AnnuAl RepoRt 2012
IG Group Holdings plc | 31 May 2012
1 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
ContentS
SettInG tHe StAnDARD
We are a global leader in derivative trading services, providing financial
contracts for difference, spread betting and exchange-traded derivatives
to retail investors across the globe.(1)
ChAIrMAn’S STATEMEnT
ChIEF ExECuTIvE’S rEvIEW
BuSInESS rEvIEW
What we do
Our strategy
Managing our business risk
Operating and Financial review
COrPOrATE GOvErnAnCE
Corporate governance statement
The Board
nomination Committee
remuneration Committee
Directors’ remuneration report
Audit Committee
risk Committee
Client Money Committee
Directors’ statutory report
Corporate Social responsibility
Statement of Directors’ responsibilities
Independent Auditors’ report
FInAnCIAL STATEMEnTS
Group income statement
Group statement of comprehensive income
Statements of financial position
Statement of changes in equity
Cash flow statements
Index to notes to the financial statements
notes to the financial statements
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
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Our reputation is built on quality of service, transparency in
dealing and award-winning technology. We are an established
member of the FTSE 250, with clients in more than 130 countries
and a market capitalisation of £1.6 billion (as at 31 May 2012).
Financial strength
Building on a long history of profitability, we maintain a liquid
capital surplus and a debt-free balance sheet.
Our capital resources are in excess of regulatory requirements,
whilst our dividend cover and cash flow conversion are strong.
When required, we are also able to fund large hedging positions
with brokers, due to our substantial liquidity.
The trading volume generated by our 143,000 global clients,
together with our financial strength, enables us to deal at
wholesale prices with our hedging counterparties.
A robust risk management strategy underpins our financial
strength, and we have not experienced a loss-making day since
May 2008. We do not initiate speculative positions in the market,
and we have no exposure to corporate or sovereign debt.
Protecting our clients’ money
In all of the jurisdictions where we operate, we meet, and in
some cases exceed, the statutory requirements relating to
client money protection.
All individual clients’ money is kept entirely separate from
our own funds. It is ‘ring-fenced’ and held in segregated
accounts with a range of major banks. This ensures that
the money cannot be treated as a recoverable asset by our
general creditors.
We only use our own funds for hedging and we never pass
individual clients’ money to counterparties or to any part of
the business as working capital.
Net trading revenue(2)
+17.3%
£366.8m
£312.7m
Profit before tax(3)
+13.8%
£185.7m
£163.2m
2011
2012
Diluted earnings per share (EPS)(3)
+15.3%
37.54P
32.57P
Total dividend per share
2012
2011
2012
2011
+12.5%
22.5P
20.0P
2011
2012
We have offices in 14 countries, with headquarters
located in the centre of London’s financial district.
Amsterdam
Beijing
Chicago
Dusseldorf
Johannesburg
Luxembourg
Madrid
Melbourne
Milan
Paris
Singapore
Stockholm
Tokyo
IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
(1) For detailed practical examples of a contract for difference (CFD) trade and a
spread bet, please see the Investor Resources and Other Information section.
Definitions can be found in the glossary of terms
(2) Net trading revenue is trading revenue excluding interest on segregated client
funds and is net of introducing broker commissions
(3) The comparative profit before tax, diluted EPS and the percentage increases
calculated thereon are based on an adjusted measure excluding the
amortisation and impairment of intangible assets associated with the Group’s
Japanese business. The comparatives have been restated to remove the Group’s
Sport business, which was closed during the year and is shown as
a discontinued operation
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01
CHAIRMAn’S StAteMent
Chairman’s statement
I am pleased to report another record year for the Group.
Our revenue(1) has increased by 17.3% to £366.8 million
(2011: £312.7 million) whilst diluted earnings per share(2)
increased 15.3% to 37.54p (2011: 32.57p).
level of £5.0 million. We continue to press our case that firms
such as IG Group, who act as principal, should not be included
in the same compensation category as firms who deal as agents
and offer advice.
We continue to build upon our long history of profitability and
have not had a loss-making day since 2008. We maintain a strong
debt-free balance sheet and our capital resources significantly
exceed regulatory requirements. We are a highly cash-generative
business and this both allows for investment in technology and
enables us to maintain a high level of dividend payout.
As a result, at the forthcoming AGM, your Board will recommend
the payment of a final dividend of 16.75p per share. This will
bring the total dividends for the year to 22.5p, an increase of
12.5% on last year, and represents 60% of our earnings for the
year. Your Board plans to continue with the present policy of
distributing approximately 60% of earnings each year.
rEGuLATIOn
As a global financial services business that operates in highly
regulated markets, we recognise the importance of being in
compliance with regulatory and legal obligations at all times.
As the regulatory environment changes, often in reaction to
market events, we understand the importance of maintaining
collaborative relationships with the relevant authorities.
One area of focus has been client money, and during the year
we have strengthened our stewardship of client money, creating
a Client Money Committee under the chairmanship of our
CFO, Chris hill, to ensure that we continue to meet the highest
standards of client care in this regard. A further example is
working with regulators to introduce strict rules regarding the
protection of client money: in Australia we are working with
the CFD Forum to establish best practice in this area which is
substantially higher than present regulation demands.
I am disappointed to report that, despite our best efforts,
the Group’s annual charges from the Financial Services
Compensation Scheme (FSCS) have remained at the elevated
BOArD EvALuATIOn AnD COMPOSITIOn
As foreshadowed in my statement last year, the Board appointed,
after a detailed review of potential providers, Dr Tracy Long of
Boardroom review to conduct a full evaluation of the Board
and its subsidiary committees, being Audit, nomination
and remuneration, commensurate with principle A.6 of the
Combined Code on Corporate Governance.
Dr Long’s review included interviews with all Board members
and the secretariat, and attendance at a Board meeting and
various Board committee meetings. I am pleased to report that
no major issues were raised and that her recommendations for
improvement will be followed up by the Board. It is the present
view of the Board to continue the practice of appointing an
independent firm to conduct a full board evaluation every third
year, whilst relying on internal reviews in the intervening period.
nat le roux will step down as Deputy Chairman at this year’s
AGM. nat began his career with IG in 1992, and was CEO from
2002 to 2006, prior to taking up his present position. nat’s
contribution to the success of IG has been immense; your Board
will miss his wise counsel and wisdom.
In searching for a replacement for nat, the Board recognises that
it is important to consider diversity (of gender, skills, knowledge
and experience) when appointing new members to the Board,
especially following publication of the Davies’ review on Women
on Boards.
Andrew MacKay, Director of Corporate Strategy, has decided to
step down from the Board and leave the Company to pursue
other interests. Andrew joined IG in 1999 as Group Legal Counsel
and was appointed to the Board in 2003. he spent three years
as head of Asia Pacific, before his most recent appointment as
head of Corporate Strategy.
(1) Net trading revenue is trading revenue excluding interest on segregated client
funds and is presented net of introducing broker commissions. All references to
‘revenue’ in this statement are made with regards to net trading revenue
(2) The comparative diluted EPS and the percentage increases calculated thereon
are based on an adjusted measure excluding the amortisation and impairment
of intangible assets associated with the Group’s Japanese business. Diluted EPS
has been presented for the continuing business, excluding the discontinued
Sport business
Diluted EPS Growth
15.3%
Final dividend per share
16.75p
Dividend payout
60.0%
Your Board is sorry to lose him and we are exceptionally grateful
for the help and guidance he has provided over many years. he
has played a key role in IG’s development for over a decade, and
has been central to the Company’s global expansion.
We wish them both the very best for the future.
These changes to our Board mean that after our 2012 AGM
we will be fully compliant with Code Provision A.3.2 of the
Combined Code.
It is again our intention this year to put every Board Director,
with the exception of nat and Andrew, up for re-election at the
AGM, in compliance with paragraph B.7.1 of the uK Corporate
Governance Code.
rEMunErATIOn
The remuneration Committee, under the chairmanship of
roger Yates, the Senior Independent Director, has reviewed
the remuneration for senior management during the year.
We are continuing with an element of deferral in the Executive
Directors’ and Code Staff’s bonus structure, reflecting the
Financial Services Authority’s remuneration principles and
commensurate with our previous commitments. There are
no proposed changes this year to the value-sharing plan, our
long-term incentive scheme; however, there have been changes
to the Executive Directors’ performance-related bonus scheme,
details of which are set out in the Directors’ remuneration report.
COnCLuSIOn
We have continued this year with our core strategies, which
combine technological excellence with client service to drive
growth in new and established markets.
As always, our results could not have been achieved without the
relentless focus on client service and commitment from all our
employees. I and my fellow Directors would like to express our
gratitude to them for their personal contributions to the Group’s
success this year.
Jonathan Davie, Chairman
17 July 2012
02 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
03
CHIeF eXeCutIVe’S ReVIew
We experienced varying conditions through the year and this
was reflected in a range of growth rates across the Group. For
the year as a whole we increased revenue(1) by 17.3%. This was
split into 28% growth in the first half, 1.5% in the third quarter
and then 12% for the final quarter. high levels of market
volatility in August 2011 resulted in record monthly revenues.
This effect was greatest in our southern hemisphere businesses
in Australia and Singapore. In the northern hemisphere the
impact was more muted as it coincided with the summer
holidays. Elevated client activity continued to a lesser extent for
the remainder of the first half. As is often the case, this period
of prolonged elevated client activity was followed by a more
subdued period as many of our clients reduced their trading
activity. This effect was exacerbated by the extended seasonal
holiday period in December and January. This resulted in a
muted third quarter. The year ended on a stronger note with
good year-on-year growth in the final quarter, particularly in
April and May.
There is a trade-off between the number of active clients and
average revenue per client, and for the last 18 months our
focus, particularly in our longer-established markets, has been
on improving the quality of our client base. We have sought
to recruit higher-value new clients, and have ensured that our
very largest clients receive a dedicated personal service. I was
therefore pleased that during this financial year we achieved
improvements in revenue per client of 10%, 9% and 30%
respectively in the uK, Australia and Singapore.
In Europe revenue per client is some 20% higher than it is in
our much longer-established uK market, reflecting the relative
immaturity of our European businesses, where high-value
early adopters still raise the average. revenue per client in
Europe fell by 5% this year in a continuation of what is now a
clear trend. Over time I would expect revenue per client for the
established and newer markets to slowly converge.
PErFOrMAnCE OF Our MAIn BuSInESS unITS
Our uK business continues to deliver good levels of growth,
with revenue up 15% for the year, driven by a 10% increase in
revenue per client and a 5% growth in active clients.
We saw faster growth in Australia, up 22%, driven in almost
equal measure by growth in active clients of 11% and increased
revenue per client of 9%.
Europe saw 26% growth with a 32% increase in active clients,
partially offset by a 5% fall in revenue per client. Germany
and Italy were the strongest-growing in the first half, but in
the second half produced weaker growth, while our Iberian
business accelerated to become the fastest growing of our
European businesses.
Singapore achieved 49% growth, mainly driven by a 30%
increase in revenue per client. South Africa produced revenue
of £4.0 million, compared to £2.7 million for the nine months it
was included in the prior year.
There are signs that our Japanese business has stabilised after
the leverage restrictions introduced in August. revenue per
quarter has been steady at around £4.0 million in each of the
last three quarters. We have reduced the cost base for this
business to a level appropriate for its revenue, and it continues
to generate a reasonable level of profit.
Our uS business, nadex, remains a long-term project, but we
are seeing some very early signs that it is gaining traction, with
a steady increase in the number of members trading over the
second half of the year, albeit from a small base. This growth
was principally driven by direct client recruitment.
ExTrABET
During July 2011 we closed our Sport business, extrabet, and
sold part of its client list to Spreadex under an arrangement
where we receive a share in the revenue that they generate
from those clients for three years after the sale. During the year
this arrangement produced income of £1.0 million, which is
reported within other income.
The closure of extrabet has enabled us to focus single-
mindedly on our core financial business and has had several
benefits, including increasing our ability to carry out systems
maintenance and development over the weekends.
rEGuLATIOn AnD TAx
During the year we have seen a focus from a number of
regulators globally on client money protection, and also
on capital adequacy. These are both areas of competitive
advantage for us and we welcome this increased regulatory
focus. In Australia a number of competitors have moved to full
uK-style client money segregation, something we have always
offered our Australian clients.
(1) Net trading revenue is trading revenue excluding interest on segregated client
funds and is presented net of introducing broker commissions. All references to
‘revenue’ in this statement are made with regards to net trading revenue
Chief executive’s review
European contribution to Group revenue
19%
Growth in active clients (excluding Japan)
11%
Percentage of clients using mobile technology
43%
The Monetary Authority of Singapore (MAS) has indicated
an intention to reduce leverage on forex from 50 times to 20
times. While we do not welcome this development, we believe
that the impact it will have on our revenue will be significantly
less than similar changes previously made in Japan, as the MAS
rules are more flexible and recognise the positive impact that
stops have on reducing client risk.
Several countries in continental Europe have indicated an
intention to bring in a financial transaction tax which is similar
in style and scope to uK stamp duty. Initial indications are
that it will not apply to derivative transactions and, as with uK
stamp duty, it may therefore result in a competitive advantage
when comparing trading CFDs on individual equities with us
to trading conventional cash equities. We continue to monitor
developments in this area closely.
InTErnATIOnAL GrOWTh
This was the first full year of operation for our Amsterdam
office, which we opened in May 2011, and our South African
office, which was established in September 2010 when we
acquired the business and client list of Ideal CFDs. Both
businesses performed well during the year and by the end
of the year were achieving monthly revenues of £100,000
and £400,000 respectively.
We intend to continue to expand geographically and our
corporate development team, under the leadership of
Andrew MacKay, has developed plans for our ongoing
international rollout. For competitive reasons I believe it
would be counterproductive to provide further detail until
shortly before any new country is due to go live.
I would like to add my thanks to those of our Chairman for
Andrew’s contribution to IG over the past 13 years, and
in particular the major part he has played in shaping our
international expansion to date and providing a plan and
the infrastructure which will enable us to continue to expand
in the coming years.
04 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
05
CHIeF eXeCutIVe’S ReVIew (continued)
Chief executive’s review
InvESTMEnT In TEChnOLOGY
Our ongoing investment in technology remains key to driving
our continued market leadership and our continued growth.
The majority of this investment is the direct employment cost
of our in-house IT department. By the end of the financial
year we had 397 people in IT, and their cost including bonus
payments for the year was £28.6 million, compared to
£23.5 million the year before.
One of our key initiatives over the last two years has been the
development of apps for all of the major mobile platforms.
During the last year we completed the initial roll-out of apps for
iPhone, iPad, Android, BlackBerry and Windows Phone 7. All of
these have been developed as native apps, meaning that they
are developed specifically for each mobile operating system
and therefore conform closely to the normal user experience for
that device. This approach allows us to make full use of all the
features that each operating system provides and will enable us
to continue to develop increasingly rich-featured apps. Client
usage of these apps has been increasing progressively, and last
month 21% of all client initiated transactions were made using
one of these mobile apps, while 43% of the clients who dealt
with us last month executed at least one transaction using a
mobile app. I believe that mobile will become an ever more
important channel for our industry going forward, and we
intend to continue to invest appropriately to ensure that we are
at the forefront of this key technology.
Two other long-term IT development projects also came to
fruition this year: charts and Insight.
Charts are an important tool which many of our clients use
to inform and track their trading decisions, and we took the
decision three years ago that we should reduce our dependence
on external providers and increase our flexibility by bringing our
charting in house. This work is largely complete, and the charts
which the vast majority of our clients use, both on our web-
based platform and within our mobile apps, were developed
and are maintained fully in house. We continue to add features
to these in response to client feedback.
Insight is a new resource tool which we provide to our clients.
It brings together a wide range of information about each
financial market which our clients can trade, including
information about overall client sentiment. Initial client feedback
has been extremely positive and we continue to develop and
enhance Insight.
CLIEnT SErvICE
Another key development that we have been working on for
some time is the ongoing improvement of our price delivery
and deal execution; this enables us to deliver a superior service
to clients. We continue to improve the speed at which we
deliver price ticks to clients and the level of automation of our
deal execution. I believe this ongoing improvement is one of
a number of factors which has helped to drive our improving
revenue per client.
STrOnGLY POSITIOnED
IG remains extremely strong financially. Perhaps just as
importantly we maintain a strong corporate culture with
very high levels of employee engagement. During the year
we conducted two employee surveys and approximately
two thirds of our global employees responded. These surveys
provide us with valuable feedback and we continue to make
changes so as to further improve employee engagement.
I was particularly pleased to see in the most recent survey
that roughly 85% of our employees say they are excited about
where IG is going, with similar percentages saying that they are
proud of IG, that IG is a company full of great people and that
we have a positive working culture. Our talented and highly-
motivated employees have played a crucial role in driving the
success of IG for many years, and I believe will continue to be
the main driving force of the business going forward.
CurrEnT TrADInG AnD OuTLOOK
revenue in the first six weeks of the current financial period
has been lower than the same period last year, as dull
markets in this period have presented our clients with fewer
trading opportunities. As we have previously commented,
comparatives are increasingly challenging for the remainder of
the current quarter and the beginning of the next. Against this
backdrop, revenue this year is forecast to be more weighted
towards the second half than historically. under normal market
conditions, we continue to expect modest growth in revenue
for the year as a whole. We remain committed to investing
appropriately in the capabilities of our business, in technology,
marketing and geographic and product development, to
position the business for long-term growth. I remain confident
in the prospects for the business going forward.
Tim howkins, Chief Executive
17 July 2012
06 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
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Business review
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20
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24
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09
09
BUSINESS
REVIEW
WhAT WE DO
Our STrATEGY
Maintaining our market leadership
Sustaining our leadership in technology
Strengthening our global presence
Delivering quality service
Our business model
MAnAGInG Our BuSInESS rISK
OPErATInG AnD FInAnCIAL rEvIEW
08 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
08 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
wHAt we Do
We are a world-leading provider of contracts for difference
(CFDs) and spread betting on over 14,000 financial markets,
including forex, stock indices, shares, commodities, binaries,
options and interest rates.
We provide access to the financial markets via our
award-winning trading platforms, with the flexibility to deal
across multiple asset classes from one account. Our range of
customised apps for mobile devices enables clients to trade
on the move, with 24-hour account access.
In the uS, where statutory regulations restrict the provision
of our traditional products, we operate a unique derivatives
exchange business.
Contracts for difference (CFDs)
We offer global CFD trading with direct market access (DMA)
We are the market-leading CFD provider in the uK, Australia
and France(1)(2)(3)
Spread betting
We are the largest and longest-running spread betting
provider in the world
We are the market-leading spread betting provider
in the uK(1)
north American Derivatives Exchange (united States)
nadex is the only uS-based retail-oriented exchange to list
binary options and limited-risk derivative contracts on forex,
indices, commodities and economic events
We offer a range of mobile trading apps tailored for
nadex clients
(1) Investment Trends: ‘2011 UK Financial Spread Betting & CFD Trading Report’
(October 2011)
(2) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
(3) Investment Trends: ‘2012 France CFD & FX Report’ (May 2012)
10 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
OUR HISTORY
1974
1982
1995
1998
2002
2003
2005
2006
2007
Our founding company, IG Index, is established –
becoming the uK’s first financial spread
betting provider
We are the first company in the uK to offer spread
betting on the FT30
We expand our services to include spread betting
on individual shares – another world first
We launch the first online dealing platform for
financial spread betting
We become Australia’s first CFD provider
We widen our product range to include
binary betting. IG Group plc is privatised
by management and CvC Capital Partners
IG Group holdings plc is listed on the FTSE
new offices: Germany, Singapore
Our browser-based trading platform is launched.
new offices: Spain, France, united States
2008
new offices: Italy, Japan
2009
2010
2011
nadex.com is launched in the uS. We introduce
the uK’s first browser-based direct market access
(DMA) service.
new offices: Sweden, Luxembourg
We launch our iPhone app for spread betting and
CFD trading.
new offices: Portugal, South Africa
We expand our mobile offering to include DMA
and launch apps for iPad, BlackBerry, Android and
Windows Phone 7.
new office: netherlands
2012
We introduce Insight – a new online research tool.
We launch our nadex mobile trading app to iPhone,
Windows Phone 7 and Android
Business review: what we do
11
ouR StRAteGY
Business review: our strategy
Our four strategic objectives combine technological excellence with
client service to drive growth in new and established markets.
We monitor a suite of Key Performance Indicators (KPIs) to ensure we
are achieving our objectives and maximising return for our shareholders.
STRATegIc OBjecTIVe
KeY peRfORmAnce IndIcATORS (KpIs)
mAInTAIn OUR mARKeT LeAdeRSHIp
We are a leading global provider of derivative trading
services to retail investors.
We are maintaining our position at the forefront of the
industry, building on our key advantages and strengthening
the retail lead we have established in the major markets
where we operate.
SUSTAIn OUR LeAdeRSHIp In TecHnOLOgY
Our financial strength has enabled us to invest in
IT development and build superior technology.
We focus on fulfilling our clients’ needs, and we work
continually to enhance the platform performance and proven
resilience that underpin our market-leading position.
We offer a highly automated trading platform that enables
24 hour trading even when some markets are closed.
STRengTHen OUR gLOBAL pReSence
Having established offices in several new countries, we are
building a growing client base in the markets that can be
targeted from these regions.
We identify and pursue new business opportunities in
territories that offer a favourable regulatory environment
and sizeable potential for long-term growth and
market penetration.
deLIVeR QUALITY SeRVIce
We are committed to maintaining absolute integrity in our
relationship with clients, and have received top ratings for
customer satisfaction in independent research.(1)
We deliver speed and reliability of deal execution to our clients.
We give clients 24-hour service with our help and support
portal and our comprehensive range of educational resources.
We are fully committed to the FSA’s Treating Customers
Fairly (TCF) initiative, ensuring our pricing strategy remains
competitive, fair and transparent.
revenue and profit generation
‘net trading revenue’ represents overall Group turnover from commissions,
spreads and financing on client trades, and is our primary KPI. ‘Profit before
taxation’ and ‘diluted earnings per share’ are used to measure the quality of
our profitability at a Group level.
net trading revenue (total, daily
and by asset class)
Profit before taxation (PBT)(2)
Diluted earnings per share (EPS)(2)
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
see page 14
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
Core platform uptime
Technology usage
We observe the deployment and adoption of IT developments closely,
with particular focus currently on customer usage of mobile technology.
Percentage of clients using mobile devices
Percentage of revenue generated from
mobile devices
Performance in newer markets
We use many of the KPIs listed above to evaluate our success in newer
territories. This includes comparing current performance against the
more established markets at a similar stage of maturity.
Geographic net trading revenue
Active client base growth, relative
to more mature markets
Geographical profitability evaluation
We measure EBITDA (earnings before interest, taxes, depreciation,
and amortisation) by geographical area.
Geographic EBITDA
see page 16
see page 18
Treating Customers Fairly (TCF)
We use a scorecard of TCF measures to ensure that 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
(1) Investment Trends ‘2011 UK Financial Spread Betting and CFD Trading Report’ (October 2011)
(2) The comparative profit before tax and diluted earnings per share are based on an adjusted
measure excluding 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. Comparative diluted EPS also excludes the taxation related to the amortisation of
intangible assets associated with the Group’s Japanese business
see page 20
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12 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
ouR StRAteGY (continued)
MAINTAINING OUR MARKET LEADERSHIP
ESTABLIShED GLOBAL LEADEr
We hold a market-leading position in many countries, including
the uK, Australia and France.
Independent research company Investment Trends has
confirmed we are the largest single provider of CFD accounts in
the uK, Australia and France, with our market share of primary
accounts at 24%(1), 34%(2) and 23%(3) respectively. In the uK
we are also the largest spread betting provider, with a market
share of 41%(1) of primary accounts.
AWArD WInnInG BuSInESS
We have been recognised with industry awards, endorsing
our product offering, overall quality of service and superior
technology, on multiple occasions. recent examples include:
Britain’s most Admired companies (UK)
2011: ranked no.1 for Quality of Marketing, Quality
of Management and Capacity to Innovate
2010 and 2011: ranked no.1 for Quality of Marketing
and Speciality & Other Finance
We maintain our market-leading position through growth
in active clients, focus on client quality and continued
development of our product offering.
What Investment magazine Awards (UK)
2011 Spread Betting Provider of the Year
In the current year our active client base has continued to grow
in our more mature markets: in the uK by 5% and Australia by
11%. In France, our client base has grown by 26%.
2011 financial Times/Investors chronicle Awards (UK)
Best Spread Betting App
2012 TheBull ‘Stockies’ Awards (Australia)
Best CFD Provider – awarded for the fourth consecutive year
(1) Investment Trends: ‘2011 UK Financial Spread Betting &
CFD Trading Report’ (October 2011)
(2) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
(3) Investment Trends: ‘2012 France CFD & FX Report’ (May 2012)
Australia
UK
revenue growth 2007 to 2012
)
m
£
(
e
u
n
e
v
e
R
300
250
200
150
100
50
0
Business review: our strategy
COMPETITIvE ADvAnTAGE
The scale of our operations and the strength of our balance
sheet enable us to invest continuously in technological
advancement and high-quality marketing. This, in turn,
helps us maintain and increase our lead, driving sustainable
competitive advantage and stronger results.
BuILDInG On Our STrEnGThS
We capitalise on the size and stability of our business as well
as our heritage and reputation. The following areas are key to
maintaining our market-leading position, enabling us to attract
and retain clients and increase our revenue per client:
Security and integrity
Our clients look to us to provide a secure and trusted way to
trade, and we respond by taking an industry-best stance on
client money protection.
We take a best practice approach to client money protection
and offer full segregation of all individual client funds, including
those in territories where the regulations do not require the level
of protection stipulated by the uK’s FSA. In Australia we have
voluntarily adopted full uK-style segregation of client funds.
Superior technology
Extensive investment in IT development has enabled us to
develop our trading platforms and launch initiatives that keep
us at the forefront of the industry.
The quality and resilience of our technology is a major factor
in maintaining high levels of client retention.
Marketing capability
Our marketing initiatives can increase the average revenue per
client by improving the quality of our new accounts. We target
individuals who are already familiar with derivative trading
products, and we use sophisticated marketing technologies
to tailor our messages to their needs.
Our in-house marketing team produces high-profile
advertising campaigns across multiple channels. Most
recently, we have developed our online marketing
capability, using the latest technologies.
2007
2008
2009
2010
2011
2012
14 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
15
ouR StRAteGY (continued)
SUSTAINING OUR LEADERSHIP IN TECHNOLOGy
ADvAnCED TrADInG PLATFOrMS
We have won multiple awards for our trading technology,
and more than 143,000 clients use our platforms to make
over a million transactions each month.
Security, reliability and speed remain key to platform
performance, with 99.39% of automated trades executed in
less than 0.1 seconds, and 99.94% core platform uptime.(1)
IT InvESTMEnT
In the past year, we have grown our team of in-house
developers to almost 300 staff, allowing us to advance multiple
technology initiatives.
The efficiency and stability of our systems allows us to achieve
consistent platform performance in volatile market conditions
and during peak periods of trading activity.
rECEnT EnhAnCEMEnTS
We aim to maximise the efficiency of our technology, ensuring
that we can respond well to changes in client trading activity.
Client-focused inititatives
This year we launched Insight, a tool that provides clients
with market data, live news and expert analysis all in one
place. Insight is now used by our clients in the uK, Singapore
and Australia.
Mobile dealing solutions are a key focus, and we have released
customised apps for all major mobile devices, with 43% of
clients now using mobile technology to execute at least one
transaction. Furthermore, 23% of all client transactions are now
placed using a mobile device (2011: 13%). For spread betting
clients, who were first to have access to mobile platforms, 21% of
revenue is now generated from mobile.
Over the last two years we have invested £17 million in IT
hardware and software.
(1) Execution speed and platform uptime figures relate to the year ended
31 May 2012.
System upgrades
We have increased our platform’s capability to handle periods
of high demand, and enabled the more efficient transmission
of prices to international clients by reducing latency.
Business review: our strategy
Composition of mobile revenue
Percentage of clients using mobile
iPad
Android
Other mobile
iPhone
45
40
s
t
n
e
i
l
c
f
o
e
g
a
t
n
e
c
r
e
P
35
30
25
25
20
15
10
5
e
u
n
e
v
e
r
f
o
e
g
a
t
n
e
c
r
e
P
0
Apr-12
M ar-12
Jul-11
Jun-11
Apr-11
M ar-11
Feb-12
Jan-12
Dec-11
N ov-11
Oct-11
Sep-11
Aug-11
M ay-11
Feb-11
Jan-11
M ay-12
20
Feb-12
Feb-11
Jan-12
Sep-11
Dec-11
M ar-12
N ov-11
Jan-11
Aug-11
Jun-11
M ay-11
Apr-12
Apr-11
Oct-11
M ay-12
Jul-11
M ar-11
Trading platform
We offer tailored apps for all major mobile devices
Insight
BlackBerry
iPhone
Android
Windows
Phone 7
iPad
16 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
17
Business review: our strategy
ouR StRAteGY (continued)
STRENGTHENING OUR GLOBAL PRESENCE
InCrEASED MArKET PEnETrATIOn
Over the past six years, we have opened 11 new offices around
the world.
In most of the countries where we operate, we expect our
products to reach market penetration levels similar to those
achieved in our more established markets.
We continue to grow our client base in markets where we
already have an established commercial presence. Our network
of global offices enables us to drive further growth by targeting
regional markets from the countries where we already operate.
We also continue to explore new territories, where regulatory
markets are favourable or are expected to become favourable.
During the year, we grew the number of active clients by
32% in Europe. Spain and Italy hit record levels for client
recruitment during the year, despite the economic gloom.
The new office in the netherlands now has 411 active clients
after 12 months of trading.
For the financial year ended 31 May 2012, revenue in South
Africa has more than doubled compared to the 12 months
prior to our acquisition of the Johannesburg-based business
Ideal CFDs in September 2010. Singapore has also shown
strong growth, with a 49% increase in revenue since last year.
nADEx
We continue to develop our uS subsidiary, nadex, and produce
integrated marketing campaigns across multiple channels to
promote our unique product range. In February this year, the
launch of the new nadex website marked the completion of
a business-wide rebrand. Most recently, we have launched a
range of customised mobile apps.
We continue to optimise our technology to facilitate
more client introductions from other brokers and futures
commission merchants.
CEnTrALISED OPErATIOnS
Our centralised operating model promotes the effective
management of our global businesses. It supports organic
growth and ensures that our commercial activities are both
low-cost and capital-efficient.
We continue to invest in targeted marketing initiatives and
have been working closely with a specialist consultancy to
enhance brand reach across all territories.
Active client base growth relative to more mature markets
s
t
n
e
i
l
c
e
v
i
t
c
a
f
o
r
e
b
m
u
N
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
Europe
Australia
Jul-09
Sep-09
N ov-09
Jan-10
M ar-10
M ay-10
Jul-10
Sep-10
N ov-10
Jan-11
M ar-11
M ay-11
Jul-11
Sep-11
N ov-11
Jan-12
M ar-12
M ay-12
18 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
19
ouR StRAteGY (continued)
DELIVERING qUALITy SERVICE
CLIEnT MOnEY PrOTECTIOn
Our best-practice approach to client money protection
follows the client-asset rules set by the uK’s Financial Services
Authority (FSA). In other jurisdictions we adhere to similar rules
set by local regulators, including the Monetary Authority of
Singapore (MAS), the Australian Securities and Investments
Commission (ASIC) and the Japanese Financial Services
Authority (JFSA).
In the uK, Europe and Australia we go above and beyond
regulatory requirements, ensuring that all individual clients’
funds are segregated into ‘client money’ bank accounts.
We hold all individual client money in segregated
accounts with a range of major banks
We only use our own funds for hedging
We do not pass individual client money through to
hedging counterparties
We are regulated by the FSA in the uK, as well as
other major regulators in our overseas locations
COMPETITIvE AnD TrAnSPArEnT PrICInG
We offer competitive prices, without compromising on the
quality of our service. Our spreads start from just 0.8 pips on
the major currency pairs and our commission rates start from
0.1% on uK equities.
We source prices from Europe’s top multilateral trading
facilities (MTFs), including Turquoise and BATS – as well as from
the major European exchanges, such as the London Stock
Exchange and Euronext. This enables us to offer narrow market
spreads derived from the best underlying bid and offer prices
available and also the liquidity accessed in these markets.
TrEATInG CuSTOMErS FAIrLY
We are proud of our reputation for excellent customer service
and client support, and are always seeking ways to improve. We
have developed a unique set of measures to help us monitor
our treatment of clients, demonstrating our commitment to
the FSA’s Treating Customers Fairly (TCF) initiative.
The quality of our clients’ trading experience is central to
our own TCF policy. We offer high-speed execution, we never
re-quote prices, and we accept orders even if the market moves
against the client between the time they place the order and
Business review: our strategy
the time it is executed (within our set margin of tolerance). This
price-improvement technology can also secure clients a better
price if one becomes available during this time. Last year, this
technology saved our clients over £13.7 million(1). Additionally
99%(1) of all executed client orders are now fully automated.
