EXPLORE OUR INTERACTIVE REPORT
IG GROUP HOLDINGS PLC
ANNUAL REPORT 2014
1
2014 Annual Report OUR VISION
AT A GLANCE
IG is a global leader in online trading.
Our aim is to become the default choice
for active traders around the world.
Company Overview
Our Vision
At a Glance
Global Presence
Chairman’s Statement
Strategic Report
Chief Executive Officer’s Review
Introducing Our Strategy
What We Do
Our Strategic Objectives
Our Business Model
Our Strategy in Action
Key Performance Indicators (KPIs)
Corporate Social Responsibility Report
Chief Financial Officer’s Review
Managing Our Business Risk
Corporate Governance Report
Chairman’s Introduction to Corporate Governance
Corporate Governance Statement
The Board
Nomination Committee
Remuneration Committee
Directors’ Remuneration Report
Audit Committee
Board Risk Committee
Directors’ Report
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
Notes to the Financial Statements
Investor Resources
Five-Year Summary
Examples
Glossary of Terms
Global Offices
Shareholder and Company Information
104
105
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107
109
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152
156
160
162
164
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‘This was a good year for IG, with growth in revenue, profit and
dividends, and importantly we also made strong progress on
our strategic priorities, designed to deliver the next phase of
our growth. We will continue to make significant investments in
initiatives this year and beyond, to deliver sustainable growth
into the future.’
Tim Howkins, Chief Executive Officer
NET TRADING REVENUE(1)
PROFIT BEFORE TAX(2)
m
8
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6
6
3
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m
9
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3
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4
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3
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6
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7
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1
£
m
2
.
3
6
1
£
OWN FUNDS GENERATED
FROM OPERATIONS
m
3
.
4
5
1
£
m
6
.
0
6
1
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m
7
.
7
3
1
£
m
7
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0
4
1
£
m
4
.
4
1
1
£
FY10(3)
FY11
FY12
FY13
FY14
FY10(3)
FY11
FY12
FY13
FY14
FY10(3)
FY11
FY12
FY13
FY14
DILUTED EARNINGS
PER SHARE(2)
TOTAL DIVIDEND
PER SHARE
FOUR-YEAR COMPOUND
ANNUAL GROWTH RATE
p
4
5
.
7
3
p
0
8
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8
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8
1
FY10(3)
FY11
FY12
FY13
FY14
FY10(3)
FY11
FY12
FY13
FY14
NET TRADING REVENUE(1)
5.5%
PROFIT BEFORE TAX(2)
5.4%
OWN FUNDS GENERATED
FROM OPERATIONS
8.9%
DILUTED EARNINGS PER SHARE(2)
6.9%
TOTAL DIVIDEND PER SHARE
11.1%
(1) Net trading revenue is trading revenue excluding interest on segregated client funds and is net of introducing partner commissions.
(2) The profit before tax and diluted earnings per share figures for FY10 and FY11 exclude both the amortisation and impairment of goodwill and
customer relationships associated with our Japanese business, IG Securities (formerly FXOnline), and of the Group’s Sport business.
(3) Net trading revenue, profit before tax, own funds generated from operations and diluted earnings per share include the Group’s Sport business
(excluding impairment of goodwill) in FY10.
2
Company Overview
2014 Annual Report
3
IG Group Holdings Plc Our Vision|
GLOBAL PRESENCE
IG is a global leader in online trading and currently the No.1
provider of CFDs and financial spread betting worldwide.(1)
Initially established in the UK, we began our global expansion
by entering Australia in 2002. Since then we have opened
offices in a further 14 countries around the world and now serve
clients in over 140 countries. Our headquarters are located in the
City of London.
A SINGLE WORLDWIDE IDENTITY
Late in 2012 we took the important step of unifying our
retail brands, with the exception of Nadex, under the single
identity of IG. This ensures worldwide consistency across
all our platforms and is a better representation of the scale
of our offering. We acquired a number of domain names,
including IG.com and a range of local country IG domains,
and enabled clients to access multiple accounts, products
and platforms from a single login. We have now migrated
all of our websites to IG.com. Over time, we expect this to
enhance our search engine rankings and to increase our
buying power for paid search, ultimately improving our
client acquisition rates. As we begin to broaden our
product set to appeal to a wider range of active traders,
we believe that our single identity will raise awareness of
IG and our products and become a valuable client
recruitment resource.
THE GROUP
RETAIL BRANDS
4
Company Overview
Global Presence
REGION
UK
• Introduced the first financial spread betting
product in 1974
• Offices located in the City of London and Dublin
(Republic of Ireland)
• Annual revenue of £192.7 million in the 2014
financial year, with 59,300 active clients trading
• Accounts for 52% of Group revenue
AUSTRALIA
• Entered the market in 2002
• Office located in Melbourne
• Annual revenue of £52.2 million in the 2014 financial
year, with 18,000 active clients trading
• Accounts for 14% of Group revenue
EUROPE
• Entered the market in Germany in 2006, with rapid
expansion across Europe from 2007
• Offices located in France, Germany, Italy,
Luxembourg, Netherlands, Norway, Spain, Sweden
and Switzerland
• Annual revenue of £82.1 million in the 2014 financial
year, with 26,000 active clients trading
• Accounts for 22% of Group revenue
REST OF WORLD
• Began expansion in 2006
• Offices located in Japan, Singapore, South Africa
and the US
• Annual revenue of £43.4 million in the 2014 financial
year, with 22,800 active clients trading
• Accounts for 12% of Group revenue
126,100
Active clients worldwide
144
Countries where clients are resident
48%
Revenue outside the UK
Stockholm
Oslo
Düsseldorf
Amsterdam
Dublin
London
Geneva
Luxembourg
Chicago
Madrid
Johannesburg
Singapore
Paris
Milan
Tokyo
-
Melbourne
(1) No.1 CFD and spread betting provider: for CFDs, based on revenue excluding FX, published financial statements, July 2014; for spread betting, number of
active UK financial spread betting accounts (Investment Trends UK Leveraged Trading Report, December 2013).
5
IG Group Holdings Plc 2014 Annual Report| CHAIRMAN’S STATEMENT
‘As part of our aim to become
the default choice for active
traders, we are now progressing
new initiatives which should
have positive long-term benefits
for shareholders.’
I am delighted to report another record year for the
Group. Our revenue increased by 2.4% to £370.4 million
(2013: £361.9 million), whilst our diluted earnings per share
increased by 3.6% to 40.18 pence (2013: 38.80 pence).
We continue to build on our long history of growth, with
profitability having increased every year since our public
listing in 2005. As part of our aim to become the default
choice for active traders, we are now progressing new
initiatives which should have positive long-term benefits
for shareholders. These include our stockbroking product,
our forthcoming entry into Switzerland, our application
to the regulator in Dubai for a retail-trading licence and
our continued technology developments, with particular
emphasis on mobile applications and our online presence.
As we continue to be a highly cash-generative business,
we are able to invest in our strategic growth initiatives,
together with further improving our technology and client
experience, whilst maintaining a progressive dividend
policy. With this in mind, the Board proposes to increase
the ordinary dividend payout ratio to approximately 70% of
Group earnings, from the current level of 60%, with effect
from the 2014 financial year, whilst retaining a progressive
dividend policy. Simultaneously the Board will adopt a new
policy of paying the interim dividend each year, calculated
at approximately 30% of the prior year’s full-year dividend.
The Board recommends a final ordinary dividend for the
2014 year of 22.40 pence per share, taking the full-year
ordinary dividend to 28.15 pence per share, representing
approximately 70% of the Group’s full-year earnings.
The Board will continue to monitor the capital structure of
the business closely to allow sufficient headroom for the
planned investment in growth initiatives, whilst retaining
the ability to respond to any changes in the regulatory or
financial environment.
REGULATION
As the regulatory environment continues to develop, we are
cognisant of the importance of maintaining collaborative
and constructive relationships with all the relevant
regulatory authorities that oversee IG’s operations. IG fully
appreciates that the industry in which we operate requires
considered and sophisticated regulatory oversight. In
particular, we embrace such concepts as appropriateness
and conduct, which we believe form the foundations of a
sensible consumer-protection regime. We wish to see these
principles applied with total consistency across the industry.
As IG expands globally, the regulatory challenges it faces
are complex. Although each region is separately regulated,
countries are increasingly impacted by the growing
globalisation of commerce and the rules which surround it.
This is particularly so in Europe, where regulatory bodies
not only have influence over our activities on the Continent
but increasingly on our domestic business in the UK. This
presents us with obvious challenges, as the UK is only one
of twenty-eight member states with an interest and a say
in how regulation develops. Consequently we continue
to monitor and manage this very carefully. Enhancing our
ability to respond to regulatory challenges will form part of
the remit of the new Board Risk Committee, set up under
the Chairmanship of Stephen Hill. More details of this new
committee are set out in Board Risk Committee report.
BOARD EVALUATION
We completed our last external evaluation of the Board in
2012 and, in line with the UK Corporate Governance Code
(‘the Code’), it is our intention to undergo another external
review in the coming financial year. Our Company Secretary,
Bridget Messer, and I conducted an internal evaluation
of the Board this year. I am pleased to report that no
substantive issues were raised.
BOARD COMPOSITION
STRATEGY AND REPOSITIONING
As previously announced, there were a number of changes
to our Board in the past year. Jim Newman joined the Board
on 1 October 2013. Jim has deep experience in the financial
services industry, currently with Resolution plc, where he
was Chief Financial Officer until March 2013, and is now
Corporate Development Director for Friends Life. Jim will be
taking over as the Chairman of the Audit Committee on the
retirement of Martin Jackson at this year’s Annual General
Meeting (AGM).
I wish to record my personal thanks to Martin Jackson, who
has done such an outstanding job as Chairman of the Audit
Committee for the past nine years. Martin’s energy, eye for
detail and ability to keep abreast of the legal and regulatory
developments that have taken place on his watch have been
a joy to experience. Martin goes with our gratitude and best
wishes for his retirement.
I am also pleased to welcome Andy Green to our Board
as Deputy Chairman. As foreshadowed in my Chairman’s
Statement last year, Andy will succeed me at this year’s AGM.
The search for Andy was led by our Senior Independent
Director, Roger Yates. Roger and the Nomination Committee
reviewed both internal and external candidates and
concluded that, of the many excellent candidates that were
seen, Andy was the best fit for us, with his background and
understanding of IT and marketing, which are two of our
biggest differentiators.
As Roger Yates approaches his maximum tenure as an
independent Non-Executive Director, we anticipate that he
will leave IG no later than the AGM in 2015. A search for a
replacement for Roger will commence in the near future.
Following our proposed Board changes, we will continue to
be fully compliant with provision B.1.2 of the Code.
The intention again this year is to put every Board Director,
with the exception of myself and Martin, up for re-election (or
in the case of Andy, election) at the AGM, in compliance with
paragraph B.7.1 of the Code.
REMUNERATION
The Remuneration Committee, under the Chairmanship of
Roger Yates, the Senior Independent Director, reviewed the
remuneration of all Senior Management during the year.
Last year the committee decided to undertake a complete
review of our executive compensation, including changing
our external advisors. As you will see in the Remuneration
Committee report, we have not made any substantive
changes to the structure of our remuneration for the coming
year. The Remuneration Report is much longer this year, due
to the new Code requirements of disclosure, and meets the
Financial Conduct Authority’s remuneration principles.
IG has grown for nearly 40 years to be the global leader in
its category. This has been achieved through ruthless focus
on the client experience, with constant investment in the
development of market-leading technology and consistent
delivery of high-quality customer service. The category in
which we lead continues to display good growth, particularly
in the continental European countries where our products
have been offered for less than ten years. However, leveraged
trading will remain a niche activity into the future. Although
we will continue to grow this niche through ongoing
education, platform development and excellent execution,
we also have an opportunity to use the skills and technology
at our disposal to broaden our product range and enter new
markets. We believe that the launch of our execution-only
stockbroking offering will both open up new revenue streams
and broaden the appeal of our current business, supporting
our aim to become the default choice for active traders.
CONCLUSION
As this is my last statement as Chairman, I would like to
take this opportunity to thank all of my executive and
non-executive colleagues, both past and present, for
supporting me and giving me so much valuable advice and
input, particularly since our public listing in April 2005. From
that date until the end of this financial year our shares have
increased in value by approximately 500%, and we have
been a FTSE 350 top-decile performer in terms of Total
Shareholder Return.
There has been much discussion and comment about the
recent low levels of volatility. Our excellent results have
been achieved despite these volatility headwinds, which
have adversely affected so many financial services firms
in the past year. It is impossible to forecast volatility levels
into the future, but I have no doubt that our management
team will be able to take full advantage of the business
opportunities that will arise, and give our clients the leading
execution service they have come to expect.
As always, none of our success could have been achieved
without the commitment of all of our employees. Our
colleagues have again responded admirably to the
challenges that the markets and competition have
presented us, and I have no doubt that this will continue
into the future. My fellow Directors and I would like to
express our sincere thanks to them for their personal
contributions to the Group’s successes again this year.
Jonathan Davie
Chairman
22 July 2014
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7
IG Group Holdings Plc 2014 Annual ReportChairman’s Statement
CHIEF EXECUTIVE OFFICER’S REVIEW
‘Our drive to innovate and to
grow our business remains
extremely strong and I believe
that IG is better placed than
ever before to deliver the next
phase of growth.’
Trading revenue for the year of £370.4 million was at record
levels, up 2.4% on the prior year, and ahead of the previous
record set two years ago in the elevated volatility of the
2012 financial year. In contrast, market volatility was relatively
low throughout most of this year and particularly subdued
as the year drew to a close. In May we saw 25-year lows
in forex volatility and came close to 25-year lows in equity
volatility, and these conditions have continued into the
early part of the 2015 financial year. Against this backdrop,
as is normal, our clients reduced their activity levels. While
client trading levels were relatively subdued towards the
end of the year, we did reach record levels of client money
in the final quarter. At the year-end, client money deposits
were 4% higher than one year before and 11% higher than
two years before. This is one encouraging indicator that we
continue to build a valuable client base, which is ready to
trade as soon as markets provide more opportunities.
Monetary policies across the globe have converged over
the last few years, consisting of near-zero interest rates
and a process of quantitative easing (QE). One effect
of such a monetary policy is to reduce volatility across
asset classes, with low and stable interest rates having a
particularly dampening impact on the forex market. This
phase of monetary policy appears to be drawing to a
close in some countries, with the tapering of QE in the US
and suggestions from the Bank of England that interest-
rate rises could come sooner than markets had been
anticipating. As monetary policies shift in response to the
improving economic situation, I would expect that IG will be
a beneficiary in three ways. Firstly, we should see an increase
in market volatility, which would drive greater levels of client
activity; secondly, as we hold almost £1.4 billion of cash and
other interest-earning assets, interest income will rise and,
thirdly, a greater level of consumer confidence tends to
increase trading activity among current clients and increase
the risk appetite among prospects, and therefore produce a
greater flow of new clients into the industry.
Against the backdrop described we saw modest growth
from the UK and Ireland, up 3%, and a fall in revenue from
Australia, down 7%. Both economic conditions and consumer
sentiment are noticeably weaker in Australia, which has
lagged the rest of the world with its economic downturn.
We delivered strong growth in Europe, up 16% overall.
All four large European offices grew, with the strongest
growth rates of 20% and 15% coming from our two largest
offices, Germany and France respectively. Germany is one
of the few markets in which we operate where we are not
the largest provider. I am very pleased that the most recent
independent market research, received in the middle of
June, shows that over the past year the gap in market share
between us and the largest provider has narrowed, and that
our gains were most marked among higher-value clients.
Our European businesses are still at a relatively early stage
in their development, and most of the growth to date
has been against the headwind of recession, so we are
confident that they can continue to deliver strong growth
for some years to come. This year, 22% of our revenue came
from Europe, and this proportion is growing, making Europe
an increasing contributor to our overall growth rate.
In the Rest of World business segment, revenue was down
10%, as the impact of exceptionally low volatility in forex
was felt most in Singapore and Japan, where forex makes
up the majority of client trading activity.
Within this segment, our US business, Nadex, delivered
55% revenue growth but, at £3.1 million of revenue, it
remains small. Shortly before the year-end, two additional
market makers joined the exchange, one of which has
been consistently providing additional liquidity for the last
couple of months. This greater liquidity, along with narrower
effective spreads, should make Nadex a more attractive
venue for trading.
Following another strong year for cash generation, and
given our continued confidence in future cash delivery, the
Board proposes to increase the ordinary dividend payout
ratio to approximately 70% of Group earnings, from the
current level of 60%, with effect from the 2014 financial year,
8
Strategic Report
Chief Executive Officer’s Review
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9
while maintaining a progressive dividend policy.
Importantly, we retain the capacity to invest in the strategic
initiatives which are designed to diversify and broaden the
business to deliver longer-term sustainable growth.
A more detailed review of the performance of all our offices
is set out in the Operating and Financial Reviews.
Beyond revenue performance, this was a year in which we
made significant progress on a number of longer-term
projects which we expect to be drivers of future growth.
ADDRESS THE NEEDS OF
ACTIVE TRADERS
We have completed the development work necessary to
offer stockbroking, on all of our platforms, as part of our
comprehensive share-trading offering, and we are currently
testing this with a pilot group of clients prior to a full launch
in September. This service will initially be available in the
UK and Ireland, but we are developing our plans to offer it
in some of our other markets in 2015. In the UK market, as
we roll out the full functionality, our technology will provide
a number of features that are not available from the large
market participants. We offer streaming live prices which are
sourced from both the primary exchange and multilateral
trading facilities. We provide smart order routing into the
best execution venue, and the ability to see market depth
and interact directly with the order book. This level of
functionality is not currently available in the UK market and
we believe it will ultimately form a compelling offering for
the active trader.
The majority of our existing UK clients have online share-
trading accounts with another provider, and many of them
have told us previously that they would consider using our
service when it is launched. Shortly after launch, we will offer
clients the ability to use their share portfolio as collateral
to support their CFD trading or spread betting. Initially we
anticipate that existing clients will form the bulk of the early
adopters of our stockbroking service, but beyond that, over
time, we will target those who are actively trading in shares
with other online brokers as well as active clients of our
current competitors.
This is an important development for IG and a key
milestone in our journey to become the default choice for
active traders. A challenge that we face with our existing
products is that many within the target audience either
do not know about the existence of our products or have
discounted them without due consideration. Broadening
our offering to a more mainstream product should help us
to engage with this wider audience, and I hope we will see
the benefit both in the revenue we generate directly from
stockbroking and, over time, from increasing the reach and
take-up of our current products.
STRENGTHEN GLOBAL PRESENCE
We are in the final stages of our application for a licence
to operate in Switzerland, with the office now fully staffed
and ready to welcome clients. The regulatory regime in
Switzerland is such that, to provide our normal offering to
clients, it is necessary to hold a Swiss banking licence. The
application process for obtaining such a licence has been
demanding and we have been subject to intense regulatory
scrutiny. We are confident that the application will be
successful in due course, and this reflects extremely well on
the quality of our systems and processes and, above all, our
people. The earliest we would now carry out a full launch of
the IG offering is in the Autumn of 2014.
We have been in constructive discussions with regulators in
Dubai for some time. There is further work to do before our
application to the Dubai Financial Services Authority for a
licence is complete, but we are hopeful that we will be able
to establish an office in the Dubai International Financial
Centre in 2015. We consider this and the surrounding region
to be an attractive opportunity.
We continue to have ongoing dialogue with regulators in
other countries, but these discussions are at early stages
and are not expected to lead to the establishment of new
offices in the immediate future.
IG Group Holdings Plc 2014 Annual Report|
CHIEF EXECUTIVE OFFICER’S REVIEW (CONTINUED)
INTRODUCING OUR STRATEGY
SUSTAIN TECHNOLOGY LEADERSHIP
During the year we acquired a number of local domain
names to support IG.com in specific countries, as well as
investing in a number of new generic top-level domains
(gTLDs) which are directly relevant to our business. This
investment positions us well to take full advantage, over the
coming years, of possible changes to the way people use
and search the internet if, as we expect, gTLDs become an
increasingly integral part of its structure.
Towards the end of the year we established an offshore IT
and marketing development office in Eastern Europe, which
is focused on recruiting and converting clients through
mobile apps; around a third of all client trades are made
using mobile apps. Our current apps are designed with our
most experienced and demanding clients in mind, and we
will continue to ensure we lead the industry in this category.
However, this new team will focus on developing apps
more suited to less-experienced new and potential clients,
concentrating on early-stage education and simplification of
the recruitment and conversion process through apps.
DELIVER QUALITY SERVICE TO CLIENTS
We continually monitor the quality of our service through a
number of different methods, including a rolling survey of
our client base and independent mystery-shopping which
tests our customer service and that of our main competitors.
We continue to score highly in these surveys, and during
this year we saw an increase in levels of satisfaction with the
quality of our customer service.
During this year we introduced ‘Think Tank’, an online forum
for invited clients to provide feedback on various aspects
of our products, platforms and services. This new resource
has proved valuable in more formally incorporating clients’
suggestions and comments into our development process.
I am extremely grateful to those clients who participate in
Think Tank for the time and thought they devote to helping
us shape our offering.
REGULATION
Although there are few tangible signs of progress by the
11 EU member states seeking to introduce a financial
transaction tax (FTT) under the enhanced-cooperation
process, the rhetoric suggests that eventually we will see
some form of levy on financial transactions. However, we
continue to believe that any tax would be considerably less
onerous than originally proposed, and could most easily
take a form similar to UK stamp duty or the French FTT,
neither of which impact on our business.
In Japan, new rules came into force halfway through the
financial year on binary options. Since these rules took
effect we have seen an increase in our share of the binary
options market, although the longer-term impact from a
new online suitability test is yet to be fully understood.
As we reported two years ago, the Monetary Authority of
Singapore (MAS) has indicated an intention to introduce
stricter leverage restrictions on retail forex trading at some
point. It now looks as if these rules may come into force
during the course of 2015. We expect the restrictions to have
only a limited impact on our business, as they do not apply
to clients with higher levels of income or assets – accredited
investors – who make up the majority of our revenue. MAS
has recently approved an e-learning module, which went live
at the start of July, and this should provide some relief from
current impediments to recruiting clients in Singapore who
have no prior experience of trading our products.
OUR CHAIRMAN
Jonathan Davie has chaired IG since before our public
listing in 2005; he has therefore served the full term
permitted for an Independent Non-Executive Director
and, as announced last year, will step down at the next
Annual General Meeting in October. During Jonathan’s
tenure as Chairman we have expanded from operating in
two countries to operating in 15, and we have grown our
revenue more than sevenfold. I would like to put on record
the Board’s thanks for his contribution to this success.
I am pleased to welcome Andy Green as our Chairman-
Designate, and I very much look forward to working with
him as we continue to develop IG.
OUTLOOK
In November, IG will celebrate its 40th anniversary. We have
grown our revenues in virtually every one of those 40 years
and have achieved that against a broad range of market
and economic backdrops – bull and bear markets, the 1987
crash, the dotcom frenzy, the most recent financial crisis –
and through cycles of boom and bust. Our operating model
and risk management have been thoroughly tested and
have proved highly resilient. We have continually adapted
our business to a changing world, moving from telephone-
based dealing to internet dealing and increasingly to
dealing using mobile apps. Our drive to innovate and to
grow our business remains extremely strong and I believe
that IG is better placed than ever before to deliver the next
phase of growth. In particular, the imminent launch in the UK
of our stockbroking service, as part of our comprehensive
share-trading offering, positions us well to address the
needs of a much broader audience of active traders.
Tim Howkins
Chief Executive Officer
22 July 2014
10
Strategic Report
Introducing Our Strategy
As we drive towards our
vision of becoming the
default choice for active
traders, we maintain
focus on five key
strategic objectives.
ADDRESS THE NEEDS OF
ACTIVE TRADERS
ACHIEVE, MAINTAIN OR EXTEND
MARKET LEADERSHIP
STRENGTHEN GLOBAL PRESENCE
DELIVER QUALITY SERVICE TO CLIENTS
SUSTAIN TECHNOLOGY LEADERSHIP
We have achieved our status as a global leader in online trading as a result of many years focused on delivering defined
goals, with meticulous attention to detail, in technology development, risk management, sales and marketing and customer
service. As we look to the future, our vision is to become the default choice for active traders, and our five strategic
objectives are designed to give us a clear route to realising this vision.
In the following sections, we first introduce our product range and the essentials of what we do, before describing our
strategic objectives in more detail and explaining how they link to our business model. We then explore in detail five
examples of our strategies in action.
In recent months we have taken a number of significant steps towards our goals:
STRENGTHENING OUR BRAND
Building on the global rollout of IG.com, we have
developed an increasingly responsive, real-time approach
to our marketing. We have made significant gains in our
ability to use our market-leading technology to target
customers with contextual messaging and promotions,
wherever they are in the world. And with the launch of
IG Live, we now stream live video analysis and commentary
from our in-house studio three times a day.
Elsewhere, the year also saw us make a major addition to
our global sponsorship portfolio, with the announcement
of an exciting three-year partnership with Harlequins Rugby
Club in the UK.
OPENING OUR OFFICE IN SWITZERLAND
We are in the final stages of our application for a
licence to operate from our new office in Geneva. This
will give us immediate access to a significant financially
engaged population, in a country with extremely high
average income per head and an underdeveloped
competitive environment.
LAUNCHING OUR EXECUTION-ONLY
STOCKBROKING OFFER
Our stockbroking service, which we began to pilot-test in
July, is powered by our existing leading technology and
provides clients with access to live streaming prices and a
transparent execution process, as well as a cost-effective
way to trade international equities. We believe in many
cases this will greatly improve their trading experience
compared with their current stockbroking provider.
FURTHER DEVELOPING OUR MOBILE OFFER
Technology is a key differentiator and we continue to invest
heavily in this area. Our clients will increasingly interact with
us using mobile devices, with around a third of trades now
coming from mobile apps. Our recent focus has been on
providing functionality on mobile devices equivalent to that
on desktops, enabling clients to trade and to service their
accounts fully on the move. During the year we launched
iPhone and iPad apps on iOS 7, and released a mobile
version of IG.com for all operating systems.
’
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IG Group Holdings Plc 2014 Annual Report|
WHAT WE DO
We provide active traders with fast and flexible access to the
financial markets using our award-winning dealing platforms.
Clients can trade seamlessly across a range of instruments,
including indices, shares, forex and commodities.
Our clients can choose to trade in a variety of ways. In the UK, our direct clients who wish to hold assets over a longer period
can use our execution-only stockbroking service to buy and sell both UK and international equities, as well as exchange-
traded funds. For clients seeking a shorter-term trade, our range of leveraged products enables them to go long or short on
multiple asset types, without the need to hold the underlying instrument and with only a relatively small deposit of margin.
INDICES
The movements of global stock indices such as
the DAX, the Dow Jones and the FTSE 100.
SHARES
The performance of
thousands of individual
companies.
OUR RANGE OF
OVER 10,000 GLOBAL
FINANCIAL MARKETS
INCLUDES:
FX
FOREX
The value of one currency
in relation to another,
such as the pound versus
the dollar.
COMMODITIES
The prices of key resources such as gold, oil
and wheat.
We also offer trading opportunities on interest rates, government bonds, exchange-traded funds (ETFs) and a number of
other markets.
Our clients can deal 24 hours a day and access their accounts on the move using our range of customised apps for mobile
devices. We also provide clients with access to advanced chart packages and automated-trading facilities, as well as tools
and resources to help them keep abreast of market movements and identify trading opportunities.
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OUR PRODUCTS
We offer a variety of products, in line with the differing regulatory environments in the territories where we operate.
CONTRACTS FOR DIFFERENCE (CFDs)
CFDs are derivatives that enable clients to take advantage of changes in an asset’s price, without owning the asset itself.
• We are the world’s No.1 CFD provider(1)
• We offer global CFD trading, including direct market access (DMA) to shares and forex markets
The diagram below shows, in simplified form, how a CFD can be used to ‘sell’ a market when you expect it to fall. This is
known as ‘going short’. In this scenario, a subsequent fall in the market price results in a profit for the client while a rise
results in a loss. The diagram below should be viewed in conjunction with our more detailed example of a CFD trade on
page 158.
CLOSING
PRICE
MARKET
PRICE
CLOSING
PRICE
MARKET
RISE
370p
350p
320p
290p
270p
MARKET
FALL
If you expect the market to fall,
you ‘sell’ at the MARKET PRICE
GOING SHORT
THE TRADE
You open a trade for 500 contracts
at the market price of 320p
COMMISSION
£10.00
MARKET PRICE
SIZE (SHARES)
320p
500
MARKET PRICE RISES
CLOSING PRICE
LOSS
350p
£150.00
The market moves by 30p
CLOSING PRICE
PROFIT
290p
£150.00
MARKET PRICE FALLS
12
Strategic Report
What We Do
(1) Based on revenue excluding FX, published financial statements, July 2014.
13
IG Group Holdings Plc 2014 Annual Report|
WHAT WE DO (CONTINUED)
SPREAD BETTING
Financial spread betting in the UK and Ireland is a tax-free(1) way to deal by betting on the price
movement of an asset. The size of a client’s win or loss depends on the magnitude and direction of the price movement.
• We are the UK’s largest and longest-running spread betting provider(2)
• We hold 41% of the UK financial spread betting market(3)
The diagram below shows, in simplified form, how a spread bet can be used to ‘buy’ a market when you expect it to rise.
This is known as ‘going long’. In this scenario, a subsequent rise in the market price results in a profit for the client while a
fall results in a loss. The diagram below should be viewed in conjunction with our more detailed example of a spread bet on
page 156.
IG BUY/OFFER
PRICE
THE
SPREAD
UNDERLYING
MARKET VALUE
IG SELL/BID
PRICE
If you expect the market
to rise, you ‘buy’ at the
OFFER PRICE
GOING LONG
THE DEAL
You open a position for £10.00 per point
at the offer price of 1001
BUY/OFFER PRICE
SIZE (£ PER POINT)
1001
£10.00
MARKET PRICE RISES
SELL/BID PRICE
PROFIT
1007
£60.00
The market moves by eight points
SELL/BID PRICE
LOSS
0991
£100.00
MARKET PRICE FALLS
MARKET
RISE
1002
1001
1000
0999
0998
MARKET
FALL
(1) Tax laws are subject to change and depend on individual circumstances.
(2) No.1 spread betting provider: number of active UK financial spread betting accounts (Investment Trends UK Leveraged Trading Report, December 2013).
(3) By number of active primary accounts. All market share data presented in this report is provided by Investment Trends Pty Limited (please refer to the Investor
Resources section on page 165 for further details).
14
Strategic Report
What We Do
STOCKBROKING
In July we began pilot-testing our execution-only
stockbroking service in the UK on both web and mobile
platforms, representing our first significant diversification
out of leveraged products. Once fully operational, our
stockbroking service is expected to offer market-leading
advantages for clients, including:
• Improved underlying and live pricing sourced from
multiple trading venues
• Transparent access to a broad range of international
equities, with cost-effective currency conversions to
facilitate trading within an ISA/NISA
• Superior trading tools across multiple platforms
and devices, powered by our existing award-
winning technology
• Direct market access available as a standard feature,
free of additional charge
BINARIES
Our pioneering binary contracts are based on a single
question: ‘Will the underlying market behave in a specific
way before the contract expires?’. Clients use their
knowledge of the financial markets to predict whether the
answer will be yes or no.
• Our binaries enable clients to trade with limited risk
• Binaries are unrestricted by low volatility, remaining
attractive to clients when markets are relatively stable
• This year we have added ‘sprint markets’ – high-speed,
limited-risk trades which offer clients the opportunity to
trade in even the flattest markets
NORTH AMERICAN DERIVATIVES
EXCHANGE (NADEX)
Nadex is our US derivatives exchange, enabling US
investors to trade options on global financial markets in
retail-sized contracts.
• Nadex is the first and largest US-based retail-
oriented exchange
• We provide a flexible way for our clients to trade with
limited risk
• The main product on Nadex is the binary option
HOW WE GENERATE REVENUE
AND PROFIT
Our principal revenue sources are the dealing spreads
or commission charges we apply to each transaction,
according to the asset and product type being traded.
As clients are trading on margin, we also levy a financing
charge for positions held overnight.
We derive our earnings from the volume of our clients’
dealing transactions, which is influenced by the level
of activity in the underlying financial markets. Since our
clients can choose to ‘buy’ or ‘sell’, dealing volumes can be
maintained, and we are able to profit, irrespective of the
direction in which markets are moving.
Our centralised operating model enables us to consolidate
the market risk associated with client trades from around
the globe, which lessens our requirement to hedge due to
the net impact of clients buying and selling the same asset,
and so reduces risk and cost. This model also enables us
to maintain low-cost and capital-efficient processes, while
robust risk-management procedures help us monitor and
control the impact of market and credit risk.
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IG Group Holdings Plc 2014 Annual Report|
OUR STRATEGIC OBJECTIVES
OUR BUSINESS MODEL
STRATEGIC
OBJECTIVES
PROGRESS IN 2014
PRIORITIES FOR 2015
We have developed a business model that harnesses the demand
from active traders for fast, flexible and secure online trading.
• Completed the technical development for our
execution-only stockbroking service in the UK
• Extended trading hours on over 20 key US equities,
enabling clients to trade outside the core US stock
market hours
• Launch and grow our
stockbroking service in the UK
• Roll out our stockbroking service
to at least one country outside
the UK
• Successfully offered a number of pre-IPO
• Increase the number of extended-
grey markets
hours US stocks offered
ADDRESS THE
NEEDS OF ACTIVE
TRADERS
• Introduced sprint markets to allow clients to quickly
take advantage of opportunities, even in relatively
flat markets
• Maintained our UK market leadership position in
spread betting and increased our lead in CFDs, with
over 59,000 active clients trading during the year
• Increased our Australian CFD market leadership
to 20 percentage points, with around 18,000 active
clients trading with us during the year
• Retained our number one position in forex in
Singapore and became the number two provider
of CFDs
• Prepared IG Switzerland office for launch
• Continued to grow our European business, where
revenues increased by 15.6% over the prior year
• Introduced two additional market makers to
the Nadex exchange, one of which has been
consistently providing additional liquidity since
joining, and increased revenue by 54.6%
• Completed the consolidation of our global
brand under IG.com, helping us to optimise our
search rankings and create a recognisable single
identity worldwide
• Increase our growth rate in the
UK through the introduction of
our stockbroking service
• Increase growth in Europe against
improving market backdrop
• Manage the impact of the
proposed forex leverage
reductions in Singapore
• Grow the business across APAC,
using Australia as the hub
• Launch our CFD offering
in Switzerland
• Open our office in Dubai
• Continue exploring opportunities
to serve additional countries
in APAC
• Develop the introduced-business
model for the Nadex exchange
• Radically improved payments process, leading to
• Continue to focus on delivering
faster payments to/from clients
• Implemented further improvements to online self-
service functionality to enhance client experience
• Achieved joint-first ranking in IPSOS mystery-
shopper exercise
• Received rating of ‘good’ or ‘very good’ from 89%
of spread bettors and 88% of CFD traders who
responded to independently conducted
satisfaction surveys(1)
• Built a version of IG.com for mobile devices
• Launched iPhone and iPad apps on iOS 7
• Increased the suite of mobile apps for Nadex
• Increased mobile engagement through push
notifications of key market movements, technical
analysis and macro-economic events
• Maintained consistently high levels of
platform uptime
industry-leading customer service
• Develop more multi-channel
support for our clients, eg social
media, live chat, mobile, self-service
• Improve access to our global
support teams around the clock
• Optimise our support tools
in order to improve efficiency
and provide a more joined-up
customer service experience
• Extend availability of full version
of IG.com to all mobile platforms
• Continue to support new
products, eg stockbroking
• Invest in mobile app
development to increase rate of
client sign-ups
• Continue to maintain consistent
platform uptime
ACHIEVE,
MAINTAIN OR
EXTEND MARKET
LEADERSHIP
STRENGTHEN
GLOBAL
PRESENCE
DELIVER QUALITY
SERVICE TO
CLIENTS
SUSTAIN
TECHNOLOGY
LEADERSHIP
KPIs
(SEE PAGE 24)
REVENUE
REVENUE PER
CLIENT
ACTIVE CLIENTS
PROFIT BEFORE TAX
DILUTED EARNINGS
PER SHARE
CASH GENERATION
DIVIDEND PER
SHARE
PLATFORM UPTIME
NET PROMOTER
SCORE
KEY RISKS
(SEE PAGE 42)
CREDIT
MARKET
LIQUIDITY
OPERATIONAL
REGULATORY
CONDUCT
TECHNOLOGY
OUR CLIENTS
We attract clients globally via a number of
channels, including:
• Our international network of offices,
through local seminars and public-
relations exercises
• Our multi-channel brand and targeted
advertising campaigns
• Our optimised online and
app-store presence
• Our worldwide network of
high-quality partners
AUTHORITY AND EXPERTISE
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OUR PRODUCTS
STRENGTH AND STABILITY
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FINANCIAL MARKETS
Our clients can trade across a wide variety of markets, geographies and asset classes.
