293)
-
-
(1) Gross cash and cash equivalents includes the Group’s own cash as well as all client monies held, including both segregated client and title transfer funds.
(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. Such monies are not included in the Group’s Statement of Financial
Position.
(3) 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.
Cash and cash equivalents are deposited for varying periods of between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term deposit rates.
The Group’s available liquidity, including undrawn committed borrowing facilities, is disclosed in note 33 to the Financial Statements.
Cash generated from operations
119,636
129,126
68,641
58,638
In the Group Statement of Cash Flows, proceeds from the sale of property, plant and equipment comprise:
Net book amount (note 12)
Profit / (loss) on disposal of property, plant and
equipment (note 3)
Proceeds from the disposal of property, plant and equipment
19. TrADE PAYABLES
Gross amounts due to clients(1)
Less: Segregated client funds
Amounts due to clients
group
2011
£000
2010
£000
30
283
313
49
(49)
-
group
2011
£000
2010
£000
(restated)
798,164
(714,674)
608,140
(550,467)
83,490
57,673
(1) Gross amounts due to clients includes all amounts owed by the Group to clients in respect of client monies held, including both segregated client and title transfer funds.
96 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
97
noteS to tHe FInAnCIAl StAteMentS
(continued)
20. oTHEr PAYABLES
23. EQuITY SHArE cAPITAL
Accruals
Other taxes and social security
Amounts due to Group companies (note 31)
Dividends on redeemable preference shares
group
2011
£000
2010
£000
43,446
1,700
-
3
43,450
1,372
-
3
company
2011
£000
4,254
-
2,255
3
2010
£000
2,492
-
570,781
3
45,149
44,825
6,512
573,276
Included within accruals are amounts in relation to employee bonuses, supplier payments, introducing broker commissions and other
amounts.
21. ProvISIoNS
At the beginning of the year
Income statement charge
Utilised in the period
At the end of the year
Current
Non-current
Total
group
2011
£000
3,156
1,534
(1,272)
3,418
1,427
1,991
3,418
2010
£000
-
3,156
-
3,156
1,377
1,779
3,156
The provision held as at 31 May 2011 and 31 May 2010 represents the Group’s obligations for onerous lease commitments arising from
the move of the Group’s London Headquarters and the closure of extrabet, less amounts considered recoverable 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
28-month term of the Group’s existing London office leases.
22. rEDEEMABLE PrEFErENcE SHArES
Authorised:
40,000 preference shares of £1 each
Allotted, called up and fully paid:
40,000 preference shares of £1 each
company and group
2010
£000
2011
£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% (2010: 8%).
notes to the Financial Statements
company and group
2010
£000
2011
£000
25
-
25
25
-
25
number of
shares
ordinary
share
capital
£000
share
premium
£000
359,584,336
1,524,127
361,108,463
1,125,091
362,233,554
65,000
18
-
18
-
18
-
206,246
-
206,246
-
206,246
-
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 2009
Issued during year
At 31 May 2010
Issued during year
At 31 May 2011
(ii) b shares (0.001p)
At 31 May 2010 and 31 May 2011
ordinary Shares
During the year to 31 May 2011, 1,125,091 (2010: 1,524,127) ordinary shares with an aggregate nominal value of £56 were issued following
the exercise of long-term incentive plan awards for a consideration of £56.
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.
98 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
99
noteS to tHe FInAnCIAl StAteMentS
(continued)
24. 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:
1,134,441 (2010: 1,217,574) ordinary shares of 0.005p each
Purchased during the year:
59,735 (2010: 59,682) ordinary shares of 0.005p each
Exercised during the year:
58,373 (2010: 142,815) ordinary shares of 0.005p each
At the end of the year:
1,135,803 (2010: 1,134,441) ordinary shares of 0.005p each
company and group
2010
£000
2011
£000
973
291
962
175
(41)
(164)
1,223
973
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 2011, 611,395 ordinary shares (2010: 614,560) were held in the
trust and at the year-end have reduced shareholders’ equity by £1,172,943 (2010: £946,952). These include 228,675 ordinary shares
(2010: 221,019) which were not allocated to employees and are available for future SIP awards. The market value of the shares held
conditionally at the year-end was £2,745,164 (2010: £2,335,942).
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 (2010: 512,075) ordinary shares which are available to satisfy awards under the SIP and long-term incentive plan
(LTIP) schemes. The shares held at the year-end have reduced shareholders’ equity by £26 (2010: £26). The market value of the shares held
conditionally at the year-end was £2,299,217 (2010: £1,946,397).
The Group has an Australian-resident Employee Equity Plan Trust in order to hold shares in the Company in respect of awards under a
SIP. At 31 May 2011, 12,333 ordinary shares (2010: 7,806) were held in the trust and at the year-end have reduced shareholders’ equity by
£49,991 (2010: £26,052). These include nil ordinary shares (2010: nil) which were not allocated to employees and are available for future
SIP awards. The market value of the shares held conditionally at the year-end was £55,375 (2010: £29,671).
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 2011, 1,017 (2010: 2,994) B shares were sold by B shareholders to the Trust. The Trust sold 124,038
(2010: 365,162 ) ordinary shares in order to realise the funds necessary to purchase these B shares. The Trust unconditionally held 63,622
(2010: 62,605) B shares at the year-end. The Trust also held 1,378 (2010: 2,395) B shares and 168,067 (2010: 292,105) ordinary shares which
it may sell in order to satisfy its obligations to B shareholders, all of whom are current or former employees.
100 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
notes to the Financial Statements
25. 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 2009
Equity-settled employee share-based payments
Excess of tax deduction benefit on
share-based payments recognised
directly in equity (note 9)
Foreign currency translation on
overseas subsidiaries
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of own shares
at 31 may 2010
Equity-settled employee share-based payments
Excess of tax deduction benefit on
share-based payments recognised
directly in equity (note 9)
Acquisition of non-controlling interest
Foreign currency translation on
overseas subsidiaries
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of own shares
share-
based
payments
(note 26)
£000
13,806
4,782
foreign
currency
translation
£000
32,437
-
own shares
held in
employee
benefit
trusts
(note 24)
£000
(962)
-
2,861
-
-
-
(164)
(16)
-
21,269
4,225
(831)
-
-
(41)
(26)
-
27,009
-
-
-
59,446
-
-
-
(344)
-
-
-
other
reserves
total other
reserves
£000
£000
-
-
-
-
-
-
-
-
-
45,281
4,782
2,861
27,009
-
(16)
(175)
79,742
4,225
-
164
-
(175)
(973)
-
-
-
-
(2,302)
(831)
(2,302)
-
41
-
(291)
-
-
-
-
(344)
-
(26)
(291)
at 31 may 2011
24,596
59,102
(1,223)
(2,302)
80,173
company
at 1 june 2009
Equity-settled employee share-based payments
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of own shares
at 31 may 2010
Equity-settled employee share-based payments
Exercise of UK share incentive plans
Exercise of US share incentive plans
Purchase of own shares
at 31 may 2011
own shares
held in
employee
benefit
trusts
(note 24)
£000
share-
based
payments
(note 26)
£000
11,362
4,782
(164)
(16)
-
15,964
4,225
(41)
(26)
-
(962)
-
164
-
(175)
(973)
-
41
-
(291)
total other
reserves
£000
10,400
4,782
-
(16)
(175)
14,991
4,225
-
(26)
(291)
20,122
(1,223)
18,899
101
noteS to tHe FInAnCIAl StAteMentS
(continued)
26. EMPLoYEE SHArE PLANS
The Company operates three employee share plans; a share incentive plan (SIP), a long-term incentive plan (LTIP) and a value sharing plan
(VSP) each of which are equity-settled. The expense recognised in the Income Statement in respect of share-based payments is as follows:
Equity-settled share-based payment schemes
group
2011
£000
4,225
4,225
2010
£000
4,782
4,782
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.
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 21 July 2010, the Company invited all UK employees to subscribe for up to £1,500 of partnership shares when the share price was
£4.8385. 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 5 August 2010, the Company invited all Australian employees to subscribe for partnership shares when the share price was £4.90.
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. Similar awards under the same matching conditions were made to Australian employees on 27 January 2009 and
9 February 2010 when the share prices were £2.84 and £3.67 respectively.
A SIP for USA employees was implemented during the year ended 31 May 2010. 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 share price of the period and the closing share
price. The schemes in the year ran from 1 June 2010 to 30 November 2010 and from 1 December 2010 to 31 May 2011.