CLIEnT SuPPOrT AnD EDuCATIOn
We recognise the importance of educating and supporting our
clients. Our extensive range of client resources includes:
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
A comprehensive online help portal
regular technical analysis from our in-house team and
third-party sources
Insight – our new research tool
Independent research company Investment Trends measured
satisfaction among spread betting and CFD trading clients
via the nPS method, asking if they would recommend their
provider to a friend or colleague. The study found that we
currently have the highest nPS of all uK spread betting
companies, with a score of 19 for spread betting and 19 for
CFD trading.(2)
The quality of our customer service is widely recognised across
all the regions in which we operate, with Australia achieving an
nPS of 17 and Germany achieving an nPS of 4.(3)(4)
The 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).
nET PrOMOTEr SCOrE
Our net Promoter Score (nPS) is one of the Key Performance
Indicators (KPIs) that we use to gauge how successfully we are
achieving our strategic objectives.
(1) Price improvement and automated client order figures are for the year ended
31 May 2012
(2) Investment Trends: ‘2011 UK Financial Spread Betting & CFD Trading Report’
(October 2011)
(3) Investment Trends: ‘2011 Australia CFD Report’ (July 2011)
(4) Investment Trends: ‘2012 Germany CFD & FX Report’ (June 2012)
net Promoter Score
IG
Nearest competitor
Industry average*
IG
Nearest competitor
Industry average*
IG
Nearest competitor
Industry average*
IG
Nearest competitor
Industry average*
uK CFDs
uK spread betting
Germany
Australia
+19
+19
+4
+17
-1
-7
-23
-14
-8
-8
-27
-12
-30
-20
-10
0
10
20
-30
-20
-10
0
10
20
-30
-20
-10
0
10
20
-30
-20
-10
0
10
* Weighted by primary market share
20 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
* Weighted by primary market share
20
21
ouR StRAteGY (continued)
OUR BUSINESS MODEL
Our CLIEnTS
An international network of offices and high-quality partners, supported
by targeted advertising campaigns, enables us to attract clients globally.
Over 67,000 clients recruited in the 2012 financial year
Over 143,000 clients currently trading
14 international sales offices
Online presence in 20 countries
294 global business partners
Our PrODuCTS
Our award-winning platform is equipped with a suite of features to
provide a superior trading experience.
Our clients gain access to thousands of financial markets through the
derivative services we offer:
Contracts for difference (CFDs)
Financial spread betting
Exchange-traded derivatives – uSA
Financial markets
Forex • Indices • Shares • Commodities • Binaries • Options • Interest rates • Bonds • ETFs
Our COrE STrEnGThS
We grow and retain our client base by offering a superior trading experience,
peerless service, and the assurance only a market leader can provide.
Strength & stability
Established FTSE 250
member with surplus
liquid regulatory capital
Consistent profitability
enables investment
in technology
and marketing
Authority & expertise
Market leader for 38 years
Multiple awards won
every year
One of Britain’s top
employers, attracting
high-calibre staff
Superior technology
Professional-quality
trading platforms
high-speed execution
Tailored solutions for
all mobile devices
Client focus
24/7 customer service
Comprehensive range
of educational resources
Commitment to FSA’s
treating customers
fairly (TCF) initiative
Business review: our strategy
We deliver our strategic objectives through a commercial model
developed to harness the demand for derivative trading services.
We offer a wide range of products, which we complement with quality execution and a fast and stable trading platform.
This enables our clients to access global financial markets and trade with efficiency and confidence.
Our management processes and continued profitability mean that we can reinvest in technology and infrastructure
to improve our offering and attract new clients.
Our EArnInGS
Our systems and processes are designed to manage market
and credit risk and ensure that we consistently generate
high-quality earnings.
revenue sources
Initial spread or commission for each trade
Client funding charges to reflect leveraged trading
Interest on cash balances
revenue is earned across multiple asset classes
risk management
Scale of operations creates natural hedging, with client
positions offsetting each other
Our liquidity enables funding of large hedging positions
with brokers when necessary
Clients must provide margin up-front, and positions are
closed out if margin is significantly eroded
real-time mark-to-market trading platform calculates client
profit and loss continuously, enabling risk management
Consistent performance
risk-averse hedging process ensures we can profit whether
markets rise or fall, as long as clients keep trading
no loss-making days since May 2008
22 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
23
MAnAGInG ouR BuSIneSS RISK
Effective management of our business risks is critical to the successful delivery of our
strategy. It is imperative that we identify the nature and potential impact of these
risks, in order to maintain a risk-controlled environment throughout the business.
The following section outlines how we manage risk in accordance with our risk appetite statement and risk Management
Framework. It also explains in detail the key risks we face, the governance structure for risk, and the reporting cycle that we
use to monitor and report on risk.
rISK APPETITE STATEMEnT AnD
KEY rISK InDICATOrS
We take responsibility for risk management at all levels of the
Group. Our risk appetite statement is defined by the Board
and provides guidelines for risk management throughout the
business. To help define our risk appetite statement, we have
identified three major categories of risk:
Business model risks
These are risks we actively manage and are able to measure,
control, and assign limits and parameters to:
Client credit risk
Market risk
Liquidity risk
Industry risks
These are risks we accept as a consequence of operating in
the financial services sector. For these risks we set a tolerance
rather than an appetite. They include (but are not limited to):
Financial institution credit risk
Operational risk
regulatory risk
Environmental risks
These are risks over which we have minimal control.
They include (but are not limited to):
natural disasters such as floods, earthquakes and
disease epidemics
Strikes and civil unrest
rISK APPETITE STATEMEnT
We aim to maintain a conservative risk-reward profile and have
developed a risk appetite statement based on the following
four key principles:
The Board will adopt measures to ensure a low level of
volatility in revenues and earnings
The Board will promote orderly business operations to guard
against a loss of confidence by shareholders, clients, staff
and partners
The Board will adopt measures to minimise regulatory risk
The Board will review the risk profile of strategic projects
against the risk profile of the core business
To report the performance against the risk appetite statement,
the Board has implemented a set of Key risk Indicators (KrIs).
The Board reviews the KrIs in conjunction with the risk
appetite statement twice a year. Taken together, the KrIs are
a balanced mix of quantitative and qualitative measures that
provide an important indication of increasing or decreasing
levels of risk.
24 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
Business review: Managing our business risk
Our rISK MAnAGEMEnT FrAMEWOrK
In order to establish an effective environment for risk control, we have developed a risk Management Framework to identify,
measure, manage and monitor risks faced by the business. Our risk Management Framework provides the Board with assurance
that our risks are understood and managed within appropriate boundaries, and comprises both our risk Governance Framework
and risk reporting Cycle.
Our risk Governance Framework
The following risk Governance Framework diagram sets out the framework for the Board and executive committees, non-Executive
Director (nED) review, independent control functions and ongoing business operations that exercise governance over risk.
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
Board
committees
THE BOARD
EXECUTIVE COMMITTEES
Risk Committee
(1 Non-Executive
Director)
Risk Working
Group
ICAAP & ILAA
Committee
Client Money
Committee
NED risk review
(2 Non-Executive
Directors)
Senior
Accounting
Officer
Committee
CONTROL FUNCTIONS
Finance
Risk
Compliance
Legal
Internal Audit
BUSINESS OPERATIONS
Internal controls implemented by management
Review by Internal Audit
of risk management
and internal controls
The Board
The responsibilities of the Board in relation to risk management
are to:
Set and review the risk appetite statement
Approve the Key risk Indicators
review and challenge biannual updates from the
risk department
review and challenge the system of internal control
and risk management
review and challenge capital and liquidity stress testing,
including the FSA required ICAAP and ILAA
Approve the Corporate Governance report in the
Annual report
Board committees
The Board is supported in its monitoring of the risk Framework
by the Audit and remuneration Committees. The Audit
Committee’s responsibilities in relation to risk management
are to:
review the design and effectiveness of the Group’s
internal control and risk management system
Approve the Key risk Indicators in conjunction with
the Board
Approve the internal audit programme
review internal audit reports and the external audit
control report
The remuneration Committee’s responsibility in relation to risk
management is to review remuneration levels throughout the
business and assess the impact of remuneration on risk.
An overview of both the Audit and remuneration Committees’
main duties and activity during the financial year is set out in
the Corporate Governance report.
25
MAnAGInG ouR BuSIneSS RISK (continued)
Business review: Managing our business risk
Executive committees and independent review
Risk committee
The risk Committee meets on a weekly basis, and if any
material risks are identified will inform the Board. Members of
the risk Committee receive a monthly risk event report from
the risk department.
An overview of the risk Committee’s main responsibilities and
activity during the financial year is set out in the Corporate
Governance report.
client money committee
regulatory authorities have recently placed an increased
emphasis on client money segregation. The FSA in particular
now requires that all firms designate a named individual, who
is responsible for overseeing processes and controls over the
segregation of client funds. In response to this requirement, we
established the Client Money Committee during the financial
year to monitor the effectiveness of our global processes and
controls for segregating client money.
The Client Money Committee meets fortnightly and receives
periodic reports from a number of control functions.
An overview of the Client Money Committee’s main duties and
activity during the financial year is set out in the Corporate
Governance report.
IcAAp and ILAA committee
In addition to the management of individual risks, we undertake
stress and scenario testing as part of the Internal Capital
Adequacy Assessment Process (ICAAP) and Individual Liquidity
Adequacy Assessment (ILAA). These assessments are the
responsibility of the ICAAP and ILAA Committee, and stress-
test the potential impact on capital and liquidity of a series of
combined risk events, to ensure that the business is prepared for
any major changes in strategy or our operating environment.
The ICAAP and ILAA are prepared according to FSA
requirements and are subject to independent review by
a sub-group of the non-Executive Directors (nEDs).
The ICAAP and ILAA Committee is an executive committee that
also receives the monthly Key risk Indicator reporting.
Risk Working group
The risk Working Group comprises managers from across the
business and provides a forum for sharing cross-functional
feedback on the management of risk in the business.
non-executive risk review
Twice a year, a sub-group of the nEDs conducts a review of
the most significant risks and controls across the business, in
discussion with the Chief risk Officer and control functions.
The nEDs are a step removed from the daily operations of
the business, enabling them to assess and challenge the risk
management processes from an independent standpoint.
Senior Accounting Officer committee
The Senior Accounting Officer (SAO) Committee meets
quarterly, and is responsible for the review and challenge of
processes and controls put in place to ensure compliance
with hMrC requirements in certifying that each of our uK
subsidiaries ‘had appropriate tax arrangements throughout
the financial year’. The committee reports to the Chief Financial
Officer, who is the designated SAO.
Control functions
Additional levels of assurance are provided by control
functions which are independent of the business, namely
finance, risk, compliance, legal and internal audit. The control
functions provide periodic reporting to the Board and the
Board and executive committees as appropriate.
Business operations
In addition to the control functions, we have embedded much
of our risk management into underlying business operations.
heads of department are responsible for maintenance of risk
registers and, where necessary, taking action to mitigate risks
and enhance the control environment. The risk and compliance
control functions use these registers in co-ordinating the
identification, measurement and monitoring of risk across
the business.
Our risk reporting Cycle
This diagram represents the flow of information and feedback that supports the risk Governance Framework.
OUR KEY RISKS
BOARD REVIEW
CREDIT
MARKET
BOARD AND EXECUTIVE COMMITTEES
Remuneration • Risk • Client Money • ICAAP & ILAA
Risk Working Group • Senior Accounting Officer
REPORTS
ACTIONS
Periodic reporting
(daily/ monthly/ quarterly)
Monthly risk event report
Monthly Key Risk Indicators (KRIs)
LIQUIDITY
Internal audit
Risk registers
Most significant risks
External audit control report
ICAAP & ILAA
OPERATIONAL
REGULATORY
CONTROL FUNCTIONS
Finance • Risk • Compliance • Legal • Internal Audit
BUSINESS CONTROLS
Control
improvement
actions
AUDIT
COMMITTEE
26 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
27
MAnAGInG ouR BuSIneSS RISK (continued)
Business review: Managing our business risk
Our KEY rISKS
The following section describes the key risks that we face and
the steps that we take in order to manage these risks.
Credit risk
Credit risk is the risk that a counterparty fails
to perform its obligations, resulting in financial
loss. Our credit risk is managed on a Group-wide
basis. The principal sources of credit risk to our business are
from financial institutions and individual clients.
financial institution credit risk
All financial institutions with whom the Group has a relationship
are subject to a credit review. Exposure limits are set and
approved by the risk Committee. We also maintain multiple
brokers for each asset class. Where possible, we negotiate for
our funds to receive client money protection, which can reduce
direct credit exposure.
We monitor a number of key metrics on a daily basis in respect
of financial institution credit risk, including: balances held,
change in short- and long-term credit rating and any change in
credit default swap (CDS) price.
The Group is responsible, under various regulatory regimes, for
the stewardship of client monies. These responsibilities include
the appointment and periodic review of institutions where we
deposit client money. Our policy is that all financial institutions
holding client money must have a minimum Standard and Poor’s
short-term and long-term rating of A-2 and A- respectively.
In some operating jurisdictions it can be problematic to find a
counterparty satisfying these requirements, and in these cases
we seek to use the best available counterparty. We also use these
target minimum ratings for financial institutions where we hold
our own bank accounts.
The majority of deposits that we make to these institutions are
on an overnight or breakable term basis, which enables us to
react immediately to any downgrade of credit rating status or
material widening of CDS spreads. Deposits of an unbreakable
nature or requiring notice are held only with a subset of
counterparties which have been approved by the
risk Committee.
general market volatility or specific volatility relating to an
instrument in which the client has an open position.
We mitigate client credit risk in a number of ways. We only
accept clients that pass certain suitability criteria, and our
training programme aims to educate clients in all aspects
of trading and risk management and encourages them to
collateralise their accounts to an appropriate level.
We offer a number of risk management tools that enable
clients to manage their exposures, including: guaranteed and
non-guaranteed stops; stop and order limits; the ability to
hedge positions; the availability of liquid, tradable contracts
when underlying markets are closed (eg 24-hour quoted
indices) and full trading capability on a wide range of
mobile devices.
In addition, we manage our overall credit risk exposure
through real-time monitoring of client positions via our ‘close-
out monitor’ and through the use of tiered margining. For more
information refer to note 36 to the financial statements. We
also perform pre-deal credit checking of every client order.
The provision for new doubtful debts recognised in the year
was £2.3 million, representing less than 0.6% of revenue
(2011: £1.2 million, less than 0.4% of revenue).
Market risk
Market risk is the risk that the fair value of
financial assets and financial liabilities will
change due to movements in market prices.
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 movement.
Our technology enables us to monitor our market exposure
against these limits constantly and in real time. If exposures
exceed these limits, our risk management policy requires that
we hedge the positions to bring the exposure back in line.
client credit risk
Client credit risk principally arises when a client’s total funds
deposited are insufficient to cover any trading losses incurred.
In particular, client credit risk can arise where there are
significant, sudden movements in the market, due to high
Our conservative management of market risk, and the
consistency and distribution of our daily revenue, can be seen
in the chart in the Operating and Financial review. For more
information, including our risk limits and residual exposures at
31 May 2012, refer to note 36 of the financial statements.
28 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
29
MAnAGInG ouR BuSIneSS RISK (continued)
Liquidity risk
Liquidity risk is the risk that we will be unable
to meet payment obligations as they fall due.
Our approach to managing operational risk is governed by the
risk appetite statement and risk Management Framework. We
have designed and implemented a system of internal controls
to manage, rather than eliminate, operational risk.
We manage liquidity risk by ensuring that we have sufficient
liquidity to meet our broker margin requirements and other
financial liabilities when due, under both normal and stressed
conditions. We carried out an Individual Liquidity Adequacy
Assessment (ILAA) during the year, and while this applies
specifically to the Group’s FSA regulated entities, it provides
the context within which liquidity is managed throughout
the business.
Due to the very short-term nature of our financial assets and
liabilities, we do not have any material mismatches in our
liquidity maturity profiles. Short-term liquidity ‘gaps’ can arise,
however, in special circumstances, due to our commitment
to segregate all individual client funds. If there are significant
market falls we are required to fund margin payments to
brokers prior to releasing funds from segregation. During
periods of very high client activity, or significant global market
increases, we are required to fund higher margin requirements
with our brokers to hedge increased underlying client
positions. These additional requirements are funded from our
own available cash resources.
We also have available liquidity, including committed
unsecured facilities after the payment of broker margin, of
£311.5 million as at 31 May 2012 (2011: £218.8 million). We
monitor total available liquidity on a daily basis, including our
committed unsecured facilities.
We perform daily stress tests and regularly stress test our
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 (2011: £180.0 million) and
were not drawn upon during the current nor prior year other
than for testing purposes. Additionally, our Japanese business
IG Markets Securities has a ¥300 million (£2.5 million) liquidity
facility as at 31 May 2012.
For more information on how we calculate our total available
liquidity see note 36 to the financial statements.
Operational risk
Operational risk is the risk of financial loss due
to inadequate or failed internal processes and
systems. It can also arise from human error or
external events that we cannot influence.
The reliability of our client trading platforms is key to
delivering our strategy, and we invest significantly in IT
infrastructure to ensure that these platforms are resilient.
On a monthly basis, the risk Committee reviews our Key risk
Indicators, which includes monitoring levels of core system
uptime and deal latency.
To ensure that we provide our clients with a consistent and
uninterrupted level of service, we run a complete disaster
recovery solution, which involves a fully-functional secondary
site with real-time replication of all systems across the two
locations. We support these systems with ongoing business
continuity planning and regular testing. All our IT and data
security systems conform to the ISO27001:2005 Information
Security Management System standards.
regulatory risk
regulatory risk is the risk of non-compliance
with, and future changes to, regulatory rules
potentially impacting our business in the markets
in which we operate.
Our products have several features which make them higher-
risk when compared to traditional forms of trading. They are
leveraged, derivative products, are not listed on any exchange
(apart from nadex products) and are not assignable or tradable
with any other third party. Consequently, our regulatory licenses,
which enable us to trade our products with retail clients, are
subject to a large number of rules. Compliance with these rules is
fundamental to the business, and we invest significant resources
to ensure that we comply with both the letter and the spirit of
these rules.
The regulatory environment continues to evolve and there
are currently a number of policy initiatives and proposals in
development that may impact or have already impacted our
sector, as described below:
The European Commission is reviewing the Markets in
Financial Instruments Directive (MiFID), having released
draft legislation in the second half of 2011. Based on this
draft legislation, we do not believe that the MiFID review will
pose a threat to our uK and European businesses but we are
monitoring the situation carefully
Business review: Managing our business risk
to be seen, and depends on the details of such taxes.
We are monitoring the situation carefully
The Privacy and Electronic Communications (EC Directive)
(Amendment) regulations 2011, which amend the Privacy
and Electronic Communications regulations 2003 (the
Cookie Directive) have come into force and regulate the way
in which we can use cookies as part of our online marketing,
and as a means to improve customer experience and
understand/analyse how our customers interact with our
websites. We are still assessing the impact that the Cookie
Directive will have on our business
As noted in the Chairman’s statement, the Group’s annual
charges from the Financial Services Compensation Scheme
(FSCS) have remained at elevated levels. In the short term we
continue to maintain a dialogue with the FSCS, in order that
we are aware of potential claims on the compensation pot
to which we are required to contribute. In the medium term
we understand the Financial Services Authority (FSA) will
undertake a review of the funding arrangements of the FSCS.
We are monitoring the situation carefully
Over the next 12 months the regulatory structure in the uK is
due to change. The FSA will be split into to two new bodies:
the Prudential regulation Authority (PrA) and the Financial
Conduct Authority (FCA). Following the split, our business will
be regulated by the Financial Conduct Authority (FCA).
We work closely with our regulators to ensure that we operate
to the highest regulatory standards and can adapt quickly to
regulatory change. We are committed to engaging proactively
with regulators and industry bodies, and will continue to
support changes which promote protection for clients and
greater clarity of the risks they face. however, we cannot
provide certainty that future regulatory changes will not have
an adverse impact on our business.
The Australian Securities and Investments Commission
(ASIC) has carried out a large amount of policy work in our
industry over the past year. A number of changes have or will
come into effect in the coming year as a result of this work,
including regulatory capital changes, disclosure changes
and client suitability changes. We have engaged closely with
ASIC on these issues and we do not expect the changes to
have a substantial impact on our business
The Monetary Authority of Singapore (MAS) has recently
released a consultation paper detailing proposed new
rules to regulate providers of retail over-the-counter (OTC)
derivatives. The proposals include strengthening client
money protection, reducing leverage on Fx contracts with
no stop level attached and increasing the regulatory capital
requirements of licence holders. We are responding to the
MAS consultation and assessing the impact that the draft
proposals might have on our Singaporean business
The MAS has also recently issued two consultation papers in
relation to proposed changes to technology risk management
by financial institutions. One consultation paper relates to
the introduction of mandatory requirements relating to
critical systems and protecting customer information from
unauthorised access. The other consultation paper relates to
the introduction of updated technology risk management
guidelines that are industry best practices for financial
institutions. It is likely that we will need to expend some
time and resource on upgrading our IT systems in order to
comply with the proposed changes if they are introduced, and
therefore we are consulting with MAS on the proposals
A number of our regulators, including the European
Commission, MAS, ASIC and the uS Commodity Futures
Trading Commission (CFTC), are considering proposals to
strengthen the regulations governing OTC markets. This is
as a result of the G20’s commitment to bringing large parts
of the OTC market onto exchanges and/or through clearing
houses by the end of 2012. It is unlikely that such proposals
will apply to our retail OTC contracts, but we are monitoring
the situation carefully
A number of Eu member states are considering or have
brought in transactional taxes for example, the French stamp
duty on equity instruments (expected to be 0.2%). There
are also continued discussions at an Eu level about the
introduction of an Eu-wide financial transactions tax (FTT)
that would apply to a wide array of financial instruments.
From our current understanding, it is unlikely that an Eu
FTT can be implemented, but there is the possibility that an
FTT could be introduced by a group of Eu member states
through the Eu process of enhanced cooperation. Whether
such taxes will be a benefit or risk for our business remains
30 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
31
opeRAtInG AnD FInAnCIAl ReVIew
This section reviews the Group’s operating performance
and financial results for the year.
Our STrATEGY AnD Our BuSInESS
Our Strategy and Our Business Model are presented earlier in
the business review along with Managing Our Business risk.
A worked example of a CFD 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, Australia and France, where we continued to grow active
clients during the year. We are number two in Germany, where
the competition is diverse, and we have continued to grow
both active client numbers and revenues.
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 balance
sheet strength and client money segregation policies remain
key differentiators in the industry, as well as ensuring that
we are well placed to deal with changes in the regulatory
environment. We have developed the breadth of our
technology to incorporate mobile trading access across our
products and geographies, with around 20% of the Group’s
revenue now coming through mobile devices. Our technology
platforms offer efficient dealing and high levels of availability,
and provide us with a competitive advantage in winning and
retaining clients.
Our high levels of client service, competitive and transparent
pricing and high speed execution are important elements in
retaining and attracting clients.
rEGuLATOrY EnvIrOnMEnT
There are a large number of rules that attach to the Group’s
various regulatory authorisations, and compliance with these
rules is fundamental to the business. Significant resources are
therefore invested to ensure compliance with both the letter
and the spirit of regulations that govern our global business, as
discussed in more detail in Managing Our Business risk.
rESOurCES AvAILABLE TO ThE GrOuP
The Group has a strong, liquid, debt-free balance sheet and
a history of profitability, enabling continued investment
to maintain our market-leading position, strengthen our
international reach and to develop our advanced and resilient
technology. The Group has significant capital resources and the
liquid regulatory capital surplus is disclosed later in this section
under regulatory Capital resources.
Our award-winning trading platforms, our market-leading
business and our active client base are all highlighted within
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, and remuneration policy in
the Directors’ remuneration report. 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.
Business review: operating and Financial Review
FInAnCIAL rEvIEW
net trading revenue(1)
+17.3%
Total dividend
+12.5%
Dividend payout
60.0%
of continuing diluted earnings per share
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
2012, including a discussion of the Key Performance Indicators
(KPI’s) 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 1 and 40 to the
financial statements.
Income statement presentation
The comparative administrative expenses, profit before tax
and diluted earnings per share and the percentage increases
calculated thereon are based on an adjusted measure
excluding the amortisation and impairment of intangible
assets associated with the Group’s Japanese business.
Comparative diluted earnings per share also exclude the
taxation related to the amortisation of intangible assets
associated with the Group’s Japanese business.
The comparative income statement has also been restated
to exclude the Group’s Sport business, which was closed
during the year, and accordingly has been presented as
a discontinued operation.
Summary Group income statement
£000
2012
2011
Restated
Change
net trading revenue(1)
366,812
312,721
17.3%
Other net operating income
2,358
5,875
net operating income
369,170
318,596
Operating expenses
(172,897) (145,075)
19.2%
EBITDA
196,273
173,521
13.1%
Depreciation, amortisation
and amounts written
off property, plant and
equipment
(10,760)
(10,308)
Interest received / (paid)
204
(8)
Adjusted profit before tax(2)
185,717
163,205
13.8%
Amortisation and impairment
of intangibles
-
(150,703)
Profit before taxation
185,717
12,502
Tax expense
(48,583)
(32,792)
Profit / (loss) for the year from
continuing operations(3)
137,134
(20,290)
Loss from discontinued
operations(3)
Profit / (loss) after tax and
discontinued operations
(374)
(5,002)
136,760
(25,292)
Diluted earnings per share
from continuing operations(2)
37.54p
32.57p
15.3%
Total dividend per share
22.5p
20.0p
12.5%
(1) Net trading revenue is trading revenue excluding interest on segregated client
funds and is net of introducing broker commissions
(2) In the prior period both profit before tax and diluted earnings per share were
stated on an adjusted basis and excluded both the amortisation and impairment
of goodwill and customer relationships associated with our Japanese business,
IG Markets Securities Limited, and the related taxation
(3) The Group’s Sport business was discontinued in the year ended 31 May 2012
and the comparatives are restated accordingly
32 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
33
opeRAtInG AnD FInAnCIAl ReVIew (continued)
Business review: operating and Financial Review
FInAnCIAL rEvIEW (continued)
net trading revenue grew by 17% to £366.8 million
(2011: £312.7 million)
KpI: net trading revenue
It was another strong year of growth for the Group, with net
trading revenue up by 17% to £366.8 million (2011: £312.7
million). The diversity provided by the breadth of the tradable
product range reduces revenue volatility, as it enables clients
to switch rapidly between products as the news flow changes.
The futures business, where the underlying market is extremely
liquid, made up almost half of the revenue in the year.
50
40
30
20
x
e
d
n
I
A
X
U
10
Jun-10
M ay-10
Jul-10
Aug-10
Sep-10
Oct-10
N ov-10
D ec-10
Jan-11
M ar-11
Feb-11
M ay-11
A pr-11
Jun-11
Changes in market volatility can have an important impact on
net trading revenue in any period. The Chicago Board Options
Exchange Market volatility Index (vIx) provides an indication
of the inherent volatility in the S&P 500, and over the financial
year was indicative of broader market volatility. We saw a sharp
upward movement in this measure in August 2011, remaining
relatively high and fluctuating into September, and this
corresponded with higher client activity levels and a short-term
increase in net trading revenue. reflecting this increased activity,
first-half revenue was up by 28%. In the second half of the year
volatility gradually returned to levels closer to a long-run average.
For this period Group net trading revenue was ahead by 7%.
Measures of volatility in addition to the vIx are outlined below.
vIx volatility
Jul-11
Aug-11
Sep-11
Oct-11
N ov-11
D ec-11
Jan-12
Feb-12
M ar-12
A pr-12
M ay-12
Crude oil volatility
N ov-10
D ec-10
Jan-11
Feb-11
M ar-11
A pr-11
M ay-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
N ov-11
D ec-11
Jan-12
Feb-12
M ar-12
A pr-12
M ay-12
Fx volatility index
x
e
d
n
I
I
A
V
C
50
45
40
35
30
25
Oct-10
17
15
13
11
9
x
e
d
n
I
1
3
X
V
C
I
net trading revenue grew in all regions except Japan
KpI: geographic net trading revenue
In the year, we experienced strong revenue growth across all
of our geographic regions except Japan, with the detail in the
chart below.
volatility in the middle of the year. Germany and Italy were the
key contributors to the growth in the first half. The second half
of the year remained very robust (up 12%), with particularly
strong growth in France, Spain and Portugal. Europe now
contributes 20% of Group revenue.
The uK, which delivered 52% of the revenue in the year,
continued to grow: revenue here was up by 15% to
£191.8 million (2011: £167.2 million). The first half of the year
was ahead by 23%, with a marked positive impact from the
higher levels of market volatility from August into September.
We continued to see solid growth in the second half (up 6%) as
clients adapted to lower levels of volatility.
Our Australian business had a particularly strong year, up
almost 22% to £58.0 million (2011: £47.6 million), although
the extremely strong growth in the first half of the year (43%)
was followed by a reasonably flat second half, with signs of
competitive pressures and a marked downturn in consumer
sentiment becoming visible in the fourth quarter.
Europe (up 26% to £72.2 million) followed a similar pattern to
the uK, with growth in both halves of the year, with the first
half being particularly strong following the significant levels of
As was previously announced, the regulator in Japan imposed
a further leverage restriction at the end of the first quarter,
which negatively impacted the ability of clients to trade at
the same level as previously. As a direct result of the leverage
restrictions, net trading revenue in Japan was down year-on-
year by 20% to £16.5 million (2011: £20.6 million). however the
business showed signs of stabilising, with revenue of around
£4.0 million in each of the last three quarters.
The rest of World revenue grew by 43% to £28.4 million
(2011: £19.9 million) with around 80% of the total coming
from Singapore. The South African business was ahead by
46%, although the prior year comparable only contains nine
months’ revenue following the acquisition in September 2010.
volumes on the nadex exchange in the uSA continue to grow
steadily, albeit from a low base. Although the revenue here
remains immaterial to the Group as a whole, this is a potentially
important medium-term avenue for the Group.
)
m
£
(
e
u
n
e
v
e
R
210
180
150
120
90
60
30
0
+15%
Geographic net trading revenue
2009
2010
2011
2012
+26%
+22%
-20%
+43%
UK
Australia
Europe
Japan
Rest of World
7
Jun-10
M ay-10
Jul-10
Aug-10
Sep-10
Oct-10
N ov-10
D ec-10
Jan-11
Feb-11
M ar-11
Jun-11
M ay-11
A pr-11
Jul-11
Aug-11
Sep-11
Oct-11
N ov-11
D ec-11
Jan-12
Feb-12
M ar-12
A pr-12
M ay-12
34 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
35
opeRAtInG AnD FInAnCIAl ReVIew (continued)
FInAnCIAL rEvIEW (continued)
Changes in revenue by asset class reflect levels
of client focus
KpI: net trading revenue by asset class
The primary shift experienced in the year was the movement
towards trading in equity indices, which constituted 44% of the
revenue (2011: 36%). The proportion of revenue from shares
trading declined during the first part of the year from 18%
to around 12% in December, recovering with the rebound in
equity markets in the new calendar year. Forex (22%) also fell as
a proportion of overall revenue, although both remain robust
at an absolute revenue level. The remaining 16% of revenue is
made up by commodities and binaries, which maintained the
same level of percentage contribution year-on-year.
2012 revenue £366.8 million
44% Equity indices
22% Forex
18% Shares
11% Commodities
Binaries
5%
2011 revenue £312.7 million
36% Equity indices
26% Forex
22% Shares
11% Commodities
Binaries
5%
2012
2011
Active clients grew 11% (excluding Japan) and
revenue per client was stable
The primary drivers of the Group’s financial revenue are the
number of active clients we have and the average revenue
per client, which is a factor of their trading frequency and
the type and size of trades they place. These are discussed in
the following sections. A 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 increased
by 7% to 143,304 (2011: 133,580). Excluding Japan, where the
third and final leverage reduction came into force during the
year and active client numbers were down by 19%, the number
of active clients increased by 11%.
We continued to grow active client numbers in our two more
established markets of the uK and Australia. Overall the uK
was up by almost 5%, with spread betting ahead of the CFD
business, and Australia was ahead by 11%. Europe once again
saw the fastest growth in active clients with a 32% increase,
with particularly strong growth in Iberia, and the rest of World
had another strong year, with a 17% increase.
Whilst there are spikes in individual months, the overall trend
remains upwards. The profile of active clients over the last four
years is illustrated opposite.
KpI: Average revenue per client
Average revenue per financial client (total revenue divided by
the number of active clients in the given period) varied during
the year across products and geographies. In general, less
mature geographies and newer clients tend to produce higher
revenue in the short term and trend towards the longer-term
average. This measure fell by 5% for the European business as
it began to mature, although it remains around 20% above the
level in the uK. The level of average revenue continued to rise in
the mature markets of the uK and Australia, rising by 9% in the
uK and 10% in Australia, driven by our focus on improving the
quality of our client base. In the uK the growth was significantly
skewed towards the spread betting business, with the CFD
business still subdued by an unfavourable share trading
environment. In the rest of World this measure rose by 22%,
primarily driven by a 30% rise in the Singapore business.