Indices
Shares
FX
Forex
Commodities
Other markets: Interest rates, bonds, ETFs and industry sectors
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Strategic Report
Our Strategic Objectives
(1) Investment Trends UK Leveraged Trading Report, December 2013.
17
IG Group Holdings Plc 2014 Annual Report|
OUR STRATEGY IN ACTION
In this section
we explain
our strategic
objectives in more
depth, and focus
on some examples
of our progress
in each.
(1) No.1 CFD and spread betting provider: for CFDs,
based on revenue excluding FX, published financial
statements, July 2014; for spread betting, number
of active UK financial spread betting accounts
(Investment Trends UK Leveraged Trading Report,
December 2013).
ADDRESS THE NEEDS OF ACTIVE TRADERS
The most valuable clients are those who trade most frequently or in the
largest deal size. It is therefore imperative that our platforms, services and
products address the needs of these clients. Our investment in technology
and commitment to client service focuses on active traders, while we are
conscious of the need to deliver an excellent trading experience for all.
See page 19
ACHIEVE, MAINTAIN OR EXTEND
MARKET LEADERSHIP
We are a global leader in online trading and aim to be the default choice
for active traders. We are currently the No.1 global provider of CFDs and
financial spread betting(1) and a recognised authority on financial trading, with
our expert opinion often sought by the media and regulatory bodies.
We have achieved our position at the forefront of the industry by recruiting
talented people, developing superior technology and providing clients with
the tools and products they require. We continue to leverage these key
advantages to maintain or establish leadership in our major markets.
See page 20
STRENGTHEN GLOBAL PRESENCE
We have offices in 15 countries, serving clients in over 140 countries,
and we continue to seek opportunities to grow our client base in both
established and new regions. In the last 18 months we have opened three
new offices, in Dublin, Oslo and Geneva, and our Swiss licence application is
in progress. Our single global identity – IG – is designed to help us develop
our brand reach, increase our market penetration and target regional markets
from the countries where we already operate.
See page 21
DELIVER QUALITY SERVICE TO CLIENTS
We strive to maintain absolute integrity in our relationship with clients,
and we invest in training our team to ensure that we are delivering
excellent client service.
By combining this service with fast and reliable execution, transparent
pricing and full segregation of retail client funds, we help our clients
feel secure and confident in trading with us. We also support our clients
with education, market insight resources and 24-hour technical help.
See page 22
SUSTAIN TECHNOLOGY LEADERSHIP
Our financial strength has enabled us to continually invest in IT
development and infrastructure, and to build the superior platform
technology, tools and resources our clients demand. Our market-leading
position is underpinned by our platform’s award-winning performance and
proven resilience – factors that are essential in maintaining high levels of
client satisfaction and retention and keep us at the forefront of the industry.
See page 23
18
Strategic Report
Our Strategy in Action
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ADDRESS THE NEEDS
OF ACTIVE TRADERS
NEW STOCKBROKING SERVICE
In July we commenced pilot-testing of our execution-only
stockbroking service in the UK across web and mobile
platforms, representing our first significant diversification
from leveraged trading.
Our clients are active traders, and we strive to ensure
that we offer the right products on the right platforms
to address their needs. The launch of stockbroking in
the UK enables clients to trade cash equities on IG’s
award-winning platforms.
Prior to developing the service we conducted a survey of IG
clients which suggested there is a complementary audience
for cash equities: 60% of respondents told us that they also
trade cash equities, and 65% of those said that they would
consider moving their business to IG if we offered this service.
Over the last 40 years, retail trading
in equities has become a mainstream
activity in the UK. This is a significant
opportunity for IG.
We have concluded that this is a market where we can add
substantial value to these clients’ trading and create a new,
profitable business stream for IG.
The trading life of a cash equity client is generally longer
than that of IG’s existing client base. Many of them are
wealthy, and there is a constituency that trades very actively.
We will have the potential to retain clients that lapse from
CFD trading by offering them access to execution-only
stockbroking on the same trading platform.
IG seeks to attract active traders, and the structure of our
execution-only stockbroking offer is designed with that goal
in mind:
• We offer price transparency, with the underlying real-time
price being displayed throughout the trade, including
when trading in overseas shares
• Where most platforms provide a passive trading
experience, we enable clients to interact with the market
order books to judge precisely the level at which they
want to trade
• By adapting our existing state-of-the-art mobile-trading
technology, we have been able to give our stockbroking
clients the opportunity to trade wherever they like, on
their device of choice
• The pricing of the offering has also been designed with
the active trader in mind, with high volume driving lower
commissions and low exchange-rate conversion fees
when trading on overseas shares
This offering is clearly at a very early stage, with our first UK
marketing campaign in September. We are launching the
product in the UK initially before deciding on the precise
order and extent of any international rollout.
In adding stockbroking to our platforms we have
demonstrated our focus on understanding the needs of
active traders. We will continue to ensure this understanding
informs both improvements to our existing products and
our new product development.
IG Group Holdings Plc 2014 Annual Report|
OUR STRATEGY IN ACTION (CONTINUED)
ACHIEVE, MAINTAIN OR
EXTEND MARKET LEADERSHIP
STRENGTHEN
GLOBAL PRESENCE
We maintain our competitive position by focusing on
quality customer service and the continued development
of our product offering, including our proprietary trading
platforms. Our strategies for achieving, maintaining and
extending market share have varied to suit each market:
UK
IG Index was founded in 1974, becoming the UK’s first
financial spread betting company. Our UK business is based
in the City of London and accounted for just over half our
Group revenue in 2014.
IG Markets was introduced in 2000, offering CFDs to the UK
client base. Both brands subsequently offered a full suite
of assets (indices, shares, forex and commodities) and were
ultimately rebranded as IG late in 2012. We now offer both
CFDs and spread betting under our single brand.
Last year over 59,000 active clients traded with us in the UK
and Ireland, and in the UK market we are the market leader
by a significant margin in both spread betting and CFDs. The
total numbers of active traders in the UK market using CFDs
and spread betting have both grown over the last four years,
from 18,000 to 21,000 and from 83,000 to 85,000 respectively.
AUSTRALIA
Our Australian business is based in Melbourne and
represented 14% of Group revenue in 2014.
We entered the market in 2002, and overtook the market
leader to become the largest CFD provider with a 38%
market share, 20 percentage points ahead of the second-
placed provider. However, the Australian market does
remain very competitive, with increasing challenges being
posed by small local forex specialists.
The total CFD market has grown strongly over the last five
years, up 58%, and now numbers 41,000 traders. We expect
this figure to increase further as more online share traders
learn about leveraged products.
SINGAPORE
We entered the Singapore market in 2006. Since then
we have grown our market share to overtake most other
providers. We are now the second-largest CFD provider,
with a market share of 19%, and in forex we became market
leader in 2012, with a market share of 16%.
In this region, there is a greater tendency for clients to
want face-to-face contact with their provider, so we have
focused on offering in-office seminars and one-to-one
demonstrations, as well as maintaining a presence at
investment fairs. Last year we opened our new shop-front
office in the centre of Singapore, with an eye-catching
design scheme, to improve accessibility for our client base.
To maintain and extend our leading position, we need to
remain responsive to any external pressures that might
affect the market. We are currently working on plans to
help clients understand and adapt to the proposed forex
leverage reductions which we expect the regulator to
introduce in 2015.
20
Strategic Report
Our Strategy in Action
We have always sought to expand our worldwide presence,
where regulation allowed and where the economics of
operating in a particular market made it attractive.
In the last 13 years, we have expanded
into 13 new countries around the
world. This year we have also opened
our Geneva office and are ready to
trade on the granting of a licence.
Our Swiss offering is designed to attract both the active
retail investors and the high-net-worth individuals who
reside there, and is also aimed at the intermediated market
of institutional wealth managers.
OPPORTUNITIES IN THE SWISS MARKET
We expect our products to be a natural fit for Switzerland,
which is a country with high average income, low
unemployment, political stability and a highly educated and
financially astute population. Although there is meaningful
competition in the region, many of the global providers are
absent and we believe those in the market lack the breadth
of service which exists in most other countries. This offers us
an opportunity to grow our market share more rapidly.
OVERCOMING CHALLENGES
The application process has been extremely rigorous,
requiring us to apply for a full banking licence – something
which would have been quite daunting for us only a few
years ago. This is also a good indicator of the progress that
we have made in establishing our credibility and reputation.
In order to comply with local regulations, we have set up
IG Switzerland as a standalone entity, with a separate Board
of Directors, support functions and financial reporting
requirements. In addition, under Swiss law, providers must
offer clients the option to have all of their personal data
ring-fenced within Switzerland, meaning that their details
must not be accessible to the broader IG Group. We have
met this technical challenge, along with the need to operate
in four languages: German, French, Italian and English.
We are currently in the final stages of our application for a
licence and have scheduled our first significant marketing
campaign for September, after the quieter summer season,
in order to maximise the impact of the launch.
FUTURE DEVELOPMENTS
We recently announced our intention to open an office
in Dubai and we continue to appraise new territories for
the future. Meanwhile, we are growing our client base
in markets where we already have an established
commercial presence.
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IG Group Holdings Plc 2014 Annual Report|
OUR STRATEGY IN ACTION (CONTINUED)
DELIVER QUALITY
SERVICE TO CLIENTS
The right products, delivered on an industry-leading
technology platform, are clearly critical in meeting our
clients’ needs, but alone they are not sufficient for success:
the entire client trading and support experience must be
superior. Our 81-strong trading services team is located in
five offices around the world, supports 16 languages and
deals with around 80,000 client communications a month.
We focus on being:
• Accessible and flexible
Clients should be able to access rapid and convenient
support across all channels, including phone, email,
social media and live chat. There should also be a
high level of self-service available across all platforms,
and our technology must be optimised to ensure a
seamless experience
• Effective and engaging
Clients should feel that they are dealing with highly
competent people who know our products and
technology in depth and are enthusiastic about financial
trading. They should also notice that our staff take the
time to understand their individual needs and empathise
with their issues
We made significant strides in delivering against this
strategy in the last year:
• We introduced a new competency-based role structure
designed to align individual performances with the
department and Group’s priorities. Members of our
trading services team must now consistently demonstrate
certain behavioural and technical competences to achieve
progression through three separate role levels. We
anticipate that this pathway will benefit clients through
improved staff retention and higher motivation levels
• We improved our online self-service functionality, most
notably around our client payments system, which was the
subject of 40% of all client email communications in 2013.
The new system enables complete client self-service
• We introduced a client development scheme, offering
personal account management and enhanced support to
clients with the desire and potential to be active traders
We consistently monitor response times to ensure our
customer service remains industry-leading. This year:
• Average speed of dealing and client services calls
remained within ten seconds
• Over 90% of emails were answered within 24 hours
• We developed a dedicated social media
response strategy
We were also ranked joint first in an IPSOS mystery-shopper
exercise involving UK spread betting providers, with the
survey also providing very useful insights into the areas
where we have further room for improvement. Meanwhile,
our service was rated as ‘good’ or ‘very good’ by 89% of
spread bettors and 88% of CFD traders who responded to
independently conducted satisfaction surveys.(1)
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Strategic Report
Our Strategy in Action
(1) Investment Trends UK Leveraged Trading Report, December 2013.
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SUSTAIN TECHNOLOGY
LEADERSHIP
Key to clients’ loyalty to IG is our provision of a secure,
reliable and intuitive platform that facilitates fast deal
execution and trading across web, mobile and tablet
devices. Our continued investment in these areas has led to
99.23% of deals being executed in under 0.1 seconds,(1) and
to a core platform uptime of 99.97%(2) (2013: 99.95%).
In the last year 126,100 clients used our
online dealing platforms and tailored
mobile apps to make over three million
transactions per month.
We recognise the increasing significance of mobile
technology and continue to develop and invest in our range
of tailored, device- and platform-specific apps. By the end
of this financial year clients were executing around a third of
their trades using our dedicated mobile apps, with over half
of clients using apps to interact with IG in some way.
We anticipate that in the future the majority of our
interactions with clients and potential clients will be through
mobile devices and apps, and we recognise that for
continued success we must fully address the client journey
on such devices. We continue to increase our investment in
mobile applications to ensure that we lead the market all
the way from the point when a potential client expresses an
interest in trading, through identifying IG as the right partner,
opening an account, trading and carrying out the full range
of account maintenance. During the year therefore, we:
• Launched iPhone and iPad apps on iOS 7, plus an
Android tablet and phablet app
• Extended the functionality of our mobile charts,
introducing specifically chart-centric views in the Android
tablet and iPad apps
• Deployed our Android apps in more stores, including the
Amazon store
• Built a specific version of IG.com for mobile platforms
• Built push notifications to our mobile platforms for time-
critical events, including price levels, economic data and
technical analysis alerts
• Achieved improved search-engine ranking for searches
performed on mobile devices
• Continued to build the functionality of our apps to match
that available in our web-based platform
• Delivered engaging content to our clients using mobile
(eg streaming video)
Ongoing IT development and superior platform technology,
along with tools and resources for our clients, will continue
to underpin our future financial success as our clients’ needs
change and become increasingly sophisticated.
(1) 99.23% of trades executed in 0.1 seconds: average per month, IG globally
(12 months to 31 May 2014).
(2) 99.97% core platform uptime: average per month, IG globally (12 months
to 31 May 2014).
23
IG Group Holdings Plc 2014 Annual Report|
KEY PERFORMANCE INDICATORS (KPIs)
Below are the nine key metrics which we judge to be strong
indicators of our recent financial and operational performance
and our progress on delivering the strategic goals of the business.
Certain of these indicators are also used to determine the
Executive Director and staff share-plan awards or vesting and
the level of staff discretionary pay. The links to remuneration are
detailed, where appropriate, for each KPI.
REVENUE
Revenue performance demonstrates business growth in terms of
global reach, active clients and revenue per client, and is also a driver
of the staff bonus pool. Revenue grew by 2.4% in the year, against the
backdrop of relatively subdued financial markets. An assessment of
our performance is provided in the Operating and Financial Reviews.
FY13
FY14
REVENUE PER CLIENT
Revenue per client is calculated as total revenue divided by the
number of active clients in the period, and is a measure of client
activity and quality. Revenue per client increased by 10.4% in the
year, partly due to the deliberate decision to de-emphasise clients
with the very lowest levels of trading activity.
ACTIVE CLIENTS
Active clients are those clients who have opened at least one trade in
the period. The reduction in active clients in the year again primarily
reflects the deliberate decision to de-emphasise clients with the very
lowest levels of trading activity.
PROFIT BEFORE TAX (PBT)
The increase in PBT in the year demonstrates both the top-line
growth of our business and effective cost management. The vesting
of legacy share plans is partly with reference to the growth in PBT
over a three-year period. A detailed commentary on our PBT
performance is provided in the Operating and Financial Reviews.
DILUTED EARNINGS PER SHARE (DEPS)
DEPS includes all components of the Group’s performance based
on profitability and capital structure. The award or vesting of our
new Executive Director and senior staff share plans is partially with
reference to DEPS. DEPS increased by 3.6% over the prior year,
reflecting growth in after-tax profitability.
FY13
FY14
FY13
FY14
FY13
FY14
FY13
FY14
24
Strategic Report
Key Performance Indicators (KPIs)
2.4%
£361.9m
£370.4m
10.4%
£2,659
£2,937
7.3%
136,100
126,100
1.3%
£192.2m
£194.7m
3.6%
38.80p
40.18p
OWN FUNDS GENERATED FROM OPERATIONS
High profit-to-cash conversion gives us strong liquidity and supports
our robust risk-management strategy and our dividend payment.
Maintaining a high level of cash generation, after the required
investment, is key to delivering strong shareholder returns. A detailed
commentary is provided in the Operating and Financial Reviews.
DIVIDEND PER SHARE
Progressive returns to shareholders reflect the strength of our business,
our capital position and our expectations of future performance. This
year we raised our dividend payout policy to be approximately 70% of
profit after tax, as described in the Chairman’s Statement. As a result,
our total dividend increased by 21.1% over the prior year.
FY13
FY14
FY13
FY14
PLATFORM UPTIME
The availability of the dealing platform is key to our clients’ confidence in
trading with IG. Reliability has been strong in the current year, with both
our internal and regulatory targets exceeded. This measure is one of a
suite of non-financial indicators used to determine share-plan and bonus
awards – an assessment is provided in the Directors’ Remuneration Report.
FY13
FY14
4.1%
£154.3m
£160.6m
21.1%
23.25p
28.15p
0.02%
99.95%
99.97%
NET PROMOTER SCORE (NPS)
To better understand how well we deliver quality service to our clients, we use NPS, as well as other measures of
satisfaction, to assess the extent of client recommendations. Over the last year we have seen improvements in Germany
and France and, while our absolute score has fallen across other markets, we have maintained our ranking and compare
very favourably against the industry average. This measure is one of a suite of non-financial indicators used to determine
share-plan and bonus awards – an assessment is provided in the Directors’ Remuneration Report.
UK SPREAD BETTING
UK CFDS
SINGAPORE
IG’s most
recent NPS
Industry
average
21%
6%
IG’s most
recent NPS
Industry
average
17%
1%
IG’s most
recent NPS
-13%
Industry
average
-23%
AUSTRALIA
GERMANY
IG’s most
recent NPS
Industry
average
12%
-10%
IG’s most
recent NPS
Industry
average
-4%
16%
FRANCE
IG’s most
recent NPS
Industry
average
17%
-6%
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 0-6).
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IG Group Holdings Plc 2014 Annual Report|
CORPORATE SOCIAL RESPONSIBILITY REPORT
We are committed to high standards of corporate
responsibility, and we recognise that having a
long-term strategy which develops our people is
one of the keys to our success, supporting our
reputation within the financial services industry.
OUR PEOPLE
The Group provides a dynamic and successful working
environment for over 1,100 employees, located around
the world. We believe strongly that our people take pride
in what we have achieved and have a powerful sense of
belonging to IG Group.
We appreciate that the quality of our employees is crucial
to our success, and we offer competitive packages to
recognise past performance and retain key talent in the
future. We pay performance-related bonuses to most
staff, and we reward our key personnel through long-term
incentive plans. All our people based in the UK, Australia
and the US have the opportunity to acquire shares under
various tax-authority-approved share-incentive plans.
We also provide a full range of appropriate benefits,
including pension contributions. In the UK, we contribute
up to 10% of an employee’s basic salary to their pension,
provided the employee contributes 5% of their salary. If they
choose to contribute less than 5%, we will contribute double
the individual rate. We successfully introduced pension
’auto-enrolment’ within the UK, on the planned staging date
of 1 November 2013, as part of the government’s Workplace
Pensions reform, and we have over 95% participation in our
Group pension schemes.
LEADERSHIP, MANAGEMENT AND DEVELOPMENT
We continually invest in developing our employees
worldwide, improving the quality of learning opportunities
and encouraging our people to progress within the
business. This year we launched an online learning and
policy-management system, which has improved access
to and recording of development activities in all of our
offices. It has also given us the opportunity to share ’Views
from the Bridge‘ – videos featuring members of the senior
management team which aim to ensure that our key
leadership messages reach all of our people globally.
We support our staff in their continuing personal and
professional training and development, and encourage
attendance at external and industry-recognised training
courses, sponsoring our people to undertake formal
education programmes and achieve professional
qualifications. We also offer internal secondments.
We have made significant progress in terms of articulating
our vision and strategy for the future, as well as ensuring
that we are building a strong group of managers equipped
with the skills and behaviours to lead IG forward.
This year, we developed a set
of leadership behaviours for our
managers, focusing on four core
principles: communicating with others,
leading by example, developing people
and being passionate about results.
These behaviours now form an intrinsic part of our
managers’ performance and are embedded into the
appraisal process.
To support our managers in their continued development,
we have introduced a structured leadership programme.
From Board level to middle-management, our managers
participate in an Inspirational Development programme
which focuses on the outcomes of 360° feedback and the
behaviours associated with generating high performance.
Our more junior managers attend a Transition to Leadership
programme, which specifically targets the process of
developing from a technical specialist to a leader of people.
Learning from these workshops is further embedded
through coaching triads, networking events and
reinforcement by senior managers. Senior IG managers
continue to demonstrate their commitment to the
programmes by acting as guest speakers at each
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Strategic Report
Corporate Social Responsibility Report
event, sharing their leadership stories and providing an
opportunity for those attending to discuss future IG strategy.
By the end of the 2015 financial year, we expect all of our
managers to have participated in a leadership programme
and to have benefited from ongoing 360° feedback and
coaching and development conversations with their line
manager. As of May 2014, 90% of our more senior managers
have attended a workshop, and by the end of October 2014,
60% of our more junior managers will have attended.
TALENT MANAGEMENT
Retention of talent can be challenging in companies with
relatively flat organisational structures, and we recognise
the importance of encouraging people to grow and
stretch themselves in roles that have limited scope for
vertical movement.
We have career pathways and associated competency
frameworks in place for key areas of the business. These
frameworks describe what is needed for exceptional
performance in each role and provide space for individuals
to strengthen their performance in readiness for future
horizontal or vertical moves. We also have a mentoring
programme to motivate and develop the careers of
employees with high potential. This provides insight into
IG’s operations and support from members of the senior
management team, thereby strengthening the talent pool.
We encourage members of this pool to act as mentors to
more junior staff.
To attract new, high-calibre staff, we offer three graduate
schemes, in IT, operations and finance. Graduates joining
the IT and operations schemes follow a 12-month training
plan before we assign them to a permanent position. The
finance scheme is longer-term, aiming to train graduates as
qualified accountants within the team. Graduates joining
IG benefit from the support of a business mentor, access
to cross-business placements, structured training plans
and reviews, which fast-track their development to first-role
competence in their chosen area.
DIVERSITY AND EQUALITY
We are committed to maintaining a diverse workforce at
all levels of the Group. We believe that diversity is a broad
issue, encompassing variations in an individual’s experience,
skills, personal attributes and background, as well as more
traditional diversity factors such as religion and gender. Our
total employee gender breakdown is shown to the right.
(1) The strategic management team is defined as the employees responsible
for planning, directing and controlling the activities of the Group.
(2) The senior management team is defined as the strategic management
team plus the Directors of the subsidiary companies included in the
consolidated Financial Statements.
In terms of gender, our workforce is made up as follows:
8
1
Male
Female
Percentage female: 11%
BOARD
7
2
Male
Female
Percentage female: 22%
STRATEGIC
MANAGEMENT
TEAM(1)
21
Male
3
Female
Percentage female: 13%
SENIOR
MANAGEMENT
TEAM(2)
823
Male
297
Female
Percentage female: 36%
TEAM
MEMBERS
852
Male
301
Female
Percentage female: 35%
TOTAL
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IG Group Holdings Plc 2014 Annual Report|
CORPORATE SOCIAL RESPONSIBILITY REPORT (CONTINUED)
We are also an equal opportunities employer, and we have
extensive human resource policies in place to ensure that
our people can expect to work in an environment free from
discrimination and harassment.
For this reason, we continuously reinforce the need to treat
all employees fairly. We are committed to creating a work
environment free from bullying, where everyone is treated
with dignity and respect.
We give full consideration to applications for employment
from disabled persons, where the candidate’s aptitudes and
abilities are consistent with meeting the requirements of the
job. Where existing employees become disabled, whether
on a temporary or permanent basis, it is our policy to
provide continuing employment wherever practicable in the
same or an alternative position, and to provide appropriate
training and/or graduated back-to-work programmes to
achieve this aim.
EMPLOYEE ENGAGEMENT
This year we partnered with IBM to deliver our Employee
Engagement Survey, enabling us to benchmark our results
against global and local standards for high-performing
organisations and the finance sector. The data has
been invaluable in helping us to plan appropriate local
engagement strategies for countries which culturally score
differently to the UK.
This year, 80-85% of employees
who completed our engagement
survey agreed that team spirit,
outstanding vision of the future
and trust in senior leadership were
strengths for IG, all scoring above
external global benchmarks.
We continue to work on communication lines, enhancing
development opportunities and improving managers’ skills
in providing feedback and recognising performance.
EMPLOYEE INVOLVEMENT
We take pride in being an open, non-hierarchical
organisation, with direct and open access among all teams
and at all levels. The Chief Executive Officer addresses all
employees every six months, at the half-year and full-year
points, and presents the Group’s financial results, business
updates and plans for the future. He and other members of
senior management maintain a schedule of overseas office
visits and take these opportunities to address each local
employee audience.
Our people participate directly in the success of the
business through the Group’s performance-related bonus
schemes and employee share plans. Bonus payments
are based on a communal pool driven by the overall
performance of the Group, and this pool covers around 90%
of our employees, with the rest covered by Remuneration
Committee-approved sales-incentives schemes. In addition,
over 35% of eligible employees take part in our HMRC-
approved share-incentive plan.
TOP EMPLOYER
Our positive workplace culture continues to be recognised,
as IG celebrates being named as one of Britain’s Top
Employers for the seventh year running in 2014.
The Top Employer certification is awarded only to
organisations that meet the highest standards in human
resource management, and we are very proud to be a long-
standing recipient. The award, by the Corporate Research
Foundation, is based on a strong performance in each
of the audited categories: pay and benefits, training and
development, corporate culture and career development.
SOCIETY AND EMPLOYEE SPONSORSHIP
We are keen to encourage our people to engage in
activities that both help their own development and support
local communities, so we are proud to support a wide
variety of different charities that are close to our employees’
hearts. We match any funds our employees have raised for
sponsored events.
To make the most of charitable donations, we continue
to work with the Charities Aid Foundation, allowing
our employees to operate a charity fund and make
contributions to selected charities from gross earnings,
directly from their monthly pay.
Not only do we support charities with gifts of money,
but also by providing time and resources. Our absence-
management policy offers the opportunity for our people 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.
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Corporate Social Responsibility Report
We have a volunteering scheme with Beanstalk, 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.
In 2014, we signed up 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.
HEALTH AND SAFETY
We believe that our employees are one of our most
valuable assets, and we are 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 appropriate in-house
training, we ensure that we comply with all statutory health
and safety requirements.
WELLBEING
We are fully committed to our employees’ health and
wellbeing, and the benefits we provide to all employees
include private medical cover, permanent health insurance
and life assurance.
To help our people enjoy healthy lifestyles, we reimburse
50% of the costs of employees’ annual gym subscriptions,
up to a specified amount, on a global basis. We also
support cycling, and we offer our staff savings on bicycles
under the government-backed cycle-to-work initiative,
as well as providing free-of-charge bicycle parking at our
London office.
We support our employees’ wellbeing by providing a
confidential employee assistance programme, which offers
a 24/7 telephone counselling service to all our European
office employees and their immediate families. Our people
can use this service for impartial advice on all matters, from
housing to personal finance.
SUSTAINABLE BUSINESS
We recognise the fundamental importance of having a
reputation for transparency and quality in the financial
services industry, and commitment to these values is a
cornerstone of our success. We apply high standards
across our businesses, and specifically in our corporate
governance – as set out in the Corporate Governance
Report and the statement by the Directors in compliance
with the UK Corporate Governance Code.
Our commitment to the principles of transparency and
quality is embodied in each of the following service
offerings and behaviours.
COMMITMENT TO OUR CUSTOMERS
We aim to put our customers at the heart of everything
we do, and we strive to ensure that we consistently deliver
a beneficial service for our clients. The Group has a very
low tolerance for poor consumer outcomes, and we are
committed to investing in process, training and culture to
prevent unsatisfactory customer experiences. We maintain
this policy even when it may have a negative impact on our
own revenue or costs.
We ensure that commitment to our customers is embedded
in our culture, and we regularly seek feedback from our
clients. This enables us to develop our products and
services specifically to meet the needs of active
traders globally.
Central to our commitment to our customers is the quality
of our order execution. We offer near-instantaneous
execution, with around 99.6% of client orders accepted
automatically. We never requote prices and, outside our
set margin of tolerance, our innovative price-improvement
technology enables customers to receive a better price if
one becomes available as a trade is executed.
CLIENT SUPPORT AND EDUCATION
We offer extensive educational resources for clients,
including an introduction programme for new clients
that promotes responsible trading, and a wide range of
in-person client seminars and webinars.
We also provide an extensive range of trading tools, such as
regular free news, commentary and analysis via the Market
Insight section of our website. We offer charting packages
and various technical analysis tools that enable our clients
to screen markets for trading opportunities and to receive
alerts when trading signals appear.
CLIENT APPROPRIATENESS
Our products are not suitable for everyone. For this reason,
we have a number of procedures to ensure that our
marketing reaches the right audience and that our clients
understand how our services work.
We follow strict guidelines to ensure that we only promote
our products to appropriate sectors and demographic
groups. We also conduct rigorous checks to ensure that
any promotion is clear, fair and not misleading, and that
it contains a balanced description of risks alongside the
benefits of our products.
Before we allow a prospective client to open an account,
we undertake an assessment to determine whether our
products are appropriate or suitable for them. This involves
asking about their trading knowledge and experience, as
well as their income and savings. Based on the results of this
assessment, we may choose to provide the applicant with
a warning about the appropriateness of the product, or we
may decline to open an account.
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IG Group Holdings Plc 2014 Annual Report|
CORPORATE SOCIAL RESPONSIBILITY REPORT (CONTINUED)
LIMITING CLIENT LOSSES
We have a number of services designed to help limit
client losses.
Our clients can choose to attach
guaranteed stops to their positions, so
that they know their maximum possible
loss at the outset of the trade.
Our close-out monitor (COM), which automatically liquidates
clients’ positions when their margin has been significantly
eroded, also aims to restrict our clients’ potential losses. At
31 May 2014, 99.81% of all client accounts were subject to
the automatic COM procedure. Further details are set out in
note 36 to the Financial Statements.
PROTECTING OUR CLIENTS’ DATA AND FUNDS
We prioritise the security of our clients’ information and have
achieved the ISO 27001 certificate for Information Security.
We fully segregate all funds for individuals, whether we are
required to by regulation or not, and we hold segregated
client money entirely separately from our own money. This
ensures that, in the event of our default, client funds would
be returned to the clients rather than being treated as a
recoverable asset by our general creditors.
We continue to engage PricewaterhouseCoopers LLP to
conduct ongoing independent reviews of our controls and
procedures for client money calculation and segregation
(ISAE 3000). In committing to this review process, we have
taken an additional step, over and above standard audit
checks and our regulators’ reporting requirements. This
reflects our dedication to keeping our clients’ funds secure
and delivering beneficial outcomes for customers.
OUR ENVIRONMENTAL IMPACT
As a business which conducts nearly all of its client trades
online and undertakes no industrial activities, we do not see
ourselves as a significant emitter of environmentally harmful
substances. However, we are mindful of the impact that our
operations have on the surrounding environment and take
several steps to manage this.
Our greatest environmental impact comes from the running
and maintenance of our IT infrastructure, which supports
our award-winning platform and ensures we are able to
consistently maintain our high level of platform uptime.
Powering and cooling our datacentres results in the majority
of our power usage – as well as our energy costs. As such,
we update our hardware and software as appropriate to
save money and energy.
During the year we made a number
of energy savings in our datacentres,
including applying virtualisation
technologies to our existing
infrastructure and upgrading our
uninterruptible power supply to lower
electricity consumption.
This year we replaced a number of our rack servers with
new blade technology. This has allowed us to integrate
power and cooling technologies across the server estate
and provides a considerable saving in energy and costs.
We recycled the legacy hardware in accordance with our
internal recycling policy, ensuring that any data was securely
destroyed before recycling the remaining components.
After our datacentres, our global offices are the next-largest
users of energy. We implement a number of energy-saving
processes, and we are committed to a far-reaching recycling
policy. This encompasses not only a proportion of our daily
office waste, but also extends to our IT equipment when
we replace hardware. Our head office building, where
more than half of our employees are based, is also ISO
14001 certified, and we complement this environmental-
management system with our own sensor-lighting to reduce
our energy use.
A further environmental challenge is presented by the
need for our people to travel between our headquarters
and our global offices to provide local support for staff and
clients. We have taken steps to minimise the need for these
journeys by installing state-of-the-art video-conferencing
equipment in seven of our global offices.
30
Strategic Report
Corporate Social Responsibility Report
We provide emissions data in respect of the financial year
ending 31 May 2014 in the Mandatory Greenhouse Gas
Emissions Report and Greenhouse Gas Emissions Intensity
Ratio tables to the right. In the tables, Scope 1 emissions
are those incurred in air conditioning our offices and
running back-up generators for our servers, while Scope 2
emissions are purchased energy such as electricity. For the
most significant sources of energy consumption discussed
above, we purchase electricity via our landlords.
BASIS OF PREPARATION
• Greenhouse gas emissions are calculated on the basis
of financial control, with the emissions data included for
the companies consolidated in the Financial Statements,
noting the Statement of Exclusions given below
EMISSION CATEGORY
Purchased energy
Combustion
Operation of facilities
• We have based our methodology on the principles of the
EMISSION SOURCE
Greenhouse Gas Protocol
• We have reported on all the measured emissions sources
Electricity
required under The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013, except
those noted in the Statement of Exclusions
• This includes emissions under Scope 1 and 2, except
those noted in the Statement of Exclusions, but excludes
any emissions from Scope 3
• Conversion factors for electricity, gas and other emissions
are those published by the Department for Environment,
Food and Rural Affairs for 2013-14
Statement of Exclusions
• Global diesel use (for vehicles) has been excluded from
the report on the basis that it is wholly immaterial to our
carbon footprint
• We have restricted the scope of reporting for our fugitive
emissions to the United Kingdom only, and these are
shown in our Scope 1: operation of facilities emissions.
Other regions have been excluded due to lack of data
or immateriality
Gas
Diesel
F-gas
MANDATORY GREENHOUSE GAS
EMISSIONS REPORT
Emission type
Scope 1: operation of facilities
Scope 1: combustion
Total Scope 1 emissions
Scope 2: purchased energy
Total Scope 2 emissions
Total emissions
Tonnes of carbon
dioxide equivalent
(tCO2e)
166
239
405
3,542
3,542
3,947
GREENHOUSE GAS EMISSIONS INTENSITY RATIO
Total footprint (Scope 1
and Scope 2) – tCO2e
Turnover (£m)
Intensity ratio (tCO2e/£m)
3,947
370.4
10.66
31
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IG Group Holdings Plc 2014 Annual Report|
CHIEF FINANCIAL OFFICER’S REVIEW
‘IG continues to be a highly
cash-generative business, which
allows for both investment in
strategic growth initiatives and a
progressive dividend policy.’
Net trading revenue for the year was up 2.4% at
£370.4 million (2013: £361.9 million). Although financial
markets were quite subdued, revenue was well ahead for
most of the year. A particularly dull period externally then
drove a relatively weak finish in the final quarter, against
exceptional revenue performance in the same quarter of
the prior year. As has been traditional, revenue was slightly
higher in the second half of the year than the first, although
unusually the first and third quarters were the strongest,
reflecting the fact that financial markets were slightly more
interesting in these periods.
Across the Group, active client numbers were down
by 7.3% in the year, at 126,100, and average revenue
per client was up by 10.4% at £2,937. This reflected IG’s
consistent focus on active traders, with some specific
measures taken late in the 2013 financial year to
de-emphasise clients with the very lowest levels of
trading activity.
Net operating income was up by 1.7%, as the drop in the
betting duty charge for the year was more than offset by
lower interest received on client money balances, due
primarily to the fall in interest rates in Australia over the
last year. Administrative costs of £178.9 million were up
by 1.7% in the year (2013: £176.0 million), due mainly
to investment in additional staff to support various
ongoing growth initiatives, such as the launch of an
execution-only stockbroking service, the set up of a new
office in Switzerland and an increasing emphasis on the
development of mobile applications. This resulted in an
increase in profit before tax of 1.3%, to £194.7 million
(2013: £192.2 million).