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. Awards were made under the LTIP in the years ended
31 May 2005 through to 31 May 2010. Performance is measured as the compound annual growth rate in diluted adjusted earnings per
share (EPS) over the three-year vesting period and, in addition, 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 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.
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.
notes to the Financial Statements
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. Further awards were made on 14 August 2007, 21 August 2007, and 31 January 2008,
with awards vesting three years from the date of grant. The share price growth over this period was 27.84%, resulting in 6.89% of awards
vesting. EPS growth over the three-year period was 28.45%, resulting in 89.36% of awards vesting.
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. The share price growth
over the period was 50.68%, resulting in 36.36% of awards vesting. EPS growth over the three-year period was 17.19%, resulting in
43.26% of awards vesting.
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.
value sharing plan (vSP) awards
The value sharing plan is a conditional award, with a pre-defined number of shares allocated to Executive Directors and other senior
staff for each £1.0 million of surplus shareholder value created over three years above a hurdle. The surplus value is calculated under
two criteria:
(i) Value created from the difference between the total shareholder return of IG Group Holdings plc and that of the FTSE350 Financial
Services Index, multiplied by IG Group Holdings plc starting market capitalisation, defined as the average market capitalisation in the
three months to 31 May 2010.
(ii) Growth in profit before taxation times a fixed multiple determined by IG Group Holdings plc starting market capitalisation, plus net
equity cashflows to shareholders above a hurdle return. For the 2010 VSP, the hurdle return was 12% per annum, with the multiple
being 10.467, based on the financial year ended 31 May 2010.
The awards were granted on 29 October 2010 when the share price was 528.50p, with 50% of awards vesting in July 2013 and the
remainder deferred for a further year.
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 £16,492,467 (2010: £8,725,451) 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.
102 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
103
noteS to tHe FInAnCIAl StAteMentS
(continued)
26. EMPLoYEE SHArE PLANS (coNTINuED)
VSP awards made in the year ended 31 May 2011 are under two performance conditions. For those awards under growth in profit before
taxation, 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 total shareholder return (TSR) criteria, the fair value was calculated using a
Monte-Carlo pricing model using the inputs below.
grant date
Share price at grant date (pence)
Three-month average market capitalisation at award date (£m)
Expected life of awards (years)
Risk-free sterling interest rate (%)
IG Group Holdings plc expected volatility (%)
Benchmark index expected volatility (%)
Expected dividend yield (%)
16 may
2005
7 aug
2006
23 july
2007
30 sept
2008
25 sept
2009
112.25
N/A
3.18
5.00
34
N/A
3.73
217.00
N/A
2.97
5.00
32
N/A
3.04
312.25
N/A
3.00
5.75
32
N/A
3.42
313.75
N/A
3.00
4.06
40
N/A
5.50
318.80
N/A
3.00
1.91
56
N/A
4.71
29 oct
2010
528.50
1,469
2.6
0.97
54
40
3.50
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
SIP
SIP
VSP
VSP
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.
120.00p
112.25p
217.00p
237.61p
261.75p
336.09p
312.25p
311.00p
304.00p
364.00p
328.00p
313.75p
284.00p
288.00p
318.80p
367.00p
483.85p
489.90p
528.50p
528.50p
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
21 Jul 2013
04 Aug 2013
31 Jul 2013
31 Jul 2014
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,959
4,877
2,317,152
2,317,217
-
-
-
-
-
-
(1,109,909)
(15,847)
(52,097)
(23,660)
(4,113)
(168,830)
(100)
(3,857)
(359,706)
(187)
(1,860)
-
(88,134)
(88,133)
(119,814)
-
-
(122,274)
(35,000)
(42,885)
(807,047)
-
-
(21,950)
(457)
(142,227)
(249)
(522)
(118,867)
-
-
-
-
-
-
40,666
4,037
-
32,639
-
222,628
14,700
48,331
-
56,232
2,691,343
2,817
43,887
3,302,399
4,453
53,099
4,877
2,229,018
2,229,084
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
21 Jul 2010
05 Aug 2010
29 oct 2010
29 oct 2010
notes to the Financial Statements
27. cAPITAL coMMITMENTS
Capital expenditure contracted for at the year-end but not yet incurred is as follows:
Property, plant and equipment
Intangible assets
group
2011
£000
879
345
1,224
2010
£000
6,611
220
6,831
The Group’s capital commitments for property, plant and equipment at 31 May 2010 primarily related to the costs associated with the fit
out of the Group’s new London Headquarters. The Company had no capital commitments at 31 May 2011 (2010: £nil).
28. oBLIGATIoNS uNDEr LEASES
operating lease agreements
The Group and Company have entered into commercial leases on certain properties. 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
2011
£000
2010
£000
3,259
13,281
19,918
3,003
11,488
17,092
36,458
31,583
2011
£000
2010
£000
-
6,500
16,079
-
3,195
12,675
22,579
15,870
29. LITIGATIoN
At 31 May 2011 the Group had received a claim, served against IG Markets Limited (IG Markets), a wholly owned subsidiary of the Group,
issued in the High Court on 11 November 2010 in relation to the insolvency of Echelon Wealth Management Limited (Echelon) a former client
of IG Markets. Three former clients of Echelon, which went into liquidation in October 2008, are seeking to recover damages from IG Markets
in a sum in the region of €25 million. The Group, having obtained Counsel’s opinion, considers the claim to be without foundation and
accordingly no provision has been made in the Group Statement of Financial Position as at 31 May 2011 in relation to this matter.
Year ended 31 May 2011
Year ended 31 May 2010
9,613,730
4,694,205
(1,916,433)
(1,411,292) 10,980,210
8,377,788
3,930,836
(1,027,953)
(1,666,941)
9,613,730
30. TrANSAcTIoNS WITH DIrEc TorS
The Group had no transactions with its Directors other than those disclosed in the Directors’ Remuneration Report.
The weighted average fair values of the awards made were as follows:
Year ended 31 May 2011
Year ended 31 May 2010
at the beginning
of the year
awarded
during the
year
Lapsed
during the
year
exercised
during the
year
at the end
of the year
223.90p
351.34p
261.57p
266.26p
266.29p
212.24p
221.97p
227.07p
158.79p
223.90p
104 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
105
noteS to tHe FInAnCIAl StAteMentS
(continued)
31. rELATED PArTY TrANSAcTIoNS
31(a) Group
During the year, fees amounting to £10,583 (2010: £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 2.93% of the
ordinary share capital of the Company at 31 May 2011 (2010: 3.86%). Robert Lucas resigned as a director of IG Group Holdings plc on
7 October 2010.
There were no further related party transactions during the year or the preceding year.
The Directors are considered to be the key management personnel of the Group in accordance with IAS 24. The Directors’ Remuneration
Report 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
There were no further related party transactions during the year or the preceding year.
2011
£000
1,895
214
1,210
3,319
2010
£000
2,966
210
1,671
4,847
notes to the Financial Statements
32. FINANcIAL INSTruMENTS
Accounting classifications and fair values – Group
The table below sets out the classification of each class of financial asset and liability 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 (note 17).
‘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 Group 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.
‘Trade payables – due to clients’ represent balances where the combination of client cash held on account and the valuation of financial
derivative open positions results in an amount payable by the Group. ‘Trade payables – due to clients’ are reported net in the Group
Statement of Financial Position as the Group adjusts the gross amount payable to clients (i.e. monies held on behalf of clients) for profits or
losses incurred on a daily basis consistent with the legal right and intention to settle on a net basis.
31(b) company
The Company pays for certain expenses incurred by subsidiaries and received preference dividends from IG Group Limited of
£120.8 million (2010: £83.0 million).
‘Redeemable preference shares’ are disclosed in note 22.
The Group’s financial instruments are classified as follows:
The Company had the following amounts outstanding with subsidiaries at the year-end:
Loans to related parties
Loans from related parties
2011
£000
63,688
2,255
2010
£000
575,823
570,781
All amounts remain outstanding at the year-end and are repayable on demand. A number of intercompany amounts were subject to
offset arrangements during the year.
group
as at 31 may 2011
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
-
124,528
(5,607)
543
(5,064)
-
238,514
34,342
272,856
2,312
(5,064)
399,696
-
-
-
-
-
-
124,528
124,528
232,907
34,885
267,792
2,312
232,907
34,885
267,792
2,312
394,632
394,632
-
-
-
-
-
-
83,490
40
83,490
40
83,490
40
83,530
83,530
83,530
106 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
107
noteS to tHe FInAnCIAl StAteMentS
(continued)
32. FINANcIAL INSTruMENTS (coNTINuED)
Accounting classifications and fair values – Group (continued)
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
-
128,097
(21,647)
1,263
(20,384)
-
199,694
24,404
224,098
2,529
(20,384)
354,724
-
-
-
-
-
-
128,097
128,097
178,047
25,667
203,714
2,529
178,047
25,667
203,714
2,529
334,340
334,340
-
-
-
-
-
-
57,673
40
57,673
40
57,673
40
57,713
57,713
57,713
Financial instrument valuation hierarchy
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
group
as at 31 may 2011
Financial assets
Trade receivables – due from brokers
Level 1(1)
£000
Level 2(2)
£000
Level 3(3)
£000
total fair
value
£000
543
543
(5,607)
(5,607)
-
-
(5,064)
(5,064)
(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 does not exist 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.