)
m
£
(
e
u
n
e
v
e
r
l
a
i
c
n
a
n
F
i
40
35
30
25
20
15
10
5
0
Jun-08
)
£
(
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
Business review: operating and Financial Review
Monthly revenue vs active clients trading
Financial revenue
Total clients trading
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
Jun-11
Sep-11
D ec-11
M ar-12
M ay-12
90
80
70
60
50
40
30
20
10
T
o
t
a
l
c
l
i
e
n
t
s
i
t
r
a
d
n
g
(
0
0
0
s
)
Average revenue per client 2009-2012
UK CFD
UK spread betting
Europe
Australia
Japan
Rest of World
H 1-09
H 2-09
H 1-10
H 2-10
H 1-11
H 2-11
H 1-12
H 2-12
36 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
37
opeRAtInG AnD FInAnCIAl ReVIew (continued)
Business review: operating and Financial Review
FInAnCIAL rEvIEW (continued)
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.
Other mobile
Daily net trading revenue
iPad
Android
Daily mean £1.4m
iPhone
20
15
10
5
s
y
a
d
f
o
r
e
b
m
u
N
0
£0.5 m
£1.0 m
£1.5 m
£2.0 m
£2.5 m
£3.0 m
Other net operating income
Other net operating income includes betting duties paid by
the Group in relation to spread betting clients, interest earned
on segregated clients funds net of interest paid to those clients
and amounts earned under a revenue-share arrangement. This
is broken out in detail on the statutory income statement.
Betting duties were £8.9 million and saw an increase of £5.8
million from the prior year. net interest income on segregated
client funds increased to £10.3 million (2011: £8.9 million) as
a result of both growth in the level of client funds held and
better deposit rates.
In the current financial year the Group benefitted from
£1.0 million of income earned largely in relation to a revenue-
share arrangement with Spreadex Limited, following the sale of
the Group’s Sport business client list. under this arrangement
the Group receives semi-annual payments for three years,
calculated by reference to the revenue that the acquirer
generates from clients on the list.
Administrative expenses
Administrative expenses, as detailed below, increased by £28.3
million to £183.7 million (2011: £155.4 million). underlying
operating expenses, which exclude depreciation, amortisation
and amounts written off property, plant and equipment and
exceptional items, increased by £30.3 million to £174.0 million.
£000
2012
2011
Restated
Employee remuneration costs
92,669
72,346
Advertising and marketing
31,068
31,292
Premises related costs
10,384
9,098
IT, market data and communications
12,724
12,615
Legal and professional
regulatory fees
5,777
6,300
3,885
5,788
Bad and doubtful debts
1,337
(2,282)
Other costs
13,729
10,973
underlying operating expenses
173,988
143,715
Depreciation, amortisation and
amounts written off property, plant
and equipment
Exceptional items (including
depreciation)
10,760
9,916
(1,091)
1,752
Total administrative expenses
183,657
155,383
Employee remuneration and advertising and marketing costs
comprise 71.1% (2011: 72.1%) of underlying operating costs in
the current year.
Employee remuneration costs
Employee remuneration costs increased to £92.7 million
(2011: £72.3 million), with £13.7 million resulting from
increases in performance-related bonuses and commissions,
as well as £5.8 million resulting from an increase in the
average number of employees. As a result, the Group’s total
compensation ratio (ie total employee remuneration expressed
as a percentage of net trading revenue) increased to 25.3%
(2011: 23.1%).
The Group pays performance-related bonuses to most staff and
makes awards under value-sharing and long-term incentive
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
2012
2011
Restated
Fixed employment costs
59,719
53,910
Performance-related bonuses and
commissions:
Pool schemes
Specific schemes
18,943
9,444
9,002
4,770
Share-based payment schemes
5,005
4,222
Total employee remuneration costs
92,669
72,346
The average number of employees increased in the year to 960
(2011: 893), with year-end headcount being 1,012 (2011: 926).
In the past year, the Group has continued to invest in
headcount associated with supporting the client platform
and ongoing technological innovation. This investment, in IT
development, quality assurance and platform maintenance
and hosting, allows the advancement of multiple technology
initiatives simultaneously whilst also ensuring we maintain
high levels of platform resilience and availability. At 31 May
2012 year-end IT headcount was 397 (2011: 327), an increase
of 21% over the level at the prior year-end.
The Group’s marketing headcount has also grown over the
year, reflecting the investment in both online and offline
marketing capability as well as action taken to reduce
dependency on external agencies. These initiatives have,
whilst increasing headcount, increased the efficiency and
cost effectiveness of our online advertising through bringing
trafficking for specific markets in house, as well as enhancing
the Group’s ability to run multiple online and offline campaigns
in different markets. At 31 May 2012 year-end marketing-
related headcount was 95 (2011: 67), an increase of 41% over
the level at the prior year-end.
Other notable changes in the year include the ongoing
reduction of headcount in Japan following action taken to
significantly reduce our Japanese cost base and to ensure
alignment with the changing needs of this business.
Marketing costs
Advertising and marketing costs have remained flat at
£31.1 million (2011: £31.3 million) during the year. This reflects
initiatives noted above to reduce our dependency and costs
with external agencies (a £0.7 million part-year reduction)
as well as the action taken to reduce the cost base of our
Japanese business (a £2.6 million reduction in marketing
spend) following a number of expected regulatory restrictions
on leverage, the last of which came into force on 1 August
2011. The Group’s focus on online channels has seen increased
efficiency of spend through the use of new technologies to
optimise our websites, bringing online advert trafficking
in house and extending the markets for which paid search is
performed by an in-house team.
These savings have allowed incremental investment in
sponsorship and targeted offline media campaigns through
the year in order to maximise the recruitment, conversion and
retention of clients globally. The Group continues to invest in
building the IG brand, and to that end we have engaged with
specialist consultancies during the year.
38 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
39
opeRAtInG AnD FInAnCIAl ReVIew (continued)
Business review: operating and Financial Review
FInAnCIAL rEvIEW (continued)
Other expenses
Premises-related costs increased by £1.3 million to
£10.4 million (2011: £9.1 million) as a result of the full-year
impact of new offices opened during 2011 in the netherlands
and in South Africa, relocation and expansion of the offices in
both Spain and Italy, and through inflationary cost increases
in rent and service charges for both our uK headquarters and
disaster recovery site.
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.
Legal and professional fees, which include audit, taxation,
legal and other professional fees, increased to £5.8 million
(2011: £3.9 million). This increase results from a higher spend on
taxation support services in the year, reflecting the complexity
of the Group’s global operations and corporation, payroll and
sales tax compliance, as well as higher spend in relation to legal
matters. Details of the ongoing significant litigation against the
Group are disclosed in note 25 of the financial statements.
The level of charges levied on the Group by the Financial
Services Compensation Scheme (FSCS) in relation to the failure
of investment intermediary firms was consistent with that
levied in the prior year – with a total levy for the FSCS year
ended 31 March 2012 of £5.0 million (year to 31 March 2011:
£4.9 million). The Group also pays other regulatory fees to the
FSA in the uK as well as regulatory bodies in other jurisdictions
where we have operations.
The impact of use of our close-out monitor, which
automatically reduces our exposure to bad debts, combined
with the use of tiered margining, again ensured that new bad
debt provisions of £2.3 million (2011: £1.2 million) were less
than 1% of net trading revenue. The Group recovered
£1.2 million of cash against previously provided bad debts,
which, along with a £0.5 million charge in relation to a doubtful
debt that arose in the year ended 31 May 2009, contributed to
an overall doubtful charge of £1.3 million for the year against
and an overall net recovery of £2.3 million in the prior year. The
management of credit risk is described in both the Managing
Our Business risk section of the business review and in note 36
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, where a charge
of £2.0 million was incurred in relation to the application of
the Group’s vAT recovery agreement with hM revenue and
Customs in prior periods.
Depreciation, amortisation and amounts written off property,
plant and equipment increased to £10.8 million (2011: £9.9
million), reflecting the investment over both the current and
prior period in IT hardware and software. The amortisation
charge associated with the client list acquired with our South
African business (Ideal CFDs) was £1.0 million in the year
(2011: £1.2 million).
Exceptional items included in profit before tax
£000
relocation of the Group’s London
headquarters
Total exceptional items included
in profit before tax
2012
2011
Restated(1)
(1,091)
1,752
(1,091)
1,752
(1) Exceptional items reported for the prior year exclude the impairment of
intangible assets associated with the Japanese business and the Group’s
discontinued Sport business
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, dilapidation accruals and other
asset obsolescence. In the year to 31 May 2012 the Group has
negotiated with the property landlord both the early surrender
of lease and the settlement of dilapidation obligations for the
previous London premises, resulting in the exceptional credit
to the income statement disclosed above.
EBITDA margins
KpI: geographic eBITdA
The Group uses EBITDA, which includes an allocation of central
costs, as a key indicator of regional performance (refer to
note 4 to the financial statements, Segment Information).
EBITDA increased to £196.3 million (2011: £173.5 million)
driven by the increase in net trading revenue and
administrative expenses discussed earlier in the Operating
and Financial review. EBITDA margin (EBITDA expressed as
a percentage of net trading revenue) decreased to 53.5%
(2011: 55.5%).
The following table summarises EBITDA margin by region:
Segment
uK
Australia
Europe
Japan
rest of World
Group
2012
2011
Restated
58.5%
63.9%
64.7%
65.4%
38.8%
40.2%
41.2%
24.7%
41.6%
37.0%
53.5%
55.5%
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.
The uK segment’s EBITDA margin is lower than that in the
prior financial year as a result both of higher betting duties in
relation to spread betting clients and the costs associated with
the application of the Group’s vAT recovery agreement in prior
years noted earlier. The application of the Group’s vAT recovery
agreement also had a negative impact on margin in Europe.
In Japan, the EBITDA margin improved significantly, as whilst
revenues fell from the level in the prior year following the full-
year impact of leverage restrictions, the actions taken to reduce
the cost base of this business ensured improved profitability.
The rest of World EBITDA margin benefitted from the revenue
growth in Singapore.
Profit before taxation
KpI: profit before taxation
As a result of the factors outlined above, profit before taxation
grew 13.8% to £185.7 million (2011: £163.2 million). Profit
before tax margin, calculated with reference to net trading
revenue, decreased to 50.6% (2011: 52.2%) reflecting the
Group’s continuing investment in IT and marketing capability.
Taxation expense
The effective rate of taxation for the year ended 31 May 2012
increased to 26.2% compared to an adjusted rate of 24.2% for
the prior year. The prior year adjusted rate has been calculated
after excluding the profit and loss account impact of the
Japanese goodwill impairment. The effective rate for the
current year is higher than the prior year due to the current tax
adjustment in respect of prior years of £1.9 million and lower
taxes on overseas earnings 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 11 to the financial statements.
Discontinued operations
During the year the Group completed the sale of the majority
of the client list relating to the sport spread betting and
fixed odds betting business, extrabet, to Spreadex Limited.
Following the completion of a redundancy consultation
process with the employees of extrabet, those unable to
find a role within the Group were made redundant and the
business was closed. Accordingly the Group’s Sport business
is presented within the Group income statement as a
discontinued operation. In the financial review all numbers,
unless otherwise stated, exclude the Sport business. In the year
ending 31 May 2012, the discontinued operations contributed
a loss after taxation of £0.4 million (2011: loss after taxation of
£5.0 million).
Diluted earnings per share
KpI: diluted earnings per share
Diluted earnings per share from continuing operations increased
to 37.54p (15.3% growth) from 32.57p in the year ended 31 May
2012 (refer to note 13 to the financial statements).
Diluted earnings per share increased to 37.44p (14.7% growth)
from 32.64p in the year ended 31 May 2012. Diluted earnings
per share is used as a primary measure of our underlying
profitability, and elements of both the annual Directors’
performance-related bonuses, as well the long-term incentive
plan that vests in September 2012, are calculated with 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
profit after tax. This policy will be kept under review, but our
current intention is to pay out a similar proportion of earnings
in the future.
40 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
41
opeRAtInG AnD FInAnCIAl ReVIew (continued)
Business review: operating and Financial Review
FInAnCIAL rEvIEW (continued)
The Board has recommended a final dividend of 16.75p,
to bring the total dividend for the financial year ending
31 May 2012 to 22.5p (2011: 20.0p), an increase of 12.5%.
generative nature of the business. Cash conversion, calculated as
own funds generated from operations divided by profit before
tax, remained at high absolute levels (2012: 75.9%, 2011: 83.9%).
Summary Group cash flow – high levels of
cash generation
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’ in order to provide
a clear presentation of the Group’s available cash resources. For
an explanation of the derivation of ‘own funds’ please refer to
the table presented in the following Available Liquidity section.
The prior year summary Group cash flow has been restated to
reflect the amended presentation of own funds explained in
the following section on available liquidity.
£000
Operating activities
Profit before tax(1)
2012
2011
Restated
185,329
162,999
Depreciation and amortisation
10,760
10,866
Other cash and non-cash
adjustments
2,140
6,321
Income taxes paid
(57,554)
(43,503)
Own funds generated from
operations
140,675
136,683
Movement in working capital
21,906
1,068
Outflow from investing and
financing activities
(83,324)
(95,278)
Increase in own funds
79,257
42,473
Own funds at 1 June
309,228
268,479
Exchange loss on own funds
(264)
(1,724)
Own funds at 31 may
388,221
309,228
‘Own funds’ increased by £79.3 million (2011: £42.5 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 £9.1 million in relation to capital expenditure
(2011: £19.9 million) on IT hardware and software, with the prior
year number including the cash flows associated with the fit-out
of the Group’s new London headquarters. This item also includes
the payment of the final 2011 and interim 2012 dividend
payments which total £73.9 million (2011: £67.7 million).
The prior year 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 Limited.
Available liquidity – Group cash generation funds
broker margin requirements
The Group’s ‘own funds’, as set out in the table opposite,
comprise cash balances available to the Group for its own
purposes and exclude all monies held on behalf of clients.
Own funds are used in normal business operations as well as
for the funding of broker margin requirements. Consequently
own funds are held with either the Group’s banking or broking
counterparties. The Group is also entitled to use ‘title transfer
funds’ in normal business operations and as broker margin.
Title transfer funds are those held on behalf of corporate
clients where the client agrees, under a Title Transfer Collateral
Arrangement (TTCA), that full ownership of such monies is
unconditionally transferred to the Group. The Group does not
accept title transfer funds from individual clients.
Own funds increased to £388.2 million (2011: £309.2 million)
in the year to 31 May 2012, reflecting the high level of cash
generation set out earlier in this report. ‘net own cash available’
also increased to £192.3 million (2011: £91.9 million) following
a decrease in the year-end broker margin requirements. ‘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.
(1) Profit before tax is stated inclusive of discontinued operations for the purposes of
the cash flow statement
Own funds generated from operations were £140.7 million
(2011: £136.7 million) during the year, reflecting the cash-
The Group’s available own cash enables the funding of large
broker margin requirements when required – the level of
available liquidity at 31 May 2012 should be considered in the
light of the intra-year high broker margin requirement of
£277.1 million, the continued growth of the business and
the Group’s commitment to segregation of individual clients’
money, as well the final proposed 2012 dividend, all of which
draw upon available cash resources.
Total available liquidity is stated inclusive of committed
banking facilities of £180.0 million (2011: £180.0 million) –
none of which were drawn during the current or prior
financial year except for test purposes.
£000
Available cash resources
2012
2011
Restated(1)
Own funds
388,221
309,228
Title transfer funds
59,852
71,453
Available cash resources
comprise:
Own cash and title transfer funds
228,156
124,528
Amounts due from brokers
206,997
267,792
Less other amounts due
from / (to) clients(1)
12,920
(11,639)
Available cash resources
448,073
380,681
regulatory capital resources
Throughout the year, the Group maintained a significant excess
over the capital resources requirement, both on a consolidated
and individual regulated entity basis. The Group’s regulatory
capital surplus is reflected in the own funds and available
liquidity disclosed above.
The Group considers there are significant benefits to being
well capitalised at a time of continuing global economic
uncertainty. The Group is 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 37 to the financial statements.
Available liquidity
£m
Available cash resources
448,073
380,681
Total Tier 1 capital
2012
2011
448.7
380.1
Less broker margin requirement
(195,954)
(217,360)
Less intangible assets (adjusted)
(115.4)
(115.3)
net available cash
252,119
163,321
Less investment in own shares
(1.5)
(1.2)
Less title transfer funds
(59,852)
(71,453)
Total capital resources (cR)
331.8
263.6
net own cash available
192,267
91,868
Capital resources requirement (Crr)
(100.4)
(89.6)
Of which declared as dividend
(60,769)
(53,051)
Surplus
231.4
174.0
Committed banking facilities(2)
180,000
180,000
cR expressed as a % of cRR
330.5% 294.2%
Total available liquidity
(including facilities)
311,498
218,817
(1) The comparative amount has been restated to disclose ‘other amounts due
from / (to) clients’, which represent balances that will be transferred from or to
the Group’s own cash into segregated client funds on the immediately-following
working day, in accordance the UK’s Financial Services Authority (FSA) ‘CASS’ rules
and similar rules of other regulators in whose jurisdiction the Group operates
(2) Draw down of the committed banking facilities is capped at 80% of the actual
broker margin requirement on the draw down date. For example, the actual
committed facilities available for draw down at 31 May 2012 based on the year-
end broker margin requirement of £196.0 million were £156.8 million. Available
draw down of £156.8 million facility equates to total available liquidity as at 31
May 2012 of £287.4 million
42 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
43
opeRAtInG AnD FInAnCIAl ReVIew (continued)
Business review: operating and Financial Review
Liabilities
Trade and other payables include amounts due to clients in
relation to title transfer funds, amounts due to be paid into
segregated client money accounts on the following working
day as well as accruals and other payables. The reduction in
trade and other payables from the level held at 31 May 2011
results from a number of factors. Title transfer funds have
reduced by £11.6 million following the Group’s decision not
to accept title transfer funds from all individual clients – as
detailed earlier in this report. Additionally amounts due to paid
into segregated client money accounts at 31 May 2011 were
£11.6 million, whereas at 31 May 2012 the following working
day’s transfer was from segregation and to the Group’s own
funds. Finally, the level of accruals is £19.2 million higher at
31 May 2012, largely as a result of the higher performance-
related bonus accruals as discussed earlier in this section.
Provisions relate solely to the amounts payable in relation to
onerous lease liability for the Group’s former headquarters.
COrPOrATE SOCIAL rESPOnSIBILITY
An overview of our commitment to corporate and social
responsibility is included within the Corporate Governance
section 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.
FInAnCIAL rEvIEW (continued)
Summary Group statement of financial position
£000
2012
2011
Property, plant and equipment
15,555
16,761
Intangible assets
Deferred tax assets
non-current assets
115,366
117,202
11,915
11,264
142,836 145,227
Trade and other receivables
232,087
278,303
Cash and cash equivalents
228,156
124,528
current assets
TOTAL ASSeTS
460,243 402,831
603,079 548,058
Trade and other payables
125,891
128,639
Provisions
Income tax payable
1,353
1,427
28,652
37,060
current liabilities
155,896 167,126
Provisions
redeemable preference shares
non-current liabilities
Total liabilities
Total equity
-
40
40
1,991
40
2,031
155,936 169,157
447,143 378,901
TOTAL eQUITY And LIABILITIeS
603,079 548,058
non-current assets
As discussed in the business 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 licenses amounted to £3.0 million
(2011: £7.1 million) largely relating to the development of the
client trading platform and software relating to enhanced
marketing capability. During the year we also invested
£4.7 million in property, plant and equipment
(2011: £14.3 million), including £2.4 million in relation to IT
equipment and £2.3 million in relation to our new London
headquarters and other overseas offices.
Intangible assets include goodwill of £107.5 million (2011:
£107.4 million), primarily arising on the acquisition of IG Group
plc and its subsidiaries in 2003; the goodwill associated with
the acquisition of nadex of £4.9 million (2011: £4.6 million) and
the goodwill (£1.9 million) and client list (£0.4 million) arising
on the acquisition of our South African business (refer to note
17a of the financial statements).
Current assets
Trade and other receivables include amounts due from brokers,
amounts due to be received from segregated client money
accounts on the following working day as well as prepayments.
Amounts due from brokers 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 decreased to £207.0 million (2011: £267.8
million) primarily as a result of lower equity positions than at the
prior year-end. Broker margin rates have remained consistent
over the year and therefore this lower equity position resulted
in a lower collateral requirement with brokers. Cash and cash
equivalents are discussed in the cash flow section.
Client money
KpI: client money levels
Total monies held on behalf of clients at year-end was
£792.6 million (2011: £786.1 million), of which £732.7 million
(2011: £714.7 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 £59.9 million (2011: £71.5 million)
represent ‘title transfer funds’ where the client agrees, under a
Title Transfer Collateral Arrangement (TTCA), that full ownership
of such monies is unconditionally transferred to the Group. Title
transfer funds have reduced in the current year following the
Group’s decision not to accept title transfer funds from individual
clients; consequently, title transfer funds now include only
corporate clients. 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.
44 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
45
Corporate governance
CORPORATE
GOVERNANCE
COrPOrATE GOvErnAnCE STATEMEnT AnD OvErvIEW OF COrPOrATE GOvErnAnCE FrAMEWOrK 49
50
ThE BOArD
BOArD COMMITTEES
nomination
remuneration
Directors’ remuneration report
Audit
ExECuTIvE COMMITTEES
risk
Client money
DIrECTOrS’ STATuTOrY rEPOrT
COrPOrATE SOCIAL rESPOnSIBILITY
STATEMEnT OF DIrECTOrS’ rESPOnSIBILITIES
InDEPEnDEnT AuDITOrS’ rEPOrT
55
56
58
71
73
74
75
78
81
82
47
47
46 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
46 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
CoRpoRAte GoVeRnAnCe RepoRt
The Corporate Governance Report details the Group’s governance framework and its management practices and, together with the
Directors’ remuneration report, sets out how the Group has complied with the UK Corporate Governance Code for the year ended
31 May 2012.
Accordingly the Corporate Governance Report follows this structure:
TITLE
ExPLAnATIOn
PAGE
corporate governance Statement and overview of
corporate governance framework
A statement of the Company’s compliance with the UK
Corporate Governance Code
The Board
Board committees:
nomination
remuneration including the Directors’
remuneration report
Audit
Executive committees:
risk
Client money
Board biographies as well as an overview of the
leadership and effectiveness of the Board, its structure,
responsibilities and Board evaluation
For each committee the Chairman provides an
overview of the committee’s role and activity during
the financial year
The Directors’ remuneration report provides an
overview of the Group’s governance and policies
with regards to remuneration, including the audited
Directors’ remuneration disclosures.
Detailed contents are provided on page 58
The Board has delegated certain governance
responsibilities to executive committees. An overview
of each committee’s role and activity in the financial
year is provided
Directors’ statutory report
Other disclosures required by legislation
Corporate Social Responsibility Report
Details the Group’s policies and activity during the year
with regards to corporate behaviour
49
50
55
56
71
73
74
75
78
Corporate governance: Corporate governance report
COrPOrATE GOvErnAnCE STATEMEnT
Statement of compliance
The Board has reviewed the UK Corporate Governance Code (the Code) and considers that the Company has been compliant with the
Code for the year ended 31 May 2012, with the exception of Code provision B.1.2 which requires that at least half of the Board, excluding
the Chairman, should comprise Non-Executive Directors (NEDs) who are determined by the Board to be independent. The Board currently
comprises four Executive Directors and four Non-Executive Directors excluding the Chairman and Deputy Chairman.
The Deputy Chairman, Nat le Roux, is not considered to be an independent Non-Executive Director as he is a former Chief Executive of the
Group. The Board considers that the value he brings, with 19 years’ experience in the uniquely specialised market of contracts for difference
and spread betting, justifies his position on the Board and is in the best interests of the Group and its shareholders.
Nat Le Roux has informed the Board of his wish to step down at the 2012 Annual General Meeting (AGM) and this means the Board will be
fully compliant with Code provision B.1.2 after the forthcoming 2012 AGM. Andrew MacKay will also be stepping down from the Board as
of 31 July 2012.
Further information on the Code can be found on the Financial Reporting Council website at www.frc.org.uk.
OvErvIEW OF COrPOrATE GOvErnAnCE FrAMEWOrK
Independent
external
Auditors
Appoint the Auditors
SHAREHOLDERS
Elect the Board
BOARD
(Four independent NEDs, one non-independent
NED, four Executives and Chairman)
BOARD COMMITTEES
Audit
Committee
(Three independent
NEDs)
Remuneration
Committee
(Four independent
NEDs and
Chairman)
Nomination
Committee
(Three independent
NEDs and
Chairman)
Chief Executive Officer
and Executive Directors
EXECUTIVE COMMITTEES
Senior
management
team
Risk
Committee
(including one
independent NED)
Client Money
Committee
48 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
49
CoRpoRAte GoVeRnAnCe RepoRt (continued)
Corporate governance: the Board
ThE BOArD
Jonathan Davie
Non-Executive Chairman, 65 years old
Jonathan qualified as a Chartered Accountant. He joined George
M. Hill and Co, a jobber on the London Stock Exchange, in 1969.
Wedd Durlacher Mordaunt and Co then acquired the firm, where
Jonathan became a partner in 1975. He was the senior dealing
partner of the company when it was later acquired 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, when they acquired most of BZW’s businesses. Jonathan
is presently a Non-Executive Director of Persimmon plc and
Chairman of First Avenue, an alternatives advisory boutique.
Christopher Hill
Chief Financial Officer
41 years old
Christopher read Modern History at
Oxford University. He is a Chartered
Accountant and an associate member of
the Association of Corporate Treasurers.
He joined IG Group in April 2011 from
Travelex, a group providing cross-border
payment and foreign exchange services to corporate and retail
customers, where he was Chief Financial Officer. 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).
Roger Yates
Senior Independent
Non-Executive Director
55 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. In 2003, Roger
went on to lead the de-merger from its then parent AMP, becoming
Chief Executive of the resulting listed entity (now Henderson Group
plc) until November 2008. From December 2009 until July 2010,
Roger was CEO of global asset manager Pioneer Investments. He is a
Non-Executive Director of JP Morgan Elect Investment Trust plc and of
Electra Private Equity Trust plc.
50 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
Tim Howkins
Chief Executive, 49 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, where he was responsible for the Group’s audit. He
then joined IG 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.
Andrew MacKay
Director of Corporate Strategy
46 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 as Legal
Counsel in March 1999. Andrew was appointed a Director
of IG Group in 2003. He served as Head of Asia Pacific for three
years before returning to London to lead the new Corporate
Strategy team.
Martin Jackson
Non-Executive Director
63 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
Peter Hetherington
Chief Operating Officer
43 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 Group, 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.
Nat le Roux
Non-Executive Deputy Chairman
55 years old
Nat was Chief Executive of IG Group
for four years before he became
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 a Masters in Law from Cambridge University
and an MSc in Anthropology from University College, London. He
is an independent Director of the London Metal Exchange, where
he chairs the Audit and Risk Committees.
1999 and 2001, and of London & Manchester Group plc from
1992 to 1998 (up until it was acquired by Friends Provident Life
Office). He is a Non-Executive Director and Chairman of the Group
Risk Committee of Admiral Group plc. He is also a fellow of the
Institute of Chartered Accountants.
Stephen Hill
Non-Executive Director
52 years old
Stephen served as CEO of the Financial
Times for Pearson plc between 1996 and
2002, and on Pearson’s management
board. He was the CEO of Betfair plc from
2003 to 2005. Stephen is an experienced
Non-Executive Director, having previously
served on the boards of the Royal SunAlliance Insurance Group
plc, Psion plc and Channel 4. He was also Chairman of Interactive
Data Corporation of the US from 1998 to 2002. Currently he
is Chairman and CEO of D’Aval Limited, a private investment
company, and Trustee, Hon. Treasurer and Deputy Chairman of
the Royal National Institute for Deaf People – Action on Hearing
Loss, where he chairs the Audit and Investment Committees.
Stephen also serves as a member of the Advisory Board of the
Cambridge University Judge Business School.
David Currie
Non-Executive Director
65 years old
David Currie (Lord Currie of Marylebone)
was the founding Chairman of Ofcom,
where he served from 2002 to 2009.
Previously he was a Non-Executive
Director of Abbey National plc from 2001
to 2002, a founder and Chairman of the
International Centre of Financial Regulation and Chairman of
Independent Audit from 2003 to 2007. Between 2001 and 2007
David was the Dean of Cass Business School, and before that
Deputy Dean at the London 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. David is currently serving as a panel member of the
Leveson Inquiry into the press.
51
CoRpoRAte GoVeRnAnCe RepoRt (continued)
ThE BOArD (continued)
Leadership
Role of the Board
The Board is responsible for the long-term success of the Group.
It is accountable for ensuring that, as a collective body, it has the
appropriate skills, knowledge and experience to perform its role
effectively. It provides guidance and leadership by challenging
business performance, and sets the strategic direction of the Group.
The powers of the Board are set out in the Company’s articles of
association, which are available on the Group’s website,
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.
Specific key decisions are reserved for the Board in order to ensure
that it meets its responsibilities. These include:
Setting Group strategy
Approving major acquisitions, divestments and
capital expenditure
Approving expansion into new business or geographic areas
Approving annual budgets
Approving changes relating to the Group’s capital structure
including reduction of capital
Reviewing operational and financial performance
Setting the risk appetite of the Group
Approving any changes to the Group’s risk management
policy which materially increase the Group’s risk profile
Reviewing the Group’s systems of internal control and
risk management
Approving Board, Board committee and Company
Secretarial 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 for the Board are delegated
to the Executive Directors. These include:
Developing and recommending strategic plans for the Group
Implementing 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
Promoting good standards of corporate governance and
shareholder engagement
Board structure
During the year, the Company was headed by an experienced
Board of ten Directors, comprising an independent Non-Executive
Chairman, a non-independent Non-Executive Deputy Chairman,
four Executive Directors, including the Group Chief Executive
Officer, and four independent Non-Executive Directors.
The division of responsibilities between the Chairman and the
Chief Executive Officer is clearly defined in writing and has been
approved by the Board. The Chairman is responsible for the
leadership of the Board and creating the conditions for its effective
working. The Chairman sets the Board’s agenda in consultation
with the Chief Executive Officer and Company Secretary, taking full
account of the issues and concerns of Board members and giving
consideration to the need to allow sufficient time for the discussion
of items on the agenda.
With the exception of the Deputy Chairman, all the Non-Executive
Directors are independent of management and are considered
by the Board to be free from any business or other relationships
which could interfere with the exercise of their independence. Their
role is to advise and constructively challenge management, along
with monitoring management’s success in delivering the agreed
strategy within the risk appetite and control framework set by the
Board. They are also responsible for determining appropriate levels
of remuneration for the Executive Directors.
A formal schedule of matters specifically reserved for the Board
can be found on the Group’s website, at www.iggroup.com.
Roger Yates is the Senior Independent Director and provides
support to the Chairman, serving as an intermediary for the
Corporate governance: the Board
How the Board discharged its responsibilities during the
financial year
During the year, the Board has been engaged across the key
areas of strategy, financial performance, governance and risk as
highlighted in the following chart. In addition to regular reviews
of performance, the Board has further discussed risk appetite,
capital and liquidity planning, and talent management, including
succession planning.
The Board
Allocation of time
Quarterly forecast and budget
Strategy
Business and operational
highlights
Current trading
risk
Others
Year-end matters
Client money
Board and executive committees
The Board has delegated certain governance responsibilities to
Board committees in order both to assist it with carrying out its
responsibilities and to ensure that there is independent oversight
of internal control and risk. These Board committees comprise
independent Non-Executive Directors only and have agreed
terms of reference, which are available on our corporate website,
www.iggroup.com.
The Chairman of each Board committee reports to the Board on
the matters discussed at committee meetings, and the minutes
of each of the committee meetings are made available to all
Directors. Please see the following section for reports for the year
from the Chairman of each Board committee.
Certain governance responsibilities have also been delegated
to executive committees, whose members include Executive
Directors and members of senior management. Please see the
following section for reports for the year from both the Risk and
Client Money Committees.
other Directors when necessary. The Senior Independent
Director is available to shareholders if they have concerns which
communication via the normal channels of Chairman, Chief
Executive Officer or other Executive Directors has failed to resolve,
or for which communication is inappropriate.
How the Board operates
The Board meets regularly: at least five times a year. In addition,
the Board meets when necessary to discuss important ad-hoc
emerging issues that require consideration between standard
Board meetings. All Directors make every effort to attend each
meeting; each Director committed an appropriate amount
of time to their duties during the financial year and the Non-
Executive Directors met the time commitment specified in their
letters of appointment.
The Chairman and Non-Executive Directors meet formally in the
absence of the Executive Directors at least twice a year.
Attendance at Board meetings
The number of full Board meetings attended by each Director
during the year is set out below:
Scheduled Board
meetings eligible
to attend
Scheduled Board
meetings
attended
Board attendance
group chairman
J R Davie
executive directors
T A Howkins
(Chief Executive Officer)
C F Hill
P G Hetherington
A R MacKay
Independent non-executive directors
D Currie
S G Hill
D M Jackson
R P Yates
non-independent non-executive director
N B le Roux
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
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53
53
CoRpoRAte GoVeRnAnCe RepoRt (continued)
ThE BOArD (continued)
Effectiveness
Board structure
The size, composition and qualifications of the members of the
Board have a significant impact on its effectiveness. There is
an appropriate combination of Executive Directors and Non-
Executive Directors such that no individual or small group of
individuals can dominate the Board’s decision making. This is
regularly reviewed to ensure that the Board has the right mix for
constructive discussion and, ultimately, effective Board decisions.