Diluted earnings per share were up by 3.6% to 40.18 pence,
benefiting from a lower Group tax rate, down from 26.3%
in the prior year to 24.5%, due mainly to the fall in the UK
Corporation Tax rate.
IG continues to be a highly cash-generative business, which
allows for both investment in strategic growth initiatives
and a progressive dividend policy. With this in mind, the
Board is proposing to increase the ordinary dividend payout
ratio to approximately 70%, from the current level of 60%,
with effect from the 2014 financial year, while retaining a
progressive dividend policy in the future.
Simultaneously, the Board will adopt a new policy of paying
the interim dividend each year, calculated at approximately
30% of the prior year’s full-year dividend. The Board has
recommended a final ordinary dividend of 22.40 pence,
taking the full-year ordinary dividend per share to
28.15 pence, up by 21.1%, and representing 70.1% of
diluted earnings per share; this reflects both the growth in
earnings in the year and the enhancement to our ordinary
dividend policy.
REVENUE
2.4%
PROFIT
BEFORE TAX
1.3%
DILUTED
EARNINGS
PER SHARE
3.6%
Our revenue was
£370.4 million, up 2.4% on
the prior year
Profit before tax was
£194.7 million, up 1.3%
year-on-year
Increasing to 40.18 pence,
our diluted EPS was up
3.6% compared to the 2013
financial year
DIVIDEND
PER SHARE
21.1%
Our total ordinary dividend
per share was 28.15 pence,
representing approximately
70% of Group earnings
32
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Chief Financial Officer’s Review
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33
OPERATING REVIEW
UK
Australia
Europe
Rest of World
Total
FY14
FY13
Revenue
(£m)
Active clients
(000s)
Revenue
(£m)
Active clients
(000s)
% change in revenue
per client from FY13(1)
192.7
52.2
82.1
43.4
370.4
59.3
18.0
26.0
22.8
126.1
186.5
56.3
71.0
48.1
361.9
68.3
19.0
24.6
24.2
136.1
19.1%
(2.2%)
9.5%
(4.4%)
10.4%
(1) Calculated on the underlying, unrounded numbers.
UK
The UK segment comprised the offices in London and Dublin. Net trading revenue in the UK was 3.3% ahead of the prior
year at £192.7 million (2013: £186.5 million). The revenue proportion delivered in the two halves was very similar to that of
the overall Group, with a slightly stronger second-half performance, driven by a good third quarter.
Active client numbers were down by 13.2% in the year, while average revenue per client was up by 19.1%. While the
uncertain economic backdrop continued to make client recruitment challenging, the fall in client numbers was primarily a
function of management actions to de-emphasise clients with the very lowest levels of trading activity, including raising the
minimum deposit level to £100.
An annual study of the UK’s retail leveraged-trading industry, released towards the end of 2013, showed that IG’s market
share of spread bettors had fallen from 44% to 41% and our share of CFD traders had risen from 32% to 34%. Although IG
is still the clear market leader in both categories, with the second-placed providers in each category holding shares of 6%
and 7% respectively, the precise numerical conclusions are increasingly less relevant in the context of our focus on active
retail traders, who generate a more significant share of revenue. Inevitably, our focus in this regard contributed to a fall in
the overall size of the market from 104,000 to 93,000.
We have now completed the technology development and internal testing that enable us to offer our execution-only
stockbroking service as part of our comprehensive share-trading package in the UK. In July, we began an external pilot
programme within our UK client base, with the aim of carrying out a full UK launch in September 2014.
AUSTRALIA
The Australia segment comprised the Melbourne office and revenue from New Zealand and other countries in the Asia
Pacific region. In Australia, net trading revenue for the year was down by 7.3% to £52.2 million (2013: £56.3 million). Active
client numbers in the year were down by 5.1%, and average revenue per client was down by 2.2%.
Our business in Australia continued to experience some weakness for several reasons. Consumer sentiment remains
subdued, with the Australian economy lagging most global regions and entering a recessionary phase later in the cycle. Our
results were also softened by the extremely low levels of volatility in the forex market, which had a negative impact on client
IG Group Holdings Plc 2014 Annual Report|
CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)
trading activity in this asset type – Australia gleans a larger
proportion of its revenue from forex trading than the UK
and Europe. The ongoing weakness in the Australian dollar
also resulted in a negative translation impact, as much of
the local revenue is dollar-denominated.
During the year, an annual market-research study concluded
that IG had grown its market share of the retail CFD
industry by one percentage point to 38% and extended
its leadership over the second-largest provider by four
percentage points. In the same time period, the market size
dropped from 44,000 participants to 41,000.
EUROPE
The Europe segment comprised the German, French, Italian,
Spanish, Dutch, Luxembourg, Swedish and Norwegian offices.
Although still weak in absolute terms, the European economy
is showing signs of improvement, and this has positively
impacted the performance of our European business. Net
trading revenue in Europe for the year was up by 15.6% at
£82.1 million (2013: £71.0 million), with strong growth in both
the number of clients trading, up 5.6%, and average revenue
per client, up 9.5%. There was strong performance from the
two countries with the greatest revenue, Germany and France,
which were ahead by 19.8% and 15.0% respectively. The
European segment accounted for 22.2% of Group revenue in
the period, against 19.6% in the prior year.
An annual market-research report into the French retail
CFD market was published in April 2014. It concluded that
IG had retained its market leadership, with a stable market
share of 22%, after a small decline in the prior year. It also
showed that our share of the forex market had increased to
11%. Shortly after the end of the financial year, an equivalent
study for Germany was published. Encouragingly, it showed
IG’s share has increased slightly to 13%, after two years of
small declines. We have maintained second place in the
market and closed the gap on the market leader by six
percentage points.
REST OF WORLD
The Rest of World segment comprised the offices in
Singapore, Japan and South Africa and our retail exchange,
Nadex, in the US. Net trading revenue in the Rest of World
region was 9.8% behind the prior year, at £43.4 million
(2013: £48.1 million).
Singapore revenue was behind by 10.3%, predominantly
due to a fall in average revenue per client, which was
down 4.9%. Revenue in Singapore is traditionally weighted
towards forex trading, and the sustained period of low
volatility in this asset class negatively impacted our
performance in the year. For some time, an industry-wide
group in Singapore has been designing an e-learning
module that will help new traders gain an appropriate level
of knowledge to begin trading. Following approval by the
regulator, this module was launched at the start of July and
should assist with the flow of new clients to CFD trading. As
previously discussed, we continue to expect that leverage
restrictions will be applied to retail forex trading in 2015.
In Japan, net trading revenue was down by 23.4% to
£12.2 million (2013: £15.9 million). The majority of our
Japanese revenue comes from forex trading, and this
year volatility in this asset type was unusually low. This
compares to the prior year, which finished particularly
strongly following a shift in economic policy that caused
considerable volatility in the yen. The new regulations
surrounding binaries came into force on 1 December 2013,
restricting the range of products from our main competitors
REVENUE AND ACTIVE CLIENTS BY MONTH
Revenue (£m)
Clients (000s)
45
40
35
30
25
20
15
10
5
Revenue
Clients
90
80
70
60
50
40
30
20
10
ASSET MIX
IG has consistently benefited from the broad range of assets
it enables clients to trade, resulting in a more stable revenue
stream in different market conditions. This year we derived
47% of our revenue from clients trading indices (2013: 46%)
and had a strong year in shares trading, delivering 20% of
Group revenue (2013: 18%). Our weakest asset type year-
on-year was forex, and this was a common theme across the
global trading industry, particularly in the final quarter of the
financial year. Client forex trading delivered 20% of Group
revenue, down from 24% in the prior year. The remaining
13% of net trading revenue came from clients trading
binaries and commodities (2013: 12%).
REVENUE BY PRODUCT
Revenue (£m)
Equity indices Commodities
Forex Binaries
Shares
60
50
40
30
20
10
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY13
FY14
and enabling us to increase our range. Consequently, we
experienced an almost instantaneous uplift in market share
and volumes in this product. The regulations also placed
restrictions on new binary traders, in the form of an online
test; it is too early to assess how impactful this will be to the
flow of new binary traders.
South Africa had another strong year, with revenue ahead
by 12.2% to £5.1 million (2013: £4.6 million). Results here
continue to be constrained by the weakness of the South
African Rand and the ongoing exchange controls, which
prevent easy access to overseas-quoted instruments.
In the US, revenue was ahead by 54.6% at £3.1 million
(2013: £2.0 million). Nadex volumes reached another record,
with 2,927,000 lots traded in the year, against 1,623,000 in
the prior year. Monthly client numbers peaked in April at
around 2,200, up from around 1,300 at the same time in
the prior year. Towards the end of the fourth quarter, two
new market makers joined the exchange, one of which has
been consistently providing additional liquidity for the last
couple of months. Over time this should have the effect of
decreasing spreads and increasing available liquidity on the
traded contracts.
FACTORS IMPACTING NET
TRADING REVENUE
DISTRIBUTION OF DAILY REVENUE
The tight distribution of our daily revenue during the year
is illustrated in the chart below. The absence of proprietary
trading in IG and the hedged nature of the business
model – ie hedging with third parties to cover the residual
risk above preset limits – tends to deliver a more stable
revenue stream, irrespective of the direction of underlying
market movements. Management regularly reviews the
exposure limits on all traded products in order to maximise
returns within an appropriate risk-control environment.
FY14 REVENUE DISTRIBUTION
Count of days
24
21
18
15
12
9
6
3
Jun Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2012/2013
2013/2014
0
0.5
1.0
1.5
2.0
2.5
3.0
Revenue (£m)
34
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Chief Financial Officer’s Review
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IG Group Holdings Plc 2014 Annual Report|
CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)
ADMINISTRATIVE EXPENSES
Administrative expenses, as detailed below, increased by
£2.9 million to £178.9 million (2013: £176.0 million).
Over the year, the Group continued to invest in longer-
term projects to broaden its offering to active traders
through a stockbroking offering, extending its technological
lead – particularly in the mobile sphere – and expanding
geographically. As a result, both headcount and the
associated costs have increased, reflected in the higher
employee remuneration costs. Additionally, performance-
related remuneration has increased following the improved
relative revenue and EPS performance for the year.
Employee remuneration costs
Advertising and marketing
Premises-related costs
IT, market data and
communications
Legal and professional
Regulatory fees
Bad and doubtful debts
Other costs
Depreciation and amortisation
2014
£000
89,255
31,660
9,973
13,800
4,266
5,544
1,614
13,103
9,697
2013
£000
86,276
32,558
10,164
12,211
4,772
6,394
(348)
11,787
12,166
Administrative expenses
178,912 175,980
EMPLOYEE REMUNERATION COSTS
Employee remuneration costs increased by 3.5% to
£89.3 million (2013: £86.3 million) in the year.
The investment in headcount during the year brought the
year-end employee number to 1,153 (2013: 1,009) and the
average headcount for the year to 1,070 (2013: 1,005). Total
salary costs, however, show an increase of only 2.7% as a
change in the staff mix has brought the average salary down
by 2.8%.
The sustained performance plan (SPP) introduced during
the year replaced both the annual bonus and the long-
term share schemes for the Executive Directors. Therefore,
a direct individual comparison of year-on-year bonus and
share schemes costs respectively is inappropriate.
The £2.6 million aggregated increase in performance-
related bonuses and share-based payment schemes
charges reflects both the re-alignment of executive
remuneration, as discussed in the Remuneration Report,
and higher staff bonus payments in line with the improved
year-on-year performance.
FINANCIAL REVIEW
SUMMARY GROUP INCOME STATEMENT
Net trading revenue(1)
Net interest on
segregated client funds
Betting duty and FTT
Other operating income
2014
£000
2013
£000
%
change
370,408
361,857
2.4%
5,500
(3,873)
2,132
8,188
(5,204)
3,067
(32.8%)
(25.6%)
(30.5%)
Net operating income
Administrative expenses
374,167
(178,912)
367,908
(175,980)
Operating profit
Net finance
195,255
191,928
(expense) / income
(532)
280
Profit before tax
Tax expense
194,723
(47,688)
192,208
(50,460)
Profit for the year
147,035
141,748
1.7%
1.7%
1.7%
1.3%
Diluted earnings
per share
40.18p
38.80p
3.6%
Total dividend per share
28.15p
23.25p
21.1%
(1) Net trading revenue is trading revenue excluding interest on segregated
client funds and is net of introductory partner commissions.
NET OPERATING INCOME
As discussed earlier, net trading revenue has increased by
2.4% to £370.4 million (2013: £361.9 million).
Net interest income on segregated client funds has
decreased by £2.7 million to £5.5 million (2013: £8.2 million).
This was driven by the decrease in the Australian base
interest rate and the reduction in the margins paid by the
UK banks on sterling client money deposits in response to
Basel III.
Betting duties paid by the Group, in relation to net losses
for spread betting clients, amounted to £3.5 million
(2013: £5.2 million). The reduction of £1.7 million reflected
the changes in client profitability over the two years.
The Italian Financial Transaction Tax, introduced in 2013, has
added to the Group’s expenses for the year. During the year
the Group made payments of £0.4 million (2013: £nil).
Other operating income includes income of
£1.4 million (2013: £1.3 million) in relation to a revenue-
share arrangement with Spreadex Limited, following the
sale of the Group’s Sport business client list in 2012. The
agreement ended on 23 June 2014 and the income in the
next financial year will be minimal. It also includes inactivity
fees, amounting to £0.7 million (2013: £0.5 million), which
the Group commenced charging in February 2013. These
are applied to any account that has not traded for more
than two years and has a positive account balance.
36
Strategic Report
Chief Financial Officer’s Review
Inclusive of National Insurance and pension costs, employee
remuneration costs comprise:
capitalised, and ultimately amortised. The corresponding
cost reduction can also be seen in software amortisation.
Legal and professional fees, which include audit, taxation,
legal and other professional fees, decreased by £0.5 million
to £4.3 million (2013: £4.8 million).
Regulatory fees decreased by £0.9 million to £5.5 million.
The reduction is primarily due to a lower Financial Services
Compensation Scheme levy (‘FSCS levy’) incurred in the
year, as the FCA decided to defer a potential £30 million
interim levy on the investment intermediary firms. The FSCS
levy for the year was £4.3 million (2013: £5.1 million). The
level of FSCS levy paid by the Group remains dependent
on investment intermediary firms’ failures and the eventual
compensation paid. Accordingly, this charge is outside of
the Group’s control and is hard to forecast accurately.
For the forthcoming financial year, following an amendment
to the accounting requirements, the way in which the Group
accounts for the FSCS levy will change. A full explanation
is provided within note 40 to the Financial Statements.
However, in summary this change will require the Group
to recognise, in full, an estimate of the FSCS levy for the
applicable year on 1 April each year, with comparative
figures restated accordingly, with the result that there will be
no explicit expense in the first half of the year.
The Group also pays other regulatory fees to the FCA in the
UK, as well as regulatory bodies in other jurisdictions where
it operates.
Provisions against bad and doubtful debts were £2.9 million
(2013: £1.0 million) for the year and remain less than 1% of
net trading revenue. The Group recovered £1.3 million of
cash against previously provided debts, £0.1 million lower
than last year, with legacy debt recoveries now largely dealt
with. The management of credit risk is described in both the
Managing Our Business Risk section of the Strategic Report
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 is primarily attributable to the increase in
recruitment fees driven by the investment in headcount.
Depreciation and amortisation decreased by £2.5 million to
£9.7 million (2013: £12.2 million), partly due to the change
in IT licence agreements from perpetual licences to cloud
software mentioned earlier.
Total salaries
Performance-related bonuses
and commissions
Share schemes
Redundancy programme costs
2014
£000
2013
£000
64,987
63,306
17,191
7,077
–
17,304
4,414
1,252
Employee remuneration costs
89,255
86,276
Investment in IT development resource continued
throughout the year to assist the Group in achieving
its strategic priorities. The overseas IT and marketing
development team in particular has grown, with a new
office in Eastern Europe, allowing the Group to focus on
the development of mobile apps, which could improve the
recruitment and conversion of new clients. At 31 May 2014
year-end, IT headcount was 497 (2013: 411), an increase of
almost 21% over the level at the prior year-end.
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs decreased by £0.9 million
to £31.7 million (2013: £32.6 million) during the year. The
prior year included £1.1 million in relation to the IG brand
re-launch, thus marketing costs are relatively flat year on year.
During 2014 the Group completed the migration to the
IG.com domain. During the transition process the Group
increased its spending on pay-per-click advertising in order
to maintain its online visibility.
The main marketing campaigns run in the year focused on
the Group’s forex trading opportunities, the live market-
insight offerings and its grey markets available in the days
leading up to a number of high-profile IPOs.
The Group has also made a significant change to its global
sponsorship portfolio, replacing its cycling sponsorship with
a three-year partnership with Harlequins Rugby Club.
OTHER EXPENSES
Premises-related costs are in line with the prior year at
£10.0 million (2013: £10.2 million). The increase in costs in
relation to the new offices established in Switzerland and
Eastern Europe during the year has been mitigated by the
downsizing of the office space in Japan, bringing this in line
with current business needs. Furthermore, the office move
in Melbourne completed in 2013 not only better located the
business, but also resulted in lower premises costs.
IT, market data and communication costs include the cost
of IT maintenance and short-term licence arrangements
as well as market data fees from exchanges. The increase
in costs from the prior year is due to a change in software
agreements from perpetual licences to cloud software.
This resulted in more items being expensed, rather than
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37
IG Group Holdings Plc 2014 Annual Report|
CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)
PROFIT BEFORE TAXATION
Profit before taxation grew 1.3% to £194.7 million
(2013: £192.2 million). Profit before tax margin, calculated
with reference to net trading revenue, decreased slightly to
52.6% (2013: 53.1%).
Profit before taxation is used as a primary measure of our
underlying profitability, and the vesting of a proportion of
the awards made under the Group’s value-sharing plan is
calculated with reference to this measure.
OPERATING PROFIT MARGINS
The Group uses operating profit margin, which includes
an allocation of central costs, as an indicator of regional
performance (refer to note 4 of the Financial Statements,
Segment Information).
Operating profit increased by 1.7% to £195.3 million
(2013: £191.9 million). However, the Group operating profit
margin (operating profit as a percentage of net trading
revenue) decreased slightly to 52.7% (2013: 53.0%).
The following table summarises operating profit margin
by region:
Operating profit margin by region
2014
2013
UK
Australia
Europe
Rest of World
Group
61.0%
60.1%
38.8%
33.4%
59.1%
65.0%
37.5%
38.5%
52.7%
53.0%
UK and Europe increased their operating profit margins,
as the revenue for both of these regions increased by 3.3%
and 15.6% respectively. Despite the relatively high increase
in the revenue for Europe, the operating profit margin only
increased by 1.3%, as the operating costs for this region
include the costs associated with establishing the new office
in Switzerland, which is still to generate income.
Australia and Rest of World regions, however, experienced a
decrease in their revenue levels compared to the prior year
primarily driven by the reduced volatility in the forex market,
which negatively impacted on client trading activity, and
therefore margin, as the majority of the revenue in these
regions comes from forex trading.
TAXATION EXPENSE
The effective rate of taxation for the year ended
31 May 2014 decreased to 24.5%, compared to a rate
of 26.3% for the prior year. The rate for the current year
benefited from the reduction in the UK corporation tax
rate to 21% with effect from 1 April 2014. However, as
the proportion of profit in higher-tax-rate jurisdictions
increases, this will apply upward pressure to the Group’s
effective tax rate.
The calculation of the Group’s tax charge involves a degree
of estimation and judgment, in particular with respect
to certain items whose tax treatment cannot be finally
determined until agreement has been reached with the
relevant tax authority. Further detail is provided in note 10
to the Financial Statements.
DILUTED EARNINGS PER SHARE
Diluted earnings per share increased by 3.6% to
40.18 pence from 38.80 pence (for further detail please
refer to note 11 of the Financial Statements).
Diluted earnings per share are used as a primary measure
of our underlying profitability and as a financial measure
in relation to the new Executive Director and senior
management share plans.
DIVIDEND POLICY
The Group continues to be a highly cash-generative
business, which allows for both investment in strategic
growth initiatives and a progressive dividend policy.
With this in mind, the Board is proposing to increase the
ordinary dividend payout ratio to approximately 70%,
from the current level of 60%, with effect from the 2014
financial year, while retaining a progressive dividend policy.
Simultaneously, the Board will adopt a new policy of paying
the interim dividend each year calculated at approximately
30% of the prior year’s full-year dividend. The Board has
recommended a final ordinary dividend of 22.40 pence,
taking the full-year ordinary dividend per share to
28.15 pence, up by 21.1% and representing 70.1% of
diluted earnings per share; this reflects both the growth in
earnings in the year and the enhancement to the ordinary
dividend policy.
The Board will continue to monitor the capital structure of
the business closely and allow sufficient headroom for the
planned investment in growth initiatives, while retaining
the ability to respond to any changes in the regulatory or
financial environment.
SUMMARY GROUP CASH FLOW
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. In order to
provide a clear presentation of the Group’s ‘cash’ assets,
both amounts due from brokers and financial investments
held in the Group’s liquid assets buffer have been treated as
‘cash equivalents’ and included within ‘own funds’. For an
explanation of the derivation of ‘own funds’, please refer to
the table presented in the Own Funds section opposite. A
more detailed version of the cash flow presented on page
39 is provided in note 19 to the Financial Statements.
38
Strategic Report
Chief Financial Officer’s Review
Group’s ‘liquid assets buffer’ and are available to the Group
in times of liquidity stress, and therefore are considered as
available for the purposes of overall liquidity planning. Own
funds increased 13.5% to £487.3 million (2013: £429.3 million)
in the year to 31 May 2014, reflecting the high level of cash
generation set out earlier in this report. An analysis of own
funds is provided in the following table, and in more detail
in note 19 of the Financial Statements:
Own cash and title transfer funds
Amounts due from brokers
Financial investments – liquid
assets buffer
Other amounts due to the Group
2014
£000
2013
£000
101,487
303,861
98,345
283,940
82,457
20,450
50,468
15,003
Liquid assets
508,255 447,756
Liquid assets are analysed as:
Own funds
Title transfer funds
487,281
20,974
429,291
18,465
An element of the Group’s liquidity is not available for
the purposes of the centrally performed market risk
management, as it is held in overseas businesses for
the purposes of local regulatory and working capital
requirements, or is currently held within segregated client
money bank accounts to ensure the Group’s segregation
obligations are met. At 31 May 2014, the unavailable cash
increased by £1.6 million from that unavailable in the
prior year, to £49.1 million (2013: £47.5 million), as a result
of higher prudent margins held to ensure appropriate
segregation of client card transactions.
Available liquid assets enable the funding of large
broker margin requirements when required, and should
be considered in the context of the intra-year-high
broker margin requirement of £290.3 million
(2013: £297.5 million), the requirement to hold a liquid
assets buffer, the continued growth of the business, the
Group’s commitment to segregation of individual clients’
money and the final proposed dividend for the year ending
31 May 2014, all of which draw on the Group’s liquidity.
The Group’s available liquidity (‘net available liquidity’) is
disclosed in the following table on page 40, and is inclusive
of the liquid assets buffer and title transfer funds and after
the payment of broker margin.
Operating activities
Profit before tax
Depreciation and amortisation
Other non-cash adjustments
Income taxes paid
Own funds generated
from operations
Movement in working capital
Outflow from investing and
financing activities
Increase in own funds
Own funds at 1 June
Exchange losses on own funds
Own funds at 31 May
2014
£000
2013
£000
194,723
9,697
3,897
(47,761)
192,208
12,166
3,204
(53,247)
160,556 154,331
(3,298)
(12,038)
(96,815)
(100,732)
60,443
429,291
(2,453)
41,561
388,221
(491)
487,281 429,291
The year ending 31 May 2014 saw strong cash flow, where
own funds generated from operations increased to
£160.6 million (2013: £154.3 million). The cash conversion
rate, calculated as own funds generated from operations
divided by profit before tax, also increased to 82.4%
(2013: 80.3%).
‘Own funds’ increased by £60.4 million (2013: £41.6 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 £11.5 million in relation to
capital expenditure (2013: £16.8 million) and £84.8 million
(2013: £81.6 million) in relation to the final 2013 and interim
2014 dividend payments. The Group made investments of
£8.1 million on a combination of IT development, software
assets and domain names (2013: £12.0 million). Cash
investment in tangible fixed assets totalled £3.4 million
and includes £2.5 million of spend on IT hardware and
£0.7 million on the fit-out of newly leased offices.
OWN FUNDS
The Group’s liquid assets, as set out in the table on the
right, 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 either with 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.
Own funds include financial investments held in accordance
with the BIPRU 12 liquidity standards and the Group’s
regulatory oversight by the FCA. These assets comprise the
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39
IG Group Holdings Plc 2014 Annual Report|
CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)
2014
£000
2013
£000
508,255
447,756
The following table summarises the Group’s Pillar 1
capital adequacy on a consolidated basis. The Group’s
capital management is reviewed further in note 37 to the
Financial Statements.
Liquid assets
Less amounts required to ensure
appropriate client money
segregation – other amounts due
to the group
Less amounts required for
regulatory and working capital of
overseas subsidiaries
(20,450)
(15,003)
(28,666)
(32,542)
Available liquid assets
459,139 400,211
Less broker margin requirement
(285,102)
(245,689)
Net available liquidity
174,037 154,522
Of which held as a liquid
assets buffer
82,457
50,468
In order to mitigate liquidity risks, the Group regularly stress-
tests its three-year liquidity forecast, both to validate the
appropriate level of committed unsecured bank facilities held
and to meet the requirements of the Group’s lead regulator,
the Financial Conduct Authority. During the year, the Group
renegotiated its liquidity facility with a syndicate of three
banks. As a result, the Group increased the size of the overall
facility to £200.0 million (2013: £180.0 million) and established
a longer-term liquidity funding arrangement – £80.0 million
of the facility is committed for a period of three years. These
facilities were drawn to a maximum of £50.0 million for a
period of 30 days but partially repaid down to £25.0 million
for a further 32 days in October to December 2013, following
the reduction in available liquidity after payment of
£63.8 million of dividend and at a time of relatively high
levels of broker margins. In the year ended 31 May 2013, the
facilities were drawn down to a maximum of £25.0 million
for a period of 22 days in April 2013 when the broker margin
requirement reached a level of £294.7 million.
A detailed analysis of the Group’s liquidity and our
approach to the management of liquidity risk are provided
in note 19 to the Financial Statements.
REGULATORY CAPITAL RESOURCES
Throughout the year, the Group maintained a significant
excess over the Pillar 1 capital resources requirement, both
on a consolidated and individual regulated-entity basis.
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 Group’s liquidity requirements have historically
been, and remain, significantly in excess of its regulatory
capital requirements.
40
Strategic Report
Chief Financial Officer’s Review
Total Tier 1 capital
Less:
Intangible assets
Investment in own shares
Deferred tax assets
Total capital resources (CR)
Capital resources requirement (CRR)
2014
£m
2013
£m
570.8
508.4
(122.7)
(1.1)
(5.7)
441.3
(115.4)
(120.5)
(1.5)
–
386.4
(115.1)
Pillar 1 surplus
325.9
271.3
SUMMARY GROUP STATEMENT OF
FINANCIAL POSITION
Property, plant and equipment
Intangible assets
Financial investments
Deferred tax assets
Non-current assets
Trade and other receivables
Cash and cash equivalents
Financial investments
Current assets
Total assets
Trade and other payables
Income tax payable
2014
£000
2013
£000
13,038
122,670
32,150
5,711
14,469
120,479
–
9,470
173,569 144,418
310,914
98,345
50,468
339,765
101,487
50,307
491,559 459,727
665,128 604,145
75,236
20,178
72, 828
24,289
Current liabilities
Redeemable preference shares
95,414
40
97,117
40
Non-current liabilities
40
40
Total liabilities
Total equity
95,454
97,157
569,674
506,988
Total equity and liabilities
665,128
604,145
NON-CURRENT ASSETS
As discussed earlier in the Strategic Report, the Group
continues to invest in technology both to enhance client
experience and to improve the capacity and resilience of
dealing platforms, each of which is critical to the success of
the business.
Intangible assets purchased during the year include
£1.8 million (2013: £4.0 million, including IG.com) for a suite
of country-code and generic top-level domains that are
directly relevant to our business.
Intangible assets also include goodwill of £106.7 million
(2013: £107.3 million), primarily arising on the acquisition
of IG Group plc and its subsidiaries in 2003, the goodwill
associated with the acquisition of Nadex of
£4.5 million (2013: £5.0 million) and the goodwill
arising on the acquisition of our South African business
of £1.2 million (2013: £1.4 million). Refer to note 16 of the
Financial Statements.
Capitalised investment in relation to development costs
and software and licences amounted to £6.1 million
(2013: £7.3 million) and includes investment relating to the
development of the stockbroking platform. During the year
the Group also invested £3.4 million in property, plant
and equipment (2013: £4.4 million) including £2.5 million
(2013: £2.5 million) in relation to IT equipment.
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, and
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 increased
to £303.9 million (2013: £283.9 million) primarily as a result
of higher broker margins than at the prior year-end, driven
by the Group’s hedging of clients’ futures and options
positions. The intra-year-high broker margin requirement
was £290.3 million (2013: £297.5 million).
CLIENT MONEY
Total monies held on behalf of clients at year-end was
£879.4 million (2013: £842.0 million), of which £858.4 million
(2013: £823.5 million) is segregated in trust bank accounts
and treated as ‘segregated client money’, and therefore
excluded from the Group Statement of Financial Position.
The remaining monies held on behalf of corporate clients
of £21.0 million (2013: £18.5 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.
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
with the Group is a positive indicator of client ability and
propensity to trade.
LIABILITIES
Trade and other payables include amounts due to clients in
relation to title transfer funds, accruals and other payables.
Trade and other payables increased by £2.4 million, mainly
due to an increase in the number of title transfer clients.
Income tax payable has decreased by £4.1 million following
the reduction in the effective tax rate, as discussed earlier in
this section.
CORPORATE SOCIAL RESPONSIBILITY
An overview of our commitment to corporate and social
responsibility is included within the Strategic Report and in
more detail on our corporate website at iggroup.com.
PREPARATION OF THE OPERATING AND
FINANCIAL REVIEWS
Our Operating and Financial Reviews have been prepared
solely to provide additional information to shareholders to
assess our strategies and the potential for those strategies
to succeed. They should not be relied on by any other party
or for any other purpose.
The Operating and Financial Reviews contain 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 Operating and Financial
Reviews, 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.
The critical accounting estimates and judgements 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 notes
1 and 40 to the Financial Statements.
For disclosure relating to the Regulatory environment,
please refer to the Chief Executive Officer’s Review and the
Managing Our Business Risk section.
A further discussion of our results during the financial
year can be found in the Investor Relations section of our
website at iggroup.com.
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41
IG Group Holdings Plc 2014 Annual Report|
MANAGING OUR BUSINESS RISK
Effective management of our business risks is
critical to the successful delivery of our strategy. It is
imperative for us to identify the nature and potential
impact of these risks, and establish methodologies
to measure their effect, so that we can design and
operate an environment where risks are effectively
controlled throughout the business.
Over time we have developed a robust and consistent Risk
Management Framework and, while we continually seek to
improve, our broad approach to managing the key risks has
not changed over the course of this year.
3. 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
In this section we explain how we manage risk in
accordance with our Risk Appetite Statement (RAS) and
Risk Management Framework. We also explain in detail the
key risks we face, our governance structure for risk, and the
reporting cycle that we use to monitor and report on risk.
RISK APPETITE STATEMENT
The RAS defines the amount of risk that the Board
is prepared to accept, both on an individual risk and
aggregate basis, in pursuit of its business objectives and
strategic goals.
The RAS provides parameters within which the business can
operate, and is reviewed by the Board. We have identified
three main types of risk affecting our business, and we
explain these in more detail later in this section.
1. BUSINESS MODEL RISKS
These are risks we actively manage and are able to measure,
control and assign limits and parameters to:
• Credit risk – see page 44
• Market risk – see page 45
• Liquidity risk – see page 45
2. INDUSTRY RISKS
These are risks we accept as arising from operating in
the financial services sector. For these risks we set a risk
tolerance rather than a risk appetite. They include (but are
not limited to):
• Financial institution credit risk – see page 44
• Operational risk – see page 46
• Regulatory risk – see page 46
• Conduct risk – see page 47
• Technology (IT) risk – see Operational Risk, page 46
42
Strategic Report
Managing Our Business Risk
disease epidemics
• Strikes and civil unrest
The RAS contains a set of statements and Key Risk
Indicators (KRIs). These balance quantitative and
qualitative measures to provide an indication of increasing
or declining risk levels over an appropriate timescale.
They are designed to alert the Board and management
that a risk is approaching, or has exceeded, an acceptable
level, and we monitor them on an ongoing basis. The Board
receives regular reports on our performance against the
KRIs, and the Board reviews the KRIs in conjunction with the
RAS annually.
OUR RISK MANAGEMENT FRAMEWORK
In order to establish an effective environment for controlling
risk, 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 we have understood and
managed our risks as far as possible, within appropriate
boundaries. It comprises our Risk Governance Framework
and Risk Reporting Cycle.
OUR RISK GOVERNANCE FRAMEWORK
The diagram opposite sets out the framework for the Board
and executive committees, independent control functions
and ongoing business operations that exercise governance
over risk.
Responsibilities of the Board
The responsibilities of the Board in relation to risk
management are to:
• Set and review the RAS and the KRIs
• Review and challenge updates from the Board
Risk Committee
THE BOARD
BOARD COMMITTEES
EXECUTIVE COMMITTEES
Nomination
Committee
Remuneration
Committee
Audit
Committee
Board Risk
Committee
Executive Risk
Committee
ICAAP & ILAA
Committee
Client Money
Committee
Finance
Risk
Compliance
Legal
CONTROL FUNCTIONS
BUSINESS OPERATIONS
Internal controls implemented by management
Senior
Accounting
Officer
Committee
Review by
internal
audit of risk
management
and internal
controls
• Review and challenge the system of internal control and
risk management
• Review and challenge capital and liquidity stress-testing
• Approve the Corporate Governance Report in the
Annual Report
Board committees
The Board is supported in its monitoring of the
Risk Framework by the Board Risk, Audit and
Remuneration Committees.
During the year, we formed the Board Risk Committee
in recognition of the Board’s continued development
of the Group’s focus on risk management. The new
committee provides the Board with a more in-depth level
of understanding of, and governance over, the Group’s risk
framework. This is becoming increasingly important as we
expand our reach and extend our product range, at the
same time as global regulators continue to strengthen
their regimes.
The Board Risk Committee’s responsibilities in relation to
risk management are to:
• Consider and recommend for approval by the Board the
RAS and KRIs for the current and future strategy
• Monitor, review and challenge the Internal Capital
Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment (ILAA)
• Ensure rigorous stress-testing and scenario-testing of
the Group’s business and receive reports that explain the
impact of identified risks and threats
• Ensure a sufficient level of risk mitigation is in place
• Review the Group’s major risk exposures
• Consider the adequacy and effectiveness of the
technology infrastructure and supporting documentation
in the Risk Management Framework
• Provide input to the Remuneration Committee on the
alignment of the remuneration policy to risk performance
The Audit Committee’s responsibilities in relation to risk
management are to:
• Receive an annual report from the Board Risk
Committee on the Company’s internal controls and
Risk Management Framework
• Review an assessment of the control environment, via
internal audit reports, and progress on implementing
both internal and external audit recommendations
• Monitor and review the internal audit function’s
effectiveness in the overall context of the Group’s internal
controls and risk-management systems
The Remuneration Committee’s responsibility in relation
to risk management is to review the structure and level
of remuneration throughout the business and assess the
impact of remuneration on risk.
An overview of all the Board committees’ main duties and
activity during the financial year is set out in the Corporate
Governance Report, and the Chairman of each committee
has provided a review of its activity for the year in the
Corporate Governance Report.