(3) Valued using techniques that incorporate information other than observable market data that is significant to the overall valuation.
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 cash settled on a less 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 2011, there were no transfers (2010: nil) between Level 1 and Level 2 fair value measurements, and no transfers into
or out of Level 3 fair value measurements.
group
as at 31 may 2010
Financial assets
Trade receivables – due from brokers
Level 1(1)
£000
Level 2(2)
£000
Level 3(3)
£000
total fair
value
£000
1,263
(21,647)
1,263
(21,647)
-
-
(20,384)
(20,384)
notes to the Financial Statements
reconciliation of the movement in Level 3 of the valuation hierarchy
group
Financial liabilities
Trade payables – due to clients
at 1 june
2010
£000
gains or
losses in
revenue(1)
£000
cash
settled
positions(2)
£000
transfers
£000
at 31 may
2011(3)
£000
-
-
22,395
(22,395)
22,395
(22,395)
-
-
-
-
(1) Disclosed in net 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 cash settled in the period.
(3) Value of open, unsettled client positions at the period end disclosed in net 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 asset and liability and their fair values (excluding accrued interest):
company
as at 31 may 2011
Financial assets
Cash and cash equivalents
Financial liabilities
Redeemable preference shares
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
-
-
304
-
304
-
40
40
-
40
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
108 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
109
noteS to tHe FInAnCIAl StAteMentS
(continued)
32. FINANcIAL INSTruMENTS (coNTINuED)
Items of income, expense, gains or losses – Group
Gains and losses arising from financial assets and liabilities classified as held for trading amounted to net gains of £320,392,000
(2010: £298,551,000).
Finance revenue (see note 7) totalled £2,402,000 (2010: £2,664,000). An amount of £2,020,000 (2010: £2,664,000) 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 8) totalled £2,432,000 (2010: £2,312,000). An amount of £1,347,000 represents interest expense on financial
liabilities not at fair value through profit or loss (2010: £1,399,000). The remainder, £1,085,000 (2010: £913,000) represents fee expense
arising from maintaining the Group’s committed bank facilities.
33. FINANcIAL rISK MANAGEMENT
Responsibility for risk management, including financial risks, resides at all levels within the Group, starting with the Board of Directors. Our
Corporate Governance structure, including details of how the Board delegates responsibility for internal control and risk management to
our Audit and Risk committees, is described in detail in the Corporate Governance section of the Annual Report.
The Group’s Internal Capital Adequacy Assessment Process (ICAAP) provides an on-going 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.
Financial risks arising from financial instruments are separated into market, credit, concentration and liquidity risks, and these are discussed below.
33(a) 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 under the Market Risk Policy 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 utilises market position limits for operational
efficiency and does not take proprietary positions based on an expectation of market movements. As a result, not all net client exposures
are hedged and the Group may have a residual net position in any of the financial markets on 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 with reference to the liquidity and volatility of the underlying financial product or asset class (and to an extent the
volumes which the Group’s clients transact) and represent the maximum long and short client exposure that the Group will hold without
hedging the net client exposure.
notes to the Financial Statements
(i) 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.
a) 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
2011
£000
14,877
16,500
16,500
2010
£000
8,781(1)
16,500
15,813
(1) The average equity exposure for the year ended 31 May 2010 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 net trading revenue and equity are not significant, being less than the Group’s
average daily net trading revenue from financial instruments (2011: £1,252,000; 2010: £1,148,000). 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.
b) 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.
The exposure to interest rate derivatives and commodities at the year-end are as follows:
Interest rate derivatives
Commodities
2011
£000
21,332
10,261
2010
£000
8,381
4,999
No sensitivity analysis is presented for other market price risk, as the impact of reasonably possible market movements on the Group’s
net trading revenue is 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.
The Group’s real-time market position monitoring system allows it to monitor its market exposure against these limits continuously.
If exposures exceed these limits, the policy requires that hedging is undertaken to bring the exposure back within the defined limit.
(ii) Foreign currency risk
The Group is exposed to two sources of foreign currency risk.
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 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.
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.
Binary bets 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 Group aims 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.
a) 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 14. The Group does not hedge translational exposures as they do not have a significant impact on the Group’s capital resources.
b) 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.
110 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
111
noteS to tHe FInAnCIAl StAteMentS
(continued)
33. FINANcIAL rISK MANAGEMENT (coNTINuED)
33(a) Market risk (continued)
The Group monitors transactional foreign currency risks, including currency Statement of Financial Position exposures, equity, commodity,
interest and other positions denominated in foreign currencies as well as 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
2011
£000
(212)
351
(1,134)
5,711
4,593
2010
£000
(1,778)
(1,596)
862
6,826
(3,859)
No sensitivity analysis is presented for foreign exchange risk as the impact of reasonably possible market movements on the Group’s net
trading revenue is 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.
(iii) 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
2011
£000
2010
£000
more than 5 years
2010
£000
2011
£000
total
2011
£000
2010
£000
-
-
(40)
(40)
(40)
(40)
124,528
270,104
(83,490)
128,097
206,243
(57,673)
-
-
-
-
-
-
124,528
270,104
(83,490)
128,097
206,243
(57,673)
311,142
276,667
(40)
(40)
311,102
276,627
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.
Interest rate risk sensitivity analysis
A non-traded interest rate risk sensitivity analysis has been performed on net interest income on segregated client funds, based on the
value of client funds held at the year-end, on the basis of a 0.25% (2010: 0.25%) per annum fall and a 0.75% (2010: 1.25%) rise in interest
rates, at the beginning of the year, as these are considered reasonably possible. The impact of such a fall in interest rates would reduce
net interest income on segregated client funds by approximately £1.6 million (2010: £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 £5.3 million (2010: £5.0 million) per
annum. Changes in risk variables have no direct impact on the Group’s equity as the Group has no financial instruments designated in
hedging relationships.
notes to the Financial Statements
33(b) 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.
(i) 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. 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 each counterparty group against limits approved by the Risk Committee
Any change in short- and long-term credit rating
Any change in credit default swap (CDS) price
The Group is responsible under various regulatory regimes for the stewardship of client monies. These responsibilities are defined in the
Group’s Counterparty Credit Management Policy and include the appointment of and periodic review of institutions with which client
money is deposited. The Group’s policy is 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. These are also the target minimum ratings for the Group’s own
bank accounts held with financial institutions, although in some operating jurisdictions where accounts are maintained to provide local
banking facilities for clients it can be problematic to find a banking counterparty satisfying these minimum ratings requirements. Balances
held with such counterparties are therefore minimised.
The Group also actively manages the credit exposure to each of its broking counterparties by typically keeping the minimum required
balances at each broker. In addition, deposits are typically made on an overnight or breakable term basis which enables the Group to react
immediately to any downgrading of credit rating or material widening of CDS spreads.
(ii) 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 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 in which the client has an open position. Credit risk is mitigated
in part through our client suitability criteria, supported by an extensive training program which aims to educate clients in all aspects of
trading and risk management and encourage them to collateralise their accounts at an appropriate level.
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 described in the following sections.
112 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
113
noteS to tHe FInAnCIAl StAteMentS
(continued)
33. FINANcIAL rISK MANAGEMENT (coNTINuED)
33(b) credit risk (continued)
Limited risk accounts
The Group’s (with the exception of Nadex) 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 the client setting a level in advance (the Guaranteed Stop level) at which the deal will be
closed-out, meaning a maximum client loss can be calculated at the opening of the trade. Clients placing trades with Guaranteed Stop
levels pay a small premium on the transaction. The maximum loss is then the amount the client is required to deposit to open the trade,
meaning that in most circumstances the client can never lose more than their initial margin deposit.
Guaranteed Stops transfer an element of market risk to the Group, and are managed under the Group’s Market Risk Policy, which restricts
both the products on which they are offered and the size of positions subject to Guaranteed Stops.