Succession planning and appointments to the Board
Succession planning is used by the Board to ensure that the
Group is managed by executives with the necessary skills,
experience and knowledge, and to ensure that the Board has
the right balance of individuals to be able to discharge its
responsibilities. The search for Board candidates is conducted, and
appointments made, on merit against objective criteria.
The Nomination Committee has specific responsibility for the
appointment of Non-Executive and Executive Directors, but the
Board as a whole is also involved in overseeing the development
of management resources across the Group.
Induction and training
New Directors to the Board are provided with appropriate
training and briefings to familiarise them with their duties and
the business operations, risk and governance arrangements.
The induction programme includes meetings with senior
management. During their term of office all Directors receive
regular briefings on changes and developments in the business
and on any relevant legislative and regulatory changes.
Ongoing professional development is important given the
rapidly changing environment in which the Group operates.
The Chairman ensures that the Directors continually update
and refresh their skills and knowledge, and the Company funds
independent professional advice as required.
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. All Directors receive appropriate
and timely information to enable the Board to exercise its
judgement in the discharge of its duties. Briefing papers are
distributed to all Directors in advance of Board meetings, and
financial information is distributed monthly. During the year, an
electronic system was introduced for the efficient and secure
delivery of Board and committee papers to Directors.
Re-election of Directors
The UK Corporate Governance Code requires that all Directors
submit themselves for re-election at the Company’s AGM, which
this year will be held on 18 October 2012. Following a rigorous
performance evaluation of each Director and the Board as a
whole, all the Directors, with the exception of Nat le Roux and
Andrew MacKay, are submitting themselves for re-election.
Biographical details of each of the Directors are found earlier in
this section.
Board evaluation
The 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. In 2009, the Board commissioned
the board evaluation team of the Institute of Chartered
Secretaries and Administrators to carry out a thorough evaluation
of the performance of the Board. This took into account emerging
governance trends arising from the Walker Report and the UK
Financial Reporting Council review.
This year, the Board commissioned an independent external
Board effectiveness facilitator, Dr Tracy Long of Boardroom
Review, to assist in an evaluation of its effectiveness.
The review was designed to assess the contribution that the
Board makes to the success of the Company, and to promote its
continued effectiveness. The review encouraged the Directors to
step back from the day-to-day business of the Board, to question
its approach, consider its impact, and prepare for the challenges
ahead. The review investigated a range of issues, including the
way in which the Board defines its role and approaches its work,
and the way in which the Board works together and optimises
its use of time and its contribution to the Company. Overall
the review was satisfactory, and the Board will consider its
recommendations during the coming year.
In addition to the external Board evaluation, 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) and taking into account the
feedback from the Executive Directors.
Corporate governance: nomination Committee
nOMInATIOn COMMITTEE
Jonathan Davie, Chairman of
the Nomination Committee,
reviews the committee’s
activities during the
financial year
Chairman’s overview
The focus and attention of the committee in the year has been
the need to strengthen and implement effective succession
planning for the Board. In addition, particular attention was given
to the diversity of gender, skills, knowledge and experience of the
Board, especially following publication of the Davies review on
Women on Boards.
nomination Committee –
membership and attendance
Scheduled
meetings
eligible to attend
Scheduled
meetings
attended
group chairman and
chairman of nomination
committee
Jonathan Davie
Independent
non-executive directors
David Currie
Martin Jackson
Roger Yates
3
3
3
3
3
3
3
3
role of the nomination Committee
The responsibilities of the committee are to:
Review the composition of the Board and Board committees to
ensure that they are appropriately balanced in terms of skills,
knowledge and experience
Ensure that there is a formal, rigorous and transparent
procedure for the appointment of new Directors and
recommend appointments to the Board
Ensure that plans are in place for orderly succession for
appointments to the Board, and to other senior
management positions
Activity during the financial year
With the Deputy Chairman, Nat le Roux, stepping down at the
AGM in 2012, the committee has continued to focus on the
review of the structure, size and composition of the Board.
Following Nat’s retirement and Andrew MacKay’s decision to step
down from the Board, it will comprise eight members - three
Executive Directors and five independent Non-Executive Directors
- and so the Board will be compliant with Code provision B.1.2 of
the UK Corporate Governance Code.
The committee spent its time equally between succession planning
and Board composition during the year ended 31 May 2012.
nomination Committee
Allocation of time
The committee meets as necessary to consider appointments to
the Board. Although not involved in decisions relating to his own
succession, the Chief Executive Officer also attends.
Succession planning
Board composition
Jonathan Davie
Chairman, Nomination Committee
17 July 2012
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55
CoRpoRAte GoVeRnAnCe RepoRt (continued)
rEMunErATIOn COMMITTEE
The committee’s other responsibilities are to:
Roger Yates, Chairman of the
Remuneration Committee,
reviews the committee’s
activities during the
financial year
Chairman’s overview
The committee’s focus during the financial year has been
on ensuring an appropriate balance between the levels of
remuneration required to attract, retain and motivate talented
leaders in a competitive market, and setting policies that are aligned
with the interests of shareholders and regulatory requirements.
remuneration Committee –
membership and attendance
Scheduled
meetings
eligible to attend
Scheduled
meetings
attended
chairman of Remuneration
committee
Roger Yates
Independent
non-executive directors
David Currie
Martin Jackson
Stephen Hill
Jonathan Davie
4
4
4
4
4
4
4
4
3
4
The committee meets four times a year, and as and when required.
role of the remuneration Committee
The committee is responsible for making recommendations to the
Board on the Group’s remuneration policy. Operating within agreed
terms of reference, it determines 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.
Determine and review the Group’s remuneration policy,
ensuring it is consistent with effective risk management
across the Group, and to consider the implications of this
remuneration policy on risk
Approve the remuneration of the Chairman
Approve all share-based awards under the Group’s employee
incentive schemes, to determine each year whether awards will
be made and, if awards are made, to monitor their operation,
the size of such awards and the performance targets to be used
Establish the selection criteria, appoint and set the terms
of reference for any remuneration consultants who advise
the committee
The Board determines the remuneration of Non-Executive Directors.
Activity during the financial year
Remuneration framework
The committee recognises that the Group must be able
to attract, retain and motivate leaders who are focused on
delivering the business strategy in line with the interests of
shareholders, and the committee strives to ensure that the
Group’s remuneration framework is structured in order to enable
this. To this end, and with support from Kepler Associates, the
committee spent time during the year reviewing the Executive
Directors’ remuneration and the bonus arrangements for the
Group’s staff. The results of this review are explained below.
Regarding fixed remuneration, the committee reviewed the
salaries of Executive Directors against a comparator group of
companies. Whilst the Executive Director’s salaries were found
to be below the lower quartile of the comparator group, and
whilst the Group has performed well within a challenging
environment, the committee determined it was best to take
a prudent approach to increasing levels of fixed pay this year.
After giving consideration to the level of salary awards made to
all of the Group’s UK employees, it was decided that Executive
Directors’ salaries would be increased in line with inflation only
(3%). This is in line with the proposed salary increases for the
Group’s employees as a whole. The Chairman and other Non-
Executive Directors also received an inflationary increase in fees.
The Committee determines the contractual terms, remuneration
and other benefits for each of the Executive Directors,
including performance-related bonus schemes, pension rights,
compensation payments and contingent share awards. In setting
the remuneration for Executive Directors, the committee has the
discretion to take performance on environmental, social, regulatory
and governance matters into account.
Regarding variable remuneration, the committee reviewed the
bonus arrangements for the Executive Directors and employees
participating in the general staff bonus scheme, in order to
ensure that there is an ongoing link between performance
and reward. The committee determined it was appropriate to
incorporate some non-financial measures into the metrics for
both bonus schemes. The committee considers that this change
Corporate governance: Remuneration Committee
The following chart highlights how the committee spent its time
during the year ended 31 May 2012.
remuneration Committee
Allocation of time
Bonus scheme
arrangements
Incentive awards
remuneration regulation
remuneration reporting
remuneration policy
Advisors
The committee’s work is supported by independent professional
advice received from Kepler Associates. During the year Kepler
Associates provided advice in relation to trends in executive
remuneration, the Executive Directors’ salaries, the Group’s bonus
scheme for Executive Directors and employees and the hurdle
rate associated with the Group’s value-sharing plan. In 2011,
Kepler Associates provided remuneration benchmarking data
to the Group.
The committee will continue to report transparently on all
aspects of Directors’ remuneration and to actively engage with
shareholders when developing executive remuneration policies
and structures.
Roger Yates
Chairman of the Remuneration Committee
17 July 2012
will help to ensure that rewards are balanced between short-
term financial and long-term strategic goals. For the year ended
31 May 2013, the Executive Director bonus scheme is structured
such that 75% of the maximum bonus opportunity is to be
judged on financial measures (ie EPS growth) and 25% of the
maximum bonus opportunity is to be judged on non-financial
performance measures – more detail on which is set out in the
following Directors’ remuneration report.
In relation to long-term variable remuneration, the hurdle rate
at which the profit before tax element of the value-sharing
plan (VSP) awards vest was reviewed against a number of
comparable measures by the committee, with support from
Kepler Associates during the year. As a result of this review,
the hurdle rate has remained unchanged at 12% per annum
– more detail on which is set out in the following Directors’
remuneration report.
For the forthcoming year, the committee has decided it is
necessary to undertake a comprehensive and holistic review
into Executive Director remuneration. This is for a number
of reasons:
The positioning of Executive Directors’ salaries against their
peers in a range of comparator companies
Recent and forecasted performance of the Group
Developing regulation in the area of executive remuneration
We intend to consult with shareholders about the nature, scope
and outcome of this review over the coming year.
Remuneration regulation
The committee continues to focus on the recent developments
in this area, including the government’s proposals to enhance
shareholder voting rights in relation to executive remuneration
and to strengthen the legislation and regulation around
remuneration governance. In June 2012, the government
announced a package of proposed reforms to the framework for
executive remuneration, and the committee will consider all of
these proposed reforms when setting policy.
Other activities
During the year, the committee also completed the following:
Review and approval of the 2011 Directors’ remuneration report
and review of the final outcome of AGM voting
on the report
Review of the annual Directors’ remuneration report
Review and approval of both the share incentive plan
and the value-sharing plan offerings
Review of the Group remuneration policy and the risk
report on remuneration policy
Review of the Group’s arrangements for the implementation
of the FSA Remuneration Code
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57
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT
Preparation of the Directors’ remuneration report
The following remuneration report has been prepared on behalf of the Board by the Remuneration Committee. The committee adopts
the principles of good governance as set out in the UK Corporate Governance Code, and complies with the Listing Rules of the Financial
Services Authority, the relevant schedules of the Companies Act 2006 and the Directors’ Remuneration Report Regulations in schedules
5 and 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008.
Unless otherwise stated, information and disclosures within the Directors’ remuneration report are unaudited. The regulations require
the Company’s auditors to report on the audited information in the report and to state that this section has been properly prepared in
accordance with these regulations. For this reason, the ‘audited information’ contained in the report is clearly identified. The Directors’
remuneration report is subject to shareholder approval at the Annual General Meeting (AGM) on 18 October 2012.
Structure
Following review of the Group’s remuneration report, we have separated the Directors’ remuneration report into two sections. The first
covers the Group’s future remuneration policy; the second covers the implementation of the policy and the actual remuneration in the
current reporting period.
TITLE
ExPLAnATIOn
future
remuneration
policy
Remuneration
governance
An overview of remuneration governance, and the Group’s policies and principles with
regard to future remuneration
Remuneration
policies that support
the Group’s strategy
An explanation of the alignment of the Group’s remuneration policy with the Group’s
strategy for the wider employee base and the Executive Directors, as well as an
overview of the key elements of remuneration for the forthcoming financial year
Remuneration
arrangements for
Executive Directors
Detailed explanation of the elements of remuneration, including analysis of prospective
remuneration for the forthcoming financial year
Actual
remuneration
Implementation of
remuneration policy
in the current year
Detailed disclosure of the actual Executive Directors’ remuneration for the year ended
31 May 2012, including audited information and an analysis of actual performance against
current year remuneration targets
This section also includes a distribution statement illustrating how executive
remuneration compares with other dispersals of the Group
Other remuneration
disclosures
Includes other general disclosures such as Total Shareholder Return, details of Executive
Directors’ service contracts, interests in share capital and audited information relating to
share schemes
Corporate governance: Directors’ remuneration report
Future remuneration policy:
remuneration governance
Remuneration policy and principles
The objective of the Remuneration Committee is to ensure that
remuneration encourages, reinforces and rewards the delivery of
shareholder value. As such, it has implemented a remuneration
policy which provides a framework for making decisions,
including those covering the remuneration of Executive Directors
and Code Staff. The remuneration policy is set to ensure that
remuneration remains competitive and provides appropriate
incentive for performance.
The committee has agreed that all matters relating to
remuneration of Group employees should:
Align with the best interests of the Company’s shareholders
Recognise and reward good and excellent performance
of employees that helps drive the sustainable growth
of the Group
Focus on retaining high-performing senior management
Be consistent with regulatory and corporate
governance requirements
Be used to achieve effective risk management
Be straightforward, easy for employees to understand and easy
for the Group to monitor
Not be used to reward behaviour that inappropriately increases
the Group’s exposure to risks
Not guarantee variable remuneration unless the payment is
exceptional, warranted and documented, and does not impact
the sound and effective risk management of the Group, with
additional rules applying to Code Staff
remuneration policies that support the
Group’s strategy
As highlighted in the Remuneration Committee Chairman’s
overview, the committee has undertaken a comprehensive review
of the senior remuneration framework to ensure that it is aligned
to the Group’s strategy and Key Performance Indicators. The senior
remuneration framework, including bonus and value-sharing
plans, is designed to be effective not only in delivering the required
financial results, but also integrally aligned to the current business
strategy and therefore the interests of the Group’s shareholders.
Remuneration regulation
In accordance with the FSA’s Remuneration Code (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 by
the FSA Code. During the financial year, Code Staff have been
identified, made aware of the implications of their status and had
their remuneration reviewed by the Remuneration Committee.
The committee has ensured that remuneration arrangements are
in accordance with the FSA Code in the following ways:
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 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 risk
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
Company suffers material financial downturn or material failure
in risk management
Appropriate ratios of variable to fixed remuneration are set.
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 are understood
The disclosure of the aggregate remuneration of Code Staff is set
out later in this report.
Dilution limits
Awards granted under each of the long-term incentive plan and
value-sharing plan schemes are met by the issue of new shares
when the options are exercised. The Group monitors the number
of shares issued under these schemes and their impact on
dilution limits.
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59
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Future remuneration policy:
remuneration policies that support the Group’s strategy (continued)
Key elements of remuneration explained
At 31 May 2012 the Group employs 1,012 people in 14 countries. It is necessary to structure compensation and benefits in a way that
ensures an appropriate balance between reward for short-term success and long-term growth. Compensation and benefits comprise
fixed and variable elements.
The following table demonstrates the alignment of remuneration with Group strategy. It also summarises the key components
of the Group’s typical reward arrangements.
Corporate governance: Directors’ remuneration report
ALIGnMEnT WITh
GrOuP STrATEGY
COMPOnEnT OF
rEMunErATIOn
rOLE WIThIn ThE rEMunErATIOn
FrAMEWOrK AnD OBJECTIvE
DETAILS
APPLIES TO
KPI FOr ExECuTIvE
DIrECTOrS’ vArIABLE
rEMunErATIOn
Base salary (fixed)
To attract and retain talent by ensuring salaries are competitive to
the market in which the individual is employed
Based on conditions in the relevant market and recognises the
value of an individual’s sustained personal performance and
contribution to the business
All employees
Not applicable
pension arrangements (fixed)
To provide competitive retirement benefits
Percentage of salary is contributed to personal pensions
All employees
Not applicable
SHORT TeRm
medIUm TeRm
Benefits (fixed)
To provide standard benefits, consistent with the Group’s values
Includes private healthcare cover and health club membership
All employees
Not applicable
Bonus (variable)
To focus participants on the achievement of annual objectives,
which align the Group’s short-term performance with the
sustainable delivery of shareholder value
Value-sharing plans
(variable)
To provide Executive Directors and senior employees with total
compensation opportunities that are competitive against local
market practice, whilst closely aligning their interests with those
of shareholders
Executive Directors and Code Staff: annual cash bonus subject to
deferral and non-cash payment rules
All eligible employees
All other employees: specific and general staff bonus scheme
determined by reference to Group, functional and individual
performance measured over a single financial year
Award of bonus: growth
in earnings per share and
non-financial measures
For deferred bonus:
share price performance
Comprise annual awards, providing those eligible with
a pre-defined number of shares for each £10.0 million of surplus
shareholder value created over three years above two hurdles
Executive Directors
and senior employees
Total Shareholder Return and
growth in profit before tax
50% of shares vest at the end of the three-year period and 50%
are deferred for a further year
LOng TeRm
Other share plans (variable)
To provide a share incentive plan (SIP) to ensure the interests of
the wider employee population are aligned with shareholders
In the UK, the Group operates a HMRC approved SIP under which
matching shares are provided up to a maximum of £1,500
All eligible employees
are invited to participate
Share price performance
and dividend per share
personal shareholdings -
executive directors
Whilst there is not a formal policy for personal shareholdings for
Executive Directors within the remuneration framework, please
refer to page 67 for details of personal shareholdings
Similar schemes are available to employees in Australia and
the USA
Personal shareholdings are encouraged through both mandatory
bonus deferral and longer-term share incentive plans
Executive Directors
Share price performance
and dividend per share
60 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
61
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Future remuneration policy:
remuneration arrangements for Executive Directors in future periods
Maximum potential annual remuneration package for Executive Directors
The following table shows the maximum possible remuneration package for the Executive Directors that will hold office at the
31 May 2013, if the maximum performance conditions associated with performance-related bonus and LTIP vesting are achieved.
fixed
Salary
Pension
Variable
Performance-related bonus – cash element
Performance-related bonus – deferred into shares(3)
Number of LTIP shares to vest in year
ending 31 May 2013(4)
T A Howkins
c f Hill(1)
p g Hetherington(2)
426,500
63,975
351,000
502,000
1,343,475
298,500
44,775
265,667
331,333
940,275
256,000
38,400
280,000
360,000
934,400
202,154
-
152,569
(1) Due to the timing of his appointment, C F Hill was not included in the 2009 LTIP scheme
(2) P G Hetherington is to be paid a reduced pro rata salary of £256,000 based upon a £320,000 full-time equivalent salary to reflect his flexible working arrangements. Any
bonus payments made are based on his full-time equivalent salary. P G Hetherington carries out the work of a full-time Executive, but in a flexible way. While the reduced
salary reflects these arrangements, the Remuneration Committee believes his workload and commitment to the business are commensurate with full-time bonus and LTIP
arrangements
(3) The first £100,000 of any bonus granted, plus one third of the remainder, is to be paid in cash with the excess balance deferred for 12 months and provided in shares
(4) A final LTIP award was made in the year ended 31 May 2010 and this will vest on 25 September 2012. Details of LTIP schemes are given later in this report
Andrew MacKay, Director of Corporate Strategy, will step down from the Board with effect from 31 July 2012, as noted in the Chairman’s
statement and Chief Executive’s review, and accordingly is not presented in the table above. Andrew’s remuneration as a Director will
remain at £279,450 until 31 July 2012.
Basic salary
Base salaries are set to competitive levels by reference to equivalent roles in companies selected on the basis of comparable size,
geographic spread and business focus. Individual salary decisions take into account personal contribution and business performance,
as well as general pay conditions of employees elsewhere in the Group.
During the financial year, the committee, with support from Kepler Associates, reviewed the salaries for Executive Directors against a
comparator group of companies. Whilst the Executive Director salaries were found to be below the lower quartile of the comparator
group, after giving consideration to the level of salary awards made to all of the Group’s UK employees, it was decided that executive
director salaries would be increased in line with inflation only. This is in line with the proposed salary increases for the Group’s employees
as a whole. As mentioned in the overview of the Chairman of the Remuneration Committee, it is the intention of the committee to
conduct a full review of Executive Director remuneration during the course of the forthcoming year.
The Remuneration Committee approved the following salary increases for the Executive Directors effective from 1 June 2012:
T A Howkins
C F Hill
P G Hetherington
Base salary effective
1 june 2012
Base salary effective
1 june 2011
£426,500
£298,500
£256,000(1)
£414,000
£289,800
£248,400(1)
Increase
3%
3%
3%
(1) P G Hetherington is paid a reduced pro rata salary to reflect his flexible working arrangements – as detailed earlier in this report
Corporate governance: Directors’ remuneration report
Pensions
The Group contributes 15% of basic salary to personal pensions for
each of the Executive Directors, who also have the option to receive
part, or all, of their pension entitlement in cash. The additional
cash payment is counted in lieu of pension, and is not treated as
base salary for the purposes of calculating other benefits, such as
the cash bonus scheme. As an alternative to part-payment of a
performance-related bonus or basic salary, Executive Directors may
choose to receive an equivalent contribution to their pension.
The Executive Directors have elected to:
T A Howkins
c f Hill
p g Hetherington
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 full pension contribution as
an additional cash payment
Benefits
The Group provides a range of benefits to 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.
Performance-related bonuses
For the financial year ending 31 May 2013, the Remuneration
Committee will implement changes to both the Executive
Directors’ and the general staff bonus scheme in order to rebalance
financial and strategic goals. In doing so, the committee will
incorporate both financial and non-financial measures into bonus
arrangements. The Executive Director bonus scheme will be set so
that 75% of the maximum award is dependent on EPS growth, and
25% of the maximum award is determined based on
non-financial performance measures – for example platform
reliability and availability, risk management, customer satisfaction
and operational delivery. The general staff bonus scheme, which
applies to the vast majority of the Group’s employees, and which
until now has been driven solely by revenue performance, will be
changed to incorporate the same non-financial measures.
For the year ending 31 May 2013, the Remuneration Committee
has also recalibrated the bonus scheme performance targets in
relation to the EPS growth measure, in order to reflect business
performance and economic conditions. The maximum award
payable based on EPS growth is 150% of salary for EPS growth of
at least 10%. Bonus payments, as a percentage of salary, increase
with growth in EPS on a tiered linear scale up to the maximum
award. The committee feels that the EPS targets represent an
appropriate balance between a stretching target and one which is
not completely unachievable given current economic conditions.
The maximum award payable based on non-financial performance
measures is 50% of salary. Thus the total maximum award from
both financial and non-financial measures for the Executive
Directors is 200% of salary.
The Remuneration Committee retains the right to reduce, but
not increase, the bonuses payable, if it considers that the formulaic
EPS growth measure has not produced an appropriate bonus
outcome. The non-financial measure is entirely at the discretion
of the committee.
In line with the final FSA Code rules on disclosure of remuneration
published in December 2010, there is a deferral element in the
bonus scheme. The first £100,000 of any bonus granted, plus one
third of the remainder, is to be paid in cash, with the excess balance
deferred for 12 months and provided in shares. The cash elements
of performance-related bonuses are paid in full within three
months of the year-end.
62 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
63
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Future remuneration policy: remuneration
arrangements for Executive Directors in future periods
Long-term value-sharing plans vesting beyond the year
ending 31 May 2013
The value-sharing plan (VSP), which was approved by
shareholders in 2010, comprises annual awards, providing the
Executive Directors and other senior staff with a pre-defined
number of shares for each £10.0 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 the
IG Group Holdings plc starting market capitalisation, defined as
the average market capitalisation in the three months to 31 May,
in the year in question
(ii) Growth in profit before taxation (PBT) multiplied by a fixed
multiple determined by the IG Group Holdings plc starting
market capitalisation, plus net equity cash flows to shareholders
above a hurdle return. For example, for the 2011 VSP the hurdle
return was 12% per annum, with the multiple being 10.753
For Executive Directors, 60% of the shares will vest on growth in
market capitalisation plus net equity cash flows to shareholders
(i.e. TSR), over and above the equivalent return from investing in
the FTSE 350 Financial Services Index. 40% of shares will vest on
growth in PBT (times a fixed multiple plus net equity cashflows to
shareholders) over and above the hurdle rate.
The hurdle rate for the 2012 VSP, at which the profit before tax
element of the VSP awards vest, was reviewed against a number of
comparable measures, with support from Kepler Associates, by the
Remuneration Committee during the year. As a result of this review
the hurdle rate has remained unchanged at 12% per annum.
The 60/40 ratio between TSR and PBT applies only to Executive
Directors. Code Staff and other senior employees are paid on either
a 50/50 TSR and PBT split or a 40/60 TSR and PBT ratio, depending
on seniority and role.
The decision to split the awards on this basis was made by
the Remuneration Committee (after taking advice from Kepler
Associates). It was agreed that the Executive Directors are
better placed to influence the performance of the Group relative
to its peers.
The Remuneration Committee considers 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 TSR
introduces an element of relative performance into the Group’s
remuneration package, which is intended to protect against
general stock market movements and focus more closely on the
value created for shareholders by management, over and above
that delivered by peers.
The blend of PBT and TSR measures provides strong alignment with
shareholder interests and provides an appropriate balance between
internal and external, as well as absolute and relative, performance.
For all employees, including the Executive Directors, 50% of shares
vest at the end of the three-year period and 50% are deferred for a
further year.
Awards made under the VSP are discussed further in note 30 to the
financial statements.
64 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
Corporate governance: Directors’ remuneration report
Actual remuneration: Implementation of remuneration policy in the current year
This section sets out the remuneration of the Executive Directors for the year ended 31 May 2012.
Audited information
Directors’ remuneration
The remuneration of the Executive Directors who served during the year was as follows:
Executive Directors:
T A Howkins
C F Hill
P G Hetherington
A R MacKay
Non-Executive Directors:
J R Davie
D M Jackson
N B le Roux
R P Yates
D Currie
S G Hill
performance-related bonuses(2)
Basic
salary and
fees
£000
Other
benefits and
payments(1)
£000
paid in
cash(3)
£000
deferred
into shares
£000
pension
elections(4)
£000
Year ended
2012
£000
Year ended
2011
£000
414
290
249
279
1,232
180
63
50
50
50
50
1,675
1
1
1
1
4
-
-
-
-
-
-
4
347
255
276
470
472
310
337
83
1,348
1,202
-
-
-
-
-
-
-
-
-
-
-
-
1,348
1,202
-
-
-
-
-
-
-
-
-
-
-
-
1,234
856
863
833
3,786
180
63
50
50
50
50
460
302
250
284
1,296
160
63
50
50
50
4
4,229
1,673
(1) All Executive Directors are entitled to receive professional subscriptions, private health cover and 50% of health club membership
(2) The first £100,000 of any bonus granted, plus one third of the remainder, is to be paid in cash with the excess balance deferred for 12 months and provided in shares
(3) T A Howkins, P G Hetherington and A R Mackay were paid additional cash bonuses of £11,000, £7,000 and £8,000 respectively in relation to the LTIP awards granted on
30 September 2008
(4) 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
Pension contribution
T A Howkins
C F Hill(1)
P G Hetherington
A R MacKay
2012
£000
62
44
37
42
185
2011
£000
58
4
74
73
209
(1) C F Hill was appointed to the Board on 26 April 2011
There were no pension contributions made for the Non-Executive
Directors during the year ended 31 May 2012.
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
C F Hill(1)
P G Hetherington
A R MacKay
(1) C F Hill was appointed to the Board on 26 April 2011
2012
£000
422
-
457
385
1,264
2011
£000
1,634
-
366
368
2,368
65
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Actual remuneration: Implementation of remuneration policy in the current year (continued)
Linking variable remuneration to performance and strategy
The table below summarises the types of variable remuneration that have vested on the basis of the actual financial performance for the
year ended 31 May 2012, alongside the actual financial performance for the period.
Other remuneration disclosures
Total Shareholder Return
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 five-year period from 1 June 2007.
Corporate governance: Directors’ remuneration report
ACTuAL PErFOrMAnCE
The Directors consider the most appropriate benchmarks to be:
vArIABLE rEMunErATIOn
MEASurE
TArGET
fY12 bonus
Bonus award of 150% of basic salary is payable
for EPS growth of 12%, with maximum award of
200% payable for EPS growth in excess of 15%
Actual EPS growth for the year was 14.7%, which
resulted in a bonus of 195.098% of salary for each
of the Executive Directors. The total performance-
related bonuses payable to the Executive Directors
were £2,524,000, of which £1,202,000 is subject to
mandatory deferral into shares
fY11 deferred bonus
Not applicable
No bonus deferral required in FY11(1)
31 may 2009 long-term
incentive plan issued on
30 September 2008
Compound annual growth in share price over
the three-year period to 31 May 2011. (Base
price = 306.8p)
36.36% of the share price awards vested
Growth in diluted adjusted earnings per share
over the three-year period to 31 May 2011
43.26% of earnings per share awards vested
Awards vested on 30 September 2011
(1) C F Hill was granted an additional bonus on appointment of £270,000, of which £113,000 was deferred into shares of the Company vesting in July 2012
An overview of the actual performance for each of the Key Performance Indicators above is detailed within the Business Review section.
Long-term incentive plans
Long-term incentive plans (LTIPs) were previously awarded to
management, including the Executive Directors. LTIPs vest if
specific performance targets are achieved and are conditional
upon continued employment at the vesting date. Performance
is measured using the compound annual growth rate in diluted
adjusted earnings per share over the three-year vesting period
and also 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.
Distribution statement
The table below, in line with the proposals set out in the Executive
Remuneration discussion paper published by the Department for
Business Innovation & Skills, is a distribution statement illustrating
how executive remuneration compares with other dispersals of
the Group.
Total executive remuneration including base salary, other benefits,
current year bonus (including amounts deferred) and pensions for
the four Executive Directors was £4.0 million for the year ended
31 May 2012.
In order to obtain tax-favoured treatment for the participants, up
to 100% of the ultimate value of the LTIP awards made in the year
ended 31 May 2009, was delivered to the participants using HM
Revenue and Customs (HMRC) approved options. These options
had exactly the same vesting and exercise conditions as the 2009
LTIP awards. To ultimately exercise a 2009 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
the LTIP award.
A final LTIP award was made in the year ended 31 May 2010, and
this will vest on 25 September 2012 with the same conditions as
explained above for the 2009 LTIP award.
66 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
comparator
distribution
Dividends (interim paid and final
declared dividend for 2012)
Corporate taxation paid (refer to
the Group cash flow statement)
Total remuneration costs (refer to
note 8 of the financial statements)
Capital investment (refer to the
Group cash flow statement)(2)
Amount paid in
the year ended
31 may 2012
£m
distribution
percentage(1)
81.6
57.6
92.7
9.1
4. 9%
6.9%
4.3%
44.0%
(1) The distribution percentage is calculated as the total remuneration for the
Executive Directors divided by the comparator distribution amount
(2) Capital investment calculated as the total cash outflow in relation to property,
plant and equipment and intangible assets for the year ended 31 May 2012
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 at 1 June 2007 in order to aid comparison.
IG Group
FTSE 250
FTSE 350 Financial Services Index
250
200
150
100
50
0
Jul-07
Sep-07
N ov-07
Jan-08
M ar-08
M ay-08
Sep-08
Jul-08
N ov-08
Jan-09
M ay-09
M ar-09
Sep-09
Jul-09
N ov-09
Jan-10
M ar-10
M ay-10
Sep-10
Jul-10
N ov-10
Jan-11
M ay-11
M ar-11
Jul-11
Sep-11
N ov-11
Jan-12
M ay-12
M ar-12
Interests in share capital
The Directors who served during the year and their beneficial interests in the share capital of the Company were as follows:
31 may
2012
Ordinary
shares
31 may
2012
preference
shares
31 may
2011
Ordinary
shares
31 may
2011
preference
shares
J R Davie
T A Howkins
P G Hetherington
A R MacKay
D M Jackson
N B le Roux
R P Yates
D Currie
C F Hill
S G Hill
400,000
3,891,389
256,012
574,251
-
-
25,000
-
-
111,736
-
10,000
10,000
10,000
-
10,000
-
-
-
-
530,000
3,800,000
200,833
494,690
-
75,000
25,000
-
-
-
The market price of the Company’s ordinary shares on 31 May 2012 was 433.1p and the high and low share prices in the year were
502.5p and 393.6p respectively.
The Directors’ interests in share capital have remained unchanged between the year-end and the date of the Annual Report.