Executive committees
Executive Risk Committee
The Executive Risk Committee is an executive committee
chaired by the Chief Risk Officer. Its role is to oversee
day-to-day risk-management activity across the Group.
The committee generally meets weekly to ensure that it
deals with issues as they arise, reflecting the commitment
of senior management to play an active role in risk-
management decision-making. It also sets the tone across
the Group that risk management is central to corporate
culture. The Board receives copies of the Executive Risk
Committee minutes.
Client Money Committee
The Client Money Committee is chaired by the Chief
Financial Officer, who is responsible for overseeing our
processes and controls over segregating client funds and
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IG Group Holdings Plc 2014 Annual Report|
MANAGING OUR BUSINESS RISK (CONTINUED)
the Financial Conduct Authority (FCA)’s CASS operational
oversight function. The committee meets monthly and
receives reports from a number of control functions,
enabling it to monitor the effectiveness of our global
processes and controls for segregating client money.
ICAAP and ILAA Committee
In addition to managing individual risks, we stress-test
and scenario-test as part of the Internal Capital Adequacy
Assessment Process (ICAAP) and the Individual Liquidity
Adequacy Assessment (ILAA). These assessments test
the potential impact on capital and liquidity of a series
of combined risk events. The committee meets monthly
and oversees the results of the ongoing stress-testing
and scenario-testing process, ensuring that risks are
continuously identified and assessed.
Senior Accounting Officer Committee
The Senior Accounting Officer (SAO) Committee is
responsible for reviewing and challenging the processes
and controls put in place to ensure we comply with HMRC
requirements to certify 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 operations –
namely finance, risk, compliance, legal and internal audit. The
control functions provide periodic reporting to the Board and
executive committees as appropriate.
Business operations
In addition to the control functions, we have embedded
risk management into our underlying business operations.
Heads of department are responsible for maintaining 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
The diagram opposite represents the flow of information and
feedback that supports the Risk Governance Framework.
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 which the Group has a
relationship are subject to a credit review. Exposure limits
are set and approved by the Executive Risk Committee.
We monitor a number of key metrics on a daily basis in
respect of financial institution credit risk. These include
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 appointing and periodically reviewing institutions
where we deposit client money. Our aim is that all financial
institutions holding client money and assets should have
a minimum Standard and Poor’s short-term and long-term
rating of A-2 and A- respectively. Where this is not possible,
we set low exposure limits and seek to use the best
available counterparty – preferably one that is considered
locally systemic and therefore most likely to receive support.
We also maintain multiple brokers for each asset class.
We monitor our exposure to financial institutions with whom
the Group holds money through a daily review against
financial limits and diversification criteria.
Client credit risk
Client credit risk principally arises when a client’s total
deposited funds 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 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, as well as encouraging them
to collateralise their accounts to an appropriate level. We
also conduct a pre-deal credit check on every client order.
We offer a number of risk-management tools that enable
clients to manage their exposures, including:
• Guaranteed and non-guaranteed stops
• Limit orders
• Extended trading hours
• Trading via mobile platforms
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 a small number of generally long-standing clients, we
grant credit against unrealised losses, with credit terms
such that any losses arising are payable immediately on the
closure of transactions.
For more information refer to note 36 to the
Financial Statements.
44
Strategic Report
Managing Our Business Risk
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.
We manage market risk on a real-time basis, monitoring
all client positions against market risk limits set by the
Executive Risk Committee. The Group operates within these
limits by hedging our residual market risk exposure. We do
not take proprietary positions based on the expectation of
market movement.
Our technology enables us to monitor our market
exposure constantly and in real time. If exposures exceed
our pre-agreed limits, our risk-management policy requires
that we hedge the positions to bring the exposure back into
line with these limits.
For more information, including our risk limits and
residual exposures at 31 May 2014, refer to note 36 of the
Financial Statements.
Liquidity risk
Liquidity risk is the risk that we will be unable to meet
payment obligations as they fall due.
OUR RISK REPORTING CYCLE
OUR
KEY RISKS
BOARD REVIEW
CREDIT
BOARD AND EXECUTIVE COMMITTEES
Remuneration | Risk | Client Money | ICAAP and ILAA |
Senior Accounting Officer
MARKET
£ €
¥ $
LIQUIDITY
REPORTS
• Periodic reporting
• Monthly risk reporting (including Key
Risk Indicators)
• Internal audit
• Risk registers
OPERATIONAL
• Most significant risks
• External audit control report
• ICAAP and ILAA
REGULATORY
IT
CONDUCT
CONTROL FUNCTIONS
Finance | Risk | Compliance | Legal
BUSINESS OPERATIONS
ACTIONS
Control
actions
Monitored by
internal audit
AUDIT
COMMITTEE
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IG Group Holdings Plc 2014 Annual Report|
MANAGING OUR BUSINESS RISK (CONTINUED)
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 during the year and, while this
applies specifically to the Group’s FCA-regulated entities,
it provides the context within which we manage liquidity
throughout the business.
are operationally stable, with system access being centrally
controlled. Our investment supports the resilience and
reliability of the platform, ensuring low levels of latency,
maintaining and testing system capability under significant
load and conducting penetration testing. On a monthly
basis, the Executive Risk Committee reviews our Key Risk
Indicators, a process which includes monitoring levels of
core system uptime and deal latency.
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, due to our commitment to segregate all
individual client funds. If a significant market fall occurs, and
assuming our client base holds a net long position which
we have hedged, we are required to fund margin payments
to brokers before releasing funds from segregation.
During periods of very high client activity, or of significant
directional movements in global markets, we may need to
fund higher margin requirements with our brokers to hedge
increased underlying client positions. We do this from our
own available liquidity.
At 31 May 2014 we had total liquidity, including committed
unsecured facilities and after accounting for broker margin,
of £708.3 million (2013: £627.8 million). This includes the
liquid assets buffer, which consists of £82.5 million of UK
government securities. We hold this, as required by the
FCA, to provide a safeguard in times of stress.
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 level of committed unsecured bank facilities
we hold. At the year-end, these amounted to £200 million
(2013: £180 million), and during the year we termed out
£80 million of this for three years. Our Japanese business,
IG Markets Securities, has a ¥300 million liquidity facility as at
31 May 2014 (2013: ¥300 million).
For more information on how we calculate our total
available liquidity see note 19 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.
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.
The reliability of our client trading platforms is key to
delivering our strategy, and we invest significantly in the
technology infrastructure to ensure that these platforms
To ensure that we provide our clients with a consistent and
uninterrupted level of service, we run a complete disaster-
recovery solution. This involves a fully functional secondary
site with real-time replication of all systems across the two
locations and fully independent power supplies. We support
these systems with ongoing business-continuity planning
and regular testing.
All our IT and data-security systems conform to the
ISO 27001:2005 Information Security Management
System standards.
Cyber risk is a constant threat in the modern online
environment. We have a dedicated team which has
implemented a robust, multi-layered system, providing
round-the-clock monitoring and intruder-prevention controls.
Regulatory risk
We regard regulatory risk as one of our most significant
risks. In short, we define regulatory risk as:
• Breach risk: the risk that we breach a regulation that
applies to our business, leading to client or market
detriment, sanctions, fines, reputational damage and,
in extreme situations, loss of licence
• Change risk: the risk that one of our regulators
introduces new regulations that make our business less
profitable or impossible
• Expansion risk: the risk that policy and regulation in
jurisdictions where we do not currently operate remain
onerous and closed to our business model, limiting our
geographic expansion opportunities
We invest significant time and resources to manage and
control our regulatory risk in parallel with the development
of business strategy.
Breach risk
Our compliance, legal and risk teams provide a robust
line of defence to ensure that our processes and controls
are effective in ensuring we comply with our regulatory
obligations. During the year, the Group has successfully
undergone a number of external reviews into key areas
such as client money and information security, giving us
assurance that we are managing and controlling breach
risk well. As our business becomes more complex, this risk
also grows, and we remain committed to increasing our
investment in breach risk controls.
46
Strategic Report
Managing Our Business Risk
Change risk
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:
• Financial Transactions Tax (FTT) in the European Union:
the Enhanced Cooperation FTT effort, involving 11 of
the 28 member states, has continued this year. We have
expended significant efforts throughout the year to
maintain an accurate knowledge of the status of these
tax initiatives, to understand the many stakeholders’
interests and views and to ensure IG’s voice is heard
in the debate. It remains unclear what the ultimate
outcome of the Enhanced Cooperation FTT will be,
and although progress is extremely slow recent rhetoric
suggests increased political will for the introduction of
an Enhanced Cooperation FTT. The lack of detail makes
the potential impact on our revenue from Europe very
difficult to assess, but it ranges from quite negative to
neutral, depending on the scope of any tax. We continue
to monitor developments carefully
• European Markets Infrastructure Regulation (EMIR):
the main impact of this legislation on our business is
increased reporting requirements to trade repositories.
Potentially, we will also be impacted in the medium-
to longer-term by the International Organization of
Securities Commissions (IOSCO), European Securities
and Markets Authority (ESMA) and European Banking
Authority (EBA)’s work on margin for over-the-counter
trading, but the rules on this have not yet been settled
• Markets in Financial Instruments (MiFID) II: the MiFID
II dossier has continued to develop this year, including
the adoption of the MiFID II and Markets in Financial
Investments Regulation (MiFIR) Level One texts. We
remain of the view that MiFID II is unlikely to pose a
threat to our UK and European businesses. We continue
to monitor MiFID II carefully and to take part in industry
consultation where appropriate
• Packaged Retail Investments Products Regulation (PRIPS):
this will impose an obligation on us to provide our UK and
European clients with information about our products in
a standardised form. We do not anticipate this having a
negative impact on our business
• Monetary Authority of Singapore (MAS) regulatory
framework for margined derivatives: the MAS has now
confirmed that it will push forward with its proposal
to increase margin requirements for non-accredited
investors on a forex trade from 2% to 5%, thereby
reducing leverage from 50 times to 20 times. The
reduction in leverage will apply only to forex trading and
not to the other asset types. It is also intended that the
rules will not apply to accredited investors, defined by
virtue of their wealth or income level. We believe that the
majority of IG’s revenue currently comes from clients who
would qualify for accredited investor status. In addition,
the use of guaranteed stops enables clients to further
manage leverage levels
• Japan binary regulation: new rules governing the offering
of binary contracts in Japan came into force during the
course of the year. Since their inception these new rules
have had a positive impact on IG’s business, because they
have stopped providers from offering very short-term
and up/down binaries, which were staple products for
the majority. The only type of binary now permitted is a
volatility-based contract with an expiry in excess of two
hours, a product in which IG has historically specialised.
Partially offsetting this benefit is the fact that any new
binary clients need to undertake additional suitability
testing by way of an online assessment, which has made
the account-opening process longer and more difficult
We seek to mitigate change risk by engaging with our
regulators and policymakers as much as possible, as part
of policy consultations and more generally, and also by
investing in public relations programmes and ensuring we
have access to up-to-date information on regulatory change.
Expansion risk
Like change risk, we seek to mitigate expansion risk by
engaging with regulators and policymakers in countries
where we do not yet operate, but which are desirable
targets for our future expansion. Of course, regulatory
change can also represent an opportunity for our business,
and we are in talks with certain regulators who are
considering changing their regulations in order to allow
retail derivatives trading. These discussions are still at an
early stage.
In summary, 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.
Conduct risk
Conduct risk is the risk that the Group’s conduct poses to
the achievement of fair outcomes for consumers or to the
sound, stable, resilient and transparent operation of the
financial markets. Put another way, conduct risk is the risk
that the manner in which we carry out our business causes
poor outcomes for our clients or the markets.
The Board has developed a conduct risk strategy that
applies across the organisation, and training is ongoing
to embed this strategy into the current business practices.
Work will continue throughout the coming year as we
develop this strategy further.
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IG Group Holdings Plc 2014 Annual Report|
CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
STATEMENT OF COMPLIANCE
The UK Corporate Governance Code (‘the Code’) sets
out the standards of good practice in relation to how a
company should be directed and governed. As we have
a Premium Listing on the London Stock Exchange, the
Company reports in accordance with the Code published
in 2012. The Code is published by the Financial Reporting
Council (FRC) and further information can be found on their
website at frc.org.uk.
The Board has reviewed the Code and considers that the
Company has been compliant with its provisions for the year
ended 31 May 2014.
OVERVIEW OF CORPORATE GOVERNANCE FRAMEWORK AS AT 31 MAY 2014
INDEPENDENT
EXTERNAL
AUDITORS
Appoint the auditors
SHAREHOLDERS
Elect the Board
THE BOARD
Five independent Non-Executive Directors (NEDs), three Executive Directors and Non-Executive Chairman
CHIEF EXECUTIVE OFFICER AND EXECUTIVE DIRECTORS
BOARD COMMITTEES
EXECUTIVE COMMITTEES
Nomination
Committee
(Three independent
NEDs and Non-
Executive Chairman)
Remuneration
Committee
(Three independent
NEDs and Non-
Executive Chairman)
Audit
Committee
(Four independent
NEDs)
Board Risk
Committee
(Four independent
NEDs)
ICAAP and ILAA
Committee
Senior Accounting
Officer Committee
Executive Risk
Committee
Client Money
Committee
Senior
management
team
‘At IG, we believe it is essential
that a company maintains
the highest standards in the
way in which it is directed
and governed.’
review in the coming year. More information on the
evaluation process can be found on page 56.
Another area of focus for the Board has been to build
on our existing, well-established governance framework.
During the year, the Board strengthened its framework by
creating a Board Risk Committee, chaired by Stephen Hill,
to provide a more focused level of support and challenge
on risk-management issues. As a result of this change,
midway through the year a number of the duties performed
by the Audit Committee were handed over to the Board
Risk Committee. Martin Jackson and Stephen Hill report on
the activities of the Audit Committee and the Board Risk
Committee respectively later in this report.
The Corporate Governance Report details the Group’s
governance framework and its management practices.
Together with the Directors’ Remuneration Report, it
explains how the Company has applied the principles of
the UK Corporate Governance Code for the year ended
31 May 2014.
Jonathan Davie
Chairman
22 July 2014
In order to serve the needs of all our stakeholders and to
deliver sustainable future growth, the Board of Directors
is responsible for the governance of the Company, and
we are committed to applying the principles of good
corporate governance.
For the Board to be most effective, it must have an
appropriate balance of relevant experience, knowledge and
skills. Last year we announced that both Martin Jackson,
Chairman of the Audit Committee, and I will step down,
after nine and ten years of service respectively, at the
Annual General Meeting (AGM) in October this year.
Therefore one of the key areas of focus for the Board has
been the implementation of a succession plan for a smooth
handover before our AGM. In October 2013, we welcomed
Jim Newman as a Non-Executive Director. Jim will be taking
over from Martin as Chairman of the Audit Committee
on Martin’s retirement. Jim, who is a qualified Chartered
Accountant, is the Corporate Development Director for
Friends Life Group. His strong background in finance and
experience of financial services regulation is already proving
invaluable to the Board. The Board wishes to thank Martin
for his outstanding contribution to IG, and we wish him well
in his much-deserved retirement.
I am also pleased to welcome Andy Green, who joined
the Board as Deputy Chairman in June 2014 and will take
over my role as Chairman at the conclusion of our AGM
in October. Andy was previously Group Chief Executive of
Logica plc and held various senior roles on the Board of
BT Group plc. He is currently a Non-Executive Director
of ARM Holdings plc. His experience at major listed
companies and in IT and marketing-led businesses makes
him an ideal candidate to chair the Board.
As Chairman, it is my responsibility to ensure that the Board
is operating effectively to deliver long-term success for
the Company. To this end, I ensure we review the Board’s
effectiveness annually. This year we conducted an internal
evaluation, which concluded that the Board continues to
operate effectively. The present plan is to have an external
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Chairman’s Introduction to Corporate Governance
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IG Group Holdings Plc 2014 Annual Report|
THE BOARD
JONATHAN DAVIE
NON-EXECUTIVE CHAIRMAN, 67 YEARS OLD
Jonathan joined the Board as Chairman in January 2004. He is currently a Non-
Executive Director of Persimmon plc and Hansa Trust plc, and also Chairman
of First Avenue, an alternatives advisory boutique. Jonathan is a fellow of the
Institute of Chartered Accountants, and he joined George M. Hill and Co, a
jobber on the London Stock Exchange, in 1969. The firm was acquired by Wedd
Durlacher Mordaunt and Co in 1970, and he became a partner in 1975. He
was the Senior Dealing Partner when the company was acquired by Barclays
Bank to form BZW in 1986. Jonathan developed BZW’s fixed-income business
prior to becoming Chief Executive Officer of the global equities division in
1991. In 1996 he became Deputy Chairman of BZW, and was appointed Vice
Chairman of Credit Suisse First Boston in 1998, on its acquisition of some of
BZW’s businesses from Barclays Bank. Jonathan’s in-depth understanding of the
financial services sector and extensive experience on PLC boards has proved
invaluable in promoting good governance and providing effective leadership
of the Board. He will be stepping down from the Board following the Annual
General Meeting on 16 October 2014, having served as Chairman for ten years.
TIM HOWKINS
CHIEF EXECUTIVE OFFICER, 51 YEARS OLD
Tim was appointed Chief Executive Officer of IG in 2006, having served as
the Group’s Finance Director since joining the company in 1999. Tim qualified
as a Chartered Accountant with Ernst & Young, and is also a member of the
Chartered Institute of Taxation. In 1990 he was one of a group of partners
and staff who left Ernst & Young to form Rees Pollock, a firm of Chartered
Accountants targeted at entrepreneurial, owner-managed businesses. He was
a partner in Rees Pollock for seven years, and there developed a relationship
with IG, taking responsibility for the Group’s audit. With a strong finance
background and a considerable number of years in the business, in his role
as our Chief Executive Tim continues to work with the Board and lead IG to
develop and implement our strategy. He is also a member of the Board and
Executive Committee of FIA Europe, formerly known as the Futures and Options
Association. Tim graduated from the University of Reading with a first-class
degree in Mathematics and Computer Science.
CHRISTOPHER HILL
CHIEF FINANCIAL OFFICER, 43 YEARS OLD
Christopher joined the IG Board in April 2011 from Travelex, a group providing cross-border payment and
foreign exchange services to corporate and retail customers, where he served as Chief Financial Officer.
A Chartered Accountant, Christopher has extensive finance and accounting experience from a number
of different business sectors. He has previously held roles at VWR International, a global laboratory-
supply company (2005-2007), General Electric (2000-2005) and Arthur Andersen (1992-2000). Christopher
graduated from Oxford University with a degree in Modern History and is an associate member of the
Association of Corporate Treasurers.
PETER HETHERINGTON
CHIEF OPERATING OFFICER, 45 YEARS OLD
Peter was an officer in the Royal Navy prior to joining IG Group as a graduate trainee in 1994. In 1999 he
became Head of Financial Dealing, and in 2002 he joined the Board following his appointment as Chief
Operating Officer. Peter’s considerable experience, built over 20 years in the business, is invaluable in his
role as Chief Operating Officer. Peter graduated from Nottingham University with a degree in Economics,
and from the London Business School with a Masters in Finance.
50
Corporate Governance Report
The Board
ROGER YATES
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR, 57 YEARS OLD
Roger joined the Board as Senior Independent Non-Executive Director in February 2006, and has over 28 years’
experience in the fund management industry, both as an investment professional and a business manager. Roger
brings a broad knowledge and understanding of investor issues and the financial services sector. He previously
served as Chief Investment Officer of Invesco Global, and has held senior roles at fund management firms LGT
and Morgan Grenfell. He joined Henderson Global Investors as Chief Executive in 1999, and in 2003 went on
to lead its de-merger from its then parent AMP. He became Chief Executive of the resulting listed entity (now
Henderson Group plc) until November 2008. He has previously served as a Non-Executive Director for F&C Asset
Management plc, and is currently a Non-Executive Director of St James’s Place plc and JPMorgan Elect plc, as
well as Chairman of Electra Private Equity plc and Pioneer Global Asset Management SpA.
STEPHEN HILL
NON-EXECUTIVE DIRECTOR, 54 YEARS OLD
Stephen joined the IG Board in April 2011, bringing significant and extensive board experience across a wide
range of businesses. He was the CEO of Betfair plc from 2003 to 2005, and prior to this he spent 15 years at
Pearson plc in various managerial roles, including serving as CEO of the Financial Times Group from 1996
to 2002 and on Pearson’s management board. He has been a member of the boards for Royal Sun Alliance
Insurance Group plc, Psion plc and Channel 4. He was also Chairman of Interactive Data Corporation in the
US from 1998 to 2002. Currently he is Chairman and CEO of D’Aval Limited, his family’s private investment
company, and Trustee and Chairman of the Royal National Institute for Deaf People – Action on Hearing
Loss. He is also a member of the Advisory Board of the Cambridge Judge Business School and a Non-
Executive Director of Applerigg Limited and Aztec Limited, a fund administration business, and of Ofcom, the
independent regulator for the UK communications industries.
SAM TYMMS
NON-EXECUTIVE DIRECTOR, 50 YEARS OLD
Sam joined the Board as a Non-Executive Director in May 2013. She is currently a Managing Director at
Promontory Financial Group, a leading strategy, risk-management and regulatory-compliance consulting firm,
where she advises financial services businesses on a wide range of risk and regulatory matters. Sam began her
career in 1987 at the London Stock Exchange’s Surveillance Division, which over time became the Securities
and Futures Authority and eventually the Financial Services Authority. During that time she held a range of
supervisory roles and worked for two years in the Investigations and Enforcement Division. As a supervisor, she
ran departments overseeing global investment firms, retail and investment banks and major insurance groups.
Sam’s extensive experience in the regulatory field and her knowledge of compliance matters provide a valuable
contribution to the Board.
MARTIN JACKSON
NON-EXECUTIVE DIRECTOR, 65 YEARS OLD
Martin joined the Board as a Non-Executive Director and Chairman of the Audit Committee in April 2005. A
fellow of the Institute of Chartered Accountants, Martin has wide experience in financial services, having held a
number of directorships in this sector. He was Group Finance Director of Friends Provident plc between 2001-
2003, of Friends Provident Life Office from 1999- 2001 and of London & Manchester Group plc from 1992-1998,
until the latter was acquired by Friends Provident Life Office. In April 2014 Martin stepped down from the Board
of Admiral Group plc, where he had served as a Non-Executive Director since August 2004 and was Chairman
of the Group Risk Committee. After nine years at IG, Martin will step down from the Board following the AGM
on 16 October 2014.
JIM NEWMAN
NON-EXECUTIVE DIRECTOR, 49 YEARS OLD
Jim joined the Board as a Non-Executive Director in October 2013. He is currently Corporate Development
Director for Friends Life Group, where his responsibilities have included overseeing the final separation
and integration of the UK life businesses acquired by Resolution plc, as well as the delivery of the overall
group change portfolio and strategic corporate development. Prior to this Jim, who is a qualified Chartered
Accountant, was Finance Director for Resolution plc, having joined the company in 2005 as Group Financial
Controller. Jim spent ten years at Aviva, where he was Group Integration Director for the CGU/Norwich Union
merger and also Finance Director of Norwich Union Life, Aviva’s UK life insurance business. His in-depth
knowledge and experience of the financial services sector, as well as his considerable experience both as a CFO
and in the implementation of transformation programmes, is proving invaluable to the Board.
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IG Group Holdings Plc 2014 Annual Report|
THE BOARD (CONTINUED)
LEADERSHIP
ROLE OF THE BOARD
The principal responsibility of the Board is to promote and
ensure the long-term success of the Group through the
creation and delivery of sustainable shareholder value. It
provides guidance and leadership by setting the strategic
direction of the Group and overseeing management’s
implementation of the strategy, within a framework of
effective risk controls.
The Board seeks to ensure that, while the ultimate focus is
on long-term growth, management also delivers on short-
term objectives and achieves the right balance between
immediate and future goals. When setting the Group’s
strategy and monitoring its implementation, the Board
considers the impact its decisions may have on various
stakeholders, such as employees, shareholders, suppliers and
the environment as a whole. It is accountable for ensuring
that, as a collective body, it has the appropriate skills,
knowledge and experience to perform its role effectively.
The powers of the Board are set out in the Company’s
articles of association, which are available on the Group’s
website, iggroup.com. The Board may exercise all powers
conferred on it by the articles and in accordance with the
Companies Act 2006 and other applicable legislation.
Certain key decisions and matters are reserved for
approval by 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 geographies
• 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
A formal schedule of matters specifically reserved for the
Board’s decision can be found on the Group’s website.
Matters not specifically reserved for the Board are
delegated to the Executive Directors. These include:
• Developing, recommending and implementing strategic
plans for the Group
• Day-to-day monitoring of the Group’s operating and
financial results
• Prioritising the allocation of capital and 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 Board had nine members – the
Chairman, three Executive Directors, including the
Chief Executive Officer, and five independent
Non-Executive Directors.
The division of responsibilities between the Chairman and
the Chief Executive Officer is set out in writing and has been
approved by the Board.
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Corporate Governance Report
The Board
The Chairman, Jonathan Davie, is responsible for leading
the Board and creating the right conditions for its effective
working and overall governance. He sets the Board’s
agenda, in consultation with the Chief Executive Officer
and Company Secretary, taking full account of Board
members’ issues and concerns and the need to allow
sufficient time for items on the agenda to be discussed.
It is the Chairman’s responsibility to encourage and
facilitate active engagement by Directors, drawing on their
skills, knowledge and experience. The Chairman is also
responsible for ensuring there is effective communication
with shareholders and other stakeholders, and that Directors
are aware and maintain an understanding of their views.
The Chief Executive Officer, Tim Howkins, is responsible
for recommending the Group’s strategy to the Board,
implementing the agreed strategy and managing the
day-to-day business of the Group. This responsibility has
been delegated to him by the Board, and he is accountable
to the Board.
The Executive Directors support the Chief Executive Officer
in implementing the Group’s strategy and in the operational
performance of the business.
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
compromise 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.
Roger Yates is the Senior Independent Non-Executive
Director, and his role is to provide a sounding board for the
Chairman and support him in the delivery of his objectives.
He serves as a trusted intermediary for the other Directors
when necessary. The Senior Independent Non-Executive
Director is available to shareholders if they have concerns
which communication via the normal channels of
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Chairman, Chief Executive Officer or other Executive
Directors has failed to resolve, or when shareholders prefer
to speak directly to him.
HOW THE BOARD OPERATES
The Board meets regularly – at least five times a year – and
attends an additional off-site strategy day. There were nine
Board meetings this year, including the annual strategy day.
The Board also meets when necessary to discuss important
ad-hoc emerging issues that require consideration between
scheduled Board meetings. 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, including the Board strategy day, is
set out below:
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Board
Chairman
Jonathan Davie
Independent Non-Executive Directors
Stephen Hill
Martin Jackson
Jim Newman
Sam Tymms
Roger Yates
Executive Directors
Tim Howkins
Peter Hetherington
Christopher Hill
9
9
9
7
9
9
9
9
9
9
9
9
7
9
9
9
9
9
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IG Group Holdings Plc 2014 Annual Report|
THE BOARD (CONTINUED)
HOW THE BOARD DISCHARGED ITS
RESPONSIBILITIES IN THE YEAR
During the year, the Board has been engaged across
the key areas of strategy, governance, risk and financial
performance, as highlighted in the following chart. In
addition to regular reviews of performance, the Board
discussed risk appetite, capital and liquidity planning and
talent management, including succession planning. The
Board also held an off-site strategy day to review strategic
options open to the Group in the context of the regulatory
and economic environment.
BOARD ALLOCATION OF TIME
Quarterly forecast
and budget
Strategy
Business, operational
highlights and current
trading
Risk and governance
Financial performance
Client money
Other
BOARD COMMITTEES
To assist it with carrying out its responsibilities and to ensure
that there is independent oversight of internal control
and risk, the Board has delegated certain governance
responsibilities to Board committees.
The Board committees are:
• Audit Committee
• Nomination Committee
• Remuneration Committee
• Board Risk Committee
These Board committees comprise independent Non-
Executive Directors and, in some cases, the Chairman. Each
committee has agreed terms of reference approved by the
Board, which are available on our corporate website.
The Chairman of each Board committee reports to the
Board on the matters discussed at committee meetings,
and the minutes of each committee meeting are made
available to all Directors. Reports from the Chairman of each
Board committee, including information on the committee’s
composition and activities in the year, can be found in
the sections relating to each committee within this
Annual Report.
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Corporate Governance Report
The Board
During the year, the Board decided to create the Board
Risk Committee in order to provide an appropriate level of
challenge and oversight for the Group’s Risk Management
Framework. The activities, role and responsibilities of this
committee are laid out and discussed in a report from its
Chairman, Stephen Hill, on page 94.
EFFECTIVENESS
BOARD COMPOSITION
The Board’s size, and the skills and experience of its
members, have a significant impact on its effectiveness.
The Board reviews these factors regularly to ensure that it
has the right mix of skills and experience for constructive
discussion and, ultimately, effective Board decisions.
INDUSTRY/BACKGROUND EXPERIENCE(1)
Experience
Financial services
Accountancy/finance expert
Regulatory
Marketing and PR
Current or recent Chief Executive
Officer and/or Chairman
Prior plc experience
Number of
Non-Executive
Directors and
Non-Executive
Chairman
6
3
2
1
3
5
(1) Individual Directors may fall into one or more categories.
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.
During the year, the Company was headed by an
experienced Board of nine Directors, comprising an
independent Non-Executive Chairman, three Executive
Directors, including the Group Chief Executive Officer, and
five independent Non-Executive Directors, one of whom
is the Senior Independent Non-Executive Director. During
the year Jim Newman joined the Board, on 1 October 2013,
as a Non-Executive Director. The Company is fully compliant
with Code provision B.1.2, which requires that at least half
of the Board, excluding the Chairman, should comprise
Non-Executive Directors who are determined by the Board
to be independent.
DIRECTOR INDEPENDENCE
The Board considers and reviews the independence of each
Non-Executive Director on an annual basis, as part of the
Board effectiveness review. It considers factors such as
length of tenure and relationships or circumstances which
are likely to affect or appear to affect the Director’s
judgment in determining whether they remain independent.
Following this year’s review, the Board concluded that all
of the Non-Executive Directors continue to demonstrate
their independence.
SUCCESSION PLANNING AND APPOINTMENTS TO
THE BOARD
The Board uses succession planning to ensure that the
Group is managed by executives with the necessary skills,
experience and knowledge to deliver the Company’s
strategy, and that it has the right balance of individuals to
be able to discharge its responsibilities. The Board regularly
reviews its composition to keep it constantly refreshed. Any
searches for Board candidates, and appointments made,
are based on merit against objective criteria.
COMPOSITION OF EXECUTIVE AND INDEPENDENT
NON-EXECUTIVE DIRECTORS ON THE BOARD
1
3
5
Chairman
Executive Directors
Independent Non-
Executive Directors
CONFLICTS OF INTEREST
Directors have a statutory duty to avoid situations in which
they may have interests that conflict with those of the
Company, unless that conflict is first authorised by the
Board. Directors must disclose both the nature and extent
of any potential or actual conflicts with the interests of
the Company.
In accordance with the Companies Act 2006, the Company’s
articles of association allow the Board to authorise potential
conflicts that may arise, and to impose such conditions or
limitations as it sees fit. During the year, potential conflicts
were considered by the Board and approved where
appropriate. The Company keeps records of Board minutes
detailing authorisations granted.
The Nomination Committee has specific responsibility for
the appointment of Non-Executive and Executive Directors,
and it recommends new appointments to the Board.
The Board as a whole is also involved in overseeing the
development of management resources across the Group.
LENGTH OF TENURE OF
NON-EXECUTIVE DIRECTORS
2
1
2
0-3 years
3-6 years
6-9 years
INDUCTION AND PROFESSIONAL DEVELOPMENT
On joining the Board, each new Director receives a full and
formal induction to familiarise them with their duties and
the Company’s business operations, risk and governance
arrangements. The induction programme, which is
coordinated by the Company Secretary, includes briefings
on regulatory matters relating to the Company, as well
as meetings with senior management in key areas of the
business, such as compliance, legal, IT, human resources,
finance, risk, marketing and investor relations. These are
supplemented by induction materials such as recent Board
papers and minutes and relevant company policies. Newly
appointed Directors also meet the company’s external
auditors and corporate brokers and attend a presentation
led by Linklaters on the roles and responsibilities of a UK-
listed company director.
Inductions are tailored to each Director’s individual
experience, background and areas of focus. For example,
Jim Newman’s induction programme took into account his
planned role replacing Martin Jackson as Chairman of the
Audit Committee on the latter’s departure from the Board.
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IG Group Holdings Plc 2014 Annual Report|
THE BOARD (CONTINUED)
Ongoing professional development and training is
important, given the rapidly changing environment in which
the Group operates. All Directors are given regular updates
on changes and developments in the business and on any
relevant legislative, regulatory and governance changes.
The Chairman ensures that the Directors continually update
and refresh their skills and knowledge, and independent
professional advice is provided when required, at the
Company’s expense.
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 compliance with applicable rules and regulations is
observed. The Company Secretary also ensures appropriate
and timely information flows within and to the Board and its
committees, enabling the Board to exercise its judgment
and make fully informed decisions when discharging
its duties.
The Company Secretary supports the Chairman in setting
the Board agenda, and Board papers are distributed to
all Directors in advance of Board meetings via a secure
electronic system. Directors receive financial and risk
information on the company on a monthly basis, and they
receive briefings from the Chief Executive Officer in the
periods between meetings.
RE-ELECTION OF DIRECTORS
The UK Corporate Governance Code requires that all
directors of FTSE 350 companies should be subject
to annual election by shareholders. Each Director and
the Board as a whole (excluding Andy Green, who was
appointed after 31 May 2014) underwent a performance
evaluation during the course of the year. Following this,
all Directors with the exception of Jonathan Davie
and Martin Jackson, who will be stepping down at the
Company’s Annual General Meeting (AGM) on
16 October 2014, will stand for re-election (or in the case
of Andy Green, election) as relevant at the AGM.
BOARD EVALUATION
We conduct an annual evaluation of the Board’s
effectiveness. This year, it took the form of an internal
assessment aiming to improve the Board’s performance
as a whole. The assessment process involved the use
of a questionnaire covering the Board’s composition
and processes and its activities and behaviours. During
this process, the Board reviewed its progress against
the findings arising from its self-evaluation in the 2013
financial year. Particular progress has been made in the
areas of Board induction on appointment and in ensuring
appropriate processes, such as the use of experts, are in
place to facilitate complex judgments.
The 2014 financial year evaluation concluded that the Board
was operating effectively as a unitary body. Among other
things, it was felt that the Board and the Board committees
are effectively constituted. The level of discussion and the
quality of debates at Board meetings are considered to
be of a high calibre. The strategic aims of the Company
are effectively set by the Board, and the Board creates a
performance culture that drives value without exposing the
Company to excessive risks.
While these findings indicated that overall the Board was
operating effectively, and that each Director continued
to demonstrate commitment to the role, we recognise
the need to increase the level of focus on the long-term
composition of the Board and the review of management
information received by the Board. In addition, plans will
be put in place to ensure the Board plays a more active
role in talent management and succession planning below
Board level.
We will report on our progress against these
recommendations in next year’s Annual Report.
The performance of the individual Executive Directors,
other than the Chief Executive Officer, is appraised annually
by the Chief Executive Officer, to whom they report.
The Chief Executive Officer’s performance is appraised
annually by the Chairman, and the Chairman’s performance
is reviewed by the Non-Executive Directors. They are led
by Roger Yates, the Senior Independent Non-Executive
Director, and take into account feedback from the
Executive Directors.
The UK Corporate Governance Code and the Financial
Reporting Council’s guidance on board effectiveness
require the Board to evaluate its performance annually,
and recommend that this evaluation should be externally
facilitated every three years. In 2012, the Board
commissioned an independent external Board effectiveness
facilitator, Dr Tracy Long of Boardroom Review, who has no
other connection to the Company, to assist in an evaluation
of its effectiveness. In 2015, the Board will again use an
external facilitator for this purpose.
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Corporate Governance Report
The Board
Roger Yates, the Senior Independent Non-Executive
Director, is available to meet shareholders on request,
and also ensures that the Board is aware of shareholder
concerns not resolved through other communication
mechanisms. The Chairman and the Senior Independent
Non-Executive Director provide feedback to the Board on
any views or concerns expressed to them by shareholders.