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.
If the margin of a client which is not subject to the COM liquidation process is eroded, the client is requested to deposit additional funds
up to at least the required margin level and will 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, positions will be liquidated immediately.
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 Stops. As at
31 May 2011, 98.8% (2010: 95.7%) of financial client accounts are subject to the automatic COM procedure or are limited risk accounts.
Credit accounts
Clients holding other types of account 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 may offer credit limits with the result that 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.
In addition to the waiver of payment of open losses on a trade, the Group may also offer clients credit in respect of their initial margin.
This is a permanent waiving of initial margin requirements while the credit limit is active on the account.
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. Credit accounts are small in number, are not actively promoted and in
general they are not made available to new clients.
Risk-based tiered margins
The Group applies a tiered-margin requirement for equities and other instruments with risk-adjusted margin requirements dependent on
several factors including the volatility and liquidity of the underlying instrument. This has resulted in potential margin requirements 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 margins have, in addition to the COM discussed earlier, contributed to the further mitigation of the Group’s client
counterparty credit risk exposure.
Management of client collateral
The Group also accepts collateral from a small number of 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.
114 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
notes to the Financial Statements
Securities accepted as collateral are normally restricted to FTSE 100 stocks, UK Gilts or other high quality bonds. 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
current market value and 90-95% 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 2011 against amounts due from clients was £5,788,000 (2010: £2,823,000).
Numerical credit risk disclosures
The following tables present further detail on the Group’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 below. 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
2011
£000
2010
£000
trade receivables –
due from brokers
2010
£000
2011
£000
trade receivables –
due from clients
collateral held at
fair value
2011
£000
2010
£000
2011
£000
2010
£000
group
(note 17)
(note 16)
(note 16)
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+ & above
AA to AA-
A+ to A-
BBB+ to BBB-
BB+ to B
Unrated
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,420
89,489
5,954(1)
420
245
-
13,447
114,091
348
-
211
-
75,814
189,035
638
-
2,305(1)
-
119,507
80,538
871
-
2,798
124,528
128,097
267,792
203,714
19,408
(18,382)
22,240
(21,461)
1,026
779
523
-
-
-
-
523
-
-
-
-
-
763
763
535
-
-
-
72
607
-
-
-
-
-
1,143
1,143
2,529
Total carrying amount
124,528
128,097
267,792
203,714
2,312
(1) Balances are primarily related to the Group’s operations in South Africa.
Prepayments and other receivables are all unrated (2010: all unrated).
-
-
-
-
-
-
-
-
-
3,509
161
757
751
102
508
5,788
5,788
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,823
2,823
2,823
115
noteS to tHe FInAnCIAl StAteMentS
(continued)
33. FINANcIAL rISK MANAGEMENT (coNTINuED)
33(b) credit risk (continued)
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
2011
£000
2010
£000
21,461
23,897
1,159
(3,321)
(1,172)
255
2,441
(3,505)
(1,367)
(5)
18,382
21,461
Credit risk – Company
Held within prepayments and other receivables in the Statement of Financial Position of the Company are amounts payable to the Company
from related parties that are unrated. Refer to note 31(b). The Company is not otherwise exposed to material amounts of credit risk.
33(c) 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 2011
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Total financial assets
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
the World
£000
total
£000
28,967
76,774
2,048
44,059
134,190
86
39,296
31,492
178
107,789
178,335
70,966
9,133
-
-
9,133
3,073
25,336
-
124,528
267,792
2,312
28,409
394,632
uK
£000
europe
£000
australia
£000
japan
£000
rest of
the 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
116 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
notes to the Financial Statements
The Group’s largest credit exposure to any one individual broker at 31 May 2011 was £73,312,000 (AA rated) or 27% of the exposure to all
brokers (2010: £44,170,000, AA rated, 22%). Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at
31 May 2011 was £39,116,000 (A+ rated) or 31% of the exposure to all banks (2010: £43,302,000, A+ rated, 34%). The Group has no
significant exposure to any one particular client or group of connected clients.
All of the Company’s credit exposures are in the UK, at both 31 May 2011 and 31 May 2010.
33(d) 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 has carried out an Individual Liquidity Adequacy Assessment (ILAA) during the year, and whilst this applies specifically
to the Group’s FSA regulated entities, it provides the context in which liquidity is managed on a continuous basis for the whole Group.
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 all retail client funds are required to be placed 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 or falls in global financial market levels.
During periods of significant market falls the Group will be required to fund margin payments to brokers prior to the release of funds from
segregation, and in periods of significant market increases or increased client activity, the Group will be required to fund higher margin
requirements at brokers to hedge increased underlying client positions. These additional requirements are 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 tests its three-year liquidity forecast to validate the correct level
of committed unsecured bank facilities held. At the year-end, these amounted to £180.0 million (2010: £160.0 million) and were not drawn
upon during the current nor proceeding financial year. As well as the three-year liquidity forecast, the Group also produces more detailed
short-term liquidity forecasts and detailed stress tests.
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 calculated as set out in the following table inclusive of undrawn committed facilities. Total available liquidity at each year-end
was as follows:
own cash and title transfer funds
Amounts due from brokers
available cash resources
Analysed as:
Own funds
Title transfer funds
available liquidity
Available cash resources
Less broker margin requirement
net available cash
Less title transfer funds
net own cash available
Of which declared as dividend
Committed banking facilities
total available liquidity (including facilities)
2011
£000
2010
£000
124,528
267,792
128,097
203,714
392,320
331,811
324,618
67,702
269,406
62,405
392,320
(217,360)
331,811
(154,694)
174,960
(67,702)
107,258
(53,368)
180,000
177,117
(62,405)
114,712
(48,758)
160,000
233,890
225,954
117
noteS to tHe FInAnCIAl StAteMentS
(continued)
33. FINANcIAL rISK MANAGEMENT (coNTINuED)
33(d) Liquidity risk (continued)
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.
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 may be longer.
Amounts payable on demand:
as at 31 may 2011
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
-
(5,064)
-
124,528
272,856
2,312
124,528
267,792
2,312
(5,064)
399,696
394,632
-
-
(83,490)
(83,490)
(83,490)
(83,490)
(5,064)
316,206
311,142
Derivative trade receivables disclosed in the table above represent the Group’s open positions with brokers. 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.
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
notes to the Financial Statements
derivative
£000
non-
derivative
£000
total
£000
-
(20,384)
-
128,097
224,098
2,529
128,097
203,714
2,529
(20,384)
354,724
334,340
-
-
(57,673)
(57,673)
(57,673)
(57,673)
(20,384)
297,051
276,667
Amounts payable over five years:
The Group has non-derivative cash flows payable over five years in relation to the redeemable preference shares at 31 May 2011 and 2010,
as disclosed in note 22.
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 2011 (2010: £nil).
company
as at 31 may
Financial assets
Cash and cash equivalents
Financial liabilities
Redeemable preference shares
on demand
over five years
total
2011
£000
2010
£000
2011
£000
2010
£000
2011
£000
2010
£000
304
304
-
-
8
8
-
-
-
-
(40)
(40)
-
-
(40)
(40)
304
304
(40)
(40)
8
8
(40)
(40)
118 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
119
noteS to tHe FInAnCIAl StAteMentS
(continued)
34. 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 Australia, Japan,
Singapore, South Africa and the United States 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 2010 ICAAP was approved by the Board in January
2011. 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. An analysis
of the Group’s consolidated capital resources and capital resources
requirement is provided in the Operating and Financial Review.
35. SuBSEQuENT EvENTS
On 8 June 2011 the Group reached agreement to sell the majority
of the client list relating to extrabet’s sport spread betting and
fixed odds betting business to Spreadex Limited on terms where
the Group will receive semi-annual payments for the next three
years, calculated by reference to the revenue that the acquirer
generates from clients on the list.
On 12 July 2011 the Group completed the redundancy
consultation process with the employees of extrabet. As a result of
this any extrabet employees unable to find a role within the Group
will be made redundant as of 19 July 2011 and the business closed.
36. 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
120 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
31 May 2011 were authorised for issue by the Board of the
Directors on 19 July 2011, and the Statements of Financial Position
signed on the Board’s behalf by Tim Howkins and Christopher Hill.
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) and IFRIC
interpretations as they apply to the Financial Statements of the
Group and of the Company for the year ended 31 May 2011 and
applied in accordance with the provisions of the Companies Act
2006. The Group and Company Financial Statements have been
prepared under the historical cost convention, as modified by the
revaluation of financial assets and liabilities (including derivatives)
at fair value through profit and loss.