-
10,000
10,000
10,000
-
10,000
-
-
-
-
67
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Other remuneration disclosures (continued)
Audited information
Interests in value-sharing and long-term incentive plans
T A Howkins
Earnings per share award
Share price growth award
Earnings per share
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
Value-sharing profit award – 3 year
Value-sharing profit award – 4 year
Total Shareholder Return award – 3 year
Total Shareholder Return award – 4 year
C F Hill
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
2011
Award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2012
23 Jul 07
23 Jul 07
30 Sep 08
30 Sep 08
25 Sep 09
25 Sep 09
29 Oct 10
29 Oct 10
29 Oct 10
29 Oct 10
20 Jul 11
20 Jul 11
20 Jul 11
20 Jul 11
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
450.00p
450.00p
450.00p
450.00p
151,672
11,701
174,917
174,918
166,248
166,249
117,511
117,512
176,267
176,268
-
-
-
-
-
-
-
-
-
-
-
-
-
-
167,099
167,098
250,648
250,648
-
-
(99,248)
(111,318)
-
-
-
-
-
-
-
-
-
-
-
-
(49,654)
(41,735)
-
-
-
-
-
-
-
-
-
-
151,672
11,701
26,015
21,865
166,248
166,249
117,511
117,512
176,267
176,268
167,099
167,098
250,648
250,648
1,433,263
835,493
(210,566)
(91,389)
1,966,801
Share price
at award
date
number as
at 31 may
2011
Award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2012
20 Jul 11
20 Jul 11
20 Jul 11
20 Jul 11
450.00p
450.00p
450.00p
450.00p
-
-
-
-
-
100,259
100,259
150,389
150,389
501,296
-
-
-
-
-
-
-
-
-
-
100,259
100,259
150,389
150,389
501,296
Corporate governance: Directors’ remuneration report
P G Hetherington
Earnings per share award
Share price 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
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 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
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
2011
Award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2012
30 Sep 08
30 Sep 08
25 Sep 09
25 Sep 09
29 Oct 10
29 Oct 10
29 Oct 10
29 Oct 10
20 Jul 11
20 Jul 11
20 Jul 11
20 Jul 11
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
450.00p
450.00p
450.00p
450.00p
105,611
105,611
125,471
125,471
73,445
73,445
110,167
110,168
-
-
-
-
-
-
-
-
-
-
-
-
100,259
100,259
150,389
150,389
(59,924)
(67,211)
-
-
-
-
-
-
-
-
-
-
(45,687)
(38,400)
-
-
-
-
-
-
-
-
-
-
-
-
125,471
125,471
73,445
73,445
110,167
110,168
100,259
100,259
150,389
150,389
829,389
501,296
(127,135)
(84,087)
1,119,463
Share price
at award
date
number as
at 31 may
2011
Award date
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number as
at 31 may
2012
30 Sep 08
30 Sep 08
25 Sep 09
25 Sep 09
29 Oct 10
29 Oct 10
29 Oct 10
29 Oct 10
20 Jul 11
20 Jul 11
20 Jul 11
20 Jul 11
313.75p
313.75p
318.80p
318.80p
528.50p
528.50p
528.50p
528.50p
450.00p
450.00p
450.00p
450.00p
125,413
125,413
144,291
144,292
73,445
73,445
110,167
110,168
-
-
-
-
-
-
-
-
-
-
-
-
100,259
100,259
150,389
150,389
(71,160)
(79,813)
-
-
-
-
-
-
-
-
-
-
(54,253)
(45,600)
-
-
-
-
-
-
-
-
-
-
-
-
144,291
144,292
73,445
73,445
110,167
110,168
100,259
100,259
150,389
150,389
906,634
501,296
(150,973)
(99,853)
1,157,104
68 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
69
CoRpoRAte GoVeRnAnCe RepoRt (continued)
Corporate governance: Audit Committee
DIrECTOrS’ rEMunErATIOn rEPOrT (continued)
Other remuneration disclosures (continued)
Audited information
Code Staff aggregate remuneration
The aggregate remuneration of senior management and Code
Staff, whose actions have a material impact on the risk profile of
the Group, are disclosed in the following table:
executive
directors
£000
Other
code Staff
£000
Total
£000
2,434
1,417
2,550
1,017
820
3,370(2)
6,141
2,426
8,567
Fixed remuneration
Variable remuneration
Share-based payment
schemes(1)
Number of staff
4
7
11
(1) Represents the fair value at the date of award and not the actual gain made
on exercise of share-based payments or the income statement charge taken
in the period
(2) Of the total amount disclosed £1,268,000 has been subject to
mandatory deferral
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.
Either the Company or the Executive Director may terminate
this contract on six months’ notice. All service contracts are
continuous, and contractual termination payments relate to
the unexpired notice period. In the event of termination for
gross misconduct, neither notice nor a payment in lieu of notice
will be given. When considering payments in the event of
termination, the Remuneration Committee takes into account
individual circumstances. Relevant factors include the reasons for
termination, contractual obligations and cash, share and
long-term incentive plan and pension plan rules. There are
no special provisions for compensation in the event of loss of
office. The effective dates of the service contracts for each of the
Executive Directors as at the date of this report are:
T A Howkins
C F Hill
P G Hetherington
A R MacKay
12 April 2005
18 January 2011
12 April 2005
12 April 2005
Group Chairman and Non-Executive Directors
The Non-Executive Directors do not have service contracts with
the Company, but instead have letters of appointment under
which they receive fees reflecting their individual responsibilities
and membership of Board committees. Each Non-Executive
Director is appointed for an initial term of twelve months, with
appointment continuing indefinitely subject to re-election, but
capable of being terminated on three months’ notice.
The Remuneration Committee determines the fees for the Group
Chairman and the Board is responsible for the Non-Executive
Directors’ fees. The Non-Executive Directors are not involved
in any discussions or decisions by the Board about their own
remuneration. The Group Chairman and other Non-Executive
Directors will receive an inflationary increase in fees for the year
ending 31 May 2013.
On behalf of the Board
Christopher Hill
Chief Financial Officer
17 July 2012
AuDIT COMMITTEE
Martin Jackson, Chairman of
the Audit Committee, gives
his review of the committee’s
activities during the
financial year
Chairman’s overview
During the year, the Audit Committee carried out its
responsibilities to review results and formal announcements of
the Group, and also reviewed the risk management framework
and system of internal controls. Given the importance of
managing the appropriate segregation of client monies, the
committee applied additional focus to this area as well as giving
further consideration to the audit/non-audit policy with regard to
using professional advisers and the Group’s Auditors.
Audit Committee –
membership and attendance
Scheduled
meetings
eligible to attend
Scheduled
meetings
attended
chairman of Audit committee
Martin Jackson
Independent non-executive directors
David Currie
Roger Yates
4
4
4
4
4
4
All Audit Committee members are independent Non-Executive
Directors who can draw on considerable, recent, financial
services experience.
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 necessary.
The committee normally meets four times a year and as and
when required. Members of the committee also meet privately
in separate meetings with the 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 committee may be required to address any
issues arising.
role of the Audit Committee
The responsibilities of the committee are to:
Monitor the integrity of the financial statements of the Group
including Annual and Interim Reports, Interim Management
Statements, Trading Updates and any other formal
announcements relating to the Group’s financial performance,
reviewing significant issues and judgements included
Keep up-to-date with changes to accounting standards and
review any changes to accounting polices each year
Review and monitor the external auditor’s independence and
objectivity and the effectiveness of the audit process
Consider and make recommendations to the Board on
appointing, re-appointing and removing the Company’s
external auditors, which are subject to shareholder approval
Review the effectiveness of the Group’s internal control and risk
management systems
Monitor and review the effectiveness of the internal audit
function, with focus on the three-year rolling risk-based
audit plan
Review implementation of the FSA’s Treating Customers Fairly
(TCF) requirements
Review the compliance systems and controls to ensure that
adequate procedures are in place to comply with
regulatory obligations
Ensure that there are suitable whistle-blowing arrangements
for employees to raise concerns, in confidence, about possible
wrongdoing in financial reporting or other matters
The Company Secretary drafts the agenda for each committee
meeting, ensuring that each item in the terms of reference is
covered at least once in the financial year, and more frequently
if required.
Activity during the financial year
In addition to discharging its responsibilities as described above,
the committee focused on the following key areas:
Client money
High profile failures such as MF Global and Worldspreads have
highlighted the importance of appropriate segregation of client
monies. In addition, during the year, the Financial Services
Authority (FSA) introduced additional rules in this area, namely
the requirement for firms to appoint an approved person who
is directly responsible for the application of appropriate controls
over segregation and for reporting of client money positions to
the regulator. To meet this requirement, the Group has set up
a Client Money Committee, as reported in the following pages,
and the Audit Committee reviewed its terms of reference and the
work performed by internal audit in support of key processes and
controls relating to segregation.
70 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
71
CoRpoRAte GoVeRnAnCe RepoRt (continued)
AuDIT COMMITTEE (continued)
Activity during the financial year (continued)
Non-audit fees
The Group audit was put to tender in the year ended 31 May 2011,
and the successful completion of the tender process resulted in
both the appointment of PricewaterhouseCoopers and an overall
reduction in the audit fee. During the year, PricewaterhouseCoopers
has completed non-audit services that commenced or related to
work performed by them prior to their engagement as Auditors,
and has been engaged to perform additional non-audit related
work. The committee has carefully reviewed the nature of all non-
audit work performed by the auditors, to ensure that under no
circumstances has work been performed which affects
their independence.
Detail of the Group’s audit-related fees of £409,000 and other fees
payable to auditors of £1,099,000 for the year ended 31 May 2012
are disclosed in note 7 to the financial statements. Other fees
payable to auditors include £386,000, £270,000 and £248,000 in
relation to transfer pricing, tax compliance and sales tax
advice respectively.
This year, the committee has also updated the Group’s policy
governing non-audit work. This updated policy was developed
with reference to the Smith report, the APB Ethical Standard 5
Non-Audit Services Provided to Audit Clients and the ICAEW
Guidance for Audit Committees. The amended policy makes a
distinction between ‘audit-related services’ and all other ‘non-audit
services’. This distinction is important as ‘audit-related services’ are
specifically required of the Group’s Auditor through regulatory,
legislative or contractual requirements, in addition to the
statutory audit services.
Anti-bribery policy
In response to the UK Bribery Act, which came into force on 1
July 2011, the committee oversaw the implementation of the
Company’s anti-bribery compliance programme. This involved
undertaking a comprehensive assessment of the nature and
extent of the risks relating to bribery to which the Company
is exposed, and introducing both an Anti-Bribery Policy and a
Gifts and Hospitality Policy. The committee ensured that the
compliance programme was adequately communicated to all
employees, and continues to monitor and review the Company’s
commitment to compliance with the UK Bribery Act on an
ongoing basis.
Compliance
The Audit Committee has continued to monitor the work of the
compliance department during the financial year, with a focus
on both conduct and prudential monitoring of all areas of the
Group, as well as client money and transaction reporting and
the Group’s development of consumer outcome initiatives
such as Treating Customers Fairly. The compliance department
regularly reports to the Audit Committee in relation to
regulatory developments.
Internal audit
During the financial year, the committee reviewed the reports
and recommendations of the internal audit function, including
the three-year rolling risk-based internal audit plan made up of
a mixture of different types of internal audits, which provides
adequate coverage across the Group and ensures an appropriate
focus to each audit. The themes from the internal audit work
completed during the financial year were a focus on client
money, internal audits of overseas offices and support functions.
In addition, the committee monitored the progress on the
implementation of the audit recommendations raised by the
internal audit function.
The following chart highlights how the committee spent its time
during the year ended 31 May 2012.
Audit Committee
Allocation of time
Statutory reporting
Internal audit matters
Compliance
Anti-money-laundering,
anti-bribery, anti-fraud policy
Client money
External audit matters
Martin Jackson
Chairman, Audit Committee
17 July 2012
Corporate governance: Risk Committee
Activity during the financial year
During the year, the committee monitored the overall level of
risk faced by the Group and reviewed the design and operating
effectiveness of the Risk Management Framework. This included
a review of:
Market and credit stress-testing and impact on liquidity
Financial institution credit risk
Individual client credit exposures
Product margins and tiered margin structure
Operational risk registers and Key Risk Indicators
The impact of a potential euro break-up and mitigating actions
Regulatory issues and developments
The following chart highlights how the committee spent its time
during the year ended 31 May 2012.
risk Committee
Allocation of time
Client credit risk
Operational risk
regulatory risk
Financial institution credit risk
Liquidity risk
Market risk
rISK COMMITTEE
The Risk Committee is an executive committee chaired by the
Chief Risk Officer. The committee meets weekly to ensure that
it deals with issues as they arise. This reflects the corporate
commitment of senior management to play an active role in
day-to-day risk management decision making, and sets the tone
across the Group that risk management is central to corporate
culture. The Board receives copies of the Risk Committee minutes.
The Risk Committee comprises the Chief Executive Officer, the
Chief Financial Officer, the Chief Operating Officer, the Dealing
and Operations Director, the Chief Risk Officer and other
members of the Risk function. In addition, Roger Yates, Senior
Independent Non-Executive Director, attends the committee
meetings periodically. Other members of staff may also be called
on to attend, when the committee is discussing specific matters
appropriate to them.
Overview of the financial year
During the year the committee focused heavily on the impact of
economic events and volatile markets on the risk profile of the
business. Consequently, the continuing problems in the Eurozone,
specifically the impact on its banks and the future of the currency,
has dominated much of the committee’s agenda. The committee
has focused particularly on the strength of bank and broking
counterparties and monitoring client credit exposures as a result.
role of the risk Committee
The committee’s main responsibilities are to:
Identify and evaluate the different risks to which the Group
is exposed and assist the Board in defining the risk appetite
of the Group
Ensure that infrastructure, resources and systems are in place
to adequately monitor and control the Group’s risks, in line with
the risk appetite set by the Board
Review the design, completeness and effectiveness of the Risk
Management Framework
Review the effectiveness of risk reporting (including timeliness
and risk events)
Consider and review developments and prospective changes
in the regulatory environment, including the Group’s plans to
influence future regulatory policies
Ensure that all strategic transactions undergo appropriate due
diligence before submission to the Board; particular focus is
given to risk appetite
72 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
73
CoRpoRAte GoVeRnAnCe RepoRt (continued)
CLIEnT MOnEY COMMITTEE
The Client Money Committee is an executive committee.
The committee meets fortnightly and is chaired by the Chief
Financial Officer. It is attended by the Chief Risk Officer, the Group
Head of Legal and Compliance, the Group Financial Controller
and members of the risk, finance, compliance and other
business functions.
Overview of the financial year
The Client Money Committee was set up during the year to
monitor the design and effectiveness of the Group’s framework of
processes and controls for segregating client monies. Regulatory
authorities have placed an increased emphasis on client money
segregation and, in particular, the FSA requires all firms to
designate a named individual who is responsible for overseeing
that firm’s processes for segregating client funds. In addition, the
Group is required to provide monthly reporting to the FSA on a
number of client money related metrics.
Furthermore the Group has engaged PricewaterhouseCoopers
(PwC LLP) to provide independent assurance on our client asset
segregation processes and controls, so that it may reassure
customers as to the control environment over money held by
the Group on their behalf. The final report will be available to
clients. This assurance work is over and above PwC LLP’s reporting
requirements to the Group’s various regulators.
role of the Client Money Committee
The main responsibilities of the committee are to:
Ensure that internal systems, controls, processes and
procedures are operating effectively to maintain and safeguard
the protection and segregation of client money
Ensure compliance with applicable legislation concerning the
protection and segregation of client money
Review the accuracy and timeliness of the FSA client
money reporting
Review any breaches of client money legislation and ensure
that process and controls are appropriately rectified
Monitor daily client money reports prepared by the
finance department
Respond to consultation papers that relate to client money
Implement appropriate client money and asset resolution
packs required for each FSA-regulated entity, and subsequently
oversee their ongoing maintenance
Review and respond to issues raised by external auditors
in connection with regulatory audits of client money and
assurance reports over controls and their operation
Activity during the financial year
The committee’s main activities during the financial year included:
The Directors are pleased to submit their report together with the
Group financial statements for the year ended 31 May 2012.
DIrECTOrS’ STATuTOrY rEPOrT
Review of global client money regulatory requirements
Review of processes and controls over client money
segregation in each regulatory jurisdiction
Review of external auditor opinions on client money
Review of internal audit reports on client money
Design and implementation of management processes
required to monitor and complete FSA client money reporting
Review of financial institution counterparty risk on banks
holding client money
Review of the implications of the failure of a bank holding
client money
The activity of the Client Money Committee is reported to the
Risk Committee on an annual basis. If necessary, the Chairman of
the Risk Committee will provide a report to the Board and/or the
Audit Committee on any pertinent issues.
The following chart highlights how the Committee spent its time
during the year ended 31 May 2012.
Client Money Committee
Allocation of time
Processes and controls
Client money reporting
regulatory compliance
regulatory developments
Business and industry
developments
Client money placement
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 (AGM) 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 the AGM to answer questions.
The Annual Report and notice of the AGM are sent, or made
available on the Group’s website at www.iggroup.com, to the
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 controls
The Group is exposed to a number of business risks in providing
products and services to its clients. The Board is responsible for
establishing the overall appetite for these risks, which is detailed
and approved in the risk appetite statement. The Risk Management
Framework is supported by a system of internal controls that is
designed to embed the management of business risk throughout
the Group. Both the risks to which the Group is exposed and the
Risk Management Framework are outlined in the Managing Our
Business Risk section of the business review.
Internal control
Management has designed and implemented a system of internal
control to manage, rather than eliminate, the risk of failure to
Corporate governance: Directors’ statutory report
achieve business objectives and provide reasonable, but not
absolute, assurance against the risk of material misstatement
or loss.
Management is also 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 items and include policies and procedures that
pertain to the maintenance of records that:
Fairly reflect transactions and dispositions of assets, accurately
and in reasonable detail
Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with IFRS
Ensure that receipts and expenditures are being made
only in accordance with authorisations by 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.
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:
Revised Guidance for Directors on the Combined Code, published
by the Financial Reporting Council.
The Board and Audit Committee have reviewed the design
and effectiveness of managements’ system of internal control
covering financial, operational and compliance controls and risk
management systems. No significant weaknesses were identified
during this review.
74 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
75
CoRpoRAte GoVeRnAnCe RepoRt (continued)
DIrECTOrS’ STATuTOrY rEPOrT (continued)
Accountability and audit
A statement of the 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 later
in this report.
The independent Auditors’ report, which sets out the Auditors’
reporting responsibilities, is also given immediately prior to the
financial statements.
Principal activities
An overview of the principal activities of the Group is provided in
the business review.
Operations outside the United Kingdom
In line with strategic objectives, the Group has branches in each
of Australia, 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.
Results
The Group’s statutory profit for the year, after taxation amounted
to £136,760,000 (2011: loss of £25,292,000), of which a profit of
£136,792,000 (2011: loss of £25,453,000) is attributable to the equity
members of the Company.
Related party transactions
Details of related party transactions are set out in note 34 to the
financial statements.
Subsequent events
On 17 July 2012, Andrew MacKay, Director of Corporate Strategy,
announced his decision to step down from the Board with effect
from 31 July 2012, as noted in the Chairman’s statement and Chief
Executive’s review.
Dividends
The Directors recommend a final ordinary dividend of 16.75 pence
per share, amounting to £60,769,000, making a total of 22.5 pence
per share and £81,628,000 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 14, is made up of this financial year’s interim dividend and the
final dividend from the previous year, which were both paid during
the financial year.
The final ordinary dividend, if approved, will be paid on 23 October
2012 to those shareholders on the register at 21 September 2012.
Directors and their interests
Biographical details of the Directors who held office at the end of
the year are given at the beginning of this Corporate Governance
Report. Details of the service contracts for those Directors and the
Directors’ interests in the share capital of the Company are set out in
the Directors’ remuneration report.
Share capital
Details of the Company’s equity and preference share capital are
given in notes 27 and 26 respectively to the financial statements.
Details of the Group’s required regulatory capital are disclosed
in note 37 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 and value-sharing
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 28 to the financial statements.
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 17 july 2012
number of
shares
%
As at 31 may 2012
number of
shares
%
18,569,298
5.11
18,569,298
5.11
18,219,714
5.01
18,219,714
5.01
18,150,880
5.00
18,150,880
5.00
17,863,943
4.92
17,863,943
4.92
17,774,188
4.89
17,774,188
4.89
17,564,421
4.83
17,564,421
4.83
16,555,321
4.56
16,555,321
4.56
Black Rock Inc.
Cantillon Capital
Management LLC
Massachusetts Financial
Services Company
Investec Asset
Management Limited
Ameriprise Financial Inc.
and its group
Standard Life Investments
Limited
Artemis Investment
Management Limited
JP Morgan Chase & Co
15,830,307
4.36
15,830,307
4.36
Legal and General
Group plc
Ignis Investment Services
Limited
14,287,840
3.93
14,287,840
3.93
11,851,906
3.26
11,851,906
3.26
Prudential plc
11,066,417
3.05
11,066,417
3.05
Corporate governance: Directors’ statutory report
Independent auditors
A resolution to re-appoint the Group’s Auditors,
PricewaterhouseCoopers LLP, will be put to shareholders at the
forthcoming AGM on 18 October 2012.
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.
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.
Change of control
Following any future change of control of the Company, the
Group’s banking facilities, which are currently undrawn (refer to
note 36 of 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 18 October
2012. 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.
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 sees
fit. There were no conflicts of interest raised in the year.
Insurance and indemnities
The Group purchases appropriate liability insurance for all
Directors and officers.
Supplier payment policy and practice
The Group does not follow any stated code on payment practice.
It is the Group’s policy to agree terms of payment with suppliers
when agreeing the terms for each transaction and to abide by
those terms. Standard terms provide for payment of all invoices
within 30 days after the date of the invoice except where different
terms have been agreed with the supplier at the outset. There
were 4.9 creditor days of suppliers’ invoices outstanding at the
year-end (2011: 5.5) for the Group.
Donations
The Group made no political donations in the year (2011: £nil).
The Group made charitable donations of £56,667 in the year
(2011: £119,036) as follows:
Employee-matched giving (various causes)
Everest Challenge
Volunteer Reading Help
The Red Cross
Shakespeare’s Globe
Specialist schools
Other
£
8,676
2,000
3,000
1,339
2,500
30,000
9,152
56,667
76 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
77
CoRpoRAte GoVeRnAnCe RepoRt (continued)
COrPOrATE SOCIAL rESPOnSIBILITY
Business standards
We recognise the fundamental importance of a reputation for
honesty and transparency in the financial services industry, and
commitment to these values is a cornerstone of our success. The
Group applies high standards across its businesses, and 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.
Our commitment to high standards 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 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
Limiting client losses
We have a number of service offerings that aim to limit
client losses: for example, we offer clients the ability to
attach guaranteed stops to 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 2012 98.8% of all client accounts are either subject
to guaranteed stops or the automatic COM procedure. Further
details are set out in note 36 to the financial statements
Protection of our clients’ data and funds
We prioritise the security of our clients’ information and
funds and have achieved the ISO 27001 certificate for
Information Security
We segregate all funds for individuals, whether required
by regulation or not
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.
Client support and education
We provide extensive educational resources for clients,
including enrolling new clients on our introductory education
programme, TradeSense, promoting responsible trading, and
a wide range of client seminars and webinars, available online
and in person
Our people
The Group is rapidly growing and provides a fast-moving and
successful working environment. The Group has over 1,000
employees working in 14 countries globally. Our employees
take pride in what we have achieved and have a strong sense
of belonging.
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 that 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 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 and 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
The Group appreciates that the quality of its employees is crucial
to the success of the business, and offers competitive packages to
recognise past performance and retain key talent in the future. 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. We also provide a range of other benefits to
employees, including pension contributions, where in the UK the
Group contributes up to 10% of the employee’s basic salary to the
employee’s pension, as long as the employee contributes 5% of
their salary (if the employee chooses to contribute less than 5%, the
Group will contribute double the individual rate).
During the year the Group carried out an employee survey with
a 58% response rate. Of those who completed the survey, 75%
said they were very happy or happy in their jobs, and the Group
received a Net Promoter Score of 19, significantly above the
industry norm of 10. For those areas where issues were noted,
Corporate governance: Corporate Social Responsibility
development plans have been formulated to address these and
the progress made will be monitored by department heads. A
further survey was commissioned in June 2012 and the Group has
committed to run an annual employee engagement survey
going forwards.
It is therefore key to our success that we reinforce the need to
treat all employees fairly, with dignity and without any unlawful
discrimination. We are committed to creating a work environment
free of harassment and bullying, where everyone is treated with
dignity and respect.
The Group is keen to support the continuing personal and
professional training and development of its staff, and encourages
attendance on external and industry recognised training courses,
sponsors staff to undertake a programme of formal education and
professional qualification, and often offers internal secondments.
The Group spent £409,000 on training in the financial year ending
31 May 2012.
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.
The Group is further committed to developing high-calibre
employees through offering a graduate scheme in trading
services and IT, and from September will further develop this
offering through launching a finance graduate scheme.
During the year, we have introduced a detailed career
development plan at all levels of the organisation, defining roles
and responsibilities at each career level, and also introduced a
mentoring program.
Employee involvement
We take pride in being an open, non-hierarchical organisation
with direct and open access amongst all teams and at all levels.
The Chief Executive Officer leads a quarterly management forum
which is recorded and broadcast to our overseas offices.
Employees participate directly in the success of the business
through the Group’s performance-related bonus schemes and
employee share plans, and we regularly have around 35 to 40% of
eligible employees participating in our share incentive plan. Bonus
payments are based on a communal pool driven by the overall
profitability of the company. The pool is first apportioned by
department, and then the discretionary payment is distributed to
individuals, based upon their performance, by department heads.
Top employer
Our positive working culture was recognised when IG was named
one of Britain’s Top Employers for the fifth year running in 2012.
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.
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 in the
Directors’ statutory report.
We also work with the Charities Aid Foundation (CAF) to allow
employees to operate a charity fund and contribute directly
to selected charities from gross earnings directly from their
monthly pay.
The Group not only continues to support charities through the
giving of money, but also through the provision of time and
resource. Our absence management policy 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.
Additionally, the Group was this year proud to introduce a
volunteering scheme with Volunteer Reading Help, a national
registered charity with 17 regional branches that gives one-to-
one literacy support to children in primary schools in the most
deprived areas of England. Reading helpers volunteer once a
week for an hour, and commit for a minimum of one year to work
with the same children each week.
We are further committed to expanding our volunteer offerings
by signing up from Autumn 2012 to be a member of City Action,
a partnership scheme which enables City-based businesses to
share skills with community organisations and social enterprises
in the City and neighbouring boroughs through volunteering.
78 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
79
CoRpoRAte GoVeRnAnCe RepoRt (continued)
StAteMent oF DIReCtoRS’ ReSponSIBIlItIeS
Corporate governance: Statement of Directors’ responsibilities
COrPOrATE SOCIAL rESPOnSIBILITY (continued)
health and safety
The Group believes that its employees are one of its most
valuable assets, and therefore is committed to providing each
employee with a safe and healthy working environment. Health
and safety is an integral part of our business, and by providing key
members of staff with the relevant external training and all other
staff with the relevant in-house training, this ensures compliance
with all statutory health and safety requirements. Details of all
incidents, no matter how small, are held on the HR database.
There were no reportable incidents in the year.
Wellbeing
We are fully committed to our employee’s health and wellbeing,
and the benefits provided to all employees include private
medical cover, permanent health insurance and life assurance.
Additionally, we reimburse 50% of the costs of employees’ annual
gym subscriptions (to a specified amount) for all UK, Australian
and European employees. We further show commitment to the
health of our staff by providing free fruit on a daily basis and
offering flu vaccinations to all UK staff.
The Group encourages cycling, through providing savings on
bikes under the government-backed cycle to work initiative, and
offers free-of-charge bicycle parking in our London office.
The Group encourages involvement with team sport and there
are IG football, netball and rugby teams. We also supported the
Six in the City, a competition run by Chance to Shine, a charity
supporting education through cricket.
During the year, we introduced a confidential employee
assistance programme which provides a 24/7 impartial telephone
counselling service to all our European office employees and their
immediate families, offering impartial advice on all matters from
housing to personal finance.
Operations and environment
As a business which conducts nearly all 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
take steps to manage this.
Energy consumption and carbon management
We have taken steps to minimise the impact of our offices on the
environment. These include the installation of automated sensor
lighting and air conditioning, both of which minimise energy
usage when offices are not in use.
With the encouragement of employees, we have also improved
our recycling facilities, including IT equipment.
At our London offices we have started the ISO 14001 process,
which will help us to assess, minimise and continually improve
how our operations negatively affect the environment
and comply with applicable laws, regulations, and other
environmentally-oriented requirements.
Actions for the coming year
As part of our commitment to employee welfare, we will engage
with our employees through completing a further annual
employee survey and use the development plans from the results
of the last survey to ensure that we deal with those issues that arise.
By order of the Board
Christopher Hill
Chief Financial Officer
17 July 2012
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) 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:
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:
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.
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
profit 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
17 July 2012
80 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
81
Corporate governance: independent Auditors’ report to the members of IG Group Holdings plc
InDepenDent AuDItoRS’ RepoRt to tHe
MeMBeRS oF IG GRoup HolDInGS plC
We have audited the financial statements of IG Group Holdings
plc for the year ended 31 May 2012 which comprise the Group
and parent Company statements of financial position, the Group
statement of comprehensive income, the Group and parent
Company cash flow statements, the Group and parent Company
statements of changes in equity, the accounting policies 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 Statement of Directors’
responsibilities set out on page 81, 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 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 2012 and of the Group’s profit 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; and
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 part of the Directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies
Act 2006;
The information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the financial statements; and
The information given in the Corporate Governance Statement
set out on page 75 of the Annual Report 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 part of
the Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
Certain disclosures of Directors’ remuneration specified by law
are not made; or
We have not received all the information and explanations we
require for our audit; or
A Corporate Governance Statement has not been prepared by
the parent company
Under the Listing Rules we are required to review:
The Directors’ statement, set out on page 77 in relation to going
concern;
The parts 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; and
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
17 July 2012
82 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
83
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
86
87
88
89
91
92
93
85
85
84 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
84 | IG GROUP HOLDINGS PLC | 2011 ANNUAL REPORT
GRoup StAteMent oF CoMpReHenSIVe InCoMe
for the year ended 31 May 2012
Financial statements
group
profit / (loss) for the year
Other comprehensive income / (expense):
Foreign currency translation on overseas subsidiaries
Other comprehensive income / (expense) for the year
Total comprehensive income / (expense) for the year
Total comprehensive income / (expense) attributable to:
Equity holders of the parent
Non-controlling interests
The notes on pages 93 to 145 are an integral part of these financial statements.
2012
£000
£000
2011
£000
£000
136,760
(25,292)
751
(344)
751
137,511
137,566
(55)
137,511
(344)
(25,636)
(25,797)
161
(25,636)
GRoup InCoMe StAteMent
for the year ended 31 May 2012
Trading revenue
Interest income on segregated client funds
Revenue
Interest expense on segregated client funds
Introducing broker commissions
Betting duty
Other operating income
net operating income
Analysed as:
net trading revenue
Other net operating income
Administrative expenses(2)
Operating profit
Finance income
Finance costs
profit before taxation from continuing operations
Tax expense
note
3
4
2, 4
5, 6
9
10
11
2012
Total
£000
400,262
10,509
410,771
(257)
(33,450)
(8,907)
1,013
Before
certain
items(1)
£000
345,409
9,115
354,524
(176)
(32,688)
(3,064)
-
369,170
318,596
366,812
2,358
312,721
5,875
2011
(restated)
certain
items(1)
£000
-
-
-
-
-
-
-
-
-
-
Total
£000
345,409
9,115
354,524
(176)
(32,688)
(3,064)
-
318,596
312,721
5,875
(183,657)
(155,383)
(150,703)
(306,086)
185,513
2,487
(2,283)
185,717
(48,583)
163,213
2,403
(2,411)
163,205
(44,444)
(150,703)
-
-
(150,703)
11,652
12,510
2,403
(2,411)
12,502
(32,792)
profit / (loss) for the year from continuing operations
137,134
118,761
(139,051)
(20,290)
(Loss) / profit for the year from discontinued operations
12
(374)
248
(5,250)
(5,002)
Profit / (loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests
earnings / (loss) per ordinary share
from continuing operations
Basic
Diluted
note
13
13
136,760
119,009
(144,301)
(25,292)
136,792
(32)
118,848
161
(144,301)
-
(25,453)
161
136,760
119,009
(144,301)
(25,292)
2012
37.90p
37.54p
2011
(restated)
(5.66p)
(5.66p)
(1) Please refer to note 1 of the financial statements for an explanation of both the presentational changes and the restatement of the Group income statement for
discontinued operations
(2) Includes exceptional credit of £1.1m (2011: charge of £1.8m before certain items). Please refer to note 6 for detail
The notes on pages 93 to 145 are an integral part of these financial statements.