ENGAGEMENT WITH SHAREHOLDERS
The Board recognises the importance of maintaining
good communication with the Company’s shareholders,
and we have a comprehensive programme to facilitate this
each year.
Our Annual Report is an important medium for
communicating with shareholders, setting out detailed
reviews of the business and its future developments in the
Chairman’s Statement, the Chief Executive Officer’s Review
and the Strategic Report.
Our dialogue with institutional investors and shareholders
is ongoing, and includes presentations by management
around the time of the Group’s year-end and half-year
results announcements. These are coordinated by our
Investor Relations team. We make these presentations
available in real time on the Group’s website, which also
provides a wide range of other information to shareholders
and prospective shareholders. We also respond to ad hoc
requests from shareholders on a very regular basis.
The Chairman and Executive Directors hold meetings
with the Company’s largest institutional shareholders and
market analysts to discuss governance, business strategy
and financial performance. Non-Executive Directors are
also available to meet with institutional shareholders when
required. During the year, Roger Yates met with major
shareholders to discuss the Group’s remuneration policy in
his capacity as Chairman of the Remuneration Committee.
Following all investor presentations and meetings, feedback
is passed to the Board on any opinions or concerns
expressed by shareholders. The Directors receive regular
updates on shareholder views, as well as analysts’ reports
on market perception of the Group’s performance and
strategy, and are made aware of the financial expectations
of the Group from the outside market.
The Board also uses the Annual General Meeting (AGM) to
communicate with private and institutional investors, and
we welcome their participation. We send the Annual Report
and notice of the AGM to shareholders, or make them
available on the Group’s website, at least 20 working days
before the date of the meeting. The Notice of AGM sets
out a clear explanation of each resolution to be proposed
at the meeting. Shareholders have the opportunity to ask
questions and, if they are unable to attend, can submit
written queries in advance of the meeting. At the meeting,
we will make available to shareholders full details of the
proxy votes received on each resolution, and we will also
publish these on the Company’s website on the same
day. The Chairman aims to ensure that all the Directors,
including the Chairmen of the Board committees, are
available at the AGM to answer questions.
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IG Group Holdings Plc 2014 Annual Report|
NOMINATION COMMITTEE
CHAIRMAN’S OVERVIEW
The committee’s purpose is to ensure that the Board’s
composition, in terms of structure, size, skills and
experience, meets the Company’s needs. We maintain and
implement an effective succession plan to ensure that the
Board is progressively refreshed. This year, our attention
has centred on the appointment of a new Non-Executive
Director to replace Martin Jackson and the search, led by
Roger Yates, for a replacement Chairman. The latter was
essential to ensure an orderly succession on my retirement
from the Board in October 2014.
COMMITTEE MEMBERSHIP AND ATTENDANCE
The committee consists of independent Non-Executive
Directors and meets as necessary to consider appointments
to the Board. The Chief Executive Officer also attends, but
is not involved in decisions relating to his own succession.
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
• 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
The Terms of Reference of the committee are available on
the Group’s website, iggroup.com.
Jonathan Davie, Chairman of the Nomination
Committee, gives his review of the committee’s
activities during the financial year.
ACTIVITY DURING THE FINANCIAL YEAR
In 2013, we announced that Martin Jackson and I will be
stepping down from the Board, as Non-Executive Director
and Chairman respectively, at the Annual General Meeting
(AGM) in October 2014. The committee therefore put into
action a succession-planning process for both roles.
We engaged an external search agency to support
us in appointing a Non-Executive Director to replace
Martin Jackson, both as a Non-Executive Director and as
Chairman of the Audit Committee. JCA Group, which has
no other connection with the Company, assisted with the
recruitment process and conducted an extensive search
and benchmarking exercise. We provided a brief setting
out the role specification and the desired skills, knowledge
and experience to the search consultants, who identified
a shortlist of potential candidates. Following detailed due
diligence and an extensive interview process by members
of the committee, we selected Jim Newman as the most
suitable and preferred candidate, on the basis of his strong
background in finance and understanding of UK financial
governance. Jim’s experience of financial services regulation
complements the Group’s business strategy and activity,
and is highly relevant to the markets in which we operate.
We recommended his appointment to the Board, and he
formally took up his position on 1 October 2013.
During the year, the committee also began the search for
a new Chairman, with the process being led by
Roger Yates, the Senior Independent Non-Executive
Director. We appointed the Zygos Partnership, an executive
search firm, to assist us. The Zygos Partnership has no other
connection with the Company. The committee, along with
the Board, agreed the specification for the role. This was
based on objective criteria, including the skills, experience,
knowledge and capabilities required for the role of
Chairman. We also specified that candidates must be able
to give the necessary time commitment to the role. The
Zygos Partnership prepared a list of potential candidates,
following which a shortlist of individuals were interviewed by
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Corporate Governance Report
Nomination Committee
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Chairman of the Nomination Committee
Jonathan Davie(1)
Independent Non-Executive Directors
Martin Jackson
Jim Newman
Roger Yates
3
6
3
6
3
6
3
6
(1) Jonathan Davie did not attend meetings relating to the search for a
new Chairman.
recommendations, as set out in his report on ‘Women on
Boards’, the Nomination Committee has not set a specific
target for female representation on the Board. We continue
to appoint on merit, based on the skills and experience
required for membership of our Board, while giving
consideration to gender diversity when the committee
reviews the Board’s composition. For appointments to the
Board, we use executive search firms who have signed up to
the voluntary code of conduct setting out the key principles
of best practice in the recruitment process. These principles
include a recommendation that search firms should consider
gender diversity when drawing up a shortlist of candidates.
NOMINATION COMMITTEE ALLOCATION OF TIME
Succession planning
Board composition
Jonathan Davie
Chairman, Nomination Committee
22 July 2014
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the committee members (other than myself), the
Non-Executive Directors and the Executive Directors.
As the current Chairman of the Company, I did not chair
the Nomination Committee meetings and discussions
leading to the appointment of the new Chairman. After
extensive interviews and a due diligence exercise, the
committee recommended to the Board the appointment
of Andy Green as Chairman Designate. The Board took
into account Andy’s wealth of corporate experience and
in-depth knowledge of leading-edge technology and
marketing when making its decision on his appointment.
Following regulatory approval by the Financial Conduct
Authority, we were pleased to announce in June 2014 that
Andy would join the Board as Deputy Chairman, and will
succeed me as Chairman at the AGM in October 2014.
In addition to overseeing appointments to the Board, the
committee also reviewed the membership of the Board
committees during the year. Following the committee’s
recommendation, and with the Board’s approval,
Stephen Hill stepped down as a member of the Audit
Committee and was appointed Chairman of the newly
created Board Risk Committee.
The Nomination Committee recommended to the Board
that the committee would benefit from an additional
member. As a result, Jim Newman was appointed as a
member of the Nomination Committee in December 2013.
DIVERSITY POLICY
As a business, we are committed to maintaining a diverse
workforce at all levels across the Company, and more
information on how we do this can be found in the Our
People section, on page 27.
The Directors understand the significant benefits that
come with having a diverse Board. We recognise the
importance of gender diversity on the Board, however
we believe that diversity is a wider issue and also includes
variations in experience, skills, personal attributes and
background. While the Board supports Lord Davies’
IG Group Holdings Plc 2014 Annual Report|
REMUNERATION COMMITTEE
Roger Yates, Chairman of the Remuneration
Committee, gives his review of the committee’s
activities during the financial year.
CHAIRMAN’S OVERVIEW
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the year ended
31 May 2014, which, in accordance with the new reporting
regulations, is split into two parts:
• The Directors’ Remuneration Policy report sets out the
remuneration policy and framework for 2014 and beyond,
which will be subject to a binding vote at this year’s
Annual General Meeting (AGM)
• The Annual Report on Remuneration sets out the
remuneration paid to Directors in respect of the
2014 financial year, together with details of how the
remuneration policy will be implemented for 2015, which
will be subject to an advisory vote at this year’s AGM
In addition to the two votes referred to above, a separate
resolution is being put forward which will permit the
Company to use newly issued shares when satisfying awards
under the existing long-term incentive plan (LTIP), subject
to the existing 10% in ten years dilution limit covering all
our share plans. This limit has previously been agreed with
shareholders for other share plans. Executive Directors are
not eligible to participate in this LTIP; it applies to selected
individuals in key manager roles below Board. Full details
will be provided in the Notice of AGM.
CHANGES IN OUR PAY STRUCTURE
APPROVED LAST YEAR
As I reported in last year’s Remuneration Report, the
committee has spent significant time over the past two
years reviewing its executive remuneration policy. The
goal of the review was to assess whether IG’s executive
remuneration structure supports the business strategy and
encourages the delivery of safe and sustainable growth in
long-term shareholder value. The high-level conclusion of
this review was that the structure in place between 2010
and 2013 was no longer aligned with an organisation at
IG’s stage of development. The long-term incentive plan
known as the value-sharing plan (VSP), in particular, was
too highly ‘geared’, with very high upside potential linked
to exceptional growth, but with insufficient emphasis on
driving sustained, reliable performance. Also, due to the
high upside potential in the VSP, base salaries had fallen
behind, at 80-90% of mid-market levels. In reducing the
upside gearing in the VSP it was also essential to address
the relatively uncompetitive nature of the base salaries.
As a result of the review, the committee recommended
several changes which were disclosed in last year’s Notice of
AGM and supported by shareholders:
• The establishment of a new, simpler remuneration policy,
with a single incentive plan – the sustained performance
plan (SPP) – to replace both the existing annual bonus
and the VSP for the Executive Directors. The SPP is
entirely share-based, with a lower maximum award size
(5 x base salary for maximum performance) than the
combined previous plans, and with extended vesting
periods (up to seven years)
• The introduction of minimum shareholding guidelines for
Executive Directors (2 x base salary for the Chief Executive
Officer and 1 x base salary for other Executive Directors)
• Salary increases of 7.5% for all Executive Directors, effective
1 June 2013, in order to bring the Directors closer to mid-
market levels against FTSE 250 companies of a similar size
The committee’s recommendations were supported by over
90% of shareholders at the 2013 AGM. We are grateful to
shareholders for their trust and support in this vote.
THE BUSINESS CONTEXT IN 2014
The current year saw IG invest significantly in longer-term
strategic projects, including the launch of stockbroking,
expansion into Switzerland and increased emphasis on
mobile technology. Against this backdrop, revenue for 2014
was £370.4 million, which represents a 2.4% increase on 2013,
and diluted earnings per share increased by 3.6% to 40.18
pence per share. Own funds increased by £60.4 million and,
in recommending a total dividend of 28.15 pence, an increase
of 21.1%, the Board is proposing an increase in the ordinary
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Remuneration Committee
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Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Chairman of the Remuneration Committee
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Roger Yates
Independent Non-Executive Directors
Jonathan Davie
Stephen Hill
Martin Jackson
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The committee believes shareholders deserve thorough
disclosure on remuneration. To this end, the Company has
set out extensive explanation of the judgments it has made
in making the above awards. This disclosure is set out in the
Annual Report on Remuneration on page 75.
The committee has worked over the past 18 months to
ensure that the recent changes to the Executive Directors’
remuneration policy support the Group’s strategy and
objectives over the longer term and reflect the sustained,
strong performance of the Group and its executive team.
Given the level of consultation with shareholders during
the remuneration review, we hope you continue to be
supportive of the remuneration policy we introduced last
year and of our implementation of such for 2014.
IMPLEMENTATION OF REMUNERATION
POLICY FOR 2015
For 2015, the committee will use the same three metrics
described above, in the same proportions. Accordingly, EPS
will drive 45%, TSR will drive 35% and non-financial metrics
will drive 20% of the maximum potential award.
In relation to the EPS targets, the committee has ensured a
sufficiently stretching range has been set by taking account
of a number of internal and external reference points. The
target range will be disclosed in next year’s report.
I hope that you will be supportive of the remuneration
resolutions to be proposed at the next AGM. If in the
meantime you have any questions regarding our remuneration
policy then my colleagues and I on the Remuneration
Committee would be pleased to consider them.
Roger Yates
Chairman, Remuneration Committee
22 July 2014
61
dividend payout ratio to approximately 70% of earnings for
the financial year 2014 from the current level of 60%, while
retaining a progressive dividend policy in the future.
REMUNERATION OUTCOMES FOR 2014
For the 2014 plan year, the Executives will receive awards
under the SPP with a face value of 2.7 x base salary,
representing 54% of maximum possible award. We believe
this award is reflective of the 2014 performance and
business context as set out above.
The 2014 award under the SPP is driven by three measures:
• Earnings Per Share (EPS) – 45% of the maximum potential
award. The EPS target range for 2014 was set by the
committee at 37.50 pence to 42.00 pence, with a linear
relationship in between. Our actual EPS of 40.18 pence
resulted in 59.6% of this portion being granted
• Total Shareholder Return (TSR) – 35% of the maximum
potential award. The Company achieved a TSR of 19%,
which ranked the Company slightly above the median
of the peer group, resulting in 27% of this portion
being granted
• Non-financial metrics – 20% of maximum potential award.
The committee looks at the Company’s execution and
delivery of key strategic initiatives and performance
against key quantitative and qualitative non-financial
metrics. This year, the performance against these metrics
was strong and resulted in a 90.5% achievement level
We remind shareholders that the SPP is the Company’s only
Executive Director incentive plan for 2014, and has replaced
both the annual bonus and long-term incentive plans.
In addition, the Executive Directors will receive a small
vesting from their 2011 VSP awards. Full details of these
awards are set out on page 81.
Finally, the committee has recommended a 3% base salary
increase for the Executive Directors to take effect from
1 June 2014. To provide some context, the general increase
for employees across the Group is expected to be around 4%.
IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT
In line with new regulations governing the disclosure and
approval of directors’ remuneration, our Directors’ Remuneration
Report is split into two sections:
Directors’ Remuneration Report
Directors’ Remuneration Policy
Annual Report on Remuneration
62
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The Remuneration Committee’s objective is to ensure
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.
PREPARATION OF THE DIRECTORS’
DIRECTORS’ REMUNERATION POLICY
REMUNERATION REPORT
Our Directors’ Remuneration Report covers the
remuneration of the Executive and Non-Executive Directors
of IG Group Holdings plc. In line with new regulations
governing the disclosure and approval of directors’
remuneration, the report is split into three parts: the
preceding annual statement from the Chairman of the
Remuneration Committee, a Directors’ Remuneration Policy
and an Annual Report on Remuneration which follow.
We have prepared the Remuneration Report in accordance
with Schedule 8 to the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008 (as
amended), and it complies with the Financial Conduct
Authority’s Listing Rules. In developing our remuneration
policy, we have taken into account the principles of the UK
Corporate Governance Code 2012 and the views of our
major shareholders.
The disclosures required under Article 450 of the Capital
Requirements Regulation are provided on the corporate
website and accordingly are not detailed within the
Directors’ Remuneration Report or elsewhere in the
Annual Report.
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. The audited sections, which fall
within the Annual Report on Remuneration, have been
clearly identified.
The Directors’ Remuneration Policy will be put to a
binding shareholder vote at the 2014 Annual General
Meeting (AGM).
This part of the Directors’ Remuneration Report sets out
the remuneration policy for the Directors and, subject to
approval, will take effect from 16 October 2014, the date of
the AGM.
THE ROLE OF THE REMUNERATION COMMITTEE
The committee is responsible for making recommendations
to the Board on the Group’s senior executive remuneration
policy. Operating within defined and agreed terms of
reference, it determines an overall remuneration package
for the Executive Directors in order to attract and retain
high-quality Directors capable of achieving the Group’s
objectives. The committee’s terms of reference can be
found on our corporate website at iggroup.com.
The committee sets and agrees with the Board a
competitive and transparent remuneration framework which
is aligned to the Company strategy and is in the interests
of both the Company and its shareholders. The committee
determines the contractual terms, remuneration and other
benefits for each of the Executive Directors, including
performance-related incentive arrangements, pension
rights, compensation payments and share-incentive awards.
The committee’s other responsibilities are to:
• 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
• Determine and agree the policy for the remuneration of
the Board Chairman and the Executive Directors
• Review and note pay and employment conditions and the
remuneration trends across the Group
• 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
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Directors’ Remuneration Report
• Establish the selection criteria, appoint and set the terms
of reference for any remuneration consultants who advise
the committee
• Monitor regulatory developments, including those
affecting UK-listed companies and financial services
firms, to ensure the Company’s remuneration policy is
consistent with these
The Board determines the remuneration of
Non-Executive Directors.
The committee considers that a successful remuneration
policy needs to be sufficiently flexible to take account of
future changes in the Company’s business environment and
in remuneration practice. There must be transparency and
alignment to the delivery of strategic objectives at both
a Company and an individual level. There must also be
scope to reward for exceptional effort and achievement that
delivers value both for the Company and the shareholders.
Likewise, failure to achieve, individually or at Company level,
will not be rewarded.
OBJECTIVES OF THE REMUNERATION POLICY
The Remuneration Committee’s objective is to ensure
remuneration encourages, reinforces and rewards the
growth 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. The remuneration policy is set to
ensure that remuneration has the ability to attract and retain
senior executives of a high calibre, remains competitive and
provides appropriate incentive for performance.
The committee is also mindful of ensuring that there is an
appropriate balance between the level of risk and reward
for the individual, the Company and our shareholders.
When setting levels of variable remuneration, the degree
of stretch in performance conditions and the balance of
equity and cash within a package, consideration is given
to obtaining the appropriate balance of each so as not to
encourage unnecessary risk-taking. As well as financial risk,
the committee also ensures that there is an appropriate
focus on regulatory and governance matters.
The committee has agreed that all matters relating to
remuneration of Group employees should:
• Align with the best interests of the Company’s
shareholders and other stakeholders
• Recognise and reward good and excellent performance
of employees that helps drive sustainable growth of
the Group
• Focus on retaining high-performing senior management
• Be consistent with regulatory and corporate
governance requirements
• Be designed 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
The total remuneration package is structured so that a
significant proportion is linked to performance conditions,
and it is the Company’s policy to ensure that a high
proportion of the potential remuneration package is provided
via share-based instruments. This ensures that executives
have a strong ongoing alignment with shareholders through
the Company’s share price performance.
The table on pages 64-69 summarises each element of the
remuneration policy for the Executive Directors, explaining
how each element operates and how each part links to the
corporate strategy.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Key elements of remuneration
PURPOSE AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
PERFORMANCE METRICS
No performance metrics apply to base salary.
RECOVERY OR
WITHHOLDING
No recovery
or withholding
applies to
base salary.
BASE SALARY
Provides a sound basis on which to recruit and retain key
employees of appropriate calibre to deliver the strategic
objectives of the Company.
Salaries are normally reviewed by the committee annually, and
are usually fixed for 12 months commencing 1 June. Any salary
increase may be influenced by:
Reflects the market value of the role and the post-
holder’s experience, competency and performance
within the Company.
• Scale, scope and responsibility of the role
• Experience of the individual and his or her performance
• Average change in wider workforce pay
• Business performance and prevailing market conditions
• Commercial need
• Periodic benchmarking of similar roles at comparable
companies selected on the basis of comparable size,
complexity, geographic spread and business focus
BENEFITS
Competitive, cost-effective benefits to help recruit and
retain Executive Directors and senior management.
Benefits may include, for example, private medical insurance,
discounted health club membership and life assurance.
PENSION
Market-competitive, cost-effective retirement benefits
attract and retain executives.
Cash alternatives may be provided for any or all of these
benefits, depending on individual circumstances.
Relocation and related benefits may be offered where a
Director is required to relocate.
The Group contributes to Executive Directors’ personal
pension plans. Executives have the option to receive part, or
all, of their pension contribution as a cash allowance in lieu of
Company pension contributions.
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The general policy is to pay around
mid-market levels, with annual
increases typically in line with the
wider workforce.
Increases beyond the percentage
increases granted to the wider
workforce may be awarded in
exceptional circumstances,
such as:
• Where there is a change in the
individual’s responsibility
• Where the salary set at initial
appointment was below the level
expected once the individual
gains further experience and a
track record of performance in
the role
An above-market positioning may
be appropriate, in exceptional
circumstances, to reflect the criticality
of the role and the individual’s
experience and performance.
Base salary levels for the financial
year ending 31 May 2015 are:
T A Howkins – £472,200
C F Hill – £330,500
P G Hetherington – £354,300 (FTE)
The aim is to provide market-
competitive benefits, and their
value may vary from year to year,
depending on the cost to the
Company from third-party providers.
Benefits constitute a small
percentage of total remuneration.
The company may contribute up to
15% of base salary to pension, an
equivalent cash allowance in lieu, or
a mixture of both.
No performance metrics apply to benefits.
No recovery
or withholding
applies to benefits.
No performance metrics apply to retirement benefits.
No recovery or
withholding
applies to
retirement benefits.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Key elements of remuneration (continued)
PURPOSE AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
PERFORMANCE METRICS
SUSTAINED PERFORMANCE PLAN (SPP)
Approved by shareholders at the 2013 AGM, the SPP
provides a single incentive plan for Executive Directors
rather than having separate annual and long-term plans.
We are initially operating the SPP by reference to five
consecutive ‘plan years’. The first plan year was the financial
year ended 31 May 2014.
It provides a simple and competitive incentive
mechanism that encourages and rewards both annual
and sustained long-term performance, linked to the
Company’s strategic objectives.
Awards of shares (either in the form of par value options,
nil cost options or conditional awards), known as ‘plan
contributions’, are made after the announcement of results
relating to each plan year.
The maximum plan contribution
in respect of a plan year is an
award of shares with a market
value of no more than 500% of an
executive’s annual rate of salary.
The SPP encapsulates traditional annual bonus and
long-term incentive plans. It is entirely share-based,
encouraging executives to build up a substantial stake
in the Company, thereby aligning the interests of
management with shareholders.
Plan contributions are granted by reference to achievement
against applicable performance targets and accumulate
within a participant’s ‘plan account’.
Each year, a percentage of the accumulated balance in
the plan account vests (ie options or awards are released
to participants).
Therefore, a participant’s plan account will comprise the
sum of the plan contribution (if any) being made in relation
to the relevant plan year plus the accumulated awards
registered in the plan account from previous plan years.
In the first five plan years, a participant’s plan account vests
as follows:
Following
Plan year 1
Plan year 2
Plan year 3
Plan year 4
Plan year 5
% of cumulative shares in
plan account vesting
40.0%
40.0%
33.3%
33.3%
33.3%
After plan year 5, the committee may at such time (or at a
later date during the life of the SPP) close the operation of
the plan.
If the SPP is closed following plan year 5, unvested awards
remaining in the plan account will vest in tranches of 50%,
25% and 25% on the first, second and third anniversaries of
the SPP’s closure. The same principles will apply on a later
termination of the plan.
Participants may receive a payment at the time of delivery
of vested shares of an amount equivalent to the dividends
that would have been paid on those shares while in the plan
account (adopting a first-in, first-out basis). This amount may
assume dividend reinvestment. Dividends will not accrue on
vested but unexercised awards.
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The quantum of any awards granted is dependent on
performance against performance targets set by the
committee for each relevant financial year.
Performance targets may comprise, for example, diluted
earnings per share (DEPS) targets, Total Shareholder
Return (TSR) and non-financial measures. Performance is
measured over single plan years (financial years) except
for TSR (from plan year 2 – awards in respect of financial
year ending 31 May 2015). We currently intend to apply
the following performance criteria:
• DEPS – a sliding scale of targets will apply for each
plan year. The targets will be set at the start of each
plan year. Targets and performance will be disclosed
retrospectively in the Annual Report on Remuneration
for the relevant financial year-end
• Relative TSR – the Company’s share price (plus
dividends reinvested) performance will be measured
against an appropriate comparator group. For the
first plan year, performance is based on that plan
year alone; for the second plan year, performance is
based on plan years 1 and 2; thereafter performance
is measured over three plan years ending with the
plan year being reported on. The committee retains
the discretion to scale back the level of award if it
feels the Company’s underlying financial performance
does not warrant the level of award resulting from TSR
performance alone
• Non-financial – these may comprise strategic
goals, operational and client satisfaction measures
for each plan year. Targets and performance will be
disclosed retrospectively
Where possible, a sliding scale of targets will be set. For
the DEPS and relative TSR measures, no more than 25%
is payable for achieving threshold performance, rising to
full payout for achieving a more challenging target.
The scorecard of financial, share price and non-financial
metrics may vary from year to year in accordance with
strategic priorities and the regulatory environment.
At the time of determining the contribution for plan
year 5, in the event that the committee feels the
Company’s underlying financial performance over the first
five plan years has not been satisfactory, the committee
may scale back the final balance of the plan account.
RECOVERY OR
WITHHOLDING
The committee
may decide within
three years of a
plan contribution
that the
underlying award
will be subject to
clawback. This
may happen
where there has
been a material
misstatement in
the Company’s
financial results
or an error in
assessing any
applicable
performance
condition. It may
also be triggered
if there has
been substantial
failure of risk
management, or
if the participant’s
employment
is terminated
for serious
misconduct.
The clawback
may be satisfied
by a reduction
in the amount of
any subsisting
plan account, a
reduction in the
vesting of any
subsisting vested
awards or future
share awards
and/or a
requirement
to make
cash payment.
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DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Key elements of remuneration (continued)
PURPOSE AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
PERFORMANCE METRICS
ALL-EMPLOYEE SHARE SCHEMES
All employees including Executive Directors are
encouraged to become shareholders through the
operation of an HMRC-approved share-incentive plan
(SIP) and/or such other all-employee share plans as the
Company may adopt in the future.
SHARE OWNERSHIP POLICY
Aligns the interests of management and shareholders
and promotes a long-term approach to performance
and risk management.
RECOVERY OR
WITHHOLDING
No recovery
or withholding
applies to all-
employee share
schemes.
The SIP is a flexible, tax-efficient, all-employee plan. Partnership,
free, dividend and matching shares may be granted under the SIP.
If other HMRC-approved all-employee plans are introduced, they
will operate in accordance with HMRC guidance and limits.
Similar non-UK plans may be operated to enable non-UK
employees and Directors to participate.
HMRC or non-UK plan equivalent
limits will apply to any all-employee
schemes that may be introduced.
This currently constitutes a small
proportion of Executive Directors’
total remuneration.
No performance metrics tend to apply, although they
may be introduced where applicable and if appropriate.
Not applicable.
Not applicable.
Not applicable.
A share ownership policy was introduced from the financial year
ending 31 May 2014.
Under this policy, the Chief Executive Officer is required to
hold shares to the value of a minimum of 200% of base salary,
and for other Executive Directors a requirement of 100% of base
salary applies.
Only shares owned outright by the Executive Director are
included in the guideline, which must be achieved within five
years of the introduction of the policy or, if later, from the date of
appointment to the Board.
The committee will review progress annually, with an expectation
that Executive Directors will make progress towards achieving
the shareholding policy each year.
NOTES TO THE POLICY TABLE
Choice of performance measures:
The performance measures that are used in the share performance plan (SPP) are a subset of the Company’s Key Performance Indicators (KPIs).
Metric
Rationale and link to the strategic KPIs
How performance measures are set
Total Shareholder Return
(TSR) relative to a suitable
benchmark group
(Current weighting: 35%)
Diluted earnings per share
(DEPS)
(Current weighting: 45%)
Non-financial performance
(Current weighting: 20%)
Customer satisfaction
System reliability/uptime
Other
TSR measures the total return to IG Group’s shareholders, both through share price
growth and dividends paid, and as such it is aligned to shareholder interests.
TSR is influenced by how well IG Group performs on a range of other metrics, including
financial indicators such as revenue, profit, cash generation and dividends, and non-
financial indicators such as client satisfaction and operational performance.
DEPS is a key indicator of the profits generated for shareholders, and a reflection of
both revenue growth and cost control.
We measure customer satisfaction against a number of indicators. One such indicator is
the Net Promoter Score (NPS) data supplied by Investment Trends. NPS is a measure of
whether clients would recommend IG Group. It is calculated by asking respondents how
likely they are to recommend the 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 0-6).
In addition, the numbers of active and new clients and revenue per client are indicators
of client satisfaction and sustainability of revenues.
System reliability or uptime is a key measure of the resilience of our trading platforms,
which is an essential element of revenue generation and client satisfaction.
Other non-financial criteria may include, for example, effective risk management,
execution of strategic initiatives, sustaining the Company’s excellent reputation and
maintaining a good standing with regulators.
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The committee sets the requirements for each plan year. The current benchmark group comprises the constituents of the
FTSE 350 index (excluding investment trusts).
The committee determines appropriate performance targets each year, taking account of the annual and longer-term
business plans. DEPS is calculated on such adjusted basis as the committee reasonably selects (eg adjusting for the effects
of any share buybacks).
We assess performance by comparing IG Group’s performance against other companies in the sector, with the aim of
maintaining a high NPS score relative to the sector average.
The committee assesses performance relative to prior years, internal targets and sector averages.
Criteria are set each year by the committee, and assessed ‘in the round’, taking account of activities and achievements
during the year.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
NOTES TO THE POLICY TABLE (CONTINUED)
Annual DEPS targets and non-financial performance measures, where used, are likely to be too sensitive to disclose in
advance, for commercial reasons. We will, however, disclose the measures and targets (where applicable) used, and the
extent to which we have achieved them, on a retrospective basis, at the end of the relevant performance period.
Incentive plan discretions
The committee will operate the current SPP (and other share plans still in operation) according to their respective rules and
the policy set out above, and in accordance with the Listing Rules and HMRC rules where relevant. Copies of the SPP rules are
available on request from the Company Secretary. As is consistent with market practice, the committee retains discretion over
a number of areas relating to operating and administrating these plans. These include (but are not limited to) the following:
• Who participates in the plans
• The timing of grant of award and/or payment
• The size of an award and/or a payment within the plan limits approved by shareholders
• The choice of (and adjustment of) performance measures and targets in accordance with the policy set out above and the
rules of each plan (including the treatment of delisted companies for the purpose of the TSR Comparator Group)
• Discretion relating to the measurement of performance in the event of a change of control or reconstruction
• Determination of a good leaver (in addition to any specified categories) for incentive-plan purposes, based on the rules of
each plan and the appropriate treatment under the plan rules
• Adjustments required in certain circumstances (eg rights issues, corporate restructuring, special dividends and on a
change of control)
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration. As
appropriate, it might also be the subject of consultation with the Company’s major shareholders.
Legacy arrangements
For the avoidance of doubt, in approving the Directors’ Remuneration Policy, the Company has authority to honour any
commitments entered into with current or former Directors that have been disclosed to shareholders previously. This
includes awards made under the deferred bonus plan, the value-sharing plan (VSP) and any other share plans operated by
the Company.
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
As a result of the Company’s remuneration policy, a significant proportion of the remuneration received by Executive
Directors depends on Company performance. The chart on page 71 shows how total pay for the Executive Directors varies
under three different performance scenarios: minimum, target and maximum:
Minimum
This comprises the fixed elements of pay, being base salary, benefits and pension. Base salary and pension was effective at
1 June 2014 and the benefits value is the actual value for the year ending 31 May 2013.
Target
This comprises fixed pay and the target value of SPP (250% of salary).
Maximum
This comprises fixed pay and the maximum value of SPP (500% of salary).
No account has been taken of share price growth, or of dividend shares awarded in respect of the deferred element of
bonus and SPP awards over the deferral/performance periods.
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Directors’ Remuneration Report
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
£000
3,000
2,500
2,000
1,500
1,000
500
81%
Fixed pay
SPP
68%
84%
81%
73%
68%
100%
32%
19%
100%
27%
16%
100%
32%
19%
Minimum
Target
Maximum
Minimum
Target
Maximum
Minimum
Target
Maximum
T A Howkins
C F Hill
P G Hetherington
EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
Each Executive Director 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.
The period of notice for existing Executive Directors does not exceed six months and, accordingly, Executive Directors’
employment contracts can be terminated on six months’ notice by either party.
In the event that the Company terminates an Executive Director’s service contract other than in accordance with the terms of
his or her contract, the committee will act in the best interests of the Company and ensure there is no reward for failure. All
service contracts are continuous, and contractual termination payments relate to the unexpired notice period.
On a Director’s departure, the Company may at its sole discretion pay base salary and the value of any benefits (including
pension) that would have been receivable in lieu of any unexpired period of notice. In the event of termination for gross
misconduct, the Company may give neither notice nor a payment in lieu of notice. Where the Company, acting reasonably,
believes it may have a right to terminate employment due to gross misconduct, it may suspend the executive from
employment on full salary for up to 30 days to investigate the circumstances prevailing.
The Company may place an executive on gardening leave for up to the duration of the notice period. During this time, the
executive will be entitled to receive base salary and all contractual benefits (including pension). At the end of the gardening
leave period, the Company may, at its discretion, pay the executive base salary alone, in lieu of the balance of any period of
notice given by the Company or the executive.
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 the relevant incentive plan
rules. When determining any loss-of-office payment for a departing Director, the committee will always seek to minimise
the cost to the Company, while complying with the contractual terms and seeking to reflect the circumstances in place at
the time. The committee reserves the right to make additional payments, where such payments are made in good faith in
discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or
compromise of any claim arising in connection with the termination of an Executive Director’s office or employment.
For new executive appointments, the committee has discretion to offer a longer notice period of up to 12 months to secure
an appointment. Any payments in lieu of notice will be at the committee’s discretion, and will be limited to base salary and
the value of any benefits (including pension) as set out above.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Sustained performance plan awards
As a general rule, if a participant ceases to hold
employment or be a Director within the Group, or gives
notice of leaving, they forfeit any entitlement to receive
further plan contributions. All awards subsisting in their plan
account at such time are forfeited in full.
However, the situation may be different if the participant
ceases to be an employee or a Director within the Group
under certain circumstances. These include injury, disability,
retirement, redundancy, the sale of the participant’s
employing company or the business for which they work out
of the Group, or other circumstances at the discretion of the
committee. In this case, participation in the plan will cease
once the plan contributions in respect of the plan year in
which the cessation arises are determined. This will take
into account the proportion of the full plan year worked.
Ordinarily, the participant’s plan account will then vest,
yielding one third immediately and thereafter the remaining
balance in equal parts on the first and second anniversary of
such determinations.
For the purposes of any awards permitted to vest to
leavers as described above, the committee retains
discretion to reduce the level of vesting that would
otherwise result. It may refer to such time-based
adjustments as it considers appropriate.
Where awards are granted in the form of options, any
vested awards already held at the time of cessation
(ie vested awards held outside the plan account but
unexercised) will remain exercisable for a limited period.
The exception is when dismissal has been for misconduct,
in which case such awards lapse in full.
Value-sharing plan (VSP) awards – legacy plan
As a general rule, awards which have not vested will
lapse when employment ceases. This may differ in certain
circumstances when there is a good reason for leaving.
Examples include injury, disability, retirement, redundancy,
the sale of the participant’s employing company or
the business for which they work out of the Group, or
other circumstances at the discretion of the committee.
The committee has the discretion to determine that an
Executive Director is a good leaver. In this case, the award
will not lapse but will continue or, if the committee decides,
will vest on cessation to the extent the performance
condition is satisfied. A time pro-rated reduction will apply
unless the committee determines otherwise. In the event
of death, awards will vest at that time to the extent that
performance, in the opinion of the committee, has
been satisfied.
Deferred bonus share awards – legacy plan
As a general rule, awards which have not vested will lapse
when employment ceases. For the same good leaver
reasons as set out above under the VSP, awards will vest on
the date of cessation unless the Remuneration Committee
determines that the original vesting date should apply.
The committee has the discretion to determine that an
Executive Director is a good leaver.
The Executive Directors’ contracts do not provide for any
enhanced payments in the event of a change of control
of the Company, nor for liquidated damages. Copies of
the Executive Directors’ service contracts are available for
inspection at the Company’s registered office.
REMUNERATION POLICY ACROSS THE COMPANY
We have designed the remuneration policy for the
Executive Directors and senior management with regard to
the policy for employees across the Company as a whole.