The principal accounting policies adopted by the Group and the
Company are set out in note 37.
37. AccouNTING PoLIcIES
Basis of preparation
The accounting policies which follow have been applied in preparing
the Financial Statements for the year ended 31 May 2011.
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 intangible assets
associated with the Group’s Japanese business and impairment of
the goodwill associated with the Group’s Sport business (‘certain
items’). This is the profit measure used to calculate adjusted EPS
(see note 10) 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 intangible assets
associated with the Group’s Japanese business and impairment
of the goodwill associated with the Group’s Sport business is
reconciled to profit before tax on the Income Statement.
As permitted by Section 408(1)(b), (4) of the Companies Act 2006,
the individual Income Statement of IG Group Holdings plc (the
Company) 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
£122,278,000 (2010: £81,090,000). 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 (2010: £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.
notes to the Financial Statements
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 14.
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.
Contingent or deferred consideration is re-measured at each Statement
of Financial Position date with periodic changes to the estimated liability
recognised in the consolidated Income Statement. Acquisition-related
costs are expensed as incurred. 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.
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.
Non-controlling interests
Where the Group and a non-controlling shareholder enter into a
forward contract (symmetrical put and call options) under which
the Group is required to purchase the non-controlling interest for
its fair value (formulae-based valuation), at the forward date, the
Group continues to recognise the non-controlling interest at the
proportionate share of the acquiree’s identifiable net assets, until
expiry of the arrangement. The forward liability is also recognised
for management’s best estimate of the present value of the
redemption amount with a corresponding entry in equity. The
accretion of the discount on the liability is recognised as a finance
charge in the consolidated Income Statement. The liability is
re-measured to the final redemption amount with any periodic
changes to the estimated liability recognised in the consolidated
Income Statement. On expiry of the forward the liability is
eliminated as paid and any difference in the value of the non-
controlling interest to the exercise price deducted from equity.
On an acquisition-by-acquisition basis, non-controlling interests
are measured either at fair value or at the non-controlling interest
proportionate share of the acquiree’s net assets. The Group has
elected to apply the proportionate share of the acquiree’s net
assets methodology to the acquisition completed during the year.
The Group treats transactions with non-controlling interests as
transactions with equity owners of the Group. For purchases
from non-controlling interests, the difference between any
consideration paid and the relevant share acquired of the carrying
value of the non-controlling interest is recorded in equity.
Losses applicable to the non-controlling shareholder in a
consolidated subsidiary’s equity may exceed the non-controlling
interest in the subsidiary’s equity. The excess, and any further
losses applicable to the non-controlling shareholder, are allocated
against the majority interest, except to the extent that the non-
controlling shareholder 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 non-controlling shareholder‘s share of
losses previously absorbed by the majority has been recovered.
Non-controlling 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.
Foreign currencies
The functional currency of each company in the Group is that of the
country of incorporation (as disclosed in note 14) 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.
121
noteS to tHe FInAnCIAl StAteMentS
(continued)
37. AccouNTING PoLIcIES (coNTINuED)
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
Office equipment, fixtures and fittings
Computer and other equipment
- over the lease term
of up to 15 years
- over 5 years
- over 2, 3 or 5 years
The carrying values of property, plant and equipment
are reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable,
and are written down immediately to their recoverable amount.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to
arise from the continued use of the asset. The gain or loss arising on
derecognition of an asset is determined as the difference between
the sale proceeds and the carrying amount of the asset, and is
included in the Income Statement in the period of derecognition.
Goodwill
Goodwill arising on consolidation represents the excess of
the cost of acquisition (fair value of consideration paid) over
the Group’s interest in the fair value of the identifiable assets,
liabilities and contingent liabilities of a business 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.
122 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
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.
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:
notes to the Financial Statements
Development costs
Software and licences
- straight-line basis over 3 years
- straight-line basis over the contract
Trade names
Customer relationships
and client lists
term of up to 5 years
- sum of digits method over 2 years
- sum of digits method over 3 to 5 years
The carrying value of intangible assets is reviewed for impairment
whenever events or changes in circumstances indicate the
carrying value may not be recoverable. In addition, the carrying
value of capitalised development expenditure is reviewed for
impairment annually before being brought into use.
Impairment of assets
At least annually, or when 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.
operating leases
Leases are classified as operating leases where the lessor retains
substantially all the risks and benefits of ownership of the asset.
Lease payments under an operating lease are recognised as
an expense on a straight-line basis over the lease term unless
another systematic basis is more representative of the time
pattern of the user’s benefit.
Financial instruments
The Group determines the classification of its financial
instruments at initial recognition in accordance with the
categories outlined below, and re-evaluates this designation
at each financial year-end. When financial instruments are
recognised initially, they are measured at fair value, being
the transaction price plus, in the case of financial assets and
financial liabilities not at fair value through profit or loss, directly
attributable transaction costs. Financial instruments are disclosed
in note 32 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 the financial derivative open positions included in ‘trade
receivables – due from brokers’ and ‘trade payables – due to clients’
as shown in the Statement of Financial Position and related notes.
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 revenue in the consolidated Income Statement.
Determination of fair value
Financial instruments arising from open client positions and the
Group’s hedging positions are stated at fair value and disclosed
according to the valuation hierarchy required by IFRS 7. Fair values
are predominantly determined by reference to third party market
values (bid prices for long positions and offer prices for short
positions) as detailed below:
Level 1: Valued using unadjusted quoted prices in active markets for
identical financial instruments.
Level 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.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less accumulated
impairment losses.
Level 3: Valued using techniques that incorporate information
other than observable market data that is significant to the
overall valuation.
123
noteS to tHe FInAnCIAl StAteMentS
(continued)
37. AccouNTING PoLIcIES (coNTINuED)
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.
124 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
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, and
when economic benefit is consumed. A provision for impairment is
established where there is objective evidence of non-collectability.
cash and cash equivalents
Cash comprises cash on hand and demand deposits which may be
accessed without penalty. Cash equivalents comprise short-term
highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insignificant risk of
changes in value. For the purposes of the consolidated cash flow
statement, net cash and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding bank overdrafts.
The Group holds money on behalf of clients in accordance with the
client money rules of the UK Financial Services Authority (FSA) and
other regulatory bodies. Such monies are classified as either ‘cash
and cash equivalents’ or ‘segregated client funds’ in accordance
with the relevant regulatory requirements. Segregated client
funds comprise retail client funds held in segregated client money
accounts or money market facilities. Segregated client money
accounts hold statutory trust status restricting the Group’s ability to
control the monies and accordingly such amounts are not held on
the Group’s Statement of Financial Position.
The amount of segregated client funds held at year-end is disclosed in
note 17 to the Financial Statements. The return received on managing
segregated client funds is included within net operating income.
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. Title transfers funds are accordingly held on the Group’s
Statement of Financial Position with a corresponding liability to
clients within trade payables.
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.
notes to the Financial Statements
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.
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.
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
Trading revenue represents gains and losses arising on client
trading activity, primarily in financial spread betting, contracts for
difference, binary bets or sports spread bets and the transactions
undertaken to hedge the risk associated with client trading
activity. Open client and hedging 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. The policies and methodologies
associated with the determination of fair value have been
discussed above under Financial Instruments.
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.
Trading revenue is reported gross of introductory broker commission
as these amounts are directly linked to trading revenue. Introductory
broker commission, along with betting duties paid, are disclosed as
an expense in arriving at net operating income.
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.
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.
Net trading revenue, disclosed on the face of the consolidated
Income Statement and in the notes to the Financial Statements,
represents trading revenue from financial instruments carried
at fair value through profit and loss, and has been disclosed net
of introductory broker commission as this is consistent with
the management information received by the Chief Operating
Decision Maker.
125
noteS to tHe FInAnCIAl StAteMentS
(continued)
37. AccouNTING PoLIcIES (coNTINuED)
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
Finance costs and interest expense on segregated client funds
are 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 three employee share plans: a share
incentive plan (SIP), a long-term incentive plan (LTIP) and a value
sharing plan (VSP) all of which are equity-settled. The cost of
these awards is measured at fair value calculated using option
pricing models (refer to note 26 for additional detail of the models
and assumptions used for the various award schemes) and is
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
126 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
the Income Statement as part of administrative expenses, with a
corresponding entry in equity.
The grant by the Company of options over its equity instruments
to employees of the subsidiary undertakings in the Group is
treated as a capital contribution. The fair value of the employee
services received is recognised over the vesting period as an
increase in the investment in subsidiary undertakings, with a
corresponding credit to equity.