86 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
87
StAteMentS oF FInAnCIAl poSItIon
at 31 May 2012
StAteMent oF CHAnGeS In equItY
for the year ended 31 May 2012
Financial statements
group
At 1 june 2010
Loss for the year
Other comprehensive expense for the year
Total comprehensive (expense) / income for the year
Equity-settled employee share-based payments (note 30)
Excess of tax deduction benefit on share-based payments
recognised directly in shareholders’ equity (note 11)
Acquisition of non-controlling interest
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 14)
Movement in equity
At 31 may 2011
Profit for the year
Other comprehensive income / (expense) for the year
Total comprehensive income / (expense) for the year
Equity-settled employee share-based payments (note 30)
Excess of tax deduction benefit on share-based payments
recognised directly in shareholders’ equity (note 11)
Issuance of shares
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 14)
Movement in equity
At 31 may 2012
Share
capital
£000
(note 27)
Share
premium
account
£000
(note 27)
Other
reserves
£000
(note 29)
Retained
earnings
£000
Shareholders’
equity
£000
non-
controlling
interests
£000
Total
equity
£000
18
-
-
206,246
-
-
79,742
-
(344)
185,443
(25,453)
-
471,449
(25,453)
(344)
3,179
161
-
474,628
(25,292)
(344)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(344)
(25,453)
(25,797)
161
(25,636)
4,225
-
4,225
-
4,225
(831)
(2,302)
(291)
(26)
-
-
-
-
-
(67,727)
(831)
(2,302)
(291)
(26)
(67,727)
-
(3,139)
-
-
-
(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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45
-
-
-
45
-
774
774
136,792
-
136,792
774
(32)
(23)
136,760
751
136,792
137,566
(55)
137,511
5,005
-
5,005
(101)
-
(298)
(10)
-
-
-
-
-
(73,910)
(101)
45
(298)
(10)
(73,910)
-
-
-
-
-
-
5,005
(101)
45
(298)
(10)
(73,910)
5,370
62,882
68,297
(55)
68,242
18
206,291
85,543
155,145
446,997
146
447,143
The notes on pages 93 to 145 are an integral part of these financial statements.
group
company
note
2012
£000
2011
£000
2012
£000
2011
£000
15
16
17
11
19
20
22
23
24
24
26
27
27
29
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
Provisions
Redeemable preference shares
Total liabilities
capital and reserves
Share capital
Share premium
Other reserves
Retained earnings
Shareholders’ equity
Non-controlling interests
Total equity
TOTAL eQUITY And LIABILITIeS
15,555
115,366
-
11,915
16,761
117,202
-
11,264
-
-
438,128
-
-
-
433,078
-
142,836
145,227
438,128
433,078
222,342
9,745
228,156
270,104
8,199
124,528
-
144,586
151
-
64,254
304
460,243
402,831
144,737
64,558
603,079
548,058
582,865
497,636
61,076
64,815
1,353
28,652
83,490
45,149
1,427
37,060
-
32,974
-
3,550
-
6,512
-
3,547
155,896
167,126
36,524
10,059
-
40
40
1,991
40
2,031
-
40
40
-
40
40
155,936
169,157
36,564
10,099
18
206,291
85,543
155,145
446,997
146
18
206,246
80,173
92,263
378,700
201
18
206,291
23,596
316,396
546,301
-
18
206,246
18,899
262,374
487,537
-
447,143
378,901
546,301
487,537
603,079
548,058
582,865
497,636
The financial statements on pages 86 to 145 were approved by the Board of Directors on 17 July 2012 and signed on its behalf by:
Tim Howkins
Chief Executive
Christopher Hill
Chief Financial Officer
Registered Company number: 04677092
88 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
89
StAteMent oF CHAnGeS In equItY
for the year ended 31 May 2012
CASH Flow StAteMentS
for the year ended 31 May 2012
company
At 1 june 2010
Profit for the year
Total comprehensive income for the year
Equity-settled employee share-based payments (note 30)
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 14)
Movement in equity
At 31 may 2011
Profit for the year
Total comprehensive income for the year
Equity-settled employee share-based payments (note 30)
Issuance of shares
Purchase of own shares
Exercise of US share incentive plans
Equity dividends paid (note 14)
Movement in equity
At 31 may 2012
Share
capital
£000
(note 27)
Share
premium
account
£000
(note 27)
Other
reserves
£000
(note 29)
Retained
earnings
£000
Total
equity
£000
18
-
206,246
-
14,991
-
207,823
122,278
429,078
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
-
-
-
-
-
-
-
-
-
-
-
45
-
-
-
45
-
-
5,005
-
(298)
(10)
-
127,932
127,932
127,932
127,932
-
-
-
-
(73,910)
5,005
45
(298)
(10)
(73,910)
4,697
54,022
58,764
18
206,291
23,596
316,396
546,301
The notes on pages 93 to 145 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 non-controlling 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
Proceeds from the issue of shares
Payment of redeemable preference share dividends
Financial statements
note
21
21
group
company
2012 2011
£000 £000
(restated)(1)
234,916
(57,554)
10,111
(257)
129,082
(43,503)
8,015
(161)
2012
£000
75,369
-
-
-
2011
£000
68,641
-
-
-
187,216
93,433
75,369
68,641
2,004
(4,709)
-
(4,432)
-
-
2,046
(15,387)
313
(4,521)
(5,072)
(2,739)
(7,137)
(25,360)
-
-
-
-
-
-
-
1
-
-
-
-
-
1
(2,013)
(73,910)
(298)
37
(3)
(1,897)
(67,727)
(291)
-
(3)
(1,311)
(73,910)
(298)
-
(3)
(325)
(67,727)
(291)
-
(3)
Net cash flow from financing activities
(76,187)
(69,918)
(75,522)
(68,346)
Net increase / (decrease) in cash and cash equivalents
103,892
(1,845)
(153)
296
Cash and cash equivalents at the beginning of the year
Exchange loss on cash and cash equivalents
124,528
(264)
128,097
(1,724)
cash and cash equivalents at the end of the year
20
228,156
124,528
304
-
151
8
-
304
(1) The comparative cash flow statement has been restated in order to reflect the representation of other amounts due to or from clients
The cash flows stated above are inclusive of discontinued operations.
The notes on pages 93 to 145 are an integral part of these financial statements.
90 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
91
InDeX to noteS to tHe FInAnCIAl StAteMentS
noteS to tHe FInAnCIAl StAteMentS
Notes to the financial statements
Note
1. Presentation, critical accounting estimates and judgements
2. Net trading revenue
3. Other operating income
4. Segment information
5. Operating profit from continuing operations
6. Exceptional items
7. Auditors’ remuneration
8.
Staff costs
9. Finance income
10. Finance costs
11. Taxation
12. Discontinued operations
13. Earnings per ordinary share
14. Dividends
15. Property, plant and equipment
16. Intangible assets
17. Investments in subsidiaries
18. Impairment of goodwill
19. Trade receivables
20. Cash and cash equivalents
21. Cash generated from operations
22. Trade payables
23. Other payables
24. Provisions
25. Litigation
26. Redeemable preference shares
27. Share capital
28. Own shares held in Employee Benefit Trusts
29. Other reserves
30. Employee share plans
31. Capital commitments
32. Obligations under leases
33. Transactions with Directors
34. Related party transactions
35. Financial instruments
36. Financial risk management
37. Capital management and resources
38. Subsequent events
39. Authorisation of financial statements and statement of compliance with IFRS
40. Accounting policies
Page
93
94
94
95
97
98
98
99
100
100
101
104
105
107
108
109
110
112
114
115
115
116
116
116
117
117
118
119
120
121
123
123
123
124
125
128
138
138
138
138
1. PrESEnTATIOn, CrITICAL ACCOunTInG ESTIMATES AnD JuDGEMEnTS
Income statement presentation - columnar format
In prior periods the Group presented its consolidated income statement in a columnar format as this enabled the Group to present profit
for the year before amortisation and impairment of intangible assets associated with both the Group’s Japanese and Sport businesses.
This ‘adjusted’ profit measure was used to calculate adjusted EPS (refer to note 13) as it was considered to better reflect the Group’s
underlying cash earnings. Both the amortisation and impairment of intangible assets associated with the Group’s Japanese and Sport
businesses were therefore previously reported in the column ‘certain items’ on the statutory consolidated income statement. In the
year to 31 May 2012 there has been no amortisation and impairment of intangible assets associated with the Group’s Japanese or Sport
businesses and therefore the column ‘certain items’ has not been presented. Accordingly the adjusted and unadjusted profit measures for
the year ended 31 May 2012 are equivalent.
Income statement presentation - discontinued operations
Discontinued operations consist of a single major line of business or a geographical area that have either been closed or sold during the
period or are classified as held for sale at the year-end. The financial performance and cash flows of discontinued operations are separately
reported.
In the year ended 31 May 2012 the Group’s Sport business has been disclosed as a discontinued operation and the comparative balances
restated accordingly. Please refer to note 12 for additional detail.
critical accounting estimates and judgements
The preparation of financial statements requires the Group 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
remain the impairment of goodwill (refer to note 18) the impairment of trade receivables – amounts due from clients (refer to note 36),
the calculation of the Group’s current corporation tax charge and recognition of deferred tax assets (refer to note 11(c) and 11(f )).
The calculation of the Group’s current corporation tax charge involves a degree of estimation and judgement with respect 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 payable may
be materially lower than the amount accrued and could therefore improve the overall profitability and cash flows of the Group in future
periods. A deferred tax asset is only recognised to the extent it is considered to be probable that future operating profits will exceed the
losses that have arisen to date.
The Director’s judgement made with regards to litigation are disclosed in note 25.
92 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
93
noteS to tHe FInAnCIAl StAteMentS
(continued)
2. nET TrADInG rEvEnuE
Net trading revenue represents trading revenue from financial instruments carried at fair value through profit and loss net of introducing
broker commission. This is consistent with the management information received by the Chief Operating Decision Maker (refer to note 4).
Revenue from external customers includes interest income on segregated client funds and is analysed as follows:
net trading revenue
Financial
Contracts for difference
Spread betting
Binaries
Total net trading revenue
Interest income on segregated client funds
Revenue from external customers
2012
£000
2011
£000
(restated)
214,967
133,768
18,077
188,201
109,796
14,724
366,812
312,721
10,509
9,115
377,321
321,836
The comparative revenue from external customers has been restated following the disclosure of the Sport business as a discontinued
operation. Refer to note 12 for more detail.
In addition to the above, finance income is disclosed in note 9. The Group does not derive more than ten percent of external revenue from
any one single customer.
3. OThEr OPErATInG InCOME
Revenue-share arrangement
2012
£000
1,013
2011
£000
-
On 8 June 2011, the Group reached an agreement to sell the majority of the client list relating to the Group’s Sport business to Spreadex
Limited under a revenue-share agreement where the Group would receive semi-annual payments for the subsequent three years,
calculated by reference to the revenue that the acquirer generates from clients on the list.
The disclosure of the Sport business as a discontinued operation is made in note 12.
Notes to the financial statements
4. SEGMEnT InFOrMATIOn
The segment information has been restated in order to disclose the Group’s Sport business as a discontinued operation and to reflect
changes to the Group’s internal reporting methodologies, which include the manner of attribution and allocation of certain costs to the
segments. The Sport business was previously disclosed within the UK segment and derived its revenue from spread bets and fixed odds
bets on sporting and other events and the operation of an online casino. Following this restatement the segment information is presented
as follows:
Segment net trading revenue has been disclosed net of introducing broker commissions 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 and aggregated into the disclosable segments of UK, Australia, Europe
and Japan, with Rest of World comprising the Group’s remaining operations in each of South Africa, Singapore and the United States
The Europe segment comprises the Group’s operations in each of France, Germany, Italy, Luxembourg, the Netherlands, Portugal,
Spain and Sweden
Segment contribution, being segment trading revenue less directly incurred costs, as the measure of segment profit and loss reported
to the CODM
The UK segment derives its revenue from financial spread bets, contracts for difference (CFDs), margined forex and binary options.
The Australian, Japanese and European segments derive their revenue from CFDs, margined forex and binary options. The businesses
reported within the Rest of World derive revenue from the operation of a regulated futures and options exchange as well as 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, middle office, IT development, 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 allocation methodology. Interest income
and expense on segregated client funds is managed and reported to the CODM centrally, and thus has been reported in the Central
segment. In the following analysis, the Central segment costs have been further allocated to the other reportable segments.
Year ended 31 may 2012
Segment net trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Other income
Betting duty
net operating income
Segment contribution
Allocation of central costs
Segment eBITdA(1)
Depreciation and amortisation
Impairment of intangible assets
Profit on disposal of property, plant and equipment
Operating profit from continuing operations
Net finance income
profit before taxation from continuing operations
UK
£000
Australia
£000
europe
£000
191,781
-
191,781
-
-
(8,907)
57,962
-
57,962
-
-
-
72,217
-
72,217
-
-
-
japan
£000
16,457
-
16,457
-
-
-
Rest of
World
£000
28,395
-
28,395
-
-
-
central
£000
-
10,509
10,509
(257)
1,013
-
Total
£000
366,812
10,509
377,321
(257)
1,013
(8,907)
182,874
57,962
72,217
16,457
28,395
11,265
369,170
151,529
(39,378)
49,833
(12,336)
43,447
(15,422)
10,377
(3,598)
17,909
(6,088)
(76,822)
76,822
112,151
37,497
28,025
6,779
11,821
(4,998)
(1,424)
(1,893)
(623)
(1,822)
-
-
196,273
-
196,273
(10,760)
-
-
185,513
204
185,717
(1) EBITDA represents operating profit before depreciation, amortisation and impairment of intangible assets and amounts written off property, plant and equipment and
intangible assets
94 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
95
noteS to tHe FInAnCIAl StAteMentS
(continued)
4. SEGMEnT InFOrMATIOn (continued)
5. OPErATInG PrOFIT FrOM COnTInuInG OPErATIOnS
Year ended 31 may 2011 (restated)
Segment net trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Betting duty
UK
£000
Australia
£000
167,166
-
167,166
-
(3,064)
47,607
-
47,607
-
-
europe
£000
57,464
-
57,464
-
-
japan
£000
20,606
-
20,606
-
-
Rest of
World
£000
19,878
-
19,878
-
-
central
£000
-
9,115
9,115
(176)
-
Total
£000
312,721
9,115
321,836
(176)
(3,064)
net operating income
Segment contribution
164,102
47,607
57,464
20,606
19,878
8,939
318,596
140,197
35,888
34,767
8,557
11,156
(57,044)
173,521
Allocation of central costs
(33,383)
(4,753)
(11,645)
(3,461)
(3,802)
57,044
-
Segment eBITdA
106,814
31,135
23,122
5,096
7,354
Depreciation and amortisation
Impairment of intangible assets
Profit on disposal of property, plant and equipment
Operating profit from continuing operations
Net finance costs
profit before taxation from continuing operations
(4,844)
-
(1,227)
-
(1,349)
-
(8,599)
(143,108)
(2,167)
-
-
-
-
173,521
(18,186)
(143,108)
283
12,510
(8)
12,502
Notes to the financial statements
group
2012
£000
2011
£000
(restated)
-
-
(1,091)
5,934
4,826
31,068
1,337
3,988
-
(2,180)
7,595
143,108
1,752
6,458
3,741
31,292
(2,282)
4,054
(283)
(1,080)
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)(2)
Other exceptional items(2)
Depreciation of property, plant and equipment(3)
Amortisation of intangible assets
Advertising and marketing
Net recovery of impaired trade receivables
Operating lease rentals for land and buildings(3)
Profit on disposal of property, plant and equipment
Foreign exchange gains(4)
(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 Limited)
(2) Disclosed as an exceptional item (refer to note 6 for details)
(3) Operating lease rentals and depreciation are stated net of exceptional items (refer to note 6 for details)
(4) All of the above, except foreign exchange differences, are included in administrative expenses within the income statement. Foreign exchange gains are included in revenue
96 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
97
noteS to tHe FInAnCIAl StAteMentS
(continued)
6. ExCEPTIOnAL ITEMS
During the year the Group reached agreement with the lessor for both the early surrender and the settlement of all outstanding
dilapidation obligations with regards to the lease of the Group’s previous London headquarters. This resulted in a release of amounts
provided or accrued in relation to onerous lease and dilapidation obligations. The release is considered to be exceptional in nature, as
onerous lease and dilapidation charges incurred in relation to the lease in the years ended 31 May 2010 and 31 May 2011 were previously
disclosed as exceptional.
In the year ended 31 May 2011, exceptional items were also incurred in relation to the impairment of goodwill and customer relationships
associated with the acquisition of the Group’s Japanese business, IG Markets Securities Limited. Additionally, in the year ended 31 May 2011,
exceptional items, now disclosed within discontinued operations (note 12), were incurred in relation to the Group’s Sport business.
8. STAFF COSTS
The staff costs for the year, including Directors, were as follows:
Wages, salaries and performance-related bonuses
Social security costs
Other pension costs (in relation to direct contribution schemes)
Notes to the financial statements
group
2012
£000
2011
£000
(restated)
78,741
9,170
4,758
61,831
6,278
4,237
92,669
72,346
exceptional items included in continuing operating profit
Relocation of the Group’s London headquarters
Impairment of goodwill in relation to the Japanese business(1)
Impairment of Japanese customer relationships(1)
Total exceptional (credit) / charge
Deferred tax credit on exceptional items(1)
Tax charge / (credit) on exceptional items
Total exceptional (credit) / charge after tax
2012
£000
2011
£000
(restated)
(1,091)
-
-
1,752
122,960
20,148
(1,091)
144,860
-
284
(8,462)
(1,169)
(807)
135,229
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
2012
£000
2011
£000
(restated)
27,945
5,005
14,214
4,222
32,950
18,436
(1) In the year ended 31 May 2011, the goodwill and customer relationships associated with the Group’s Japanese business were considered to be impaired following regulatory
change in the Japanese market. These exceptional impairment charges, as well as amortisation of £7.6 million charged immediately prior to impairment, were disclosed in the
Group income statement in the column ‘certain items’ , consistent with the Group’s established accounting policy and presentation
The Directors’ emoluments for the year ended 31 May 2012 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
2012
number
2011
number
(restated)
536
424
960
536
348
884
7. AuDITOrS’ rEMunErATIOn
Audit-related fees(1)
Fees payable to the Company’s Auditors for the audit of the
parent company and consolidated financial statements
Statutory and regulatory audit of subsidiaries and
branches of the Company pursuant to legislation
Other services supplied pursuant to legislation
Total audit-related fees
Other fees to auditors
Other services relating to taxation
- Compliance-related services(2)
- Advisory-related services(3)
Services relating to corporate finance transactions
All other services
Total other fees
group
2012
£000
2011
£000
190
98
121
409
270
693
49
87
1,099
182
97
66
345
224
202
269
87
782
(1) Includes the Group’s audit fee as well as services that are specifically required of the Group’s auditors through regulatory, legislative or contractual requirements, including
assurance services required of the auditors by the regulatory authorities in whose jurisdiction the Group operates
(2) Includes services which are closely related to the audit process and are therefore efficiently provided by the auditors due to their existing knowledge of the business
(3) Includes advice relating to the Group’s transfer pricing policies of £386,000 (2011: £62,000) and sales taxes of £248,000 (2011: £23,000)
An overview of the Audit Committee’s review of Auditors’ remuneration and non-audit fee policy can be found in the Corporate
Governance Report.
98 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
99
noteS to tHe FInAnCIAl StAteMentS
(continued)
9. FInAnCE InCOME
Bank interest receivable
Interest receivable from brokers
Other finance income
Interest receivable from clients
10. 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
2012
£000
2011
£000
(restated)
1,485
673
306
23
2,487
642
1,167
383
211
2,403
group
2012
£000
2011
£000
(restated)
1,241
242
165
84
3
548
2,283
1,085
136
196
29
3
962
2,411
Interest payable to clients relates to interest paid or accrued to clients in relation to title transfer funds (refer to note 20).
11. TAxATIOn
11(a) Tax on continuing 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
Continuing tax expense in the income statement (note 11(b))
Notes to the financial statements
group
2012
£000
2011
£000
(restated)
46,756
2,738
(265)
42,528
1,573
(1,883)
49,229
42,218
(646)
(9,426)
48,583
32,792
11(b) reconciliation of the total tax charge
Corporation tax is calculated at 25.67% (2011: 27.67%) of the estimated assessable profit. Taxation outside the UK is calculated at the rates
prevailing in the respective jurisdictions. The tax expense in the income statement for the year can be reconciled to the income statement
as set out below:
Continuing profit before taxation
Continuing profit multiplied by the UK standard rate of
corporation tax of 25.67% (2011: 27.67%)
Goodwill impairment not deductible for tax purposes
Expenses not deductible for tax purposes
Lower taxes on overseas earnings
Adjustment in respect of prior years
Tax expense reported in the income statement for continuing operations
2012
£000
2011
£000
(restated)
185,717
12,502
47,674
-
1,193
(19)
(265)
3,459
34,018
1,797
(4,599)
(1,883)
48,583
32,792
The effective tax rate is 26.2% (2011: 24.2% adjusted for the impact of the Japanese goodwill impairment of £122.3 million in the year).
100 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
101
noteS to tHe FInAnCIAl StAteMentS
(continued)
11. TAxATIOn (continued)
11(c) Deferred income tax assets
The deferred income tax assets included in the statement of financial position are as follows:
11(e) Deferred income tax – income statement credit
The deferred income tax credit included in the income statement is made up as follows:
Notes to the financial statements
group
2012
£000
2011
£000
357
(3,071)
(197)
-
3,557
-
(31)
(1,572)
262
(600)
(285)
11,652
646
9,426
(101)
(831)
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 to equity during the year is as follows:
Share-based payments
Closing deferred tax on UK temporary differences has been calculated at the substantively enacted rate of 24% (2011: 26%). The effect
of the change in UK corporation tax to 24% from 1 April 2012 on the deferred tax assets is a deferred income tax charge of £373,000
(2011: £444,000), which is included in the movements above.
11(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
to the recognition of deferred tax assets (refer to note 11(c)) and to 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 payable may be materially lower than the amount accrued, and could
therefore improve the overall profitability and cash flows of the Group in future periods.
In March 2012, the UK government announced that the main rate of UK corporation tax would be reduced from 26% to 24% with effect
from 1 April 2012. Accordingly, the Group’s UK earnings will be taxable at a lower rate in future periods than has previously been applied.
Deferred tax assets relating to the UK have accordingly been measured at the substantively enacted rate of 24% as at 31 May 2012.
The proposed reduction in the main rate of corporation tax by 1% per year to 22% is expected to be enacted separately each year.
The Group will assess the impact of the reduction in line with its accounting policy in respect of deferred tax at each reporting date.
Decelerated capital allowances
Tax losses available for offset against future tax
Share-based payments
Other
group
2012
£000
2,019
1,810
3,415
4,671
2011
£000
1,662
4,829
3,713
1,060
11,915
11,264
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 deduction until the awards
vest. The excess of tax relief in future years 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 credit / (charge)
Tax debited directly to equity
Foreign currency adjustment
At the end of the year
11(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
2012
£000
2011
£000
11,264
646
(101)
106
14,264
(2,226)
(831)
57
11,915
11,264
group
2012
£000
2011
£000
-
-
-
-
11,463
189
(11,652)
-
102 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
103
noteS to tHe FInAnCIAl StAteMentS
(continued)
12. DISCOnTInuED OPErATIOnS
During the year ended 31 May 2011, 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 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 12 July 2011 the Group completed a redundancy consultation process with the employees of extrabet. As a result, all extrabet employees
unable to find a role within the Group were made redundant as of 19 July 2011 and the business was closed.
In the year ended 31 May 2012 the discontinued business reported a loss after tax of £0.4 million which was mitigated by a £0.3 million credit
due to the release of an onerous lease provision following agreement with the lessor for early surrender of the associated property. In the prior
year 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) resulted in a £5.0 million loss after tax from discontinued operations.
Loss from discontinued operations
Net trading revenue
Other net operating expenses
Exceptional closure credit / (charges)
Administrative expenses
Net interest payable
Loss before tax from discontinued operations
Tax credit
(Loss) / profit after tax from discontinued operations
Impairment of goodwill in relation to the Sport business
Loss from discontinued operations
2012
£000
159
(47)
261
(761)
-
(388)
14
(374)
2011
£000
7,671
(1,012)
(2,474)
(4,369)
(22)
(206)
454
248
-
(5,250)
(374)
(5,002)
Notes to the financial statements
13. EArnInGS PEr OrDInArY ShArE
13(a) Diluted earnings per share
In prior periods the Group presented an adjusted EPS measurement, as this was considered the most appropriate measure as it better
reflected the business’s underlying cash earnings. Adjusted EPS excluded the amortisation and impairment of intangible assets associated
with both the Group’s Japanese and the discontinued Sport businesses and the related taxation. In the year ended 31 May 2012 there has
been no amortisation or impairment of intangible assets associated with either the Group’s Japanese or the discontinued Sport business,
and therefore the adjusted and unadjusted earnings per share measures are equivalent.
diluted earnings per share
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted earnings per share
Year ended
31 may 2012
£000
Year ended
31 may 2011
£000
(restated)
37.54p
(0.10p)
32.57p(1)
0.07p(1)
37.44p
32.64p
(1) The comparative figures shown for the year ended 31 May 2011 are the diluted adjusted earnings per share calculated after excluding the amortisation and impairment of
intangible assets associated with the Group’s Japanese business and the related taxation and discontinued Sport business
13(b) Calculation of earnings per share
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. For the year ended 31 May 2011, adjusted earnings excludes the amortisation and impairment of
intangible assets associated with the Group’s Japanese business and related taxation, as well as impairment of the goodwill associated
with the Group’s Sport business. The following table reflects the income and share data used in the earnings per share computation:
Income from the sale of the majority of the client list of the Sport business is disclosed in note 3.
There are no items of cumulative income or expense recognised in other comprehensive income relating to the discontinued operations.
The segmental disclosures for the year ended 31 May 2012 and 31 May 2011 have been restated, as the Sport business was previously
disclosed in the UK segment (refer to note 4).
cash flows from discontinued operations
Operating cash flows
Investing cash flows
Financing cash flows
Total cash flows from discontinued operations
Year ended
31 may 2012
£000
Year ended
31 may 2011
£000
(467)
-
-
(467)
2,247
(14)
(22)
2,211
The operating cash flows for the year ended 31 May 2011 disclosed in the table above are prepared on a statutory basis and include the
flow of cash deposits to, or from, betting exchanges, as such amounts are included as cash flows from trade receivables. Such amounts are
not considered to be actual cash generation, and thus the underlying operating cash generation of the Sport business should be considered
to exclude these amounts: 31 May 2011: £736,000.
Continuing earnings attributable to equity shareholders of the Company
Add back amortisation and impairment(1) of intangibles net of tax and
non-controlling interests
Adjusted earnings from continuing operations
Discontinued earnings attributable to equity shareholders of the Company
Add back impairment of Sport goodwill
Adjusted earnings from discontinued operations
Weighted average number of shares
Basic
Dilutive effect of share-based payments
Diluted
(1) Amortisation and impairment of intangible assets associated with the Group’s Japanese business
group
2012
£000
2011
£000
(restated)
137,166
(20,451)
-
139,051
137,166
118,600
(374)
-
(374)
(5,002)
5,250
248
361,915,111 360,860,327
3,205,368
3,404,455
365,319,566 364,065,695
104 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
105
noteS to tHe FInAnCIAl StAteMentS
(continued)
13. EArnInGS PEr OrDInArY ShArE (continued)
14. DIvIDEnDS
earnings per share
Basic earnings / (loss) per share from continuing operations
Basic loss per share from discontinued operations
Basic earnings / (loss) per share
Basic adjusted earnings per share from continuing operations
Basic adjusted earnings per share from discontinued operations
Basic adjusted earnings per share
diluted earnings per share
Diluted earnings / (loss) per share from continuing operations(2)
Diluted loss per share from discontinued operations(2)
Diluted earnings / (loss) per share
Diluted adjusted earnings per share from continuing operations
Diluted adjusted earnings per share from discontinued operations
Diluted adjusted earnings per share
group
2012
£000
2011
£000
(restated)
37.90p
(0.10p)
37.80p
n/A(1)
n/A(1)
n/A(1)
37.54p
(0.10p)
37.44p
n/A(1)
n/A(1)
n/A(1)
(5.66p)
(1.39p)
(7.05p)
32.86p
0.07p
32.93p
(5.66p)
(1.39p)
(7.05p)
32.57p
0.07p
32.64p
(1) In the year to 31 May 2012 there has been no amortisation or impairment of intangible assets associated with the Group’s Japanese or Sport business and therefore the
adjusted and unadjusted earnings per share measures are equivalent
(2) The basic and diluted losses per share are equivalent in the year ended 31 May 2011, where the effect of potential ordinary shares is anti-dilutive
Notes to the financial statements
company and group
2011
£000
2012
£000
53,051
20,859
48,758
18,969
73,910
67,727
60,769
53,051
Declared and paid during the year:
Final dividend for 2011 at 14.75p per share (2010: 13.50p)
Interim dividend for 2012 at 5.75p per share (2011: 5.25p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2012 at 16.75p per share (2011: 14.75p)
The final dividend for 2012 of 16.75p per share, amounting to £60,769,000, was approved by the Board on 17 July 2012 and has not been
included as a liability at 31 May 2012. This dividend will be paid on 23 October 2012 to those members on the register at the close of
business on 21 September 2012.
106 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
107
noteS to tHe FInAnCIAl StAteMentS
(continued)
15. PrOPErTY, PLAnT AnD EQuIPMEnT
16. InTAnGIBLE ASSETS
Notes to the financial statements
group
Cost:
At 1 June 2010
Foreign currency adjustment
Additions
Transfers between categories
Written off
At 31 May 2011
Foreign currency adjustment
Additions
Written off
At 31 May 2012
Accumulated depreciation:
At 1 June 2010
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2011
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2012
Net book value – 31 May 2012
Net book value – 31 May 2011
Net book value – 1 June 2010
Leasehold
improvements
£000
Office
equipment,
fixtures
and fittings
£000
computer
and other
equipment
£000
Assets in
the course of
construction
£000
8,229
63
1,477
8,776
(3,321)
15,224
47
2,145
(732)
16,684
4,583
30
2,965
(3,321)
4,257
22
2,423
(732)
5,970
10,714
10,967
3,646
1,463
(18)
350
489
(126)
2,158
9
177
(56)
12,167
(140)
4,858
9
(1,956)
14,938
90
2,387
(1,693)
2,288
15,722
634
4
417
(126)
929
(26)
484
(56)
8,633
(38)
3,704
(1,926)
10,373
131
3,027
(1,693)
1,331
11,838
957
1,229
829
3,884
4,565
3,534
Total
£000
23,482
(95)
14,336
-
(5,403)
32,320
146
4,709
(2,481)
34,694
13,850
(4)
7,086
(5,373)
15,559
127
5,934
(2,481)
19,139
15,555
16,761
1,623
-
7,651
(9,274)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,623
9,632
client lists and
customer
relationships
£000
goodwill
£000
Trade
name
£000
development
costs
£000
Software
and
licences
£000
cost:
At 1 June 2010
Foreign currency adjustment
Acquisition of a business (note 17a)
Adjustment to deferred contingent consideration
Additions
Written off
At 31 May 2011
Foreign currency adjustment
Additions
Written off
At 31 May 2012
Accumulated amortisation:
At 1 June 2010
Foreign currency adjustment
Provided during the year
Impairment (note 18)
Written off
At 31 May 2011
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2012
Net book value – 31 May 2012
Net book value – 31 May 2011
Net book value – 1 June 2010
234,158
1,647
1,843
(2,010)
-
-
235,638
37
-
-
235,675
-
-
-
128,210
-
128,210
-
-
-
128,210
107,465
107,428
234,158
61,678
1,168
2,673
-
-
-
65,519
(400)
-
(61,966)
3,153
34,423
664
8,750
20,148
-
63,985
(250)
972
(61,966)
2,741
412
1,534
27,255
1,108
(11)
-
-
-
-
1,097
122
-
-
1,219
1,069
(9)
37
-
-
1,097
122
-
-
1,219
-
-
39
888
(67)
-
-
1,725
(47)
2,499
58
1,649
-
4,206
42
-
65
-
(47)
60
-
595
-
655
3,551
2,439
846
Total
£000
304,429
2,624
4,516
(2,010)
7,074
(165)
316,468
(103)
3,037
(62,875)
6,597
(113)
-
-
5,349
(118)
11,715
80
1,388
(909)
12,274
256,527
3,567
(58)
2,523
-
(118)
5,914
72
3,259
(909)
8,336
3,938
5,801
3,030
39,101
597
11,375
148,358
(165)
199,266
(56)
4,826
(62,875)
141,161
115,366
117,202
265,328
Assets in the course of construction (AICC) at 1 June 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.
Goodwill primarily relates to the purchase of IG Group plc by IG Group Holdings plc – detail is provided in note 18. The client list acquired
with the business of Ideal CFDs (refer note 17a) is being amortised on a sum of digits basis over three years. Development costs are entirely
internally-generated intangible assets. Software and licenses relate entirely to external purchases.
108 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
109
noteS to tHe FInAnCIAl StAteMentS
(continued)
17. InvESTMEnT In SuBSIDIArIES
At cost:
At the beginning of the year
Additions(1)
At the end of the year
company
2012
£000
2011
£000
433,078
428,853
5,050
4,225
438,128
433,078
(1) Additions in the year ended 31 May 2012 comprise the investment relating to equity-settled share-based payments for subsidiary employees of £5,005,000 and the purchase of
shares in the Company’s immediate subsidiary, IG Group Limited, of £45,000.