The committee is kept updated through the year on general
employment conditions, basic salary-increase budgets,
the level of bonus pools and payouts and participation in
share plans. The committee is therefore aware of how total
remuneration at the Executive Director level compares
to the total remuneration of the general population of
employees. Common approaches to remuneration policy
which apply across the Company include:
• Consistency in ‘pay for performance’, with annual bonus
schemes being offered to the vast majority of employees
• Offering pension, medical and life assurance
benefits for all employees, where practical given
geographical location
• Ensuring that salary increases for each category of
employee are considered, taking into account the overall
rate of increase across the Company, benchmarking, and
Company and individual performance
• Encouraging broad-based share ownership through the
use of all-employee share plans, where practical
RECRUITMENT REMUNERATION POLICY
The committee’s overriding objective is to appoint
Executive Directors with the necessary background, skills
and experience to ensure the continuing success of the
Company. We recognise that the pace of change and
technology development in our industry, as well as the
global nature of IG Group, mean that the right individuals
may often be highly sought-after.
We set the remuneration package for a new Executive
Director in accordance with the Company’s approved
remuneration policy, as detailed on page 71 of the
Directors’ Remuneration Report, subject to the additional
provisions described below. The maximum level of variable
remuneration (excluding any buyout arrangements) that
we can offer to a new executive on an annual basis will be
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Directors’ Remuneration Report
in accordance with the sustained performance plan limit,
being 500% of salary.
In many cases, where we make an external appointment,
the individual will forfeit incentive awards connected with
their previous employment on resignation. The committee
may therefore decide to offer further cash or share-
based payments to ‘buy out’ these existing entitlements
by making awards of a broadly equivalent value, in the
committee’s view. These awards can be made either
under the Company’s existing incentive plans or via other
arrangements. In determining the appropriate form and
amount of any such award, the committee will consider
various factors. These include the type and quantum of
award, the length of the performance period and the
performance and vesting conditions attached to each
forfeited incentive award.
Where an individual is appointed to the Board, different
performance measures may be set for the SPP for the year
of joining the Board, taking into account the individual’s
role and responsibilities and the point in the year when
they joined.
For an internal appointment, any variable pay element
granted in respect of the prior role may be allowed to
pay out according to its terms, adjusted as appropriate
to take into account the terms of the Executive Director
appointment. The committee will carefully determine the
base salary level for a new Executive Director, taking into
account the individual’s background, skills and experience,
and the business criticality and nature of the role being
offered. It will also consider the Company’s circumstances
and relevant external and internal benchmarks. Above
all, the committee must exercise its own judgment in
determining the most appropriate salary for the
new appointment.
In certain circumstances, the committee will have set a
starting base salary which is positioned below the relevant
market rate. It may then wish to adjust the Executive
Director’s base salary, at a level above the average increase
in the Company, as the individual gains experience and
establishes a strong performance track record in the role.
Conversely, the base salary may need to be positioned
above the relevant market rate in order to attract the most
appropriate candidate for the role.
We will provide benefits in accordance with the approved
policy. We may pay relocation expenses or allowances,
legal fees and other costs relating to the recruitment
as appropriate.
We will set fees for a new Non-Executive Director or
Chairman in accordance with the approved policy.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
CHAIRMAN AND NON-EXECUTIVE DIRECTORS
The table below summarises each element of the remuneration policy applicable to the Non-Executive Directors.
PERFORMANCE
RECOVERY OR
METRICS
WITHHOLDING
No performance
metrics apply.
No recovery
or withholding
applies.
PURPOSE
AND LINK TO
OPERATION
OPPORTUNITY
STRATEGY
To attract
and retain
Non-Executive
Directors of
appropriate
calibre and
experience.
The Remuneration
Committee
determines the fee
for the Chairman
(without the
Chairman present).
The Board is
responsible
for setting
Non-Executive
Directors’ fees.
The Non-Executive
Directors are not
involved in any
discussions or
decisions by the
Board about their
own remuneration.
Fees are within
the limits set by
the articles of
association and
take account of the
commitment and
responsibilities of
the relevant role.
The Chairman
receives a single
fee to cover all
their Board duties.
Non-Executive
Directors receive
a fee for carrying
out their duties.
They may receive
additional fees
if they chair the
primary Board
committees, and
for holding the
post of Senior
Independent
Director.
Committee
membership fees
may be paid.
Details of current
fee levels are
set out in the
Annual Report on
Remuneration.
Non-Executive Directors do not have service contracts; they are engaged by letters of appointment. Each Non-Executive
Director is appointed for an initial term of three years subject to re-election, but the appointment can be terminated on
three months’ notice.
CONSIDERATION OF SHAREHOLDER VIEWS
The committee engages proactively with the Company’s major shareholders. For example, when making any material
changes to the remuneration policy, the Remuneration Committee Chair will inform major shareholders of these in advance,
and will offer a meeting to discuss details as required. During June to August 2013, the Chairman, Jonathan Davie, and the
Chairman of the Remuneration Committee, Roger Yates, consulted with the main shareholder advisory bodies, the ABI and
ISS/RREV, and our major shareholders. They discussed the proposed sustained performance plan, which was approved by
shareholders at the October 2013 Annual General Meeting (AGM).
CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE COMPANY
In setting the remuneration of the Executive Directors, the committee takes into account the overall approach to reward for
employees in the Company. The Group operates in a number of different environments, and has many employees who carry
out diverse roles across a number of countries. All employees, including Directors, are paid by reference to the market rate,
and base salary levels are reviewed regularly. When considering salary increases for Directors, the Company will be sensitive
to pay and employment conditions across the wider workforce, however no remuneration comparison measurements have
been utilised to date. The committee does not formally consult with employees on the executive remuneration policy. The
committee is periodically updated on pay and conditions applying to employees across the Company.
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Directors’ Remuneration Report
ANNUAL REPORT ON REMUNERATION
This part of the report includes a summary of how we will apply the remuneration policy for the financial year ending
31 May 2015, and how we implemented it in the financial year ended 31 May 2014 (including payment and awards in respect
of incentive arrangements). We also give details of the Remuneration Committee’s operation, the Directors’ share interests
and how shareholders voted at the 2013 AGM.
IMPLEMENTATION OF REMUNERATION POLICY FOR THE FINANCIAL YEAR ENDING 31 MAY 2015
Base salaries
Base salaries for Executive Directors are reviewed annually by the committee. The Remuneration Committee decided to
increase base salaries by 3% for the forthcoming year, which is below the average salary increase across the workforce –
expected to be around 4%. Base salary is the only pensionable component.
The base salaries as at 1 June 2014 and increases from the prior year are:
T A Howkins
C F Hill
P G Hetherington(1)
2015
£
472,200
330,500
283,400
2014
£
458,500
320,900
275,200
Increase
3%
3%
3%
(1) P G Hetherington is paid a reduced pro-rata salary of £283,400, calculated as 80% of his full-time equivalent salary of £354,300, to reflect his flexible
working arrangements.
Chairman and Non-Executive Directors’ fees
The Chairman and Non-Executive Directors’ fees were reviewed in July 2014 and the fee levels for the forthcoming financial
year are:
Chairman: £191,500 (unchanged during the financial year ending 31 May 2014 and to apply until Jonathan Davie steps down
from the Board on 16 October 2014).
Chairman Designate: £235,000 (Andy Green will succeed Jonathan Davie and his current fee shall remain unchanged.
The fee was set by the committee after taking into account the experience of the individual and Chairman fee levels in
the market).
Each year, the Board reviews the Non-Executive Director fees (the Remuneration Committee reviews the Chairman’s fees).
This year as part of the review, the Board instructed New Bridge Street, the company’s remuneration consultants, to carry
out an external benchmarking exercise to assist the Board with the fee-review process. Following the review, a decision was
made to set the Non-Executive Directors’ fees as follows:
Non-Executive Director base fee: £55,000 (increased from £53,000 during the financial year ending 31 May 2014).
Chairman of the Audit Committee additional fee: £15,000 (increased from £13,500 during the financial year ending 31 May 2014).
Chairman of Board Risk Committee additional fee: £15,000 (introduction of fee during the financial year ending 31 May 2015).
Combined role of Chairman of the Remuneration Committee and Senior Independent Director fee: £15,000 (introduction of
fee during the financial year ending 31 May 2015).
The Chairman of the Nomination Committee will not receive an additional fee.
Benefits and pension
We will provide benefits and pension in line with the information set out in the Key Elements of Remuneration table on
page 64 (pension to a maximum of 15% of base salary, cash of equivalent value or a mixture of both).
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Sustained performance plan
For the awards to be granted in respect of plan year 2, which will end on 31 May 2015, the plan contribution maximum
opportunity of 500% of annual rate of base salary will apply for Executive Directors.
The performance targets for these awards are as follows:
MEASURE
FURTHER DETAIL
MEASUREMENT
PERIOD (PLAN YEARS)
WEIGHTING
Diluted
earnings
per share
(DEPS)
Relative
Total
Shareholder
Return (TSR)
The committee has determined a sliding scale of
targets that will apply for the financial year ending
31 May 2015.
Financial year ending
31 May 2015.
45%
Performance is measured against constituents of the
FTSE 350 excluding investment trusts. No part of
this element will be awarded if performance is below
median. 25% will be awarded for median, increasing
on a straight-line basis, with full vesting for upper-
quartile performance or better. The committee's
discretion to scale back vesting will apply as set out in
the Directors’ Remuneration Policy.
The two financial years
ending 31 May 2015.
35%
Non-
financial
measures
The measures will include:
• System reliability
• Maintaining good standing with regulators
Financial year ending
31 May 2015.
20%
• Customer satisfaction
• Reputation and PR
• Risk management
• Execution and delivery of key strategic initiatives
The committee will ensure the EPS and non-financial targets are suitably stretching. We deem the EPS and non-financial
measures themselves to be commercially sensitive, and will not disclose these prospectively. However, we will provide
retrospective disclosure of the targets and performance against them in next year’s Remuneration Report.
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Directors’ Remuneration Report
IMPLEMENTATION OF REMUNERATION POLICY IN THE FINANCIAL YEAR ENDING 31 MAY 2014
Single total figure of remuneration for each Director (audited)
Contribution to
SPP plan account(4)
Legacy incentives
Name of
Director
Executive Directors
T A Howkins
C F Hill
P G Hetherington(1)
Year
2014
2013
2014
2013
2014
2013
Non-Executive Directors
J R Davie
S G Hill
D M Jackson
J A Newman
S J Tymms
R P Yates
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Fees/
basic
salary
£000
Benefits
in kind(2)
£000
Pension(3)
£000
Vested
element
£000
Deferred
element
£000
459
427
321
299
275
256
192
186
53
52
67
65
40
–
53
1
53
52
1
1
1
1
1
1
–
–
–
–
–
–
–
–
–
–
–
–
69
64
48
45
41
38
–
–
–
–
–
–
–
–
–
–
–
–
498
–
349
–
374
–
–
–
–
–
–
–
–
–
–
–
–
–
748
–
523
–
561
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
1,246
–
872
–
935
–
–
–
–
–
–
–
–
–
–
–
–
–
Annual
bonus
£000
VSP(5)
£000
Total
£000
–
399
–
280
–
300
–
–
–
–
–
–
–
–
–
–
–
–
179
212
1,954
1,103
107
1,349
–
625
107
132
1,359
727
–
–
–
–
–
–
–
–
–
–
–
–
192
186
53
52
67
65
40
–
53
1
53
52
(1) P G Hetherington was paid a reduced pro-rata salary of £275,200, based on a £344,000 full-time equivalent salary, to reflect his flexible working arrangements.
As in previous years, and consistent with the previous legacy arrangements, his SPP opportunity is based on his full-time equivalent salary.
(2) All Executive Directors are entitled to receive private medical cover, discounted gym membership and life assurance cover.
(3) The Group contributes 15% of base 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. T A Howkins elected to restrict pension contributions to £50,000 and receive the balance of the pension contribution as an additional cash
payment. C F Hill elected to restrict pension contributions to £46,770 and receive the balance of the pension contribution as an additional cash payment.
P G Hetherington elected to receive the full pension contributions as an additional cash payment.
(4) Figures provided are the SPP plan contributions for the year ended 31 May 2014. The vested element is the proportion of the plan contribution that vests
shortly following the end of the financial year. The deferred element is the proportion that remains deferred in the plan account. Details of SPP awards held in
the plan account, both vested and unvested, are provided in the Outstanding Share Awards table on page 82.
(5) The 2010 VSP awards had a performance period ending on 31 May 2013. Half the awards vested on 29 October 2013, with the remainder vesting on
29 October 2014. The value is based on the actual share price on the date of vesting for the first tranche, and we have used the average share price for the last
quarter of the financial year ending 31 May 2014 to estimate the value for the second tranche vesting later in 2014.
The 2011 VSP awards had a performance period ending 31 May 2014. Half the awards vested on 22 July 2014 with the remainder vesting on 20 July 2015. We
have used the average share price for the last quarter of the financial year ending 31 May 2014 to estimate the value of these awards.
’
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77
IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
DETERMINATION OF SPP PLAN CONTRIBUTION FOR THE FINANCIAL YEAR ENDING 31 MAY 2014
Performance targets for plan year 1 (financial year ending 31 May 2014) comprise diluted earnings per share (DEPS) targets,
Total Shareholder Return (TSR) and non-financial measures. Performance for the financial year ending 31 May 2014 was
measured over the period from 1 June 2013 to 31 May 2014.
Performance
measure
Weighting
Potential of
base salary
Threshold
(25% payout for
TSR and
0% for DEPS)
Maximum
(100% payout)
Actual
performance
Plan
contribution as
percentage of
base salary
DEPS
TSR
Non-financial
45%
35%
20%
225%
37.50 pence
42.00 pence
40.18 pence
175% Median ranking
Upper-quartile
ranking
149 of 301
companies
100%
See
commentary
on page 79
See
commentary
on page 79
See
commentary
on page 79
Total
100%
500%
134%
47%
90%
271%
PERFORMANCE MEASURES – HOW THESE ARE SET AND REVIEW OF PERFORMANCE FOR THE FINANCIAL
YEAR ENDING 31 MAY 2014 (AUDITED)
Diluted earnings per share
At the start of the year ending 31 May 2014, the committee established a diluted earnings per share (DEPS) range for
payout under the SPP, which was demanding given the strategic investment the business is making in new technology and
capability. In setting the DEPS range, the committee took account of the following considerations:
• The higher budgeted costs resulting from the planned significant investment in strategic objectives in the year to
31 May 2014, for which revenues are expected in subsequent financial years. This included the development of an
execution-only stockbroking product, the establishment of the Group’s new office in Switzerland and continued
investment in the Group’s mobile offering
• The actual DEPS for the year ended 31 May 2013 of 38.80 pence
• Developments in the business and levels of market activity between the time of Board agreement of the budget and
shareholder/committee approval of the SPP, which contributed to the committee setting a threshold that was higher than
that budgeted
• Analyst DEPS consensus for 2014
As a result, the committee approved the threshold for payout under the DEPS measure of 37.50 pence (with SPP awards
starting to accrue from this point), with maximum at a DEPS of 42.00 pence (being 12% above threshold performance).
Actual DEPS for the year ended 31 May 2014 was 40.18 pence, resulting in 59.6% of the potential award under this measure
being granted.
In setting the DEPS range for the 2015 financial year, the committee has taken into account the relevant factors in place at
the time, including internal and external factors and an appropriate degree of stretch on prior year performance.
Total Shareholder Return
The committee approved a threshold of median-quartile ranking TSR performance against a peer group comprising the
constituents of the FTSE 350 (excluding investment trusts), at which 25% of the maximum award would be granted. Full
payout under this measure required upper-quartile ranking or better, with payout determined on a straight-line basis for
performance between these points.
The actual TSR performance for IG Group, as measured by New Bridge Street, for the year ended 31 May 2014 was 19%.
Against the peer group, this performance was sufficient to rank IG Group at 149 out of 301 companies and resulted in 27%
of the potential payout under this measure being awarded.
78
Corporate Governance Report
Directors’ Remuneration Report
Non-financial measures
The committee approved a basket of non-financial measures, comprising strategic goals as well as operational and client
satisfaction measures, for the year ended 31 May 2014. These measures are also utilised for 25% of the staff general bonus
pool. These measures, and the assessment of performance, for the year ended 31 May 2014 are set out in the following
table. An average of the performance under the specific non-financial measures, combined with performance under the
execution and delivery measure, resulted in an overall assessment of 90.5% of the potential payout under this element of the
plan being awarded.
METRIC
PERFORMANCE
ASSESSMENT
SPECIFIC NON-FINANCIAL MEASURES
System
reliability/
uptime
The two main measures are core uptime per month and maximum
percentage downtime in any one day. The Group strives to achieve 99.8%
for the first measure and less than 4.0% for the second measure. During the
year, core uptime per month was never breached and maximum percentage
downtime was breached on a single day in January 2014.
Overall, system reliability was better than in the prior year. The Group will
continue to undertake further work in this area – a graphical representation
of performance on this measure against the prior year is provided in the Key
Performance Indicators section of the Strategic Report.
Maintaining
good
standing
relationships
with
regulators
The Group maintains constructive and open relationships with regulators.
During the year ending 31 May 2014, the Group was subject to scrutiny by
and on behalf of regulators across the markets in which it operates. This
included an external audit on behalf of the Swiss regulator; an in-depth
regulatory audit in Singapore; an anti-money-laundering processes review in
Australia and a number of other regional reviews. None of these gave rise to
any material issues and the Group has been pleased with the outcomes.
Based on the above, the Remuneration Committee concluded that the Group
continued to perform well and to make further progress under this metric.
85%
90%
Reputation
The Remuneration Committee assessed whether there have been any events
resulting in negative media coverage or reputational damage during the year.
100%
For the year ended 31 May 2014, there was one instance of negative media
coverage, which was incorrect. The publisher printed a retraction and no
reputational damage was suffered.
Risk
management
The Remuneration Committee used a number of indicators to judge
performance against this measure, including: the level of bad debts
throughout the year; the number of material market risk incidents throughout
the year and the number of loss-making days throughout the year.
100%
This year the Group enjoyed very low incidence of bad debt (less than 0.4%
of revenue). There were no material market risk events nor any loss-making
days during the year.
’
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79
IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
METRIC
PERFORMANCE
ASSESSMENT
SPECIFIC NON-FINANCIAL MEASURES (CONTINUED)
Customer
satisfaction
The Remuneration Committee uses a number of indicators to measure
performance against this metric.
80%
Net Promoter Score data is collected independently by Investment Trends.
IG’s Net Promoter Score has improved in France and Germany but dropped
slightly in other regions. Nevertheless, the Group’s high ranking relative to
competitors has been maintained, while we also scored significantly better
than the industry average. Please refer to the Key Performance Indicators
section of the Strategic Report for Net Promoter Score disclosures.
During the year, the Group commissioned an independent study, carried out
by Ipsos Mori, to conduct a ‘mystery shopping’ programme against a number
of competitors. The study found that the Group was at least joint-first in each
of the categories assessed.
An independently conducted customer satisfaction survey, undertaken by
Investment Trends with regards to UK leveraged trading, reported that clients
rated the Group’s service as ‘good’ or ‘very good’ 89% and 88% of the time
for spread betting and CFDs respectively.
The Remuneration Committee also assessed the customer scores collected
by the Group’s trading services team. Their survey assesses the overall
level of customer service received, the quality of information provided, the
knowledge of the customer service representative and his or her attitude.
This showed an upwards trend on most metrics.
The Group also launched IG Think Tank, an online community and forum
which helps us engage with clients and include their feedback into our IT
development cycle – this has proved to be a very valuable tool in developing
our future offering.
EXECUTION AND DELIVERY OF KEY STRATEGIC INITIATIVES
Execution
and delivery
of key
strategic
initiatives
As part of the Board’s strategy planning, there is a clear plan of strategic
projects set down for delivery in the short-to-medium term.
90%
The Remuneration Committee uses this plan to judge performance against
this metric. There were several key strategic projects delivered, all of which
were achieved successfully and on time.
Examples of such projects include the international rollout of IG.com; the
rollout of the MetaTrader platform; setting up an office in Switzerland;
continuing to develop the Nadex exchange and developing the stockbroking
offering for pilot and launch in the first half of the year ending 31 May 2015.
Specific examples and detailed case studies of the progress made towards
our strategic objectives are given throughout the Strategic Report.
80
Corporate Governance Report
Directors’ Remuneration Report
Overall summary
Based on performance for the financial year ending 31 May 2014, we will grant awards under the SPP to the value of 271% of
base salary (54% of the maximum potential payout) as plan contributions to the Executive Directors after the announcement
of the results. The actual number of shares that will be deposited within the Directors’ plan accounts will be based on the
ten-day average share price immediately prior to grant.
LEGACY VALUE-SHARING PLAN VESTING IN RELATION TO PERFORMANCE PERIOD ENDING 31 MAY 2014
The legacy value-sharing plan (VSP), which was approved by shareholders in 2010, comprises annual awards. It provides 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 shareholder value was calculated under two criteria: Total
Shareholder Return (TSR) and profit before taxation (PBT). In relation to the 2011 VSP, despite growth in PBT of 19.5% to
£194.7 million and a TSR of 54.7% over the three-year period ended 31 May 2014, only 3.2% of the maximum award vested.
The total surplus shareholder value created under the 2011 VSP was £109.7 million, and an explanation of the
calculation follows. The Chief Executive receives 5,000 shares and other participating Directors receive 3,000 shares for
each £10.0 million of surplus shareholder value created. This resulted in the following awards vesting:
• T A Howkins – 28,596 shares
• C F Hill – 17,158 shares
• P G Hetherington – 17,158 shares
The VSP awards made in October 2011 (2011 VSP) had a performance period ending 31 May 2014. The calculation of surplus
shareholder value created in relation to this plan is explained below:
(i) TSR element (60%): This is based on the value created from the difference between the TSR of IG Group Holdings plc
and that of the FTSE 350 Financial Services Index, multiplied by the IG Group Holdings plc starting market capitalisation.
The latter is defined as the average market capitalisation in the three months to 31 May 2011, which was £1,671 million.
IG Group’s TSR, as measured by Kepler, over the three-year period ending 31 May 2014 was 54.7%. This level of return
was enough to outperform the FTSE 350 Financial Services Index by 4.0%. Based on a starting market capitalisation of
£1,671 million, the 4.0% outperformance has resulted in £66.6 million of surplus shareholder value and only 4.0% of the
maximum award vesting.
(ii) Profit before taxation (PBT) (40%): This is based on the growth in PBT over the three-year period, 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.
The multiple for the 2011 VSP was 10.75. This is derived by dividing the starting market capitalisation of £1,671 million by
the PBT for the year ending 31 May 2011 (£155.4 million). The required hurdle return was 12% per annum.
The surplus shareholder value for this element is £43.1 million, calculated as the difference between:
• PBT for the year ending 31 May 2014 of £194.7 million multiplied by the 10.75 multiple plus net equity cash flows to
shareholders, ie (£194.7 million x 10.75) + £288.8 million = £2,382.5 million, and
• The starting market capitalisation of £1,671 million multiplied by the hurdle rate of return (12% per annum over the
three-year period), ie £1,671 million x (1+12%)3 = £2,339.4 million
For the purposes of the single-figure table disclosed on page 77, the value of the all the options vesting under the 2011 VSP
has been estimated using the average share price for the last quarter of the financial year ending 31 May 2014.
’
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81
IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
AWARDS GRANTED DURING THE FINANCIAL YEAR ENDING 31 MAY 2014 (AUDITED)
As part of the move from the value-sharing plan (which has post-grant performance criteria) to the sustained performance
plan (which has pre-grant performance criteria), no other long-term incentive awards were granted during the financial year
ending 31 May 2014.
OUTSTANDING SHARE AWARDS
Sustained performance plan
Plan
contribution
in respect of
period ending
31 May 2014
(estimated
number of
shares)(1)
Plan
account
brought
forward
(number of
shares)
Event
Plan account
following
contribution
for the year
Dividend
shares
accruing
on award
shares held
in the plan
account
Estimated
number of
award shares
vesting (40%
following
determination
of plan year 1
contributions)
Estimated
cumulative
number of
award shares
remaining in
plan account
as unvested
shares
T A Howkins
C F Hill
P G Hetherington
Plan year 1
Plan year 1
Plan year 1
–
–
–
207,144
144,979
155,415
207,144
144,979
155,415
–
–
–
82,858
57,992
62,166
124,286
86,987
93,249
(1) The Executive Directors will be granted the awards in respect of plan year 1 following the announcement of results for the year ended 31 May 2014 on
22 July 2014. The share price used to calculate the number of awards to be granted will be the ten-day average share price directly prior to grant. The above
number of awards has been estimated using a share price of 601.5 pence, being the share price on 30 May 2014.
Share awards have an exercise price of 0.005 pence and are exercisable until August 2024. In accordance with the scheme
rules, 40% of the awards granted will vest immediately on the date of grant in August 2014 with the vesting of the remaining
options deferred.
Other share awards
T A Howkins
LTIP: earnings per share award
LTIP: share price growth award
LTIP: earnings per share award
LTIP: share price growth award
LTIP: earnings per share award
LTIP: share price growth award
Long-term bonus plan – 2010(1)
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
Long-term bonus plan – 2012(1)
Long-term bonus plan – 2013(1)
Share
price at
award
date
Number
as at 31
May 2013
Number
awarded
during
the year
Number
lapsed
during the
year
Number
exercised
during the
year
Number
as at 31
May 2014
Award
date
23 Jul 07
23 Jul 07
30 Sep 08
30 Sep 08
25 Sep 09
25 Sep 09
10 Sep 10
29 Oct 10
29 Oct 10
29 Oct 10
29 Oct 10
20 Jul 11
20 Jul 11
20 Jul 11
20 Jul 11
01 Aug 12
01 Aug 12
01 Aug 12
01 Aug 12
01 Aug 12
29 Jul 13
312.25p
312.25p
313.75p
313.75p
318.80p
318.80p
500.00p
528.50p
528.50p
528.50p
528.50p
450.00p
450.00p
450.00p
450.00p
449.70p
449.70p
449.70p
449.70p
450.45p
545.00p
151,672
11,701
26,015
21,865
36,942
154,908
73,195
117,511
117,512
176,267
176,268
167,099
167,098
250,648
250,648
163,636
163,636
245,454
245,453
108,585
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,353
38,000
–
–
–
–
–
–
–
(100,454)
(100,455)
(176,267)
(176,268)
(162,785)
(162,784)
(240,664)
(240,664)
–
–
–
–
–
–
(151,672)
(11,701)
(26,015)
(21,865)
(36,942)
(154,908)
(73,195)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,057
17,057
–
–
4,314
4,314
9,984
9,984
163,636
163,636
245,454
245,453
109,938
38,000
2,826,113
39,353
(1,360,341)
(476,298)
1,028,827
82
Corporate Governance Report
Directors’ Remuneration Report
C F Hill
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
Long-term bonus plan – 2011(1)
Share-incentive plan – 2012 matching shares
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
Long-term bonus plan – 2012(1)
Share-incentive plan – 2013 matching shares
Long-term bonus plan – 2013(1)
Share
price at
award
date
Number
as at 31
May 2013
Number
awarded
during
the year
Number
lapsed
during
the year
Number
exercised
during
the year
Number
as at
31 May
2014
Award
date
20 Jul 11 450.00p
20 Jul 11 450.00p
20 Jul 11 450.00p
20 Jul 11 450.00p
19 Jul 11 433.70p
27 Jul 12 419.18p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 450.45p
26 Jul 13 555.19p
29 Jul 13 545.00p
100,259
100,259
150,389
150,389
25,983
328
130,909
130,908
196,363
196,363
71,406
–
–
(97,670)
–
–
(97,670)
– (144,399)
– (144,399)
–
–
–
–
–
–
–
–
–
310
–
–
–
–
–
890
259
22,783
–
–
–
–
(26,293)
–
–
–
–
–
(72,296)
–
–
2,589
2,589
5,990
5,990
–
328
130,909
130,908
196,363
196,363
–
259
22,783
1,253,556
24,242
(484,138)
(98,589)
695,071
Share
price at
award
date
Number
as at 31
May 2013
Number
awarded
during
the year
Number
lapsed
during
the year
Number
exercised
during the
year
Number
as at
31 May
2014
Award
date
P G Hetherington
LTIP: earnings per share award
LTIP: share price growth award
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
VSP: profit award – three-year
VSP: profit award – four-year
VSP: TSR award – three-year
VSP: TSR award – four-year
Long-term bonus plan – 2012(1)
Share-incentive plan – 2013 matching shares
Long-term bonus plan – 2013(1)
25 Sep 09 318.80p
25 Sep 09 318.80p
29 Oct 10 528.50p
29 Oct 10 528.50p
29 Oct 10 528.50p
29 Oct 10 528.50p
20 Jul 11 450.00p
20 Jul 11 450.00p
20 Jul 11 450.00p
20 Jul 11 450.00p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 449.70p
01 Aug 12 450.45p
26 Jul 13 555.19p
29 Jul 13 545.00p
26,742
112,134
73,445
73,445
110,167
110,168
100,259
100,259
150,389
150,389
130,909
130,908
196,363
196,363
77,603
–
–
–
–
–
–
–
(62,785)
(62,785)
–
– (110,167)
– (110,168)
–
(97,670)
(97,670)
–
– (144,399)
– (144,399)
–
–
–
–
–
–
–
–
–
967
–
258
–
25,340
(26,742)
(112,134)
(10,660)
–
–
–
–
–
–
–
–
–
–
–
(78,570)
–
–
–
–
–
10,660
–
–
2,589
2,589
5,990
5,990
130,909
130,908
196,363
196,363
–
258
25,340
1,739,543
26,565 (830,043)
(228,106)
707,959
(1) Under the rules of the previously offered long-term bonus plan the first £100,000 of any bonus granted, plus one third of the remainder, was paid in cash with
the excess balance deferred for 12 months and provided in shares. The price per share was based on the average of the middle market closing quotation of
a share as derived from the Daily Official List of the London Stock Exchange for each business day in the period of three months ending on the last day of the
financial year immediately preceding the date of grant.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
TABLE OF DIRECTORS’ SHARE INTERESTS (AUDITED)
The share interests of each person who was a Director of the Company during the year, as at 31 May 2014 (together with
interests held by his or her connected persons) were as follows:
Legally
owned shares
Share-
incentive
plan shares
VSP share
option awards
Long-term bonus
plan share option
awards
Total
% of sal-
ary held
under
share-
holding
policy(1)
31 May
2013
31 May
2014
Un-
vested
Vested but
unexercised
Un-
vested
Vested but
unexercised
31 May
2014(2) % salary
Executive Directors
T A Howkins
C F Hill
P G Hetherington(3)
3,901,692 1,621,183
34,500
113,693
328
113,693
Non-Executive Directors
J R Davie
S G Hill
D M Jackson
J A Newman
S J Tymms
R P Yates
200,000
113,014
–
–
–
25,000
200,000
117,209
–
–
–
25,000
– 863,833
631 671,701
277 682,361
17,057
–
–
38,000
25,340
25,340
109,938 2,650,011
732,172
821,671
–
–
2,127%
66%
249%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200,000
117,209
–
–
–
25,000
627%
1,330%
–
–
–
284%
(1) Calculated as shares owned on 31 May 2014 at the closing mid-market share price of 601.5 pence.
(2) This figure excludes awards under the SPP scheme for performance year ending 31 May 2014 which will be granted following the announcement of the Group’s
results on 22 July 2014. Details of interests relating to this scheme can be found in the single-figure remuneration table on page 77.
(3) P G Hetherington also held 10,000 preference shares at 31 May 2014 and 31 May 2013. T A Howkins held 10,000 preference shares at 31 May 2013.
A share ownership policy was introduced from the financial year ending 31 May 2014. Under this policy, the CEO is required
to hold shares to the value of a minimum of 200% of base salary, and for other Executive Directors a requirement of 100%
of base salary applies. Only shares owned outright by the Executive Director are included in the guideline, which must be
achieved within five years of the introduction of the policy or, if later, from the date of appointment to the Board.
There have been no changes to any of the Directors’ share interests in the period since 31 May 2014. The awards to be
made under the Company’s SPP are set out earlier in this report.
CHANGE IN REMUNERATION OF THE CHIEF EXECUTIVE
Base salary
Taxable benefits
%
Change
(2014/
2013)(1)
%
Change
(2013/
2012)
%
Change
(2012/
2011)
%
Change
(2014/
2013)
%
Change
(2013/
2012)
%
Change
(2012/
2011)
%
Change
(2014/
2013)(2)
%
Change
(2013/
2012)
Bonus
%
Change
(2012/
2011)
Chief Executive
Group employees
7.49%
5.91%
3.14%
4.44%
2.99%
7.08%
0%
2.78%
0%
19.08%
0%
(5.53%)
N/A (51.28%) 1,337.00%
94.00%
13.09% (42.40%)
(1) Prior to 2014, the Company operated a highly geared long-term incentive plan, the value-sharing plan (VSP), and Executive Directors were on significantly
below-market salaries to reflect this high gearing. Following a review of remuneration, it was decided to rebalance the package and a less geared incentive
arrangement was introduced, the sustained performance plan (SPP). Salaries were increased by more than that of the workforce to partially compensate for the
reduced total remuneration quantum. After the salary increase, salaries continued to remain below mid-market levels.
(2) Given the move away from separate annual and long-term plans to a single variable pay plan in the 2014 financial year, it is not possible to compare the change
in annual bonus opportunity over the year.
The change in the Chief Executive’s remuneration is compared to the change in remuneration of all employees across the
business over the last three years. We have not provided a comparison for annual bonus, as an annual bonus did not apply
for financial year ending 31 May 2014.
EXECUTIVE DIRECTORS’ OUTSIDE APPOINTMENTS
T A Howkins is a member of the Board and Executive Committee of FIA Europe. The Executive Directors have no other
external appointments.
PAYMENT FOR LOSS OF OFFICE (AUDITED)
No Director has departed, nor has there been a payment for loss of office during the year.
RELATIVE IMPORTANCE OF SPEND ON PAY
The following table sets out the percentage change in profit, dividends and overall spend on pay over the last five years:
Profit after tax
Dividends
Employee remuneration costs
Average number of employees
2014
£m
147.0
102.8
89.3
1,070
2013
£m
141.7
84.6
86.3
1,005
2012
£m
136.8
81.6
92.7
960
2011
£m
(25.3)
72.0
75.5
951
2010
£m
101.5
66.8
72.1
828
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Directors’ Remuneration Report
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
REMUNERATION COMMITTEE ACTIVITY
DURING THE YEAR
REMUNERATION COMMITTEE ALLOCATION OF TIME
Salary and bonus
scheme arrangements
Incentive awards
Remuneration regulation
Remuneration reporting
Remuneration policy
Other
REMUNERATION
COMMITTEE EFFECTIVENESS
The committee undertook an internal, questionnaire-
based review of its own effectiveness during the year. The
review found that the committee had worked effectively
and performed well. Areas for further development were
identified, and plans are in place for a training
and development programme for the Non-Executive
Directors as a whole, with specific tailoring for the needs of
those who sit on the Remuneration Committee and other
Board committees.
ADVICE TO THE COMMITTEE
During the financial year ending 31 May 2014 the
committee consulted T A Howkins, Chief Executive, about
remuneration matters relating to individuals other than
himself. The Company Secretary also provided advice and
support to the committee.
Appropriate Company employees and external advisers
may attend committee meetings at the invitation of
the Chairman.
EXTERNAL ADVISORS
Total Shareholder Return (TSR) performance monitoring,
investor consultation, drafting the Remuneration Report and
implementation services.
NBS’s fee for advice provided to the Remuneration
Committee during the financial year ending 31 May 2014
was £150,000 (excluding VAT). This included implementation
services, including legal drafting of the SPP rules, related
documentation and inserts for the Annual General Meeting
(AGM) circular during the year.
The Committee considers the advice obtained from NBS
to be objective and independent. NBS is a member of the
Remuneration Consultants Group and is a signatory to its
Code of Conduct, which requires its advice to be objective
and impartial.
STATEMENT OF SHAREHOLDER VOTING
AT 2013 AGM
At the October 2013 AGM, a resolution was proposed
for shareholders to approve the Directors’ Remuneration
Report for the financial year ended 31 May 2013 and the
sustained performance plan. The following votes
were received:
2012/13 Remuneration Report
Total number
of votes % of votes cast
271,078,248
17,874,677
93.81%
6.19%
288,952,925(2)
100.00%
Sustained performance plan
Total number
of votes % of votes cast
270,782,259
24,428,068
91.73%
8.27%
295,210,327(3)
100.00%
For(1)
Against
Total
For(1)
Against
Total
The Remuneration Committee was advised during the year
by New Bridge Street (NBS), which was appointed following
a competitive tender process in early 2013.