Segment information
The Group’s segmental information is disclosed in a manner
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 has therefore determined its operating
segments based on the management information received on a
regular basis by the Executive Directors of the IG Group Holdings
plc Board, as they are considered to be the CODM. Operating
segments that do not meet the quantitative thresholds required
by IFRS 8 are aggregated.
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.
The Group envisages that the reportable segments may change
as overseas businesses move towards operational maturity,
breaking through the quantitative thresholds of IFRS 8. The
segments are therefore subject to annual review and the
comparatives restated to reflect any reclassifications within the
segmental reporting.
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 2010,
other than the presentational changes set out below:
Introductory broker commissions have been disclosed as a
component of net operating income, as these commissions are
directly linked to trading revenue. This change has been made
in order to present trading revenue on a basis more consistent
with the nature of the Group’s operations and to increase
comparability with the Group’s peers. This has resulted in an
increase in reported trading revenue for the year ended
31 May 2011 of £32,854,000 and for the year ended 31 May
2010 of £45,876,000. An equivalent commission expense has
been recognised in each of these periods. There is no change
to any of net trading revenue, net operating income or profit
before taxation for either of these periods
notes to the Financial Statements
Previously segregated client funds (which comprise retail
client funds held in segregated client money accounts or
money market facilities) were held on the Group’s Statement
of Financial Position within cash and cash equivalents, and the
corresponding liability to clients within trade and other payables.
Segregated clients’ funds have been excluded from the Group’s
Statement of Financial Position in order to better reflect the
statutory trust status of such monies, including the restrictions
placed on the Group’s ability to control the funds, as well as
increase comparability with the Group’s peers. The impact on the
Financial Statements as well as the amount of segregated client
funds held at year-end is disclosed in notes 17 and 19 to the
Financial Statements. A restated five-year Statement of Financial
Position has been included in the Investor Resources and Other
Information section of the Annual Report
New and amended standards adopted by the Group
The Group has adopted the following new or amended standards
as of 1 June 2010:
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 application of the
amendments to IAS 27 (revised) has not had a material impact
on the accounting or disclosure of the acquisition completed in
the period
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 are measured either at fair value or at the
non-controlling interest proportionate share of the acquiree’s
net assets. The Group has elected to apply the proportionate
share of the acquiree’s net assets methodology to the acquisition
completed in the period. The application of the amendments to
IFRS3 (revised) has not had a material impact on the accounting
or disclosure of the acquisition completed in the period
The following new standards and interpretations are also effective
for accounting periods beginning 1 June 2010 but have not had a
material impact on the presentation of, nor the results or financial
position of the Group:
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 a similar
useful economic life
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
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
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
Other new standards, amendments and interpretations, including
those listed below, have been issued but are not effective for
accounting periods beginning 1 June 2010 and have not been
early adopted by the Group:
IFRS 9 ‘Financial instruments’, issued in November 2009.
This standard is the first step in the process to replace IAS 39,
‘Financial instruments, recognition and measurement’. IFRS
9 introduces new requirements for classifying and measuring
financial assets. The standard is not applicable until 1 January
2013 and has not yet been endorsed by the EU. The Group has
yet to assess the impact of IFRS 9
IAS 24 (revised) ‘Related party disclosures’, issued in November
2009 (effective after 1 January 2011)
IFRS 13 ‘Fair value measurement’ (effective 1 January 2013)
IAS 19 (revised 2011) ‘Employee benefits’ (effective
1 January 2013)
Amendment to IFRS 7 ‘Financial instruments: disclosures’
(effective 1 July 2011)
Amendment to IAS 12 ‘Income taxes’ on deferred tax
(effective 1 January 2012)
Amendment to IAS 1 ‘Presentation of Financial Statements’
on OCI (effective 1 July 2012)
The new standards and amendments listed above are not
expected to have a material impact on the Group or Company.
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 3 and 33), the calculation of the Group’s taxation
charge (see note 9(c) and 9(f )), the measurement and
impairment of goodwill (see note 15), the estimation of
share-based payment costs (see note 26) and the assessment
of net market risk and associated disclosures (see note 33).
127
Investor Resources and Other Information
Investor Resources and other Information
INVESTOR
RESOURCES
AND OTHER
INFORMATION
FIvE-YEAr SuMMAr Y
ExAMPLE: BuYING A SPrEAD BET
ExAMPLE: SELLING A coNTrAcT For DIFFErENcE
GLoSSArY oF TErMS
GLoBAL oFFIcES
SHArEHoLDEr AND coMPANY INForMATIoN
cAuTIoNArY STATEMENT
130
134
136
138
140
142
143
129
129
128 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
128 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
FIve-YeAR SuMMARY
GrouP INcoME STATEMENT
for the year ended 31 may
net trading revenue
Other net operating income
Net operating income
Adjusted administrative expenses
EBITDA
Depreciation, amortisation and amounts written
off property, plant and equipment
EBIT
Finance revenue
Finance costs
2011
£000
2010
£000
2009
£000
320,392
4,863
298,551
1,172
257,089
377
325,255
(151,642)
299,723
(133,782)
257,466
(126,380)
2008
£000
184,008
(621)
183,387
(84,894)
2007
£000
121,990
2,345
124,335
(53,984)
173,613
165,941
131,086
98,493
70,351
(10,583)
(8,654)
(6,423)
(4,922)
(4,590)
163,030
157,287
124,663
93,571
65,761
2,402
(2,432)
2,664
(2,312)
2,887
(1,678)
4,047
(628)
3,409
(276)
adjusted profit before taxation
163,000
157,639
125,872
96,990
68,894
Amortisation and impairment of intangibles
arising on consolidation(1)
Profit before taxation
Tax expense
Profit for the year
(155,953)
(17,298)
(14,613)
-
-
7,047
140,341
111,259
96,990
68,894
(32,339)
(38,855)
(32,607)
(29,702)
(21,027)
(25,292)
101,486
78,652
67,288
47,867
(1) Includes the amortisation and impairment of intangible assets associated with the Group’s Japanese business and impairment of the goodwill associated with the Group’s
Sport business and related taxation.
Investor Resources and other Information
2011
£000
2010
£000
2009
£000
2008
£000
2007
£000
16,761
117,202
11,264
9,632
265,328
14,264
11,632
260,607
7,562
9,824
112,056
8,053
8,158
107,675
3,940
145,227
289,224
279,801
129,933
119,773
270,104
8,199
124,528
206,243
7,084
128,097
183,085
4,928
99,407
263,323
5,690
102,759
352,628
3,954
93,283
402,831
341,424
287,420
371,772
449,865
548,058
630,648
567,221
501,705
569,638
83,490
45,149
1,427
37,060
57,673
44,825
1,377
38,863
90,642
27,326
-
36,560
213,726
26,715
-
16,508
334,871
18,472
-
14,547
167,126
142,738
154,528
256,949
367,890
-
1,991
40
2,031
11,463
1,779
40
16,740
-
40
13,282
16,780
-
-
40
40
-
-
40
40
169,157
156,020
171,308
256,989
367,930
378,700
201
471,449
3,179
393,364
2,549
244,676
40
201,668
40
378,901
474,628
395,913
244,716
201,708
GrouP STATEMENT oF FINANcIAL PoSITIoN
as at 31 may
Assets
non-current assets
Property, plant and equipment
Intangible assets
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
Total shareholders’ equity
Non-controlling interests
total equity
totaL eQuIty and LIabILItIes
548,058
630,648
567,221
501,705
569,638
Each Statement of Financial Position presented above has been restated in order to be prepared consistently with the accounting policies
disclosed in the Financial Statements for the year ended 31 May 2011.