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
Market Data Limited
Market Risk Management Inc
IG Infotech (India) Private Limited
IG Nominees Limited
IG Knowhow 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
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
Ordinary shares
100%(1)
100%
100%
100%
100%
100%
90%(2)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
holding company
Dormant
Spread betting
CFD trading and foreign exchange
non-trading
non-trading
CFD trading
Australia sales and marketing office
CFD trading and foreign exchange
non-trading
Exchange
CFD trading and foreign exchange
Data distribution
Market maker
Software development
nominee company
Software development
(1) IG Group Limited has 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 note 17a)
Notes to the financial statements
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 5 Limited
IG Finance 6 Limited
IG Finance 7 Limited
IG Finance 8 Limited
IG Finance 9 Limited
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings
IG US Holdings Inc
Market Data Japan KK
FXOnline Japan Co. Limited
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
Germany
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
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
holding company
holding company
holding company
non-trading
Dormant
Employee Benefit Trusts:
IG Group Holdings plc Inland Revenue Approved Share Incentive Plan (UK Trust)
IG Group Limited Employee Benefit Trust (Jersey Trust)
110 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
111
noteS to tHe FInAnCIAl StAteMentS
(continued)
17. InvESTMEnT In SuBSIDIArIES (continued)
17(a) Acquisition of the client list and business of Ideal CFD Financial Services Pty Limited
In the year ended 31 May 2011, the Group completed the acquisition of the client list and business of Ideal CFD Financial Services Pty
Limited (Ideal), a South African based introductory broker of the Group, for £4.5 million. Consideration comprised £1.6 million paid in cash
and £2.9 million payable on exercise of symmetrical put and call options over 20% of IG Markets South Africa Limited (IGSA), a subsidiary
of the Group that transferred to the vendor of Ideal on completion. Following completion of a fair value exercise, a client list of £2.7 million
and goodwill of £1.8 million were recognised in the Group statement of financial position.
Subsequent to the initial acquisition, the Group acquired an additional 10% of IGSA for £1.2 million; this had no impact on the estimated
value of the total consideration or the goodwill associated with the acquisition. Following this further acquisition the Group has a call option
and the vendor a put option over the remaining 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. 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.
18. IMPAIrMEnT OF GOODWILL
18(a) Analysis of goodwill
Goodwill has been allocated to the following cash-generating units (CGUs) for impairment-testing purposes:
UK
Australia
US
South Africa
group
2012
£000
2011
£000
100,012
934
4,931
1,588
100,012
934
4,618
1,864
107,465
107,428
Goodwill arose in the UK CGU on the purchase of IG Group plc by IG Group Holdings plc on 5 September 2003, and was previously
allocated according to the CGU profitability (Financial and Sport) at that date. Goodwill in the Australian CGU 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 North American
Derivatives Exchange Inc. and Ideal CFDs has been allocated to the separate US and South African CGUs respectively.
Notes to the financial statements
18(b) Impairments in the year ended 31 May 2011
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. 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.
The first of several regulatory restrictions on leverage for forex products came into force in August 2010, and had an adverse impact on
client activity levels and revenue. At 30 November 2010, further leverage restrictions were announced, and these became effective in
January 2011 and August 2011 for equity indices and forex respectively. These restrictions were expected to have a significant impact on
the future revenues of the Japanese 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.
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 were fully impaired as a result.
The impairment charges discussed above and the associated reduction in the deferred tax liability of £8.5 million were disclosed in the
Group income statement in the column ‘certain items’, consistent with the Group’s established accounting policy and presentation.
goodwill - Sport
Goodwill associated with the Sport CGU of £5.25 million was impaired to nil in the year ended 31 May 2011.
18(c) Impairment testing at year-end
The goodwill associated with the UK, Australian, US and South African CGU’s has been subject to an impairment test at 31 May 2012
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
estimated 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 upon 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:
Client recruitment and retention rates
Average revenue per client
Forecast marketing spend
Operating cost growth rates
The discount rate
The long-term growth rate used for the terminal value calculation
Projected future cash flows for each CGU were based upon the Board-approved budget and a further three-year revenue plan which
reflects past experience as well as future expected trends. In order to support the three-year revenue plan, the marketing and other
operating costs were forecast from the Board-approved budget using subsequent growth rates. This methodology is consistent with that
used for the 31 May 2011 year-end impairment review. The revenue growth rates assumed 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 year-end exchange rates.
112 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
113
noteS to tHe FInAnCIAl StAteMentS
(continued)
18. IMPAIrMEnT OF GOODWILL (continued)
18(c) Impairment testing at year-end (continued)
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
2012
2011
discount
rate
discount
rate
2012
Years 4-5
revenue
growth rate
2011
Years 4-5
revenue
growth rate
12%
15%
23%
12%
19%
23%
4%
32%
16%
4%
33%
24%
2012
2011
g
2%
2%
5%
g
2%
2%
5%
Client recruitment, retention rates and average revenue per client were based upon actual amounts measured in prior years which were
projected forward in accordance with expected trends.
On the basis of the results of the above analysis there was no impairment of goodwill during the year.
Sensitivity to changes in assumptions
The Directors have performed a sensitivity analysis around assumptions and have concluded that no reasonably possible change in key
assumptions would cause the carrying amount of any CGU to exceed its recoverable amount.
19. TrADE rECEIvABLES
Amounts due from brokers(1)
Other amounts due from clients(2)
Amounts due from clients(3)
group
2012
£000
2011
£000
(restated)
206,997
12,920
2,425
267,792
-
2,312
222,342
270,104
(1) Amounts due from brokers represent balances with brokers where the combination of cash held on account and the valuation of financial derivative open positions results in
an amount due to the Group. At 31 May 2012 the actual broker margin requirement was £196.0 million (2011: £217.4 million)
(2) Other amounts due from clients represent balances that will be transferred to the Group’s own cash from segregated client funds on the immediately following working day in
accordance with the UK’s Financial Services Authority (FSA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates
(3) Certain clients are permitted to deal in circumstances where they may be capable of suffering losses in excess of the funds they have on their account. Amounts due from
clients comprise deficits arising from such realised and unrealised losses net of an allowance for impairment (refer to note 36)
114 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
Notes to the financial statements
20. CASh AnD CASh EQuIvALEnTS
Gross cash and cash equivalents(1)
Less segregated client funds(2)
Own cash and title transfer funds(3)
group
2012
£000
2011
£000
960,894
(732,738)
839,202
(714,674)
228,156
124,528
company
2012
£000
151
-
151
2011
£000
304
-
304
(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 individual 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 corporate client agrees that full ownership of such monies is
unconditionally transferred to the Group (refer to note 22)
The Group’s available liquidity including undrawn committed borrowing facilities is disclosed in note 36 to the financial statements.
21. CASh GEnErATED FrOM OPErATIOnS
Operating activities
Operating profit(1)
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
Decrease / (increase) in trade and other receivables
Increase in trade and other payables
(Decrease) / increase in provisions and other non-cash items
Other non-cash items
note
5, 12
5, 12
15
16
30
15
group
2012
£000
2011
£000
(restated)
company
2012
£000
2011
£000
185,126
7,077
(1,018)
(5,320)
(10,252)
-
-
5,934
4,826
(2,190)
5,005
-
2,563
42,274
2,572
(714)
(228)
(8,948)
7,595
148,358
7,086
3,780
1,727
4,225
30
754
(66,578)
22,247
262
1,467
-
-
-
-
-
-
-
-
-
50,088
26,864
-
(565)
-
-
-
-
-
-
-
-
-
67,776
6,185
-
-
cash generated from operations
234,916
129,082
75,369
68,641
(1) The operating profit disclosed above is stated inclusive of discontinued operations. Cash flows from discontinued operations are disclosed in note 12 to the
financial statements
In the Group statement of cash flows, proceeds from the sale of property plant and equipment comprise:
Net book value (note 15)
Profit on disposal of property, plant and equipment (note 5)
Proceeds from the disposal of property, plant and equipment
group
2012
£000
2011
£000
-
-
-
30
283
313
115
Notes to the financial statements
25. LITIGATIOn
The Group has received a claim issued on 11 November 2010 and served against IG Markets Limited (IG Markets) – a wholly owned
subsidiary of the Group – in relation to the insolvency of Echelon Wealth Management Limited (Echelon), a former client of IG Markets.
This litigation is ongoing.
Three former clients of Echelon (which went into liquidation in October 2008), namely (i) Stokors SA (Stokors), (ii) Mr Lucien Selce (Selce),
and (iii) Phoenicia Asset Management (Holding) SAL (Phoenicia) are seeking to recover damages from IG Markets.
The damages sought are made up of two parts: firstly approximately €12.0 million which the three claimants had on deposit with Echelon
at the time of its liquidation, and secondly a claim for lost profits which Stokors and Phoenicia claim they would have made had they not
lost these monies deposited by them with Echelon at the time it collapsed. On 30th May 2012 Stokors and Phoenicia amended their claim
in relation to alleged lost profits, seeking to recover the sums of €37,706,584 and €19,265,572 respectively (calculated to 25 January 2012)
together with continuing alleged daily losses of €31,766 and €16,230 per day respectively, which they claim equates to a daily rate of return
of 0.4% (or 146% per annum). The Group is investigating the legality of the claimants’ activities giving rise to these alleged rates of return.
On the basis of legal and expert advice received, the Group continues to view the claim as speculative. No provision has therefore been
made in the Group statement of financial position as at 31 May 2012 in relation to this matter.
26. rEDEEMABLE PrEFErEnCE ShArES
Allotted, called up and fully paid:
40,000 preference shares of £1 each
company and group
2011
£000
2012
£000
40
40
The preference shares are entitled to a fixed non-cumulative dividend of 8% paid in preference to any other dividend. Redemption is only
permissible in accordance with capital distribution rules or on the winding up of the Company, where the holders are entitled to £1 per
share plus, if the Company has sufficient distributable reserves, any accrued or unpaid dividends. The preference shares have no voting
rights, except that they are entitled to vote should the Company fail to pay any amount due on redemption of the shares. The effective
interest rate on these shares is 8% (2011: 8%).
noteS to tHe FInAnCIAl StAteMentS
(continued)
22. TrADE PAYABLES
Amounts due to title transfer clients
Other amounts due to clients(1)
Other trade payables
group
2012
£000
2011
£000
(restated)
59,852
-
1,224
71,453
11,639
398
61,076
83,490
(1) Other amounts due to clients represent balances that will be transferred from the Group’s own cash into segregated client funds on the immediately following working day
in accordance with the UK’s Financial Services Authority (FSA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates
23. OThEr PAYABLES
Accruals
Other taxes and social security
Amounts due to Group companies (note 34b)
Dividends on redeemable preference shares
group
2012
£000
2011
£000
62,652
2,160
-
3
43,446
1,700
-
3
company
2012
£000
6,212
-
26,759
3
2011
£000
4,254
-
2,255
3
6,512
Included within accruals are amounts in relation to employee bonuses, supplier payments, introducing broker commissions and
other amounts.
64,815
45,149
32,974
24. PrOvISIOnS
At the beginning of the year
Income statement charge
Utilised in the year
Released in the year
At the end of the year
Current
Non-current
group
2012
£000
2011
£000
3,418
126
(1,408)
(783)
1,353
1,353
-
1,353
3,156
1,534
(1,272)
-
3,418
1,427
1,991
3,418
During the year, agreement was reached with the lessor for the early surrender of the lease of the Group’s previous London headquarters.
As a result, a release of amounts previously provided in relation to this onerous lease has been made in order to align the year-end
provision at 31 May 2012 with the agreed termination liability. The provision will be settled in full in the year ended 31 May 2013.
The provision held as at 31 May 2011 represented the Group’s estimated obligations for onerous lease commitments arising from the
move of the Group’s London Headquarters and the closure of the Sport business.
116 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
117
noteS to tHe FInAnCIAl StAteMentS
(continued)
27. ShArE CAPITAL
Allotted, called up and fully paid:
(i) Ordinary shares (0.005p)
At 1 June 2010
Issued during the year
At 31 May 2011
Issued during the year
At 31 May 2012
(ii) B shares (0.001p)
At 31 May 2011 and 31 May 2012
number of
shares
Ordinary
share
capital
£000
Share
premium
account
£000
361,108,463
1,125,091
362,233,554
1,081,469
363,315,023
65,000
18
-
18
-
18
-
206,246
-
206,246
45
206,291
-
During the year to 31 May 2012, 1,081,469 (2011: 1,125,091) ordinary shares with an aggregate nominal value of £54 were issued following
the exercise of long-term incentive plan awards for a consideration of £45,000.
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.
Notes to the financial statements
28. 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:
1,135,803 (2011: 1,134,441) ordinary shares of 0.005p each
Purchased during the year:
67,047 (2011: 59,735) ordinary shares of 0.005p each
Exercised during the year:
3,044 (2011: 58,373) ordinary shares of 0.005p each
At the end of the year:
1,199,806 (2011: 1,135,803) ordinary shares of 0.005p each
company and group
2011
£000
2012
£000
1,223
973
298
291
(13)
(41)
1,508
1,223
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 2012, 676,093 ordinary shares (2011: 611,395) were held in the trust
and at the year-end have reduced shareholders’ equity by £1,448,443 (2011: £1,172,943). These include 238,013 ordinary shares
(2011: 228,675) 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 £2,928,159 (2011: £2,745,164).
The Group has a Jersey-resident Employee Benefit Trust which holds shares in the Company. At 31 May 2012, the trust held 512,075 (2011:
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 (2011: £26). The market value of the shares held conditionally at the year-end
was £2,221,797 (2011: £2,299,217).
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 2012, 11,638 ordinary shares (2011: 12,333) were held in the trust and at the year-end have reduced shareholders’ equity by
£59,424 (2011: £49,991). These include nil ordinary shares (2011: 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 £50,404 (2011: £55,375).
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 2012, nil (2011: 1,017) B shares were sold by B shareholders to the Trust. The Trust sold nil (2011: 124,038)
ordinary shares in order to realise the funds necessary to purchase these B shares. The Trust unconditionally held 63,622 (2011: 63,622) B
shares at the year-end. The Trust also held 1,378 (2011: 1,378) B shares and 168,067 (2011: 168,067) ordinary shares, which it may sell in
order to satisfy its obligations to B shareholders, all of whom are current or former employees.
118 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
119
noteS to tHe FInAnCIAl StAteMentS
(continued)
Notes to the financial statements
29. 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.
30. EMPLOYEE ShArE PLAnS
The Company operates three employee share plans: a share incentive plan (SIP), a value-sharing plan (VSP) and a long-term incentive plan
(LTIP), all of which are equity-settled. The expense recognised in the income statement in respect of share-based payments was £5,005,000
(2011: £4,225,000).
group
At 1 june 2010
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based
payments recognised directly in equity (note 11)
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
At 31 may 2011
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based
payments recognised directly in equity (note 11)
Foreign currency translation on overseas subsidiaries
Exercise of Australian share incentive plans
Exercise of US share incentive plans
Purchase of own shares
Share-
based
payments
£000
(note 30)
foreign
currency
translation
£000
21,269
4,225
59,446
-
(831)
-
-
(41)
(26)
-
-
-
(344)
-
-
-
Own shares
held in
employee
Benefit
Trusts
£000
(note 28)
Other
reserves
£000
Total other
reserves
£000
(973)
-
-
-
-
41
-
(291)
-
-
-
(2,302)
-
-
-
-
24,596
5,005
59,102
-
(1,223)
-
(2,302)
-
(101)
-
(13)
(10)
-
-
774
-
-
-
-
-
13
-
(298)
-
-
-
-
-
79,742
4,225
(831)
(2,302)
(344)
-
(26)
(291)
80,173
5,005
(101)
774
-
(10)
(298)
At 31 may 2012
29,477
59,876
(1,508)
(2,302)
85,543
Own shares
held in
employee
Benefit
Trusts
£000
(note 28)
Share-
based
payments
£000
(note 30)
Total other
reserves
£000
15,964
4,225
(41)
(26)
-
20,122
5,005
(13)
(10)
-
(973)
-
41
-
(291)
(1,223)
-
13
-
(298)
14,991
4,225
-
(26)
(291)
18,899
5,005
-
(10)
(298)
25,104
(1,508)
23,596
company
At 1 june 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
Equity-settled employee share-based payments
Exercise of Australian share incentive plans
Exercise of US share incentive plans
Purchase of own shares
At 31 may 2012
120 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
Share incentive plan (SIP)
SIP awards are made available to all UK, Australian and USA employees. The Executive Committee has responsibility for setting the terms of
the award, which are then approved by the Remuneration Committee.
The UK and Australian awards invite all employees to subscribe for up to £1,500/ A$3,000 of partnership shares, with the Company matching
on a one-for-one basis. All matching shares vest after three years, as long as the employee remains employed with the Group for the term of
the award. Shares awarded under the scheme are held in trust in accordance with local tax authority rules. Employees are entitled to receive
dividends on the shares held in trust for as long as they remain employees.
The USA award invites employees to invest a maximum of 5% of their salary bi-annually to the award. The award runs for a six-month period,
and at the end of this period the employees are invited to purchase shares in IG Group Holdings plc at a discount of 15% to the scheme price,
being the lower of the opening share price and the closing share price for the period.
The maximum number of SIP shares that vest based on the awards made are:
country of award
UK
Australia
UK
Australia
UK
Australia
UK
Australia
Total
Share
price at
award
328.00p
284.40p
288.00p
367.42p
483.85p
489.90p
443.74p
444.77p
Award date
22 Jul 2008
27 Jan 2009
22 Jul 2009
09 Feb 2010
21 Jul 2010
05 Aug 2010
28 Jul 2011
01 Aug 2011
expected
vesting date
number at
the start of
the year
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number at
the end of
the year
22 Jul 2011
27 Jan 2012
22 Jul 2012
09 Feb 2013
21 Jul 2013
04 Aug 2013
28 Jul 2014
31 Jul 2014
56,232
2,817
43,887
4,453
53,099
4,877
-
-
-
-
-
-
-
-
62,086
4,961
(457)
(580)
(2,605)
(623)
(2,273)
(772)
(1,577)
(451)
(55,775)
(2,237)
-
(453)
-
(354)
-
-
-
-
41,282
3,377
50,826
3,751
60,509
4,510
165,365
67,047
(9,338)
(58,819)
164,255
value-sharing plan (vSP)
The VSP award was introduced during the year ended 31 May 2011 onwards to replace the long-term incentive plan award. VSP awards
are conditional awards made available to Executive Directors and other senior staff. The Remuneration Committee has responsibility for
agreeing any awards under the plan and for setting the policy for the way in which the plan should be operated, including agreeing
performance targets and which employees should be invited to participate. Participants do not pay to receive awards or to receive release
of shares. The VSP performance targets vest after three years, with a pre-defined number of shares allocated for each £10m of surplus
shareholder value created over the three-year period above a hurdle. Half of the shares vest after three years and can be exercised at that
date, with the remaining half being deferred for a further year, conditional upon continued employment at the vesting date.
The maximum number of VSP shares that vest based on the awards made are:
Award date
29 Oct 2010
29 Oct 2010
20 Jul 2011
20 Jul 2011
Total
Share
price at
award
528.50p
528.50p
450.00p
450.00p
expected
vesting date
number at
the start of
the year
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
31 Jul 2013
31 Jul 2014
31 Jul 2014
31 Jul 2015
2,229,018
2,229,084
-
-
-
-
3,571,745
3,571,725
(176,264)
(176,272)
(183,810)
(183,807)
4,458,102
7,143,470
(720,153)
-
-
-
-
-
number at
the end of
the year
2,052,754
2,052,812
3,387,935
3,387,918
10,881,419
121
noteS to tHe FInAnCIAl StAteMentS
(continued)
Notes to the financial statements
30. EMPLOYEE ShArE PLAnS (continued)
Long-term incentive plan (LTIP)
LTIP awards were made available to Executive Directors and other senior staff in the years ended 31 May 2005 to 31 May 2010, and were
then replaced by the VSP award.
LTIP awards allowed the award of nil-cost or nominal-cost shares which were legally classified as options and vested when specific
performance targets were achieved, conditional upon continued employment at the vesting date. For each award a minimum performance
target has to be achieved before any shares vest, and the awards vest fully once the maximum performance target is achieved.
The maximum number of LTIP shares that vest based on the awards made are:
The weighted average fair values per award granted are as follows:
Year ended 31 May 2012
Year ended 31 May 2011
At the start
of the year
Awarded
during the
year
Lapsed
during the
year
exercised
during the
year
At the end
of the year
266.29p
263.86p
188.44p
217.70p
279.09p
223.90p
351.34p
261.57p
266.26p
266.29p
31. CAPITAL COMMITMEnTS
Capital expenditure contracted for at the year-end but not yet incurred is as follows:
Award date
16 May 2005
07 Aug 2006
04 Oct 2006
23 Jul 2007
14 Aug 2007
21 Aug 2007
30 Sep 2008
25 Sep 2009
Total
Share
price at
award
112.25p
217.00p
261.75p
312.25p
311.00p
304.00p
313.75p
318.80p
expected
vesting date
number at
the start of
the year
number
awarded
during the
year
number
lapsed
during the
year
number
exercised
during the
year
number at
the end of
the year
21 Jul 2008
07 Aug 2009
04 Oct 2009
23 Jul 2010
14 Aug 2010
21 Aug 2010
30 Sep 2011
25 Sep 2012
40,666
4,037
32,639
222,628
14,700
48,331
2,691,343
3,302,399
6,356,743
-
-
-
-
-
-
-
-
-
-
(4,037)
-
-
-
-
(1,619,929)
-
(40,666)
-
-
(11,944)
-
(48,331)
(980,528)
(119,982)
-
-
32,639
210,684
14,700
-
90,886
3,182,417
(1,623,966)
(1,201,451)
3,531,326
Further information on the Company’s VSP and LTIP awards is given in the Directors’ remuneration report.
Fair value of equity-settled awards
The fair value of the 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 £19,025,911 (2011: £16,492,467).
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 VSP awards made under the growth in profit before tax criteria, the fair value is determined to be the share price at the date of grant after a
deduction for the expected present value of future dividends, over the vesting period. For VSP awards made under the Total Shareholder Return
(TSR) criteria, fair value is calculated using a Monte Carlo pricing model. Please refer to the Directors’ remuneration report for more information.
The inputs below were used to determine the fair value of the VSP award issued on 20 July 2011:
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 expected volatility (%)
Benchmark index expected volatility (%)
Expected dividend yield (%)
450.00
1,671
2.7
1.12
47
33
4.2
Property, plant and equipment
Intangible assets
group
2012
£000
470
603
2011
£000
879
345
1,073
1,224
32. OBLIGATIOnS unDEr LEASES
Operating lease agreements
The Group and Company have entered into commercial leases on certain properties. 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
33. TrAnSACTIOnS WITh DIrECTOrS
The Group had no transactions with its Directors.
2012
£000
2011
£000
2,712
12,917
20,829
3,259
13,281
19,918
36,458
36,458
2012
£000
2011
£000
512
8,949
17,626
-
6,500
16,079
27,087
22,579
122 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
123
noteS to tHe FInAnCIAl StAteMentS
(continued)
34. rELATED PArTY TrAnSACTIOnS
34(a) Group
There were no related party transactions during the year. During the prior year, fees amounting to £10,583 were paid to CVC Capital
Partners Limited relating to the services of Robert Lucas as a Director of IG Group Holdings plc.
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
2012
£000
4,229
185
1,689
6,103
2011
£000
1,895
214
1,210
3,319
34(b) Company
The Company pays for certain expenses incurred by subsidiaries and received preference dividends from IG Group Limited of
£128.9 million (2011: 120.8 million).
The Company had the following amounts outstanding with subsidiaries at the year-end:
Notes to the financial statements
35. FInAnCIAL InSTruMEnTS
Accounting classifications and fair values – Group
The table below sets out the classification of each class of financial assets and liabilities and their fair values (excluding accrued interest).
The Group considers the carrying value of all financial assets and liabilities to be a reasonable approximation of fair value and represents
the Group’s maximum credit exposure without taking account of any collateral held or other credit enhancements.
‘Cash and cash equivalents’ represent cash held on demand and on deposit with financial institutions (note 20).
‘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 (ie 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.
Loans to related parties
Loans from related parties
2012
£000
144,190
26,759
2011
£000
63,688
2,255
‘Redeemable preference shares’ are disclosed in note 26.
The Group’s financial instruments are classified as follows:
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 2012
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
Trade receivables – other amounts due from clients
Financial liabilities
Trade payables – due to title transfer clients
Redeemable preference shares
fVTpL -
held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
fair value
£000
-
228,156
(6,244)
(4,599)
175,710
42,130
(10,843)
-
-
217,840
2,425
12,920
(10,843)
461,341
-
-
-
-
-
-
-
228,156
228,156
169,466
37,531
206,997
2,425
12,920
169,466
37,531
206,997
2,425
12,920
450,498
450,498
-
-
-
-
-
-
59,852
40
59,852
40
59,852
40
59,892
59,892
59,892
124 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
125
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
2011
£000
gains or
losses in
revenue(1)
£000
cash
settled
positions(2)
£000
Transfers
£000
At 31 may
2012(3)
£000
-
18,077
(18,077)
-
-
(1) Disclosed in trading revenue in the income statement. This represents client positions that have closed in the year as well those open at the year-end
(2) Value of client positions that have cash settled in the year
(3) Value of open, unsettled client positions at the year-end disclosed in trading revenue in the income statement
The impact of a reasonably possible alternative valuation assumption on the valuation of ‘trade payables – due to clients’, reported within
Level 3 of the valuation hierarchy, is not significant.
Accounting classifications and fair values – Company
As at 31 May 2012, the Company held cash and cash equivalents of £151,000 (2011: £304,000) classified as ‘loans and receivables’ and
redeemable preference shares of £40,000 (2011: £40,000) classified as ‘other amortised cost’.
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 £366,971,000
(2011: £320,392,000).
Finance income (refer to note 9) totalled £2,487,000 (2011: £2,403,000). An amount of £2,181,000 (2011: £2,020,000) 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 (refer to note 10) totalled £2,283,000 (2011: £2,432,000). An amount of £1,042,000 represents interest expense on financial
liabilities not at fair value through profit or loss (2011: £1,347,000). The remainder, £1,241,000 (2011: £1,085,000) represents fee expense
arising from maintaining the Group’s committed bank facilities.
noteS to tHe FInAnCIAl StAteMentS
(continued)
35. FInAnCIAL InSTruMEnTS (continued)
Accounting classifications and fair values – Group (continued)
group (restated)
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 title transfer clients
Trade payables – other amounts 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
-
-
-
-
-
-
-
-
71,453
11,639
40
71,453
11,639
40
71,453
11,639
40
83,132
83,132
83,132
Financial instrument valuation hierarchy
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
group
As at 31 may 2012
Financial assets
Trade receivables – due from brokers
Level 1(1)
£000
Level 2(2)
£000
Level 3(3)
£000
Total fair
value
£000
(4,599)
(6,244)
-
(10,843)
(1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes the Group’s exchange-traded open hedging positions
(2) Valued using techniques where a price is derived based significantly on observable market data. For example, where an active market for an identical financial instrument to
the product offered by the Group to its clients or used by the Group to hedge its market risk does not exist
(3) Valued using techniques that incorporate information other than observable market data that is significant to the overall valuation
There have been no changes in the valuation techniques for any of the Group’s financial instruments held at fair value in the year. During
the year ended 31 May 2012, there were no transfers (2011: none) 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 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
(5,607)
-
(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 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
(3) Valued using techniques that incorporate information other than observable market data that is significant to the overall valuation
126 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
127
noteS to tHe FInAnCIAl StAteMentS
(continued)
Notes to the financial statements
36. FInAnCIAL rISK MAnAGEMEnT
Responsibility for risk management, including financial risks, resides at all levels within the Group, starting with the Board.
Our Corporate Governance Framework, 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.
The Group’s Internal Capital Adequacy Assessment Process (ICAAP) provides an ongoing assessment of the risks the Group believes have
the potential to have a significant detrimental impact on its financial performance and future prospects, and describes how the Group
mitigates these risks subject to the Group’s risk appetite.
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 was £16,535,000 (2011: £14,877,000), against an exposure limit of £16,500,000 (2011: £16,500,000)
and an average equity exposure limit for the year of £16,500,000 (2011: £16,500,000). As noted earlier in this section, the Group’s market risk
policy requires that when exposure exceeds the exposure limit hedging is undertaken to bring the exposure back within that limit as soon
as practical.
Financial risks arising from financial instruments are analysed into market, credit, concentration and liquidity risks, and these are discussed below.
The Group has no significant concentration of market risk.
(i) Market risk
Market risk is the risk that changes in market prices will affect the Group’s income or the value of its holdings of financial instruments.
This is analysed into market price, currency and interest rate risk components.
The Group’s market risk is managed 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 in which it offers products, up to the market
risk limit.
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 represent
the maximum long and short client exposure that the Group will hold without hedging the net client exposure.
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 is not significant, being less than the Group’s average daily net trading revenue from financial instruments
(2012: £1,401,000; 2011: £1,252,000). Changes in risk variables have no direct impact on the Group’s equity, as the Group has
no financial instruments classified as available for sale, or designated in hedging relationships.
Other market price risk:
The Group also has market price risk as result of its trading activities (offering bets and contracts for difference 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 is as follows:
2012
£000
11,278
6,717
2011
£000
21,332
10,261
The Group’s real-time market position monitoring system allows it to monitor its market exposure against these limits continuously.
If exposure exceeds these limits, the policy requires that hedging is undertaken to bring the exposure back within the defined limit.
Interest rate derivatives
Commodities
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 residual 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) 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.
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.
(b) foreign currency risk
The Group is exposed to two sources of foreign currency risk:
(i) Translational foreign currency risk
Translation exposures arise from financial and non-financial items held by an entity with a functional currency different from the Group’s
presentation currency. The functional currency of each company in the Group is that denominated by the country of incorporation as
disclosed in note 17. The Group does not hedge translational exposures as they do not have a significant impact on the Group’s
capital resources.
(ii) Transactional foreign currency risk
Transactional foreign currency exposures represent financial assets or liabilities denominated in currencies other than the functional
currency of the transacting entity. Transaction exposures arise in the normal course of business, and the management of this risk forms
part of the risk policies outlined above. Limits on the exposures which the Group will accept in each currency are set by the Risk
Committee, and the Group hedges its exposures as necessary with market counterparties. Foreign currency risk is managed on a
Group-wide basis, while the Company’s exposure to foreign currency risk is not considered by the Directors to be significant.
128 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
129
noteS to tHe FInAnCIAl StAteMentS
(continued)
36. FInAnCIAL rISK MAnAGEMEnT (continued)
(i) 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 and bets and trades on foreign currencies. The Group’s net exposure to
foreign exchange risk based on notional amounts at each year-end was as follows:
US dollar
Euro
Australian dollar
Yen
Other
2012
£000
2,773
(8,037)
(5,348)
39
4,046
2011
£000
(212)
351
(1,134)
5,711
4,593
No sensitivity analysis is presented for foreign exchange risk, as the impact of reasonably possible market movements on the Group’s net
trading revenue are not significant. Changes in risk variables have no direct impact on the Group’s equity, as the Group has no financial
instruments designated in hedging relationships.
(c) non-trading interest rate risk
The Group also has interest rate risk relating to financial instruments not held at fair value through profit and loss. These exposures are
not hedged.
The interest rate risk profile of the Group’s financial assets and liabilities as at each year-end was as follows:
group
fixed-rate
Redeemable preference shares (8%)
floating-rate
Cash and cash equivalents
Trade receivables – due from brokers
Trade payables – amounts due to clients
Within 1 year
2012
£000
2011
£000
(restated)
more than 5 years
2011
£000
(restated)
2012
£000
Total
2012
£000
2011
£000
(restated)
-
-
(40)
(40)
(40)
(40)
228,156
206,997
(59,852)
124,528
267,792
(71,453)
-
-
-
-
-
-
228,156
206,997
(59,852)
124,528
267,792
(71,453)
375,301
320,867
(40)
(40)
375,261
320,827
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% (2011: 0.25%) per annum fall and a 0.75% (2011: 0.75%) 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 £2.0 million (2011: £1.6 million) per annum. The impact of such a rise
in interest rates would increase net interest income on segregated client funds by approximately £5.5 million (2011: £5.3 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
(ii) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation. The Group’s credit risk is managed on a Group-wide basis.
The Group’s principal sources of credit risk are financial institution and client credit risk.
(a) financial institution credit risk
Financial institution credit risk is managed in accordance with the Group’s counterparty credit management policy.
Financial institutional counterparties are subject to a credit review when a new relationship is entered into, and this is updated semi-
annually (or more frequently as required, eg on change in the financial institution’s corporate structure or a change in its external credit
rating or credit default swap (CDS) price). 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 direct 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 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 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, 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. In such cases the Group will seek to use the best available counterparty. These are also the target minimum ratings
for the Group’s own bank accounts held with financial institutions. 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, the majority of deposits are 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, and deposits of an unbreakable nature or requiring notice are only
held with a subset of counterparties which have been approved by the Risk Committee.
(b) client credit risk
The Group operates a real-time mark-to-market trading platform, with client profits and losses being constantly updated on each client’s 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, ie 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 programme 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.
130 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
131
noteS to tHe FInAnCIAl StAteMentS
(continued)
36. FInAnCIAL rISK MAnAGEMEnT (continued)
(ii) Credit risk (continued)
Clients subject to the Group’s ‘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 subject to
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 results in significantly improved client liquidation times
and reduced credit risk exposure for the Group.