(1) For includes votes at the Chairman’s discretion.
(2) There were 6,398,296 votes withheld.
(3) There were 50,894 votes withheld.
NBS provided advice in respect of a wide range of
issues, including the design of the new sustained
performance plan, transitioning from the previous
incentive arrangements, remuneration benchmarking,
A majority (over 50%) of the votes cast was required for the
resolutions to be passed, and both were duly approved
by shareholders.
TOTAL SHAREHOLDER RETURN CHART
The chart below shows the Company’s TSR performance compared with that of the FTSE 350 Financial Services index. As
IG Group is a member of this index, the committee believes it is appropriate to compare the Group’s performance against it.
TOTAL SHAREHOLDER RETURN (REBASED)
This graph shows the value, by 31 May 2014, of £100 invested in IG Group on 31 May 2009 compared with the value of
£100 invested in the FTSE 250 index and the FTSE 350 Financial Services index.
IG Group FTSE 250
FTSE 350 Financial Services
400
350
300
250
200
150
100
50
Source: Datastream (Thomson Reuters)
May 2009
May 2010
May 2011
May 2012
May 2013
May 2014
The graph represents the change in the value of a nominal investment of £100, made on 31 May 2009, in the Company and
in the FTSE 350 Financial Services index. The closing values at 31 May 2014 represent the value of each nominal holding at
that date, and reflect the change in the share price and the value of dividend income reinvested over the period.
CHIEF EXECUTIVE - FIVE-YEAR EARNINGS HISTORY
The five-year earnings history of the Chief Executive is shown in the table below:
Financial year
Single-figure remuneration (£000)
Annual bonus outcome (% maximum)
LTIP vesting outcome (% maximum)
VSP vesting outcome (% maximum)
SPP plan contribution (% maximum)
2014
1,456
–
–
3%
54%
2013
1,103
47%
–
6%
–
2012
2,201
99%
61%
–
–
2011
1,141
7%
40%
–
–
2010
1,628
100%
48%
–
–
The SPP replaced the annual bonus and VSP schemes from the financial year ending 31 May 2014. The VSP vesting for
the financial year ending 31 May 2014 reflects the award that was granted in 2011, which has a performance period ending
31 May 2014.
APPROVAL
This report was approved by the Board of Directors on 22 July 2014 and signed on its behalf by:
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Directors’ Remuneration Report
Roger Yates
Chair, Remuneration Committee
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IG Group Holdings Plc 2014 Annual Report|
AUDIT COMMITTEE
Stratigic overview
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 has continued to
maintain its focus on the integrity of financial reporting and
supported the Board in carrying out its responsibilities in
relation to the Group’s financial reporting requirements,
through reviewing the results and formal financial
announcements. The ultimate responsibility for reviewing
and approving the Annual Report and other externally
reported financial information remains with the Board.
The committee again considered the appropriateness of the
design and effectiveness of the Group’s system of internal
controls and governance over a wide range of regulatory
and compliance-related matters, including the segregation
of client money. The committee also reviewed the quality
of the external audit process, including the identified audit
risks, the audit plan and reports from the Company’s auditor.
Additionally, the committee noted the focus on the
effectiveness of internal audit in the financial services
sector, and has both received an internal review against
best practice guidance and commissioned an independent
external quality assessment, the output of which is
discussed later in this report. These steps were part of its
overall consideration of the effectiveness of the Company’s
internal audit function.
This year the committee was briefed by management, and
consequently received specialist training, with regards to
a wide range of regulatory and reporting developments
that impact on this Annual Report. Subsequently the
committee reviewed the required changes to the Annual
Report, with particular focus on the Strategic Report and the
Remuneration Report.
Following the publication of the revised Corporate
Governance Code, the Board asked the committee
to advise whether it considers the Annual Report and
Accounts, taken as a whole, to be fair, balanced and
understandable, and whether the document provides
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
Furthermore, during the year the Board strengthened
the governance framework by implementing a Board
Risk Committee to provide it with a more focused level
of support on risk-management issues. The result of this
change is that during the year a number of the duties
performed by the Audit Committee have been transitioned
to the Board Risk Committee. The Audit Committee’s terms
of reference, which have been amended to reflect both the
revised Corporate Governance Code and the establishment
of the Board Risk Committee in the year, are summarised
below and can be found in full on the corporate website
iggroup.com.
ROLE OF THE AUDIT COMMITTEE
In summary, the Audit Committee’s terms of reference are to:
• Monitor the integrity of the Group’s financial statements,
including Annual and Interim Reports, preliminary results
announcements and any other formal announcements
relating to its financial performance, reviewing significant
reporting issues and judgments which they contain
• Provide advice to the Board on whether the Annual
Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the company’s performance
• Review the continuing appropriateness of the Group’s
accounting policies
• Review the clarity of disclosures, ensuring the Group has
made appropriate estimates and judgments in preparing
all material information presented in the Annual Report
• Review an annual report from the Board Risk
Committee on the Company’s internal controls and
Risk Management Framework
• Ensure there are suitable whistle-blowing arrangements
for employees to raise concerns, in confidence, about
possible wrongdoing in financial reporting or other matters
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Corporate Governance Report
Audit Committee
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Chairman of the Audit Committee
Martin Jackson
Independent Non-Executive Directors
Stephen Hill
Jim Newman
Sam Tymms(1)
Roger Yates
4
2
2
4
4
4
2
2
4
4
(1) Sam Tymms attended two meetings of the Audit Committee as an observer.
• Review an assessment of the control environment, via
internal audit reports, and progress on implementing
both internal and external audit recommendations
• Monitor and review the internal audit function’s
effectiveness in the overall context of the Group’s internal
controls and risk-management systems
• Consider and approve the internal audit function’s remit,
ensure it has adequate resources and appropriate access
to information, and that it has adequate standing and is
free from management or other restrictions
• Review and assess the internal audit plan
In order to provide clarity, the following responsibilities have
transitioned to the Board Risk Committee and accordingly
been removed from the Audit Committee terms of
reference during the year:
• Review the compliance systems and controls to ensure
that adequate procedures are in place to comply with
regulatory obligations, including client money, anti-
money-laundering and treating customers fairly
• Consider the adequacy and effectiveness of the
technology infrastructure and associated risk-
management framework
• Consider and make recommendations to the Board
• Monitor the completion of control recommendations and
on appointing, reappointing and removing the
Company’s external auditors, which are subject to
shareholder approval
• Oversee the relationship with the external auditors,
including approving the audit fee, non-audit fees and
non-audit services policy, as well as assessing annually the
external auditors’ independence and objectivity and the
effectiveness of the audit process
• Review the annual audit plan and the findings of the
external auditors, including a discussion on major areas
of audit focus, accounting and audit judgments and any
errors identified during the audit
• After each committee meeting, make a formal report to
the Board in which the Chairman of the Audit Committee
describes the proceedings
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.
actions arising from internal and external audits
• Review the relevant risk sections of the Annual Report
AUDIT COMMITTEE – MEMBERSHIP
AND ATTENDANCE
All Audit Committee members are independent Non-
Executive Directors who can draw on considerable, recent
financial services experience.
The Chief Financial Officer, Chief Risk Officer, Head of
Finance, Head of Internal Audit, Company Secretary and the
external auditors attend the Audit Committee by invitation
appropriate to the matters under consideration. Other
Directors and 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. Separately, members of the committee
also meet privately with the Head of Internal Audit and
the external auditors to focus on respective areas of
responsibility and to discuss any potential requirements for
support from the committee to address any issues arising.
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IG Group Holdings Plc 2014 Annual Report|
AUDIT COMMITTEE (CONTINUED)
MAIN ACTIVITIES DURING THE
FINANCIAL YEAR
As noted earlier, following the establishment of the Board
Risk Committee, responsibility for compliance, conduct
risk, client money and fraud was handed over by the Audit
Committee to the Board Risk Committee.
In addition to discharging its responsibilities as described
above, the committee focused on a number of key areas.
The following summary of activities includes all areas
covered by the Audit Committee during the financial year
even where responsibility as at the end of the year has been
transferred to the Board Risk Committee.
FINANCIAL REPORTING
In relation to financial reporting, the primary role of the
committee is to work with management and the external
auditors in reviewing the appropriateness of the half-year
and annual financial statements. The committee discharged
its responsibilities in this area through concentrating on,
among other matters:
• Assessing the quality and acceptability of accounting
policies and practices
• Ensuring disclosures are clear and compliant with
financial reporting standards and relevant financial and
governance reporting requirements
• Considering material areas in which significant judgments
have been applied or there has been discussion with the
external auditors
• Reviewing all formal financial announcements and
financial statements prior to issuance
• Evaluating whether the Annual Report and Accounts,
taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders
to assess the Company’s performance, business model
and strategy
To aid this review, the committee has considered reports
from the Chief Financial Officer and Head of Finance. It
has also received reports from the external auditors on the
outcomes of their half-year review and annual audit.
The committee considered and addressed the following
primary areas of judgment in relation to the Financial
Statements for the year ended 31 May 2014:
Goodwill
In accordance with accounting standards the Group is
required to review any goodwill balances for impairment
and consider the underlying assumptions involved in
calculating the value-in-use of separate parts of the
business known as cash-generating units (CGUs). The
committee observed that a significant proportion of the
Group’s goodwill relates to the UK, Australian and South
African CGUs, for which both the single-year profit for the
year ended 31 May 2014 and that included in the Board-
approved budget for the year ending 31 May 2015 are
greater than the carrying value of the associated goodwill.
Accordingly, the goodwill impairment reviews of these
CGUs are not considered to contain material or
significant judgments.
Therefore the key judgment in terms of goodwill
impairment reviews relates to the underlying assumptions
used in calculating the US CGU’s value-in-use. The US CGU
comprises both the Nadex exchange and the associated
market-making business (the ‘Nadex business’) as well as
the wider commercial use of the exchange technology
within the Group. The Nadex business is in the early stages
of development and has continued to be loss-making
for the year ended 31 May 2014. Accordingly the Audit
Committee received a paper from management setting
out the financial forecasts for both the Nadex exchange
business and the platform savings associated with the wider
use of the exchange technology within the Group. This
paper set out the key assumptions used in the impairment
review and an associated sensitivity analysis.
The committee also considered the development of the
Nadex business through the year ended 31 May 2014. This
included advances in the platform and product offering,
increased levels of client acquisition and volumes traded,
the recent addition of further market-makers to the
exchange and the continued commitment by management
to ensure the US business has the investment it needs to
reach profitability. The committee also reviewed detailed
financial forecasts and assumptions, noting that each of
the forecasts used in the goodwill impairment reviews are
Board-approved. In addition the Group’s auditor provided
commentary on the matter to the committee.
Useful economic life of intangible fixed assets
The Group is required to make judgments regarding the
useful economic life and carrying value of all its acquired
and internally developed software and licences and domain
names. During the year, the Group continued to invest
in the technology platform, domain names and industry-
specific generic top-level domains and to consolidate the
online presence around the IG.com website. As at
31 May 2014, the Group had £5.25 million of domain
assets in the Group balance sheet that are amortised
over a ten-year useful economic life. As there is a risk of
obsolescence for such assets, the committee reviewed a
report from management detailing the financially significant
intangible assets, the rationale for their useful economic life,
their continued use within the business and their remaining
carrying value.
Corporation tax
Calculating the Group’s current corporation tax charge
involves a degree of estimation and judgment, as the tax
treatment of certain items cannot be finally determined
until resolution has been reached with the relevant tax
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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 Group’s overall profitability and cash
flows in future periods. The committee reviewed a report
from management that detailed the assumptions made in
calculating the Group’s current corporation tax charge and
provisions. The Group’s auditor also provided commentary
on this matter to the committee.
EXTERNAL AUDIT
The committee is responsible for making recommendations
on the appointment, reappointment and removal of
external auditors, and for assessing and agreeing the fees
payable to the Company’s auditor (both audit and non-audit
fees). The committee is also responsible for reviewing the
audit plans and reports from the external auditors. The main
activities undertaken in relation to the external audit are
summarised below.
Audit tendering
The committee has followed the debate on mandatory
audit-firm rotation through the year and the guidance
issued by the Financial Reporting Council in the context of
tendering for the external audit contract at least every ten
years. The Company’s external audit was last retendered
in 2010, resulting in a change of external auditors to
PricewaterhouseCoopers LLP for the financial year ended
31 May 2011. In line with the requirement to rotate the
senior statutory auditor, the Company’s current audit partner
will rotate after the audit for the year ending 31 May 2015
is complete. Having recently conducted a full audit-firm
tender exercise, provided the committee remains satisfied
with the external audit process, it does not anticipate a
formal retender process ahead of the date suggested by
the UK Corporate Governance Code for the year ending
31 May 2021. The EU requirements on mandatory rotation
will apply from 2016, with the first mandatory rotation
date under the UK implementation of these rules not yet
being clear. The committee will continue to monitor the
developing regulation in this area and in particular the
convergence of EU and UK requirements, including those of
the Competition and Markets Authority.
Oversight of the external audit
The effectiveness of the external audit process depends
upon appropriately identifying risks at the start of the audit
cycle, and consequently the committee receives a detailed
audit plan from the auditor, on an annual basis, identifying
its assessment of the key audit risks. International audit
standards require that both the risk of override of internal
controls and the risk of fraud in revenue recognition are
assumed to be significant audit risks. In the auditors’
assessment, the primary audit risk identified to the Financial
Statements concerned management override of internal
controls, including both information technology and
possible fraud in revenue recognition. The work performed
in this area by the audit firm is detailed in its audit opinion.
The risk associated with information technology relates to
super-user access to certain legacy areas of the Group’s
trading system. The committee reviewed reports from
management and internal audit on the design, operation
and ongoing monitoring of a number of key controls
designed to mitigate the risks associated with the super-
user access. Additionally, the committee assessed whether
the audit process addressed these matters effectively
through the reporting received from the auditor during the
audit cycle. Both management and the audit firm consider
the risk in this area to have been appropriately managed.
The committee concurs with this view. The committee
has also considered the auditors’ report on the potential
override of internal controls, including the of additional
substantive audit procedures and manual journal testing
undertaken.
The committee also holds private meetings with the external
auditor through the year as an additional opportunity for
open dialogue and feedback from both the committee and
the auditor without management being present.
Effectiveness of the external auditors
Having performed a review of the external auditors during
the year, the committee is satisfied with their effectiveness.
The committee noted that the Company’s current audit
partner will rotate after the audit for the year ending
31 May 2015 is complete, and that the replacement partner
and handover process were key to the external auditors’
continued effectiveness.
Audit and audit-related fees
Details of the Group’s audit and audit-related fees for
the year ended 31 May 2014 are disclosed in note 6 to
the Financial Statements. Audit-related fees include the
statutory audit of the Group and its subsidiaries, as well as
audits required due to the regulated nature of our business.
Also included therein are fees associated with the ISAE
3000 controls opinion relating to the Group’s processes and
controls over client money segregation.
During the year, the committee reviewed and approved
a recommendation from management on the Company’s
audit and audit-related fees.
Non-audit fees
To safeguard the objectivity and independence of the
external auditors from becoming compromised, the
committee has a formal policy governing the engagement
of the external auditors to provide non-audit services. This
year, the committee again reviewed the Group’s policy
governing non-audit work, details of which are provided on
the corporate website.
The policy makes an important distinction between
‘audit-related services’ and all other ‘non-audit services’.
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AUDIT COMMITTEE (CONTINUED)
This is because a number of ‘audit-related services’ are
specifically required of the Group’s auditors, through
regulatory, legislative or contractual obligations in addition
to the statutory audit services. The policy also sets out the
considerations and safeguards that are required in relation
to non-audit services provided by the auditors, and the
specific services the auditors are precluded from providing.
Additionally, the policy sets out certain permitted services
for which the committee has pre-approved management to
engage the auditors. This approval is subject to the policies
set out above, and to specified fee limits for individual
engagements, as well as the reporting requirements for
all non-audit services to the committee. There were no
exceptions to this policy during the year.
Since appointing PricewaterhouseCoopers as auditors,
the Group has established and developed relationships
with a number of independent advisory and assurance
firms which provide alternatives to engaging the audit firm.
During the year, PricewaterhouseCoopers has performed
non-audit services in accordance with the non-audit policy.
The committee has monitored PricewaterhouseCoopers
to ensure that under no circumstances has work been
performed which affects its independence. This was done
by carefully assessing the nature of all non-audit work
performed, reviewing a summary of all the non-audit fees
paid during the year, evaluating the non-audit policy and
ensuring that appropriate safeguards were in place for each
non-audit engagement. The committee also requested and
received an explanation from PricewaterhouseCoopers of
its own in-house independence process.
Non-audit fees of £457,000, payable to the auditors for
the year ended 31 May 2014, are disclosed in note 6 to the
Financial Statements. These relate largely to tax compliance
and filing and corporation and sales-related tax advice.
Firms other than the auditors have been engaged, following
a competitive tender process for the provision of a wide
range of non-audit services, including transfer pricing, tax
advisory services related to new business offerings and
changes to regulation, tax compliance services, risk and
regulatory advice.
INTERNAL AUDIT
The internal audit function provided the committee with
the internal audit reports and recommendations in line with
the internal audit plan for this financial year. The main areas
of focus have been regulatory and operational in nature.
The committee monitored progress on the implementation
of the audit recommendations raised by the internal audit
function, and the effectiveness of the coordination between
internal and external audit.
The committee reviewed the three-year rolling risk-based
internal audit plan and considered the resources and skills
allocated to the internal audit function in order to execute
the plan. The plan consists of various different types of audit
which require different skills in order to provide adequate
coverage across the Group.
In the current year, internal audit resource was further
supplemented with functional specialism from external
advisory companies, and an IT Internal Audit Manager was
recruited to focus on internal audits of the IT department
and to provide assurance over technology risks. For the
forthcoming year, the committee has authorised additional
investment both in internal audit resource, through the
addition of another Internal Audit Manager, and in external
expertise. This will enable an increase in the number and
scope of audits performed with support from external
specialists. The Audit Committee considers this additional
investment will ensure that resources remain sufficient to
provide adequate coverage of the Group’s risks, while
retaining flexibility to address new risks as they arise over
the three-year plan period.
The committee reviewed an assessment of the internal audit
function performed against the recommendations issued,
in July 2013, by the Chartered Institute of Internal Auditors
with regards to Effective Internal Audit in the Financial
Services Sector. The internal audit function demonstrated
adherence to the majority of the recommendations and
identified six areas for further development. Five of these
areas were addressed during the financial year, and the
one remaining action, to make the Internal Audit Charter
publicly available, will be completed early in the next
financial year.
In addition, the committee initiated a review of the
internal audit function, referred to as the External Quality
Assessment, performed by an independent external firm.
The External Quality Assessment concluded that the
Internal Audit Charter, policies and procedures ‘generally
conforms’ to the IIA Standards and the Code of Ethics.
This is the highest rating achievable in accordance with the
IIA Standards. The review also identified some potential
opportunities for improvement, and the committee will work
with the internal audit function to take these forward in the
next financial year.
CLIENT MONEY
The Group is proactive in ensuring that client monies
are appropriately segregated in each jurisdiction where
it operates. The design and operating effectiveness of
controls over appropriate segregation of client monies are
an important part of the Group’s internal control framework.
As noted earlier, following the establishment of the Board
Risk Committee during the year, responsibility for client
money was handed over by the Audit Committee to the
Board Risk Committee.
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Audit Committee
INFORMATION TECHNOLOGY CONTROLS
The Group’s operations are heavily dependent on
information technology (IT), and accordingly the committee
has reviewed internal audit reports on IT controls and
assessments of external penetration tests and cyber risk.
All of these have been supported or performed by
external specialists.
AUDIT COMMITTEE EFFECTIVENESS
The committee undertook an internal, questionnaire-
based review of its own effectiveness during the year. As a
result the committee has, among other actions, requested
arrangements be made for additional formal training for
all Audit Committee members and that, following the
establishment of the new Board Risk Committee, the
roles and responsibilities of each committee were clearly
delineated and clarified to all Board committees.
The following chart highlights how the committee spent its
time during the year ended 31 May 2014.
AUDIT COMMITTEE ALLOCATION OF TIME
Statutory reporting
Internal audit matters
Compliance
Risks and control
External audit matters
Other
Martin Jackson
Chairman, Audit Committee
22 July 2014
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IG Group Holdings Plc 2014 Annual Report|
BOARD RISK COMMITTEE
CHAIRMAN’S OVERVIEW
During the year, we formed the Board Risk Committee
to provide the Board with further opportunity to review
and challenge the Group’s risk management framework in
relation to the current and potential risk exposures. This
is becoming increasingly important for IG as we continue
to expand globally and extend our product range, while
regulators around the world are engaged in strengthening
their regimes.
The formation of the Board Risk Committee is an
important step in the enhancement of our Risk Governance
Framework as we continually strive to improve our
management of risk, though our underlying approach
remains unchanged. The challenge and review of our risk
management processes, which were previously carried out
either directly by the Board or under the auspices of the
Audit Committee, now vest in the Board Risk Committee as
a dedicated forum for risk matters.
As Chairman, it is my responsibility to report to the Board
on matters discussed by the committee and to refer
recommendations to the Board.
Stephen Hill, Chairman of the Board Risk
Committee, gives his review of the committee’s
activities during the financial year.
BOARD RISK COMMITTEE - MEMBERSHIP
AND ATTENDANCE
All Board Risk Committee members are independent
Non-Executive Directors who can draw on recent and
relevant experience.
The Chief Financial Officer, Chief Operating Officer,
Chief Risk Officer, Global Head of Legal and Compliance,
Head of Internal Audit and Deputy Company Secretary
attend the Board Risk Committee by invitation appropriate
to the matters under consideration. Other Directors,
representatives from the finance function and other areas of
the business attend the Board Risk Committee as necessary.
The committee is scheduled to meet three times a year and
additionally as and when required.
ROLE OF THE BOARD RISK COMMITTEE
The committee’s responsibilities are to:
• Consider and recommend for approval by the Board, the
Risk Appetite Statement (RAS) and Key Risk Indicators
(KRIs) for the current and future strategy
• Monitor, review and challenge the Internal Capital
Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment (ILAA). This includes
stress-testing, the liquidity and regulatory capital
positions of the Group, the size of the liquidity and
capital buffers, and the appropriateness of management
mitigation actions
• Ensure rigorous stress-testing and scenario-testing of
the Group’s business and receive reports that explain the
impact of identified risks and threats
• Ensure a sufficient level of risk mitigation is in place
• Review the Group’s major risk exposures
• Consider the adequacy and effectiveness of the
technology infrastructure and supporting documentation
in the Risk Management Framework
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Board Risk Committee
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Chairman of the Board Risk Committee
Stephen Hill
Independent Non-Executive Directors
Jim Newman
Sam Tymms
Roger Yates
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2
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• Provide input to the Remuneration Committee on the
alignment of the remuneration policy to risk performance
The committee reviewed updates to the ICAAP and the
ILAA, as well as updates to the RAS and associated KRIs.
• Review the scope and nature of the work undertaken by
the control functions in connection with business model
and industry risks, and specifically regulatory, compliance,
client money, anti-money-laundering and conduct risks
• Review and approve the statements to be included in the
Annual Report concerning controls and risk management
• Review and monitor risk-related control recommendations
to ensure they are being actioned appropriately
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
The committee met twice during the year. During these
initial committee meetings the focus was on ensuring it has
the correct governance structure in place to discharge
its responsibilities.
The committee also provided input to the Remuneration
Committee on the risks associated with our remuneration
policy, paying particular attention to the design and
monitoring of sales-incentive schemes.
In addition, the committee discussed the Group’s
operational risk framework and risk appetite. The Group has
invested in operational risk over the year to develop and
clearly document the control environment across the Group.
The committee reviewed and challenged the proposal to
introduce a capital model to further strengthen operational
risk capital component calculations.
Updates were received from Compliance regarding their
monitoring programme as well as current regulatory themes
and thematic reviews, including how the department has
been working across the business to embed conduct risk
both in the Group’s day-to-day activities and its strategic
objectives. The internal audit function also provided
updates on the risks highlighted in its reports.
The committee received the annual report from the
Client Money Committee, and also reviewed the risks and
processes around client money in relation to potential new
business and product developments.
The following chart highlights how the committee spent its
time during the year ended 31 May 2014.
BOARD RISK COMMITTEE ALLOCATION OF TIME
Reporting, risks and controls
Governance
ICAAP and ILAA
Compliance and
conduct risk
Operational risk
Remuneration
Risk appetite
Stephen Hill
Chairman, Board Risk Committee
22 July 2014
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REPORT
The Directors are pleased to submit their report, together
with the Group Financial Statements for the year ended
31 May 2014. The Directors’ Report comprises pages
96 to 98 of this report, together with the sections of the
Annual Report incorporated by reference.
The Companies Act 2006 (‘the Act‘) requires the Directors
to present a Strategic Report in the Annual Report and
Accounts. This information can be found on pages 8 to
47. The Company has chosen, in accordance with section
414 C(11) of the Act and as noted in this Directors’
Report, to include certain matters in its Strategic Report
that it would otherwise be necessary to disclose in the
Directors’ Report.
CORPORATE GOVERNANCE STATEMENT
In compliance with the Disclosure and Transparency Rules
(DTR) 7.2.1, the disclosures required by DTR 7.2.2 to 7.2.7
are set out in this Directors’ Report and in the Corporate
Governance Report on pages 48 to 103 which, together
with the Statement of Directors’ Responsibilities, is
incorporated by reference into this Directors’ Report.
ACCOUNTABILITY AND AUDIT
A statement of the Directors’ responsibilities in respect
of the Financial Statements is set out immediately prior
to that section of the Annual Report, on page 99, and a
statement regarding the use of the going-concern basis
in preparing these Financial Statements is provided later
in this report.
The Independent Auditors’ Report, which sets out the
auditors’ reporting responsibilities, can be found on
pages 100 to 103.
PROFIT AND DIVIDENDS
The Group’s statutory profit for the year after taxation
amounted to £147,035,000 (2013: £141,748,000), all
of which is attributable to the equity members of the
Company (2013: £141,692,000).
The Directors recommend a final ordinary dividend
of 22.40 pence per share, amounting to £81,814,000,
making a total of 28.15 pence per share and £102,807,000
for the year. Dividends are recognised in the Financial
Statements for the year in which they are paid or, in
the case of a final dividend, when approved by the
shareholders. The amount recognised in the Financial
Statements, as described in note 12, includes this
financial year’s interim dividend and the final dividend
from the previous year, both of which were paid.
The final ordinary dividend, if approved, will be paid on
18 November 2014 to those shareholders on the register
at 24 October 2014.
OPERATIONS OUTSIDE THE UNITED KINGDOM
In line with our strategic objectives, the Group has
branches in Australia, South Africa, France, Germany,
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Italy, Luxembourg, the Netherlands, Norway, Ireland,
Spain and Sweden. It has operating subsidiaries in the US,
Singapore, Japan, Australia, India, Switzerland and Belarus.
REVIEW OF BUSINESS AND LIKELY
FUTURE DEVELOPMENTS
We provide a review of the Group’s progress, outlining
developments during the year and giving an indication
of likely future developments, in the Strategic Report on
pages 8 to 47. The Strategic Report also covers an analysis
of the financial position of the Group at the year-end, and
information about our Key Performance Indicators.
ARTICLES OF ASSOCIATION
The Company’s articles of association (‘the Articles’) are
available from the Group’s website, iggroup.com, or by
writing to the Company Secretary at the Group’s registered
office. The Articles can also be obtained from the UK
Registrar of Companies. Amendments to the Articles can
only be made by means of a special resolution at a general
meeting of the Company’s shareholders.
BOARD OF DIRECTORS AND THEIR INTERESTS
Details of the Directors who held office at the end of the
year are set out on pages 50 to 51 and are incorporated into
this report by reference. We provide information about the
Directors’ service contracts, and their interests in the share
capital of the Company, in the Directors’ Remuneration
Report on pages 62 to 87.
Jim Newman joined the Board as Non-Executive Director
on 1 October 2013 and will be appointed Chairman of
the Audit Committee after Martin Jackson steps down
from the Board at the Annual General Meeting (AGM) on
16 October 2014. Jonathan Davie will also retire from the
Board at the AGM, and will be replaced by Andy Green as
Chairman of the Group.
APPOINTMENT AND RETIREMENT OF DIRECTORS
The appointment and retirement of Directors is governed
by the Articles, the UK Corporate Governance Code (‘the
Code’), the Companies Act 2006 and related legislation.
The Board has the power to appoint any person as a
Director to fill a casual vacancy or as an additional Director,
provided the total number of Directors does not exceed
the maximum prescribed in the Articles. Any such Director
holds office only until the next AGM, and is then eligible to
offer himself or herself for election.
The Articles also require that all those Directors who have
been in office at the time of the two previous AGMs, and
who did not retire at either of them, must retire as
Directors by rotation. Such Directors are eligible to stand
for re-election. However, in line with the Code’s
recommendation that all directors of FTSE 350 companies
should be subject to annual election, all our Directors will
stand for election or re-election at the 2014 AGM, with the
exception of Jonathan Davie and Martin Jackson, who are
retiring from the Board.
RESTRICTIONS ON TRANSFER OF SECURITIES
There are no specific restrictions on the transfer of securities
in the Company, other than as contained in the Articles
and certain laws or regulations, such as those related to
insider trading, which may be imposed from time to time.
The Directors and certain employees of the Company are
required to obtain the Company’s approval prior to dealing
in the Company’s securities. The Company is not aware of
any agreements between holders of securities that may
result in restrictions on the transfer of securities or on
voting rights.
EXERCISE OF RIGHTS OF SHARES IN EMPLOYEE
SHARE SCHEMES
The trustees of the Employee Benefit Trust do not seek to
exercise voting rights on shares held in the employee trusts,
other than on the direction of the underlying beneficiaries.
No voting rights are exercised in relation to shares
unallocated to individual beneficiaries.
POWERS OF THE DIRECTORS TO ISSUE OR
PURCHASE THE COMPANY’S SHARES
The Articles permit the Directors to issue or repurchase the
Company’s own shares, subject to obtaining shareholders’
prior approval. The shareholders gave this approval at the
2013 AGM. The authority to issue or buy back shares will
expire at the 2014 AGM, and it will be proposed at the
meeting that the Directors be granted new authorities
to issue or buy back shares. The Directors currently have
authority to purchase up to 36,541,588 of the Company’s
ordinary shares. However, the Company did not repurchase
any of its ordinary shares during the year.
During the year, the Company instructed the trustee of the
Employee Benefit Trust to purchase shares in order to satisfy
awards under the Group’s share-incentive plan schemes.
The Company also issued 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.
DIRECTORS’ 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. We
explain the procedure for this in the Board section, on
page 55.
INSURANCE AND INDEMNITIES
The Group has Directors’ and Officers’ liability insurance
in place, providing appropriate cover for any legal action
brought against its Directors. Qualifying third-party
indemnity provisions (as defined by section 234 of the
Companies Act 2006) were in force during the year ended
31 May 2014. These provisions remain in force for the
benefit of the Directors, in relation to certain losses and
liabilities which they may incur (or have incurred) to third
parties in the course of acting as Directors of the Company.
RESEARCH AND DEVELOPMENT
In the ordinary course of business, the Company regularly
develops new products and services.
GREENHOUSE GAS (GHG) EMISSIONS
Information on the required disclosure of the Group’s GHG
emissions for the year ended 31 May 2014 is set out in the
Strategic Report on page 31.
POLITICAL DONATIONS
The Company made no political donations to political
organisations or independent election candidates and
incurred no political expenditure in the year (2013: £nil).
EMPLOYEE INVOLVEMENT
The Company is fully committed to involving employees
in all aspects of the business. Detailed information on
employee engagement can be found on page 28 of the
Strategic Report.
EMPLOYEES WITH DISABILITIES
We give full and fair consideration to applications for
employment from people with disabilities. Information on
the Company’s policy on employing people with disabilities
can be found on page 28 of the Strategic Report.
SHARE CAPITAL
The Company has three classes of shares: ordinary shares,
B shares and preference shares. As at 31 May 2014, the
Company’s issued shares comprised 365,754,631 ordinary
shares of 0.005p each, 65,000 B shares of 0.001p and 40,000
preference shares of £1.00 each. Details of movement in
the Company’s share capital and rights attached to the
issued shares are given in notes 26 and 27 to the Financial
Statements. Information about the rights attached to the
Company’s shares can also be found in the Articles. Details
of the Group’s required regulatory capital are disclosed in
note 37 to the Financial Statements.
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IG Group Holdings Plc 2014 Annual Report|
DIRECTORS’ REPORT (CONTINUED)
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
MAJOR INTERESTS IN SHARES
Information provided to the Company by major shareholders
pursuant to the Financial Conduct Authority (FCA)’s
Disclosure and Transparency Rules (DTRs) is published via
a Regulatory Information Service and is available on the
Company’s website. The following information has been
received, in accordance with DTR5, from holders of notifiable
interests in the Company’s issued share capital. It should
be noted that some of these holdings may have changed
since the Company received the notification. Holders are not
required to notify the Company of any change until the next
applicable threshold is reached or crossed.
31 May 2014
No. of shares Percentage
18,150,880
5.00%
18,806,983
18,183,593
17,140,794
11,066,471
5.15%
4.97%
4.69%
3.00%
Massachusetts Financial
Services Company
Artemis Investment
Management LLP
Black Rock Inc.
Cantillon Capital
Management LLC
Prudential plc Group
of Companies
The company was informed of the following movement of
notifiable interest between 31 May 2014 and 18 July 2014.
18 July 2014
No. of shares Percentage
Massachusetts Financial
Services Company
36,574,828 10.00%
CHANGE OF CONTROL
Following any future change of control of the Company, the
Group’s banking facilities, which are currently undrawn (refer
to note 18 of the Financial Statements), will be cancelled, and
any obligations will become immediately due and payable.
There are no agreements between the Company and its
Directors or employees providing for compensation on
any loss of office or employment that occurs because of
a takeover bid. However, options and awards granted to
employees under the Company’s share schemes and plans
may vest on a takeover, under the schemes’ provisions.
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. Our Risk Management Framework is supported
by a system of internal controls designed to embed the
management of business risk throughout the Group. We
outline the risks to which the Group is exposed and our
Risk Management Framework, including a description of its
system of internal controls, in the Managing Our Business
Risk section of the Strategic Report.
FINANCIAL INSTRUMENTS
Details of our use of financial instruments and financial
risk management are set out in note 35 and 36 to the
Financial Statements.
RELATED-PARTY TRANSACTIONS
Details of related-party transactions are set out in note 34 to
the Financial Statements.
ANNUAL GENERAL MEETING
The Company’s AGM will be held on 16 October 2014. We
set out details of the resolutions to be proposed at the
AGM in a separate circular sent to all shareholders.
INDEPENDENT AUDITORS
Resolutions to reappoint PricewaterhouseCoopers LLP as
the Company’s auditors and to authorise the Directors to
determine their remuneration will be put to shareholders at
the AGM on 16 October 2014.
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 for
controlling the financial risks to which it is exposed, its
available liquidity, its regulatory capital position and the
annual budget. As a result of this review, the Directors are
satisfied 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 or
she is obliged to take as a Director in order to make himself
or herself aware of any relevant audit information, and to
establish that the Company’s auditors are aware of that
information. This confirmation is given pursuant to section
418 of the Companies Act 2006 and should be interpreted
in accordance with and subject to these provisions.
SUBSEQUENT EVENTS
The Group has, on 15 July 2014, completed the renegotiation
of the £200.0 million liquidity facility with a syndicate of three
banks. In doing so, the Group has renewed the £120.0 million
element of the facility available for a period of one year (with
an option to extend for a further year) and renegotiated
the £80.0 million element of the facility to be available for a
further three years respectively from 31 July 2014.
98
Corporate Governance Report
Directors’ Report
The Directors are responsible for preparing the
Annual Report, the Directors’ Remuneration Report
and the Financial Statements in accordance with
applicable law and regulations.