130 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
131
oTHEr METrIcS
for the year ended 31 may
earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
Basic (loss) / earnings per share
Diluted (loss) / earnings per share
dividend per share
Interim dividend per share
Final dividend per share
Total dividend per share
Dividend payout ratio (against diluted adjusted EPS)
Profit margin
Adjusted profit before taxation margin(1)
EBITDA margin(2)
(1) Calculated as adjusted profit before tax divided by net trading revenue
(2) Calculated as EBITDA divided by net trading revenue
2011
2010
2009
2008
2007
32.93p
32.64p
(7.05p)
(7.05p)
5.25p
14.75p
20.0p
61.3%
50.8%
54.2%
30.98p
30.77p
28.19p
28.00p
5.0p
13.5p
18.5p
60.1%
52.8%
55.6%
24.85p
24.74p
22.42p
22.31p
4.0p
11.0p
15.0p
60.7%
49.0%
51.0%
20.62p
20.28p
20.62p
20.28p
3.0p
9.0p
12.0p
59.2%
52.7%
53.5%
14.67p
14.52p
14.67p
14.52p
2.0p
6.5p
8.5p
58.5%
56.5%
57.7%
Investor Resources and other Information
cLIENT METrIcS
for the year ended 31 may
Average revenue per financial client (£)
Number of active financial clients
Number of financial accounts opened
Number of financial accounts trading for the first time
2011
2010
2009
2008
2007
2,341
133,580
71,344
49,246
2,425
120,689
81,134
55,674
2,263
109,747
74,331
50,364
3,064
56,291
42,693
29,211
3,184
34,483
23,785
15,809
cLIENT METrIcS – ExcLuDING IG MArKETS SEcurITIES (ForMErLY FxoNLINE)
for the year ended 31 may
2010
2011
2009
2008
2007
Average revenue per financial client (£)
Number of active financial clients
Number of financial accounts opened
Number of financial accounts dealing for the first time
2,491
117,252
60,331
44,803
2,600
103,338
63,757
46,612
2,495
88,336
61,538
44,291
3,064
56,291
42,693
29,211
3,184
34,483
23,785
15,809
132 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
133
exAMple
BUYING A SPREAD BET
INTroDuc TIoN
In this example, you decide to buy A plc (assumed to be a FTSE 100
company) at £100 per point, as you expect that A plc’s share price will
rise. Later in the day the share price has indeed risen and you decide
to close your position by selling A plc at our current bid price.
Your profit is the difference between the buying and selling
prices, plus or minus any funding charges or other costs
(discussed in Steps 3 and 5).
As long as your bet is open, your account will show any ‘running’
profit or loss on your open position (not illustrated below). You
must have deposited sufficient funds to cover any running losses.
You cannot place a bet without having money in your account. In
this example, we assume you have £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
Opening the position
A plc is trading in the market at 124.3p/124.6p and our daily
quote for A plc is 124.1p/124.8p. You decide to buy £100 per point
at 124.8p, our offer price. In this example one point represents
a 1p movement in the underlying share price, so your £100 per
point bet is equivalent to buying 10,000 shares in A plc.
Step 2
When you open the position, you are required to have the initial
£622.50 deposit requirement in your account. The available funds
in your account will therefore fall from £1,000 to £377.50 (i.e.
£1,000 – £622.50). The available funds remaining in your account
need to be enough to cover any running losses you may incur, or
you run the risk of being closed out the bet.
Step 3
We will also reflect the impact of any corporate action on the
underlying share, such as a dividend or a rights issue. In this
example we have kept things simple and assumed no corporate
actions occur; however for more details please see our website,
www.igindex.co.uk.
Bet details
Your initial deposit
requirement(1)
Spread(2)
You buy £100 per point of A plc
at 124.8p (the offer price)
£622.50 (calculated as £100
(bet size) x 124.45p (the mid
price) x 5% (the deposit factor))
£20 (calculated as the difference
between the market price and
our quote (124.8p – 124.6p) x
£100 per point)
(1) The deposit factor (and therefore deposit requirement) depends on your account
type and other factors such as the volatility and liquidity of the underlying share.
(2) Our dealing spread varies depending on the market and asset class traded and
can be variable, especially in volatile market conditions. For examples please see
our website, www.igindex.co.uk.
Investor Resources and other Information
Step 4
Closing the position
In the afternoon the A plc share price has indeed risen and you
decide to close the position, realising your profit on the bet. At
this point A plc is trading in the market at 127.3p/127.6p and our
daily quote is 127.1p/127.8p.
Bet details
Gross profit on the bet
You sell £100 per point at 127.1p
(the bid price).
£270 (calculated as the market
price movement of the share
(127.3p – 124.6p) x £100 per
point)
Spread
£20 (calculated as 127.3p –
127.1p x £100 per point)
Of course, had the market moved in the opposite direction, you
would have made a loss of £100 for every penny the share price
fell, which may have exceeded your initial deposit.
Step 5
Calculating the profit or loss
Buying spread (Step 1)
Client
(£20.00)
IG Index(3)
£20.00
Selling spread (Step 4)
(£20.00)
£20.00
Gross profit (Step 4)
£270.00
(£270.00)
IG Index hedging gain(3)
n/a
Net gain
£230.00
£270.00
£40.00
For many markets (for example index futures) we build funding
charges into the quote price. For share Daily Funded Bets we
make funding adjustments each day at 10pm. We apply funding
at the rate of one-month LIBOR +/- a spread (generally 2.5%). In
the example above, if the bet had remained open at 10pm, and
assuming one-month LIBOR of 0.625%, a funding charge of £1.09
would have been applied against the client account and recorded
as revenue for IG Index (calculated as (£100 x 127.8p (assumed
closing price) x 3.125%) / 365 = £1.09).
(3) This simple example assumes IG Index is 100% hedged on the client deal and
makes an equal and opposite gain on our broker position to the amount paid to
the client. The cost of our hedging with the broker has been ignored for simplicity.
Therefore our net profit is £40.00, which is recorded in trading revenue and is
equivalent to the spread included in our quoted prices.
134 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
135
exAMple
SELLING A CONTRACT FOR DIFFERENCE
INTroDuc TIoN
In this example, on Day One you decide to sell a CFD for 10,000
shares in B plc (assumed to be a FTSE 100 company) as you
expect B plc’s share price to fall. On Day Two the share price has
indeed fallen, and you decide to close your position as you now
believe the share price will rise again.
As long as your contract is open, your account will show any
‘running’ profit or loss on your open CFD position (not illustrated
below). You must have deposited sufficient funds to cover any
running losses.
Step 1
Day One – opening the position
The quoted bid/offer price for B plc is 126.85p/126.95p.
Trade details
Your initial margin
requirement(1)
Commission(2)
You sell a CFD for 10,000 B plc
shares at 126.85p (the bid price)
£634.50 (calculated as 10,000
(number of shares) x 126.9p
(the mid price) x 5% (the margin
percentage))
£12.69 (calculated as 10,000
(number of shares) x 126.85p (the
bid price) x 0.10% (commission))
(1) The margin percentage (and therefore margin requirement) depends on the size
of your CFD position and other factors such as the volatility and liquidity of the
underlying share. In this example we have used a margin requirement of 5%.
(2) Commissions are variable, but for UK FTSE 100 CFDs (as assumed for B plc), this
was 0.10% on 25 May 2011.
You cannot place a trade without having money in your account.
In this example, we assume you have £1,000. It is important to
note that you can make losses in excess of your initial deposit
requirement (referred to as ‘margin requirement’ in CFD trading),
if the market moves against you.
Step 2
When you open the position, you are required to have enough funds
in your account to cover the initial margin plus commission on the
trade. In this example the margin requirement is £634.50 and the
commission is £12.69, so the available funds in your account will fall
from £1,000 to £352.81 (i.e. £1,000 – £634.50 – £12.69).
Step 3
Traditionally, clients who held long positions overnight would need
to pay a funding charge, while clients with short positions would
receive interest if held overnight. This charge or interest is calculated
as the one-month sterling LIBOR rate +/- a spread. However, with
current market interest rates lower than the spread, clients with short
positions also incur a charge. As at 25 May 2011, the current LIBOR rate
was 0.625%, while the spread was 2.5%, resulting in a net financing
charge of 1.875% for short CFD positions held overnight (which for UK
CFDs means those open at 10pm UK time). A corresponding long CFD
position would incur a charge of 3.125%. This is re-calculated daily.
Closing price (Day One)
Daily interest charged
127.35p
£0.65 (calculated as (10,000 x
127.35p x 1.875%)/365 days)
Step 4
We will also reflect the impact of any corporate action on the
underlying share, such as a dividend or a rights issue. In this
example we have kept things simple and assumed no corporate
actions occur; however for more details please see our website,
www.igmarkets.co.uk.
Investor Resources and other Information
Step 5
Day Two – closing the position
On Day Two, the share price has fallen and you decide to close the
position as you believe the price will now rise. The bid/offer price
at this point is 122.30p/122.40p.
Step 6
Calculating the profit or loss
Selling commission (Step 1)
Client
(£12.69)
IG Markets(3)
£12.69
Trade details
Commission
Profit per individual
share
You buy a CFD for 10,000 shares
at 122.40p (the offer price)
£12.24 (calculated as 10,000 x
122.40p x 0.10%)
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)
Of course, had the market moved in the opposite direction, you
would have made a loss of £100 for every penny the share price
gained, which may have exceeded your initial margin outlay.