In addition, a subset of clients has what are known as ‘limited risk’ accounts. For such accounts a level is set in advance (the guaranteed
stop level) at which the deal will be closed, 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 each 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.
Although it is no longer offered to new clients, the Group still has a significant number of clients with this type of account. This type of
account results in the transfer of an element of market risk to the Group, which is managed under the Group’s market risk policy, and this
type of trade is not available on all products. Clients with any type of account may still choose to use guaranteed stops where available.
The majority of client positions are monitored on the Group’s real-time COM system, or are limited risk accounts with guaranteed stop-
losses. As at 31 May 2012, 98.9% (2011: 98.8%) of financial client accounts are subject to the automatic COM procedure or are limited
risk accounts.
Credit accounts
Clients holding other types of accounts are permitted to deal in circumstances where they may be capable of suffering losses greater than
the funds they have deposited on their account, or in limited circumstances are allowed credit. The Group has a formal credit policy which
determines the financial and experience criteria which a client must satisfy before being given an account which exposes the Group to
credit risk, including trading limits for each client and strict margining rules.
The Group may offer credit limits, with the result any ‘open loss’ can be paid subject to agreed credit terms. These accounts typically only
create a credit exposure when the client’s loss exceeds their initial margin deposit.
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 limit is active on the account, subject to the credit limit.
Credit limits are only granted following provision by the client of evidence of their available financial resources, and credit accounts limits
are continuously reviewed by the Group’s credit department. 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 a potential margin requirement of up to 90% of the value of the notional client position for large client positions, but a
reduced margin requirement for smaller client positions.
These tiered margins, in addition to the COM discussed earlier, contribute to the further mitigation of the Group’s client counterparty
credit risk exposure.
Management of non-cash client collateral
The Group also accepts non-cash 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.
132 | IG GROUP HOLDINGS PLC | 2012 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, eg 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; running losses on open positions are not
covered under the agreement and are required to be covered by cash as part of the normal margining process.
The fair value of collateral held at 31 May 2012 against amounts due from clients was £3,864,000 (2011: £5,788,000).
The following tables present further detail on the Group’s and the Company’s exposure to credit risk. External credit ratings (Standard and
Poor’s long-term ratings or equivalent) are available for exposures to brokers and banks, and these are shown. No external credit rating of
clients 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 trade receivables
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 individual 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
2012
£000
2011
£000
Trade receivables –
due from brokers
2011
£000
2012
£000
Trade receivables –
due from clients
collateral held at
fair value
2012
£000
2011
£000
2012
£000
2011
£000
group
(note 20)
(note 19)
(note 19)
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
CCC
Unrated
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
509
223,606
3,469(1)
234
16
322
-
28,420
89,489
5,954(1)
420
-
245
-
54,839
149,758
-
-
-
-
75,814
189,035
638
-
-
2,400(1)
2,305(1)
228,156
124,528
206,997
267,792
Total carrying amount
228,156
124,528
206,997
267,792
(1) Balances are primarily related to the Group’s operations in South Africa
Prepayments and other receivables are all unrated (2011: all unrated).
17,853
(17,202)
19,408
(18,382)
651
1,026
246
-
-
61
-
307
-
-
-
-
-
-
1,467
1,467
2,425
523
-
-
-
-
523
-
-
-
-
-
-
763
763
2,312
-
-
-
-
-
-
-
-
-
1,152
22
541
885
-
-
1,264
3,864
3,864
-
-
-
-
-
-
-
-
-
3,509
161
757
751
102
-
508
5,788
5,788
133
Notes to the financial statements
The Group’s largest credit exposure to any one individual broker at 31 May 2012 was £55,145,000 (AA rated), or 26% of the exposure to all
brokers (2011: £73,312,000, AA rated, 27%). Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at
31 May 2012 was £69,818,000 (A+ rated), or 31% of the exposure to all banks (2011: £39,116,000, A+ rated, 31%). The Group has no
significant exposure to any one particular client or group of connected clients.
All of the Company’s credit exposures arise in the UK at both 31 May 2012 and 31 May 2011.
(iv) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by
delivering cash or other financial assets.
Management of liquidity risk
Liquidity risk is managed centrally and on a Group-wide basis. The Group’s approach to managing liquidity is to ensure it will have
sufficient liquidity to meet its broker margin requirements and other financial liabilities when due, under both normal circumstances and
stressed conditions. The Group 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 individual 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 individual client positions are open, as individual 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 (2011: £180.0 million) and, other than for
testing purposes, were not drawn upon during the current nor preceding financial year. As well as the three-year liquidity forecast, the
Group also produces more detailed short-term liquidity forecasts and detailed stress tests.
Additionally the Group’s Japanese business, IG Markets Securities, has a Yen 300 million (£2.5 million) liquidity facility as at 31 May 2012.
noteS to tHe FInAnCIAl StAteMentS
(continued)
36. FInAnCIAL rISK MAnAGEMEnT (continued)
(ii) 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 year:
group
Balance at 1 June
Impairment loss for the year
- gross charge for the year
- recoveries
Write-offs
Foreign exchange
Balance at 31 May
2012
£000
2011
£000
18,382
21,461
2,337
(1,226)
(1,779)
(512)
1,159
(3,321)
(1,172)
255
17,202
18,382
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 34(b). The Company is not otherwise exposed to material amounts of credit risk.
(iii) Concentration risk
Concentration risk is defined as all risk exposures with a loss potential which is large enough to threaten the solvency or the financial
position of the Group. In respect of financial risk, such exposures may be caused by credit risk, market risk, liquidity risk or a combination or
interaction of those risks.
The following table analyses the Group’s credit exposures, at their carrying amounts, by geographical region, and excludes individual 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 2012
Financial assets
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
Total financial assets
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
UK
£000
europe
£000
Australia
£000
japan
£000
Rest of
World
£000
Total
£000
40,090
71,001
2,134
111,814
71,306
141
69,824
20,741
150
113,225
183,261
90,715
5,014
-
-
5,014
1,414
43,949
-
228,156
206,997
2,425
45,363
437,578
UK
£000
europe
£000
Australia
£000
japan
£000
Rest of
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
134 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
135
noteS to tHe FInAnCIAl StAteMentS
(continued)
36. FInAnCIAL rISK MAnAGEMEnT (continued)
(iv) Liquidity risk (continued)
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
Add back / (less) other amounts due from / (to) clients(1)
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(2)
Total available liquidity (including facilities)
2012
£000
2011
£000
(restated)
228,156
206,997
12,920
124,528
267,792
(11,639)
448,073
380,681
388,221
59,852
309,228
71,453
448,073
(195,954)
380,681
(217,360)
252,119
(59,852)
192,267
(60,769)
180,000
163,321
(71,453)
91,868
(53,051)
180,000
311,498
218,817
Amounts payable on demand
As at 31 may 2012
Financial assets
Cash and cash equivalents
Trade receivables – due (to) / from brokers
Trade receivables – other amounts due from clients
Trade receivables – amounts due from clients
Financial liabilities
Trade payables – due to clients
Notes to the financial statements
derivative
£000
non-
derivative
£000
Total
£000
-
(10,843)
-
-
228,156
217,840
12,920
2,425
228,156
206,997
12,920
2,425
(10,843)
461,341
450,498
-
(61,076)
(61,076)
(10,843)
400,265
389,422
Derivative trade receivables and payables 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.
(1) The comparative amount has been restated to disclose ‘other amounts due from / (to) clients’ which represent balances that will be transferred from the Group’s own cash into
segregated client funds on the immediately following working day in accordance the UK’s Financial Services Authority (FSA) ‘CASS’ rules and similar rules of other regulators in
whose jurisdiction the Group operates
(2) Drawdown of the committed banking facilities is capped at 80% of the actual broker margin requirement on the drawdown date. For example the actual committed facilities
available for drawdown at 31 May 2012 based on the year-end broker margin requirement of £196.0 million were £156.8 million. Available drawdown of £156.8 million facility
equates to total available liquidity as at 31 May 2012 of £288.3 million
The Group’s available cash resources enable the funding of large broker margin requirements when required – the level of available
cash resources at 31 May 2012 should be considered in the light of the intra-year high broker margin requirement of £277.1 million, the
continued growth of the business and the Group’s commitment to segregation of individual clients’ money, as well as the final proposed
2012 dividend, all of which draw upon available cash resources. 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
Restated
As at 31 may 2011
Financial assets
Cash and cash equivalents
Trade receivables – due (to) / from brokers
Trade receivables – amounts due from clients
Financial liabilities
Trade payables – due to clients
Trade payables – other amounts 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
-
-
(71,851)
(11,639)
(71,851)
(11,639)
(5,064)
316,206
311,142
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 2012 and 2011,
as disclosed in note 26.
Derivative and non-derivative cash flows by remaining contractual maturity – Company
There were no Company derivative cash flows as at 31 May 2012 (2011: £nil).
At 31 May 2012 the Company held cash and cash equivalents of £151,000 (2011: £304,000) available on demand, and redeemable
preference shares of £40,000 (2011: £40,000), the terms of which are disclosed in note 26.
136 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
137
noteS to tHe FInAnCIAl StAteMentS
(continued)
37. 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 operations 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 2011 ICAAP was approved by the Board in January
2012. 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.
The following table summarises the Group’s capital adequacy on
a consolidated basis:
£m
Total Tier 1 capital
Less intangible assets
Less investment in own shares
2012
2011
448.7
(115.4)
(1.5)
380.1
(115.3)
(1.2)
Total capital resources (CR)
331.8
263.6
Capital resources requirement (CRR)
(100.4)
(89.6)
Surplus
231.4
174.0
CR expressed as a % of CRR
330.5%
294.2%
38. SuBSEQuEnT EvEnTS
On 17 July 2012, Andrew MacKay, Director of Corporate Strategy,
announced his decision to step down from the Board with effect
from 31 July 2012, as noted in the Chairman’s statement and Chief
Executive’s review.
39. AuThOrISATIOn OF FInAnCIAL STATEMEnTS
AnD STATEMEnT OF COMPLIAnCE WITh IFrS
The financial statements of IG Group Holdings plc (the Company)
and its subsidiaries (together the Group) for the year ended
31 May 2012 were authorised for issue by the Board of Directors
on 17 July 2012, 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
International Financial Reporting Interpretations Committee
(IFRIC) interpretations as they apply to the financial statements of
the Group and of the Company for the year ended 31 May 2012,
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 40.
40. ACCOunTInG POLICIES
Basis of preparation
The accounting policies which follow have been applied in
preparing the financial statements for the year ended 31 May 2012.
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 £127,932,000
(2011: £122,278,000). 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 (2011: £nil).
The Group and Company financial statements are presented in
sterling and all values are rounded to the nearest thousand pounds
(£000), except where otherwise indicated.
Going concern
The Directors have prepared the financial statements on a going
concern basis, which requires the Directors to have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
Notes to the financial statements
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 17.
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 intercompany 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 contract 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 17)
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.
138 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
139
noteS to tHe FInAnCIAl StAteMentS
(continued)
40. 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 expense 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
140 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
Business combinations are accounted for using the purchase
method. Any excess of the cost of the business combination over
the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities is recognised in the statement
of financial position as goodwill and is not amortised. To the
extent that the net fair value of the acquired entity’s identifiable
assets, liabilities and contingent liabilities is greater than the cost
of the investment, a gain is recognised immediately in the income
statement. Any goodwill asset arising on the acquisition of equity
accounted entities is included within the cost of those entities.
After initial recognition, goodwill is stated at cost less any
accumulated impairment losses, with the carrying value being
reviewed for impairment, at least annually and whenever events
or changes in circumstances indicate that the carrying value may
be impaired.
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.
Notes to the financial statements
Intangible assets with a finite life are amortised over their
expected useful lives, as follows:
Development costs
Software and licences
- straight-line basis over 3 years
- straight-line basis over the contract
Trade names
Client lists and
customer relationships
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, 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.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less accumulated
impairment losses.
Operating leases
Leases are classified as operating leases where the lessor retains
substantially all the risks and benefits of ownership of the asset.
Lease payments under an operating lease are recognised as
an expense on a straight-line basis over the lease term, unless
another systematic basis is more representative of the time
pattern of the user’s benefit.
Financial instruments
The Group determines the classification of its financial
instruments at initial recognition in accordance with the
categories outlined below, and re-evaluates this designation
at each financial year-end. When financial instruments are
recognised initially, they are measured at fair value, being
the transaction price plus, in the case of financial assets and
financial liabilities not at fair value through profit or loss, directly
attributable transaction costs. Financial instruments are disclosed
in note 35 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.
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.
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.
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.
141
noteS to tHe FInAnCIAl StAteMentS
(continued)
40. ACCOunTInG POLICIES (continued)
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.
Level 3: valued using techniques that incorporate information
other than observable market data that is significant to the
overall valuation.
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, or 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.
recognition of a new liability, such that the difference in the
respective carrying amounts together with any costs or fees
incurred are recognised in profit or loss.
Trade receivables and trade payables
Assets or liabilities resulting from profit or losses on open
positions are carried at fair value. Amounts due from or to clients
and brokers are netted against other assets and liabilities with
the same counterparty, where a legally-enforceable netting
agreement is in place, and where it is anticipated that assets and
liabilities will be netted on settlement.
Trade receivables represent balances with counterparties and
clients where the combination of cash held on account and
the valuation of financial derivative open positions result in
an amount due to the Group. A provision for impairment is
established where there is objective evidence of
non-collectability. Reference is made to an aged profile of debt
and the provision is subject to management review.
Trade payables represent balances with counterparties and
clients where the combination of cash held on account and
the valuation of financial derivative open positions results in an
amount payable by the Group.
Prepayments and other receivables
Prepayments and other receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted
in an active market, do not qualify as trading assets and have not
been designated as fair value through profit and loss. Such assets
are carried at amortised cost using the effective interest method,
if the time value of money is significant. Gains and losses are
recognised in income when the receivables are derecognised or
impaired, and when economic benefit is consumed. A provision
for impairment is established where there is objective evidence of
non-collectability.
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.
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.
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
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 individual client funds
held in segregated client money accounts or money market
Notes to the financial statements
facilities. Segregated client money accounts hold statutory trust
status, restricting the Group’s ability to control the monies, and
accordingly such amounts and 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 20 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, when it is
probable that an outflow of resources will be required to settle the
obligation, and when the amount can be reliably estimated. Where
material, provisions are discounted and recognised at the present
value of expenditures expected to settle the obligation, with the
unwind of the discount recognised as an interest expense.
Taxation
The income tax expense represents the sum of tax currently
payable and movements in deferred tax.
The tax currently payable is based on taxable profit for the period.
Taxable profit differs from net profit, as reported in the income
statement, because it excludes items of income or expense that
are taxable or deductible in other periods, and it further excludes
items that are never taxable or deductible. The Group’s liability
for current tax is calculated using tax rates in the respective
jurisdictions that have been enacted or substantively enacted by
the statement of financial position date.
Deferred tax is 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.
Classification of shares as debt or equity
When shares are issued, any component that creates a financial
liability of the Group is presented as a liability in the statement of
financial position, measured initially at fair value net of transaction
costs, and thereafter at amortised cost until extinguished on
conversion or redemption. The corresponding dividends relating
to the liability component are charged as interest expense in the
income statement.
Equity instruments issued by the Company are recorded as the
proceeds received, net of direct issue costs. Equity instruments
are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Own shares held in Employee Benefit Trusts
Shares held in trust by the Company for the purposes of
employee share schemes are classified as a deduction from
shareholders’ equity and are recognised at cost. Consideration
received for the sale of such shares is also recognised in equity,
with any difference between the proceeds from the sale and the
original cost being taken to revenue reserves. No gain or loss is
recognised in the income statement on the purchase, sale, issue
or cancellation of equity shares.
142 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
143
noteS to tHe FInAnCIAl StAteMentS
(continued)
40. ACCOunTInG POLICIES (continued)
revenue recognition
Trading revenue represents gains and losses arising on client
trading activity, primarily in financial spread betting, contracts
for difference, or binary 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.
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.
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.
Interest expense on segregated client funds is disclosed within
operating profit, as this is consistent with the nature of the
Group’s operations.
Trading revenue is reported gross of introducing 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 client
funds 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.
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.
Dividends receivable are recognised when the shareholders’ 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
144 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
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.
Dividends
Dividend distribution to the company’s shareholders is recognised
as a liability in the Group’s financial statements in the period in
which the dividends are approved by the Company’s shareholders.
Income statement presentation -
discontinued operations
Discontinued operations consist of a single major line of business
or a geographical area that have either been closed or sold during
the period or are classified as held for sale at the year-end.
In the year ended 31 May 2012, the Group’s Sport business has
been disclosed as a discontinued operation and the comparative
balances restated accordingly. The financial performance and cash
flows of discontinued operations are separately reported in note 12.
Share-based payments
The Company operates three employee share plans: a share
incentive plan, a value-sharing plan, and a long-term incentive
plan (the last award of which was made in 2010), all of which
are equity-settled. The costs of these awards are measured at
fair value calculated using option pricing models (refer to the
share based payment note for additional detail of the models
and assumptions used for the various award schemes) and are
recognised as an expense in the income statement on a straight-
line basis over the vesting period, based on the Company’s
estimate of the number of shares that will eventually vest.
At each statement of financial position date before vesting,
the cumulative expense is calculated, representing the extent
to which the vesting period has expired and management’s
best estimate of the achievement or otherwise of non-market
conditions determining the number of equity instruments that
Notes to the financial statements
will ultimately vest. The movement in cumulative expense since
the previous statement of financial position date is recognised in
the income statement as part of administrative expenses, with a
corresponding entry in equity.
The following new standards and interpretations are also effective
for accounting periods beginning 1 June 2011 but have not had a
material impact on the presentation of, nor the results or financial
position of, the Group:
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.
IFRIC 14 prepayments of a minimum funding requirement
(effective January 2011)
IFRIC 19 extinguishing financial liabilities with equity
instruments
Other new standards, amendments and interpretations, including
those listed below, have been issued but are not effective for
accounting periods beginning 1 June 2011 and have not been
early adopted by the Group:
IFRS 9 financial instruments, issued in November 2009,
amended 2010. 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 2015 and has not yet been endorsed
by the EU. The Group has yet to assess the impact of IFRS 9
IFRS 13 fair value measurement (effective 1 January 2013)
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 and are not reported to the CODM.
IFRS 10 consolidated financial statements (effective
1 January 2013)
IFRS 11 joint arrangements (effective 1 January 2013)
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 2011,
other than the presentational changes referred to in note 1.
new and amended standards adopted by the Group
The Group has adopted the following new or amended standards
as of 1 June 2011:
Amendment to IFRS 7 (revised) financial instruments:
disclosures. The amended standard introduces additional
disclosures in relation to the transfers of financial assets
IAS 24 (revised) related party disclosures, issued in November
2009 (effective 1 January 2011). This standard clarifies
the definition of a related party and includes an explicit
requirement to disclose commitments involving related parties
IFRS 12 disclosure of interests in other entities (effective
1 January 2013)
IAS 19 (revised 2011) employee benefits (effective 1 January
2013)
Amendment to IFRS 7 financial instruments: disclosures
(effective 1 July 2013)
IAS 32 financial instruments: presentation (effective
1 January 2014)
Amendment to IAS 12 income taxes on deferred tax assets or
liabilities on investment property (effective 1 January 2012)
Amendment to IAS 1 presentation of financial statements on
OCI (effective 1 July 2012)
IAS 28 investment in associates and joint ventures (effective 1
January 2013)
Amendment to IFRS 7 disclosures - offsetting financial assets
and financial liabilities (effective 1 January 2013)
The new standards and amendments listed above are not
expected to have a material impact on the Group or Company.
145
Investor Resources and Other Information
INVESTOR
RESOURCES
AND OTHER
INFORMATION
FIvE-YEAr SuMMArY
ExAMPLE: BuYInG A SPrEAD BET
ExAMPLE: SELLInG A COnTrACT FOr DIFFErEnCE
GLOSSArY OF TErMS
GLOBAL OFFICES
ShArEhOLDEr AnD COMPAnY InFOrMATIOn
CAuTIOnArY STATEMEnT
148
152
154
156
158
160
161
147
146 | 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
2012 (1)
£000
2011 (1)
£000
2010
£000
2009
£000
366,812
2,358
312,721
5,875
298,551
1,172
257,089
377
369,170
(172,897)
318,596
(145,075)
299,723
(133,782)
257,466
(126,380)
2008
£000
184,008
(621)
183,387
(84,894)
196,273
173,521
165,941
131,086
98,493
(10,760)
(10,308)
(8,654)
(6,423)
(4,922)
185,513
163,213
157,287
124,663
93,571
2,487
(2,283)
2,403
(2,411)
2,664
(2,312)
2,887
(1,678)
4,047
(628)
Adjusted profit before taxation
185,717
163,205
157,639
125,872
96,990
Amortisation and impairment of intangibles
arising on consolidation
-
(150,703)
(17,298)
(14,613)
-
Profit before taxation from continuing operations
185,717
12,502
140,341
111,259
96,990
Tax expense
Loss from discontinued operations
Profit / (loss) for the year
(48,583)
(32,792)
(38,855)
(32,607)
(29,702)
(374)
(5,002)
-
-
-
136,760
(25,292)
101,486
78,652
67,288
(1) The 2012 and 2011 numbers have been restated to remove the discontinued Sport business and present as a discontinued operation
Investor resources and other information: Five-year summary
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
2012
£000
2011
£000
2010
£000
2009
£000
2008
£000
15,555
115,366
11,915
16,761
117,202
11,264
9,632
265,328
14,264
11,632
260,607
7,562
9,824
112,056
8,053
142,836
145,227
289,224
279,801
129,933
222,342
9,745
228,156
270,104
8,199
124,528
206,243
7,084
128,097
183,085
4,928
99,407
263,323
5,690
102,759
460,243
402,831
341,424
287,420
371,772
603,079
548,058
630,648
567,221
501,705
61,076
64,815
1,353
28,652
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
155,896
167,126
142,738
154,528
256,949
-
-
40
40
-
1,991
40
11,463
1,779
40
16,740
-
40
2,031
13,282
16,780
-
-
40
40
155,936
169,157
156,020
171,308
256,989
446,997
146
378,700
201
471,449
3,179
393,364
2,549
244,676
40
447,143
378,901
474,628
395,913
244,716
TOTAL eQUITY And LIABILITIeS
603,079
548,058
630,648
567,221
501,705
Each of the summary statements 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 May 2012.
148 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
149
FIVe-YeAR SuMMARY (continued)
OThEr METrICS
for the year ended 31 may
earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
Basic earnings / (loss) per share
Diluted earnings / (loss) per share
dividend per share
Interim dividend per share
Final dividend per share
Total dividend per share
Dividend payout ratio (against basic adjusted EPS)
profit margin
Adjusted profit before taxation margin(3)
EBITDA margin(4)
2012(1)
2011(2)
2010
2009
2008
37.90p
37.54p
37.90p
37.54p
5.75p
16.75p
22.5p
60.0%
32.86p
32.57p
(5.66p)
(5.66p)
5.25p
14.75p
20.0p
61.4%
50.6%
53.5%
52.2%
55.5%
30.98p
30.77p
28.19p
28.00p
5.0p
13.5p
18.5p
59.7%
52.8%
55.6%
24.85p
24.74p
22.42p
22.31p
4.0p
11.0p
15.0p
60.4%
49.0%
51.0%
20.62p
20.28p
20.62p
20.28p
3.0p
9.0p
12.0p
58.2%
52.7%
53.5%
(1) EPS presented for the continuing business. In the year ended 31 May 2012, there has been no amortisation or impairment of intangible assets associated with the Group’s
Japanese business and therefore adjusted and unadjusted EPS measures are equivalent
(2) 31 May 2011 figures have been restated for the continuing business only and exclude the discontinued Sport business
(3) Calculated as adjusted profit before tax divided by net trading revenue. For 31 May 2012 this is based on unadjusted profit before tax
(4) Calculated as EBITDA divided by net trading revenue
Investor resources and other information: Five-year summary
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
2012
2011
2010
2009
2008
2,560
143,304
67,593
48,029
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
CLIEnT METrICS – ExCLuDInG IG MArKETS SECurITIES (FOrMErLY FxOnLInE)
for the year ended 31 may
2012
2011
2010
2009
2008
Average revenue per financial client (£)
Number of active financial clients
Number of financial accounts opened
Number of financial accounts dealing for the first time
2,695
130,006
61,988
45,292
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
150 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
151
eXAMple
‘BUyING’ A SPREAD BET
InTrODuCTIOn
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 then 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 any 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 2
£0
£723
£277
initial deposit
available funds
1000
400
600
800
200
When you open the position, you are required to have the initial
0
£723 deposit requirement in your account. The available funds
in your account will therefore fall from £1,000 to £277 (ie £1,000
– £723). 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 of the bet. It is important to note that
the £723 is held as a deposit against the risk of the open position
and will be released on the closing of the position: it is still your
money but is not available for withdrawal from the account whilst
the position is open.
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.
Step 1
Opening the position
market price
A plc
144.9p
144.8p
144.7p
144.6p
144.5p
144.4p
144.3p
our quote
for A plc on a
Daily Funded Bet
You decide to ‘buy’ £100 per point at 144.9p, 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.
Bet details
You ‘buy’ £100 per point at
144.9p
the offer price
Your initial deposit requirement(1)
Spread(2)
mid-price
initial depost
required
£100
x
144.6p
x
5%
=
£723
bet size
deposit factor
market price
spread
144.9p
-
144.7p
x
£100
=
£20
our quote
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: example
Step 5
Calculating the profit or loss
‘Buying’ spread (Step 1)
Client
(£20.00)
our daily quote
‘Selling’ spread (Step 4)
(£20.00)
IG(3)
£20.00
£20.00
Gross profit (Step 4)
£390.00
(£390.00)
IG hedging gain(3)
n/a
Net gain
£350.00
£390.00
£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 0.68%, a funding charge of £1.31
would have been applied against the client account and recorded
as revenue for IG (calculated as (£100 x 150.0p (assumed closing
price) x 3.18%) / 365 = £1.31).
(3) This simple example assumes IG is 100% hedged on the client bet 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
Step 4
Closing the position
market price
A plc
149.0p
148.9p
148.8p
148.7p
148.6p
148.5p
148.4p
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 148.6/148.8p and
our daily quote is 148.4p/149.0p.
Bet details
You ‘sell’ £100 per point at
148.4p
the bid price
Gross profit on the bet
opening position price
gross profit
148.6p
-
144.7p
x
£100
=
£390
closing position price
per point
Spread
our quote
spread
148.6p
x
148.4p
x
£100
=
£20
market price
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.
152 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
153
153
eXAMple
‘SELLING’ A CONTRACT FOR DIFFERENCE
Investor resources and other information: example
InTrODuCTIOn
In this example, on day one you decide to ‘sell’ a CFD for 20,000
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
B plc
80.35p
80.3p
80.25p
offer price
mid price
bid price
Trade details
You ‘sell’ 20,000 shares at
80.25p
the bid price
Your initial margin requirement(1)
mid-price
initial margin
required
20,000
x
80.3p
x
5%
=
£803
You cannot place a trade without having any 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
£0
margin requirement
£803
£180.95
available
funds
commission £16.05
1000
200
400
600
800
0
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 £803 and the
commission is £16.05, so the available funds in your account will fall
from £1,000 to £180.95 (ie £1,000 – £803 – £16.05). It is important to
note that the £803 is held as a margin requirement against the risk of
the open position and will be released on the closing of the position:
it is still your money but is not available for withdrawal from the
account whilst the position is open.
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.
Step 5
Day two – closing the position
Step 6
Calculating the profit or loss
‘Selling’ commission (step 1)
Client
(£16.05)
Financing charge (step 3)
(£0.81)
‘Buying’ commission (step 5)
(£15.67)
IG(3)
£16.05
£0.81
£15.67
financing change
bid price
B plc
78.35p
78.25p
offer price
Gross profit (step 5)
£380.00
(£380.00)
IG hedging gain(3)
n/a
£380.00
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 that point is 78.25p/78.35p.
Net gain
£347.47
£32.53
(3) This simple example assumes IG 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 £32.53, which is recorded in trading revenue and consists of the
commission and financing charges levied on the client
number of shares
margin percentage
Step 3
Trade details
Commission(2)
bid price
commission
20,000
x
80.25p
x
0.10%
=
£16.05
number of shares
commission rate
(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), the
rate was 0.10% on 15 May 2012
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 15 May 2012, the current LIBOR
rate was 0.68%, while the spread was 2.5%, resulting in a net financing
charge of 1.82% 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 3.18%. This is re-calculated daily.
Daily interest charged
closing price (day one)
days
20,000
x
80.75p
x
1.82%
/
365
=
£0.81
number of shares
financing rate
financing change
You ‘buy’ 20,000 shares at
78.35p
the offer price
Commission
offer price
commission
20,000
x
78.35p
x
0.10%
=
£15.67
number of shares
commission rate
Gross profit on the trade
‘buying’ price
gross profit
80.25p
-
78.35p
x
20,000
=
£380
‘selling’ price
number of shares
Of course, had the market moved in the opposite direction, you
would have made a loss of £200 for every penny the share price
gained, which may have exceeded your initial margin outlay.
154 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
154 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
155
155
GloSSARY oF teRMS
Investor resources and other information: 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
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, ie 0.0001. Used
predominantly in forex transactions
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
close-out monitor
The Group's automatic real-time position-closing system (see the Managing our Business Risks section in
the business review and note 36 to the financial statements)
Spread bet
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
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
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
SIp
Share incentive plan
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
company
IG Group Holdings plc
TSR
Total Shareholder Return
consolidated regulatory
capital resources
contract for difference
dmA
fSA
IAS
IcAAp
IfRIc
IfRS
LIBOR
LTIp
mTf
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 in which
the contract is opened and the time at which it is closed
Direct Market Access allows clients to send orders directly into the order book of a stock exchange
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
VSp
Value-sharing plan
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)
London inter-bank offered rate
Long-term incentive plans
Multilateral trading facilities
156 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
157
Investor resources and other information: Global offices
+(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
SOuTh AFrICA
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
+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
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
GloBAl oFFICeS
uK
London (headquarters)
IG Index Limited
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
IG Markets Limited
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
+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
+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
Milan
IG Markets Limited
Via Paolo da Cannobio n.33,
7° Piano, 20122 Milano
ITALY
+39 800 897 582
italiandesk@igmarkets.it
www.igmarkets.it
Paris
IG Markets Limited
17 Avenue George V
75008 Paris
FRANCE
Stockholm
IG Markets Limited
Stureplan 2
114 35 Stockholm
SWEDEN
+33 (0)1 70 98 18 18
info@igmarkets.fr
www.igmarkets.fr
+46 (0)8 5051 5000
kundservice@igmarkets.se
www.igmarkets.se
158 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
159
SHAReHolDeR AnD CoMpAnY InFoRMAtIon
rECEIvInG ShArEhOLDEr InFOrMATIOn
BY EMAIL
You may supply the Company with an email address for the
purpose of receiving shareholder information, as an alternative
to posting whenever shareholder communications are added to
the Company website, by visiting www.capitashareportal.com
and registering online for electronic communications (‘e-coms’).
rECEIvInG ShArEhOLDEr InFOrMATIOn BY
MEAnS OF Our COrPOrATE WEBSITE
For many shareholders, it will be convenient to access shareholder
information on our corporate website at www.iggroup.com. We
will notify you by post, or by email if you have elected for e-coms,
when shareholder information has been placed on the website
and indicate where on the site you can access it.
If you subsequently wish to change your election, or receive
documents or information by post, you can do so by contacting
the Company’s registrars at:
Capita Registrars
Freepost Plus RLYX-GZTU-KRRG
SAS
The Registry
34 Beckenham Road
Beckenham
BR3 4TU
Or contact them by telephone on: 0871 664 0391 (calls cost 10p
per minute plus network extras, lines are open 9am – 5.30pm,
Mon-Fri). From outside the UK call: +44 (0) 20 8639 3367.
2012 Final dividend dates
Ex-dividend date
Record date
Last day to elect for DRIP
AGM
Payment date
19 September 2012
21 September 2012
28 September 2012
18 October 2012
23 October 2012
Annual shareholder calendar
(a) Company reporting
17 July 2012
Final results announced
Annual Report published
21 September 2012
FY13 Q1 Interim Management Statement 11 September 2012
Annual General Meeting
FY13 interim results announced
FY13 Q3 Interim Management Statement w/c 11 March 2013
18 October 2012
w/c 14 January 2013
(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
around mid-January each year.
Investor resources and other information: Shareholder and Company information
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 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
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
Investor relations
Kieran McKinney (Head of Investor Relations)
investors@iggroup.com
CAuTIOnArY STATEMEnT
Certain statements included in our 2012 Annual Report, or
incorporated by reference within 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 report 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.
160 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT
161
IG Group Holdings plc
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2yA
Tel: +44 (0)20 7896 0011
Fax: +44 (0)20 7896 0010
www.iggroup.com
162 | IG GROUP HOLDINGS PLC | 2012 ANNUAL REPORT