Financing charge (Step 3)
(£0.65)
Buying commission (Step 5)
(£12.24)
£0.65
£12.24
Gross profit (Step 5)
£445.00
(£445.00)
IG Markets hedging gain(3)
n/a
Net gain
£419.42
£445.00
£25.58
(3) This simple example assumes IG Markets is 100% hedged on the client trade and
makes an equal and opposite gain on our broker position to the amount paid to
the client. The cost of our hedging with the broker has been ignored for simplicity.
Thus our net profit is £25.58, which is recorded in trading revenue and consists of
the commission and financing charges levied on the client.
136 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
137
GloSSARY oF teRMS
aPb
agm
asIc
binary bet
Auditing Practices Board
Annual General Meeting
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 Commodities Futures Trading Commission
close-out monitor
The Group’s automatic real-time position-closing system (see the Our Business Risks section in the Business
Review and Note 33 – Financial Risk Management).
combined code
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 A3.2 – at least half the Board, excluding the Chairman, should comprise Non-Executive Directors
determined by the Board to be independent.
Principle A6 – 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
contract for difference
Tier 1 and Tier 3 capital are calculated under the GENPRU rules of the UK's Financial Services Authority.
A CFD is an agreement to exchange the difference in value of a financial instrument at the time at which
the contract is opened, and the time at which it is closed.
Investor Resources and other Information
net Promoter score
(nPs)
The Net Promoter Score (NPS) is a measure of customer satisfaction found by asking clients the question:
‘How likely are you to recommend this company to a friend or colleague?’ Respondents reply on a 0-10
scale, and are categorised as ‘Promoters’ (those answering 9 or 10), ‘Passives’ (those answering 7 or 8) or
‘Detractors’ (those answering 0 to 6).
A company’s NPS is then calculated as the percentage of promoters minus the percentage of detractors.
Given that the scale is weighted heavily towards detractors, it is not unusual for a company to have a
negative NPS.
otc
'Over the counter' means non-exchange-traded financial instruments.
Pillar 1 – capital
resources requirement
Minimum FSA specified rule-based capital requirements for credit, market and operational risk under the
FSA's 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 our corporate website (www.iggroup.com).
Pip
A ‘percentage in point’ is generally, though not always, the fourth decimal place, i.e. 0.0001.
Used predominantly in forex transactions.
Primary account
market share
The percentage of active clients using a firm as their main or sole provider. This is felt to be a more accurate
measure of market share than the percentage of active clients holding an account with a particular firm.
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
A bet on whether a financial market (the underlying market) will rise or fall. We offer two prices on every market;
the difference is known as the bid/offer spread. If you think a market is set to rise you ‘buy’ at the higher (or offer)
price, and if you think it will fall you ‘sell’ at the lower (bid) price. Whether you gain or lose money on the bet – and
how much – depends on the size/direction of any movement in the underlying market.
sIP
Share Incentive Plan
Direct Market Access allows clients to send orders directly into the order book of a stock exchange.
systemic risk
The risk of collapse of an entire financial system, as opposed to specific risk associated with any one
individual company.
tiered margining
We use a system of four margin tiers ranging from 5% in Tier 1 (small trade sizes) to potentially 90% under
Tier 4. It includes risk-adjusted margin requirements dependent on specific financial instrument volatility
and individual client type.
tsr
Total Shareholder Return
variation margin
A 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.
dma
fIx
fsa
Ias
IcaaP
IfrIc
Ifrs
IIc
LIbor
LtIP
mtf
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
Internal Capital Adequacy Assessment Process
International Financial Reporting Interpretations Committee
International Financial Reporting Standards (as adopted by the EU)
ICAAP and Individual Liquidity Adequacy Committee
London inter-bank offered rate
Long-term incentive plans
Multilateral trading facilities
138 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
139
GloBAl oFFICeS
Investor Resources and other Information
ASIA PAcIFIc
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
Melbourne
IG Markets Limited
Level 7
417 St Kilda Road
Melbourne VIC 3004
AUSTRALIA
Singapore
IG Markets Limited
22-03 Chevron House
30 Raffles Place
SINGAPORE 048622
Tokyo
IG Markets Securities Limited
Shiodome
City Center 10F
1-5-2 Higashi-Shinbashi
Minato-ku, Tokyo 105-7110
JAPAN
+86 10 8532 3886
RepOffice@igmarkets.com.cn
www.igmarkets.com.cn/en
NorTH AMErIcA
chicago
Nadex, Inc.
311 South Wacker Drive
Suite 2675
Chicago, IL 60606
USA
+1 312 884 0100
customerservice@nadex.com
www.nadex.com
AFrIc A
johannesburg
IG Markets South Africa Limited +27 (0)11 467 8500
Royal Melbourne
Fourways Golf Park
Roos Street
Fourways
Johannesburg
SOUTH AFRICA
helpdesk@igmarkets.co.za
www.igmarkets.co.za
durban
IG Markets South Africa Limited +27 (0)31 764 2537
Suite 4 , Aloe Block, Sanyati Park helpdesk@igmarkets.co.za
3 Abrey Road
Kloof
3610
KwaZulu-Natal
SOUTH AFRICA
www.igmarkets.co.za
+61 (3) 9860 1711
helpdesk@igmarkets.com.au
www.igmarkets.com.au
+65 6390 5118
helpdesk@igmarkets.com.sg
www.igmarkets.com.sg
+81 3 6704 8500
helpdesk@igmarkets.co.jp
www.igmarkets.co.jp
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
EuroPE (ExcLuDING uK)
amsterdam
IG Markets Netherlands
Paascheuvelweg 1
1105 BE Amsterdam
NETHERLANDS
düsseldorf
IG Markets Limited
Zweigniederlassung Deutschland
Berliner Allee 10
40212 Düsseldorf
GERMANY
+31 (0)20 7946 610
info@igmarkets.nl
www.igmarkets.nl
+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 6
1070-101 Lisboa
PORTUGAL
Luxembourg
IG Markets Limited
15, rue du fort Bourbon
L1249
LUXEMBOURG
Madrid
IG Markets Limited
Paseo de la Castellana, 13
Planta 1a, Derecha
28046 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
+351 800 814 763
info@igmarkets.pt
www.igmarkets.pt
+352 24 87 11 17
info@igmarkets.lu
www.igmarkets.lu
+34 91 414 15 15
info@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
140 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
141
SHAReHoldeR And CoMpAnY InFoRMAtIon
rEcEIvING SHArEHoLDEr INForMATIoN
BY EMAIL
As an alternative to receiving material by post, you may supply
the Company with an email address and we will alert you
whenever shareholder communications are added to the
Company website. Simply visit www.capitashareportal.com and
register online for electronic communications (‘e-coms’).
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,
whenever shareholder information is added to the website, as
well as where you can access it on the site.
If you subsequently wish to change your election, or to receive
documents or information by post, you can do so by contacting
the Company’s registrars at:
Capita Registrars
Freepost Plus RLYX-GZTU-KRRG
SAS
The Registry
34 Beckenham Road
Beckenham
BR3 4TU
Or by telephone on: 0871 664 0391 (calls cost 10p per minute
plus network extras; lines are open 9am – 5.30pm, Mon-Fri).
Telephone number from outside the UK: +44 (0) 20 8639 3367.
2011 Final Dividend Dates
Ex-dividend date
Record date
Last day to elect for DRIP
AGM
Payment date
7 September 2011
9 September 2011
16 September 2011
6 October 2011
11 October 2011
Annual shareholder calendar
(a) Company reporting
Final results announced
Annual Report published
FY12 Q1 Interim Management Statement w/c 5 September 2011
Annual General Meeting
FY12 Interim results announced
FY12 Q3 Interim Management Statement w/c 5 March 2012
6 October 2011
w/c 16 January 2012
19 July 2011
August 2011
(b) Dividend payment
Interim
Final
March
October
Interim report
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
from around mid-January each year.
Investor Resources and other Information
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 2011 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.
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.
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.
coMPANY INForMATIoN
Directors
Executive Directors
T A Howkins (Chief Executive)
C F Hill
P G Hetherington
A R MacKay
Non-Executive Directors
J R Davie (Chairman)
D A Currie
S G Hill
D M Jackson
N B le Roux (Deputy Chairman)
R P Yates (Senior Independent Director)
Company Secretary
B Messer
Auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
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
142 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
143
IG Group Holdings plc
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
Tel: 020 7896 0011
Fax: 020 7896 0010
www.iggroup.com
1 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
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