The Companies Act 2006 requires the Directors to prepare
Financial Statements for each financial year. Under this law,
the Directors have prepared the Group and parent company
Financial Statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union. In preparing these Financial Statements,
the Directors have also elected to comply with IFRSs issued
by the International Accounting Standards Board (IASB).
Under company law, the Directors must not approve the
Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group
and the Company, and of the Group’s profit or loss for that
financial year. In preparing these Financial Statements, the
Directors are required to:
• Select suitable accounting policies and apply
them consistently
• Make judgments and accounting estimates that are
reasonable and prudent
• State whether applicable IFRSs as adopted by the
European Union and IFRSs issued by the IASB have been
followed, subject to any material departures disclosed
and explained in the Financial Statements
• Prepare the Financial Statements on a going-concern
basis, unless it is inappropriate to presume that the
company will continue in business
Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may
differ from legislation in other jurisdictions.
The Directors are responsible for ensuring that the Company
keeps adequate accounting records. These records must be
sufficient to show and explain the Company’s transactions
and disclose the financial position of the Company and the
Group with reasonable accuracy at any time. They must also
enable the Directors 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 Directors are responsible for safeguarding the assets of
the Company and the Group, and so for taking reasonable
steps to prevent and detect fraud and other irregularities.
The maintenance and integrity of the Group’s website is
also the Directors’ responsibility.
RESPONSIBILITY STATEMENT
It is the Directors’ opinion that the Annual Report and
Accounts, taken as a whole, are fair, balanced and
understandable and provide the information necessary
for shareholders to assess the Company’s performance,
business model and strategy.
Each of the Directors, whose names and functions are listed
in the Corporate Governance Report, confirms that, to the
best of their knowledge:
• The Financial Statements, which have been prepared
in accordance with the applicable set of accounting
standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company
and the undertakings included in the consolidation taken
as a whole
• The Strategic Report and the Directors’ Report included
within this Annual Report provide a fair review of
the business’s development and performance, the
Company’s position and the undertakings included in
the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that the
Group faces
By order of the Board:
Christopher Hill
Chief Financial Officer
22 July 2014
99
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S
IG Group Holdings Plc 2014 Annual Report|
INDEPENDENT AUDITORS’ REPORT TO
THE MEMBERS OF IG GROUP HOLDINGS PLC
Stratigic overview
REPORT ON THE FINANCIAL STATEMENTS
OUR OPINION
In our opinion:
• The financial statements, defined below, give a true and
fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 May 2014 and of the Group’s
profit and of the Group’s and Parent Company’s cash
flows for the year then ended;
• The Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (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 IAS Regulation.
This opinion is to be read in the context of what we say in
the remainder of this report.
WHAT WE HAVE AUDITED
The Group financial statements and Parent Company
financial statements (the “financial statements”), which are
prepared by IG Group Holdings plc, comprise:
• the Group income statement and Group statement of
comprehensive income for the year ended 31 May 2014;
• the Group and Parent Company statements of financial
position as at 31 May 2014;
• the Group and Parent Company statements of changes
in equity and cash flow statements for the year ended
31 May 2014; and
• the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
The financial reporting framework that has been applied
in their preparation comprises applicable law and IFRSs as
adopted by the European Union and, as regards the Parent
Company, as applied in accordance with the provisions of
the Companies Act 2006.
WHAT AN AUDIT OF FINANCIAL
STATEMENTS INVOLVES
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)).
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 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 Annual Report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
OVERVIEW OF OUR AUDIT APPROACH
Materiality
We set certain thresholds for materiality. These helped us
to determine the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements,
both individually and on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the Group financial statements as a whole
to be £9.7 million which represents 5% of profit before tax
because in our view this is the most relevant measure
of performance.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£450,000 as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Overview of the scope of our audit
The Group consists of a UK holding company with a number
of subsidiary entities and branches containing the operating
businesses of both the UK and overseas territories. Both the
UK and overseas businesses are managed and controlled
in the UK. As a result, the majority of the audit work was
performed by the Group engagement team in London, with
certain, specific procedures carried out by overseas PwC
engagement teams where necessary.
Where the work was performed by overseas PwC firms,
we determined the level of involvement we needed to
have in the audit work at those reporting units to be able
to conclude whether sufficient appropriate audit evidence
had been obtained as a basis for our opinion on the Group
financial statements as a whole.
100
Corporate Governance Report
Independent Auditors’ Report
Areas of particular audit focus
In preparing the financial statements, the directors made
a number of subjective judgements, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that
are inherently uncertain. We primarily focused our work in
these areas by assessing the directors’ judgements against
available evidence, forming our own judgements, and
evaluating the disclosures in the financial statements.
In our audit, we tested and examined information, using
sampling and other auditing techniques, to the extent we
considered necessary to provide a reasonable basis for us
to draw conclusions. We obtained audit evidence through
testing the effectiveness of controls, substantive procedures
or a combination of both.
We considered the following areas to be those that required
particular focus in the current year. This is not a complete
list of all risks or areas of focus identified by our audit. We
discussed these areas of focus with the Audit Committee.
Their report on those matters that they considered to be
significant issues in relation to the financial statements is set
out on page 90.
AREA OF FOCUS
HOW THE SCOPE OF OUR AUDIT ADDRESSED THE
AREA OF FOCUS
RISK OF MANAGEMENT OVERRIDE OF INTERNAL CONTROLS INCLUDING INFORMATION TECHNOLOGY
AND RISK OF FRAUD IN REVENUE RECOGNITION
RISK OF MANAGEMENT OVERRIDE OF INTERNAL CONTROLS
ISAs (UK & Ireland) require that we consider
this as management is in a unique position to
perpetrate fraud because of management’s ability
to manipulate accounting records and prepare
fraudulent financial statements by overriding
controls that otherwise appear to be
operating effectively.
We tested the fraud risk assessment performed by
management and the prevention and detection controls
in place in the Group. We tested the appropriateness and
authorisation of journal entries that we identified
as unusual.
We examined significant or one-off transactions
and considered their accounting treatment. We also
incorporated an element of unpredictability into our
testing approach.
INFORMATION TECHNOLOGY
This area of focus relates to super-user access to the
core trading system by certain individuals in order
to perform their role. Those individuals have an
opportunity to commit and conceal fraud.
RISK OF FRAUD IN REVENUE RECOGNITION
ISAs (UK & Ireland) presume there is a risk of
fraud in revenue recognition because of the
pressure management may feel to achieve the
planned results.
We understood and tested key controls in place over the
financial information. Specifically, in relation to information
technology we performed testing over the IT general
controls in Universe, the main client ledger system,
including access rights. Additionally we tested the controls
mitigating system super-user access including controls that
would identify unexpected changes to data which could
impact the financial statements and reconciliations of
Universe reports to external third party sources including
broker and bank reconciliations.
We tested the appropriateness and authorisation of journal
entries relating to revenue that we identified as unusual.
’
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101
IG Group Holdings Plc 2014 Annual Report|
INDEPENDENT AUDITORS’ REPORT TO
THE MEMBERS OF IG GROUP HOLDINGS PLC
Stratigic overview
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF
THE DIRECTORS
As explained more fully in the Directors’ Responsibilities
Statement set out on page 99, the directors are responsible
for the preparation of the Group and Parent Company
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 Group and Parent Company financial statements in
accordance with applicable law and ISAs (UK & 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.
Darren Ketteringham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
22 July 2014
GOING CONCERN
Under the Listing Rules we are required to review the
directors’ statement, set out on page 98, in relation to
going concern. We have nothing to report having
performed our review.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of directors’
remuneration specified by law have not been made. We
have no exceptions to report arising from this responsibility.
As noted in the directors’ statement, the directors have
concluded that it is appropriate to prepare the Group’s
and Parent Company’s financial statements using the
going concern basis of accounting. The going concern
basis presumes that the Group and Parent Company have
adequate resources to remain in operation, and that the
directors intend them to do so, for at least one year from
the date the financial statements were signed. As part of
our audit we have concluded that the directors’ use of the
going concern basis is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the
Group’s and the Parent Company’s ability to continue as a
going concern.
OPINIONS ON MATTERS PRESCRIBED BY
THE COMPANIES ACT 2006
In our opinion:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006.
OTHER MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY EXCEPTION
ADEQUACY OF ACCOUNTING RECORDS AND
INFORMATION AND EXPLANATIONS RECEIVED
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• 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.
We have no exceptions to report arising from
this responsibility.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules we are required to review the part
of the Corporate Governance Statement relating to the
Company’s compliance with nine provisions of the UK
Corporate Governance Code (‘the Code’). We have nothing
to report having performed our review.
On page 99 of the Annual Report, as required by the Code
Provision C.1.1, the directors state that they consider the
Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary
for members to assess the Group’s performance, business
model and strategy. On page 90, as required by C.3.8 of
the Code, the Audit Committee has set out the significant
issues that it considered in relation to the financial
statements, and how they were addressed. Under ISAs (UK
& Ireland) we are required to report to you if, in our opinion:
• the statement given by the directors is materially
inconsistent with our knowledge of the Group acquired in
the course of performing our audit; or
• the section of the Annual Report describing the work of
the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have no exceptions to report arising from
this responsibility.
OTHER INFORMATION IN THE ANNUAL REPORT
Under ISAs (UK & Ireland), we are required to report to you
if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group and
Parent Company acquired in the course of performing
our audit; or
• is otherwise misleading.
We have no exceptions to report arising from
this responsibility.
102
Corporate Governance Report
Independent Auditors’ Report
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103
IG Group Holdings Plc 2014 Annual Report|
FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 MAY 2014
Trading revenue
Interest income on segregated client funds
Revenue
Interest expense on segregated client funds
Introducing partner commissions
Betting duty and financial transaction taxes
Other operating income
Net operating income
Analysed as:
Net trading revenue
Other net operating income
Administrative expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Profit for the year attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
Basic
Diluted
Note
3
4
2, 4
5
8
9
10
Note
11
11
The notes on pages 110 to 151 are an integral part of these Financial Statements.
104
Financial Statements
Group Income Statement
2014
Total
£000
407,899
5,817
413,716
(317)
(37,491)
(3,873)
2,132
2013
Total
£000
397,946
8,477
406,423
(289)
(36,089)
(5,204)
3,067
374,167
367,908
370,408
3,759
361,857
6,051
(178,912)
(175,980)
195,255
191,928
1,456
(1,988)
194,723
(47,688)
2,036
(1,756)
192,208
(50,460)
147,035
141,748
147,035
141,692
–
56
147,035
141,748
2014
2013
40.32p
40.18p
39.02p
38.80p
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2014
Group
Profit for the year
Other comprehensive (expense) / income:
Items that may be subsequently reclassified to profit or loss:
Change in value of available-for-sale financial assets
Foreign currency translation on overseas subsidiaries
Other comprehensive expense for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
£000
59
(6,452)
2014
£000
147,035
(6,393)
140,642
140,642
–
140,642
£000
(38)
(4,578)
2013
£000
141,748
(4,616)
137,132
137,079
53
137,132
All items of other comprehensive income or expense may be subsequently reclassified to profit or loss.
The items of comprehensive income noted above are stated net of related tax effects.
The notes on pages 110 to 151 are an integral part of these Financial Statements.
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105
IG Group Holdings Plc 2014 Annual Report|
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF FINANCIAL POSITION
AT 31 MAY 2014
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Financial investments
Deferred tax assets
Current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
Financial investments
TOTAL ASSETS
Liabilities
Current liabilities
Trade payables
Other payables
Income tax payable
Non-current liabilities
Redeemable preference shares
Total liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Other reserves
Retained earnings
Shareholders’ equity
Note
2014
£000
Group
2013
£000
Company
2014
£000
2013
£000
13
14
15
21
10
17
18
21
22
23
26
27
27
29
13,038
122,670
–
32,150
5,711
14,469
120,479
–
–
9,470
–
1,554
471,600
–
–
–
–
459,977
–
–
173,569
144,418
473,154
459,977
327,478
12,287
101,487
50,307
491,559
665,128
21,902
53,334
20,178
95,414
40
40
300,636
10,278
98,345
50,468
459,727
604,145
19,047
53,781
24,289
97,117
40
40
–
–
135,784
165,616
–
–
135,784
608,938
–
7,702
–
7,702
40
40
245
–
165,861
625,838
–
32,460
–
32,460
40
40
95,454
97,157
7,742
32,500
18
206,758
85,468
277,430
18
206,758
84,990
215,222
18
206,758
34,315
360,105
18
206,758
27,444
359,118
569,674
506,988
601,196
593,338
TOTAL EQUITY AND LIABILITIES
665,128
604,145
608,938
625,838
The Financial Statements on pages 104 to 151 were approved by the Board of Directors on 22 July 2014 and signed on its
behalf by:
Tim Howkins
Chief Executive
Christopher Hill
Chief Financial Officer
Registered Company number: 04677092
106
Financial Statements
Statements of Financial Position
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2014
Group
At 1 June 2012
Profit 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 10)
Issuance of shares
Exercise of US share-incentive plans
Purchase of own shares
Equity dividends paid (note 12)
Acquisition of non-controlling interests
Movement in equity
At 31 May 2013
Profit for the year
Other comprehensive expense for the year
Total comprehensive (expense) / income
for the year
Equity-settled employee share-based
payments (note 30)
Utilisation of own shares
Exercise of US share-incentive plans
Purchase of own shares
Equity dividends paid (note 12)
Movement in equity
At 31 May 2014
Share
capital
(note 27)
Share
premium
account
(note 27)
Other
reserves
(note 29)
Retained
earnings
Shareholders’
equity
Non-
controlling
interests
Total
equity
£000
£000
£000
£000
£000
£000
£000
18
206,291
85,543
155,145
–
(4,613)
141,692
–
446,997
141,692
(4,613)
146 447,143
56 141,748
(4,616)
(3)
–
–
–
–
–
467
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,613) 141,692
137,079
53 137,132
4,309
13
–
(20)
(441)
–
199
–
–
–
–
–
(81,615)
–
4,309
13
467
(20)
(441)
(81,615)
199
–
–
–
–
–
4,309
13
467
(20)
(441)
–
(199)
(81,615)
–
467
(553)
60,077
59,991
(146)
59,845
18
206,758
84,990
215,222
506,988
– 506,988
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6,393)
147,035
–
147,035
(6,393)
– 147,035
(6,393)
–
(6,393) 147,035
140,642
– 140,642
6,556
348
(3)
(30)
–
–
–
–
–
(84,827)
6,556
348
(3)
(30)
(84,827)
478
62,208
62,686
–
–
–
–
–
–
6,556
348
(3)
(30)
(84,827)
62,686
18
206,758
85,468
277,430
569,674
– 569,674
The notes on pages 110 to 151 are an integral part of these Financial Statements.
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P
O
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A
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FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2014
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 MAY 2014
Company
At 1 June 2012
Profit for the year and total comprehensive income
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 12)
Movement in equity
At 31 May 2013
Profit for the year and total comprehensive income
Equity-settled employee share-based payments
(note 30)
Utilisation of own shares
Purchase of own shares
Exercise of US share-incentive plans
Equity dividends paid (note 12)
Movement in equity
At 31 May 2014
Share
capital
(note 27)
Share premi-
um account
(note 27)
Other
reserves
(note 29)
Retained
earnings
Total
equity
£000
£000
£000
£000
£000
18
206,291
23,596
316,396
546,301
–
–
–
–
–
–
–
–
–
467
–
–
–
–
124,337
124,337
4,309
–
(441)
(20)
–
–
–
–
–
(81,615)
4,309
467
(441)
(20)
(81,615)
467
3,848
42,722
47,037
18
206,758
27,444
359,118
593,338
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85,814
85,814
6,556
348
(30)
(3)
–
–
–
–
–
(84,827)
6,556
348
(30)
(3)
(84,827)
6,871
987
7,858
18
206,758
34,315
360,105
601,196
The notes on pages 110 to 151 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
Note
20
2014
£000
176,465
(47,761)
5,996
(301)
Group
2013
£000
66,402
(53,247)
9,013
(289)
Company
2014
£000
2013
£000
85,773
82,347
–
–
–
–
–
–
Net cash flow from operating activities
134,399
21,879
85,773
82,347
Investing activities
Interest received
Purchase of property, plant and equipment
Payments to acquire intangible assets
Purchase of a non-controlling interest
Proceeds from maturity of financial investments
Purchase of financial investments
1,462
(3,428)
(8,076)
–
59,380
(91,294)
2,155
(4,813)
(11,949)
(1,319)
–
(50,486)
Net cash flow used in investing activities
(41,956)
(66,412)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Financing activities
Interest paid
Equity dividends paid to owners of the parent
Proceeds from drawdown of committed
banking facility
Repayment of committed banking facility
Purchase of own shares
Proceeds from the issuance of shares
Payment of redeemable preference share dividends
12
19(c)
19(c)
(1,988)
(84,827)
80,000
(80,000)
(30)
–
(3)
(3,175)
(81,615)
(1,158)
(84,827)
(641)
(81,615)
–
–
(461)
467
(3)
–
–
(30)
–
(3)
–
–
(461)
467
(3)
Net cash flow used in financing activities
(86,848)
(84,787)
(86,018)
(82,253)
Net increase / (decrease) in cash and
cash equivalents
Cash and cash equivalents at the beginning of
the year
Exchange loss on cash and cash equivalents
5,595
(129,320)
98,345
(2,453)
228,156
(491)
Cash and cash equivalents at the end of the year
18
101,487
98,345
(245)
245
–
–
94
151
–
245
For the purposes of the Cash Flow Statements, cash and cash equivalents is stated gross of the drawdown of the committed
banking facility (31 May 2014 and 31 May 2013: £nil). Please refer to note 18.
The notes on pages 110 to 151 are an integral part of these Financial Statements.
108
Financial Statements
Statement of Changes in Equity
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IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS
INDEX TO NOTES TO THE FINANCIAL STATEMENTS
NOTE
1. Presentation, critical accounting estimates and judgments
2. Net trading revenue
3. Other operating income
4. Segment information
5. Operating profit
6. Auditors’ remuneration
7. Staff costs
8. Finance income
9. Finance costs
10. Taxation
11. Earnings per ordinary share
12. Dividends
13. Property, plant and equipment
14. Intangible assets
15. Investment in subsidiaries
16. Impairment of goodwill
17. Trade receivables
18. Cash and cash equivalents
19. Liquidity analysis and risk management
20. Cash generated from operations
21. Financial investments
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
110
Financial Statements
Notes to the Financial Statements
PAGE
111
112
112
113
114
114
115
115
115
116
117
118
118
119
120
121
122
122
123
126
126
126
127
127
127
127
128
128
129
130
133
133
133
134
134
138
143
144
144
144
The calculation of the Group’s current corporation tax charge
involves a degree of estimation and judgment with respect 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.
The measurement of the Group’s net trading revenue is
predominately based on quoted market prices (please refer to
note 35 for the financial instrument valuation hierarchy disclosures)
and accordingly involves little judgment. However, the calculation
of the segmental net trading revenue, as the Group manages risk
and hedges on a group-wide portfolio basis, involves the use of
an allocation methodology. This allocation methodology does not
impact on the overall Group net trading revenue disclosed.
1. PRESENTATION, CRITICAL
ACCOUNTING ESTIMATES AND
JUDGMENTS
CRITICAL ACCOUNTING ESTIMATES
AND JUDGMENTS
The preparation of Financial Statements requires the Group to
make estimates and judgments 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 judgments
that have the most significant impact on the measurement of items
recorded in the Financial Statements remain the impairment of
goodwill (refer to note 16); the useful economic life applied to
the intangible assets and the calculation of the Group’s current
corporation tax charge (refer to note 10(b)).
The judgments in relation to the assessment of goodwill for
impairment largely relate to the assumptions underlying the
calculation of the value-in-use of the US cash-generating unit
(CGU). The US CGU comprises both the Nadex exchange and
the associated market-making business (the ‘Nadex exchange
business’) as well as the wider commercial use of the exchange
technology within the Group. While the Nadex exchange business
remains loss-making, the wider commercial use of the technology
by the Group provides other significant economic benefits, which
taken alone, support the carrying value of the goodwill. For this
reason the Directors consider that a reasonably possible change
in a key assumption would not cause the unit’s carrying amount to
exceed its recoverable amount. In the event of the Nadex exchange
business failing to generate sufficient profits, the deferred tax asset
of £1.7 million held in relation to carry-forward tax losses might
suffer impairment.
The assessment of the useful economic life of the Group’s internally
developed and acquired software-, licence-, domain name- and
generic top level domain-based intangible assets is judgmental
and can change due to obsolescence as a result of unforeseen
technological developments. The useful life for licences represents
management’s view of the expected term over which the Group
will receive benefits from the software, and does not exceed the
licence term. For internally developed and acquired software and
domain assets, the life is based on historical experience with similar
products as well as anticipation of future events which may impact
their useful economic life.
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IG Group Holdings Plc 2014 Annual Report|
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 or loss net of introducing-
partner 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
Contracts for difference
Spread betting
Binaries
Total net trading revenue
Interest income on segregated client funds
Revenue from external customers
2014
£000
2013
£000
210,768
132,860
26,780
370,408
5,817
210,992
129,881
20,984
361,857
8,477
376,225
370,334
In addition to the above, finance income is disclosed in note 8. The Group does not derive more than 10% of external revenue from any one
single customer.
3. OTHER OPERATING INCOME
Revenue-share arrangement(1)
Inactivity fees(2)
Settlement income(3)
2014
£000
1,421
711
–
2,132
2013
£000
1,333
484
1,250
3,067
(1) The Group receives income under a revenue-share agreement with Spreadex Limited in relation to the client list of the former Sport business, calculated by reference to the
revenue that Spreadex Limited generates from clients on the list. This arrangement ended on 23 June 2014.
(2) The Group charges inactivity fees for those accounts on which clients have not traded for two years.
(3) In the year ended 31 May 2013, the Group received one-off income in relation to settlement of an insurance claim made regarding the fit-out of the London headquarters.
112
Financial Statements
Notes to the Financial Statements
4. SEGMENT INFORMATION
The segment information is presented as follows:
• Segment net trading revenue has been disclosed net of introducing-partner commissions, as this is consistent with the management
information received by the Chief Operating Decision Maker (CODM), being the Executive Directors
• Net trading revenue is reported by the location of the office that manages the underlying client relationship and aggregated into the
disclosable segments of UK, Australia, Europe and Rest of World. The Rest of World segment comprises the Group’s operations in Japan,
South Africa, Singapore and the United States
• The UK segment comprises the Group’s operations in the UK and Ireland
• The Europe segment comprises the Group’s operations in France, Germany, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden
and Switzerland
• 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) and binary options. The Australian and
European segments derive their revenue from CFDs and binary options. The businesses reported within Rest of World derive revenue from
the operation of a regulated futures and options exchange as well as CFDs 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 based on a number of cost-allocation assumptions
and segment net trading revenue.
Japan’s trading revenue and operating profit after allocations have both fallen below the 10% of Group threshold required by IFRS 8 for
disclosure as a reportable segment, and accordingly have been included within the Rest of World segment.
Year ended 31 May 2014
Segment net trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Other operating income
Betting duty and financial transaction taxes
Net operating income
Segment contribution
Allocation of central income and costs
Depreciation and amortisation
Operating profit
Net finance costs
Profit before taxation
Year ended 31 May 2013
Segment net trading revenue
Interest income on segregated client funds
Revenue from external customers
Interest expense on segregated client funds
Other operating income
Betting duty and financial transaction taxes
Net operating income
Segment contribution
Allocation of central income and costs
Depreciation and amortisation
Operating profit
Net finance income
Profit before taxation
UK
£000
Australia
£000
192,693
–
192,693
–
–
(3,519)
189,174
160,552
(38,030)
(5,004)
117,518
52,169
–
52,169
–
–
(56)
52,113
43,707
(11,096)
(1,262)
31,349
UK
£000
Australia
£000
186,450
–
186,450
–
–
(5,204)
181,246
151,337
(35,251)
(5,888)
110,198
56,251
–
56,251
–
–
–
56,251
49,297
(11,165)
(1,544)
36,588
Europe
£000
82,142
–
82,142
–
–
(298)
81,844
51,631
(17,648)
(2,113)
31,870
Europe
£000
71,047
–
71,047
–
–
–
71,047
43,870
(15,074)
(2,170)
26,626
Rest of
World
£000
43,404
–
43,404
–
–
–
43,404
25,162
(9,326)
(1,318)
14,518
Rest of
World
£000
48,109
–
48,109
–
–
–
48,109
31,288
(10,208)
(2,564)
18,516
Central
£000
–
5,817
5,817
(317)
2,132
–
7,632
(76,100)
76,100
–
–
Central
£000
–
8,477
8,477
(289)
3,067
–
11,255
(71,698)
71,698
–
–
Total
£000
370,408
5,817
376,225
(317)
2,132
(3,873)
374,167
204,952
–
(9,697)
195,255
(532)
194,723
Total
£000
361,857
8,477
370,334
(289)
3,067
(5,204)
367,908
204,094
–
(12,166)
191,928
280
192,208
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113
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. OPERATING PROFIT
This is stated after charging / (crediting):
Depreciation of property, plant and equipment
Amortisation of intangible assets
Advertising and marketing
Net charge / (recovery) of impaired trade receivables
Operating lease rentals for land and buildings
Foreign exchange gains(1)
Legal and professional fees(2)
2014
£000
4,656
5,041
31,660
1,614
4,352
(356)
4,266
Group
2013
£000
6,050
6,116
32,558
(348)
4,375
(399)
4,772
(1) All of the above except foreign exchange differences are included in administrative expenses within the Income Statement. Foreign exchange gains and losses are included
in revenue.
(2) Legal and professional fees include costs of £nil (2013: £3.4 million) incurred in defence of claims made in relation to the insolvency of Echelon Wealth Management Limited.
Following the closure of this claim against the Group, the claimants have paid a £nil (2013: £2.8 million) contribution to the Group’s legal costs. This contribution was
recorded within legal and professional fees.
6. AUDITORS’ REMUNERATION
Audit and audit-related fees(1)
Fe es payable to the Company’s auditors for the audit of the Parent Company
and consolidated Financial Statements
Fees payable to the Company’s auditor and its associates for other services:
– Statutory and regulatory audit of subsidiaries and branches of the Company
– Audit-related assurance services:
– Other services supplied pursuant to legislation
– Statutory audit fees of subsidiary entities in relation to prior-year audits
– Other audit-related assurance services
Total audit and audit-related fees
Non-audit fees
Other services relating to taxation
– Tax compliance services(2)
– Tax advisory services(3)
Services relating to regulatory advice(4)
All other services
Total other fees
2014
£000
Group
2013
£000
297
234
144
–
75
750
248
162
12
35
457
195
192
115
55
100
657
351
214
109
136
810
(1) Includes the Group’s audit fee as well as services that are specifically required of the Group’s auditors through legislative or contractual requirements, controls assurance
engagements required of the auditors by the regulatory authorities in whose jurisdiction the Group operates and other audit related assurance services.
(2) Includes corporate and other tax compliance and filing 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 £22,000 (2013: £18,000) and sales taxes of £63,000 (2013: £196,000), with the balance made up of general
tax advice.
(4) Prior year costs included services provided in the review of regulatory filings and other regulatory advice.
An overview of the Audit Committee’s review of auditors’ remuneration and non-audit fee policy can be found in the Corporate
Governance Report.
7. STAFF COSTS
The staff costs for the year, including Directors, were as follows:
Wages and salaries(1)
Social security costs
Other pension costs (in relation to defined contribution schemes)
(1) Includes redundancy programme costs of £nil (2013: £1.3 million).
2014
£000
75,374
8,671
5,210
89,255
Group
2013
£000
73,189
8,016
5,071
86,276
Staff costs, including Directors, 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
2014
£000
17,191
7,077
24,268
Group
2013
£000
17,304
4,414
21,718
The Directors’ emoluments for the years ended 31 May 2014 and 31 May 2013, including amounts in relation to compensation for loss of
office, can be found in the Directors’ Remuneration Report.
The average monthly number of employees, including Directors, was made up as follows:
IT development
IT support
Sales, marketing and client support
Dealing
Management and administrative
8. FINANCE INCOME
Bank interest receivable
Interest receivable from brokers
Other finance income
Interest accretion on financial investments
9. 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
2014
Number
Group
2013
Number
395
71
397
38
169
341
65
415
35
149
1,070
1,005
2014
£000
594
576
–
286
Group
2013
£000
983
991
42
20
1,456
2,036
2014
£000
1,638
36
41
263
3
7
Group
2013
£000
1,473
73
128
3
3
76
1,988
1,756
114
Financial Statements
Notes to the Financial Statements
Interest payable to clients relates to interest paid or accrued to clients in relation to title transfer funds (refer to note 18).
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IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. TAXATION
10(A) TAX ON PROFIT ON ORDINARY ACTIVITIES
Tax charged in the Income Statement:
Current income tax:
UK corporation tax
Foreign tax
Adjustment in respect of prior years
Total current income tax
Deferred income tax:
Origination and reversal of temporary differences
Adjustment in respect of prior years
Impact of change in tax rates on deferred tax
Total deferred income tax (note 10(d))
Tax expense in the income statement (note 10(b))
2014
£000
42,419
3,575
(1,808)
44,186
526
2,301
675
3,502
47,688
Group
2013
£000
43,680
4,197
174
48,051
2,409
–
–
2,409
50,460
10(B) RECONCILIATION OF THE TOTAL TAX CHARGE
The standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly, the effective corporation
tax is calculated at 22.67% (2013: 23.83%) of the estimated assessable profit in the UK. 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:
Profit before taxation
Profit multiplied by the UK standard rate of corporation tax of 22.67% (2013: 23.83%)
Expenses not deductible for tax purposes
Impact of timing differences not recognised
Higher taxes on overseas earnings
Adjustment in respect of prior years
Impact of change in tax rates on deferred tax
Total tax expense reported in the Income Statement
The effective tax rate is 24.5% (2013: 26.3%).
10(C) DEFERRED INCOME TAX ASSETS
The deferred income tax assets included in the Statement of Financial Position are as follows:
Decelerated capital allowances
Tax losses available for offset against future tax
Share-based payments
Other timing differences
2014
£000
2013
£000
194,723
192,208
44,144
45,803
73
1,275
1,028
493
675
1,892
1,428
1,163
174
–
47,688
50,460
2014
£000
397
1,656
986
2,672
5,711
Group
2013
£000
727
1,767
2,062
4,914
9,470
The tax losses available for offset against future tax relate to operating losses arising in the US consolidated tax group, 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.
116
Financial Statements
Notes to the Financial Statements
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
movement in the deferred income tax assets included in the Statement of Financial Position is as follows:
At the beginning of the year
Income Statement charge (note 10(d))
Tax credited directly to equity
Foreign currency adjustment
At the end of the year
10(D) DEFERRED INCOME TAX – INCOME STATEMENT CREDIT
The deferred income tax charge included in the Income Statement is made up as follows:
Decelerated capital allowances
Share-based payments
Other timing differences
Income Statement charge
2014
£000
9,470
(3,502)
–
(257)
5,711
2014
£000
(330)
(1,075)
(2,097)
(3,502)
Group
2013
£000
11,915
(2,409)
13
(49)
9,470
Group
2013
£000
(1,292)
(1,360)
243
(2,409)
The deferred tax credited to equity during the year is as follows:
Share-based payments
–
13
Closing deferred tax on UK temporary differences has been calculated at the substantively enacted rate of 20% (2013: 23%). The effect
of the change in UK corporation tax to 20% from 1 April 2015 on the deferred tax assets is a deferred income tax charge of £675,000
(2013: £275,000), which is included in the movements above.
10(E) 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 judgment with respect
to the recognition of deferred tax assets (refer to note 10(d)) and of certain items whose tax treatment cannot be finally determined until
resolution has been reached with the relevant tax authority. The Group holds tax provisions in respect of the potential tax liability that may
arise on these unresolved items, however, the amount ultimately 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.
On 1 April 2013 the main rate of corporation tax reduced from 24% to 23%. Further reductions to 21% on 1 April 2014 and 20% on
1 April 2015 became enacted through the 2013 Finance Act on 17 July 2013. The Group will assess the impact of the reductions in line with
its accounting policy in respect of deferred tax at each reporting date.
11. EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing the profit for the year attributable to owners 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. The following reflects the income and share data used in the earnings per share computation:
Profit for the year
Earnings attributable to non-controlling interests
Earnings attributable to owners of the Parent
Weighted average number of shares
Basic
Dilutive effect of share-based payments
Diluted
Basic earnings per share
Diluted earnings per share
2014
£000
Group
2013
£000
147,035
141,748
–
(56)
147,035
141,692
364,710,756 363,172,810
1,213,527
2,016,025
365,924,283 365,188,835
2014
40.32p
40.18p
Group
2013
39.02p
38.80p
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. DIVIDENDS
14. INTANGIBLE ASSETS
Declared and paid during the year:
Final dividend for 2013 at 17.50p per share (2012: 16.75p)
Interim dividend for 2014 at 5.75p per share (2013: 5.75p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2014 at 22.40p per share (2013: 17.50p)
Company and Group
2014
£000
63,834
20,993
84,827
2013
£000
60,769
20,846
81,615
81,814
63,767
The final dividend for 2014 of 22.40 pence per share, amounting to £81,814,000, was proposed by the Board on 18 July 2014 and has not
been included as a liability at 31 May 2014. This dividend will be paid on 18 November 2014, following approval at the Company’s Annual
General Meeting, to those members on the register at the close of business on 24 October 2014.
13. PROPERTY, PLANT AND EQUIPMENT
Leasehold
improvements
£000
Office
equipment,
fixtures and
fittings
£000
Computer
and other
equipment
£000
16,684
340
1,616
(1,188)
17,452
(217)
714
(101)
2,288
15,722
99
333
(245)
2,475
(63)
201
(64)
(118)
2,483
(116)
17,971
(295)
2,527
(5,038)
15,165
17,848
2,549
5,970
(52)
2,321
(1,188)
7,051
(85)
1,931
(101)
8,796
9,052
10,401
10,714
1,331
11,838
22
443
(245)
1,551
(81)
394
(64)
1,800
749
924
957
(181)
3,286
(116)
14,827
(192)
2,331
(5,038)
11,928
3,237
3,144
3,884
Total
£000
34,694
321
4,432
(1,549)
37,898
(575)
3,442
(5,203)
35,562
19,139
(211)
6,050
(1,549)
23,429
(358)
4,656
(5,203)
22,524
13,038
14,469
15,555
Group
Cost:
At 1 June 2012
Foreign currency adjustment
Additions
Written off
At 31 May 2013
Foreign currency adjustment
Additions
Written off
At 31 May 2014
Accumulated depreciation:
At 1 June 2012
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2013
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2014
Net book value – 31 May 2014
Net book value – 31 May 2013
Net book value – 1 June 2012
118
Financial Statements
Notes to the Financial Statements
Group
Cost:
At 1 June 2012
Foreign currency adjustment
Additions
Written off
At 31 May 2013
Foreign currency adjustment
Additions
Written off
At 31 May 2014
Accumulated amortisation:
At 1 June 2012
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2013
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2014
Net book value – 31 May 2014
Net book value – 31 May 2013
Net book value – 1 June 2012
Client lists
and customer
reltaionships
£000
Goodwill
£000
Domain
names
£000
Development
costs
£000
Software
and licences
£000
Total
£000
235,675
(162)
–
–
235,513
(645)
–
–
3,153
(1,182)
–
–
1,971
(263)
–
–
234,868
1,708
128,210
–
–
–
128,210
–
–
–
128,210
106,658
107,303
107,465
2,741
(1,154)
369
–
1,956
(266)
18
–
1,708
–
15
412
1,219
(227)
3,966
(963)
3,995
(1)
1,805
–
5,799
1,219
(222)
97
(963)
131
(2)
417
–
546
5,253
3,864
–
4,206
(337)
3,386
–
7,255
–
4,763
(8)
12,274
256,527
(103)
3,909
(147)
(2,011)
11,261
(1,110)
15,933
264,667
(120)
1,307
(395)
(1,029)
7,875
(403)
12,010
16,725
271,110
655
(525)
1,765
–
1,895
2
1,685
(8)
3,574
8,436
5,360
3,551
8,336
(78)
3,885
(147)
141,161
(1,979)
6,116
(1,110)
11,996
144,188
(120)
2,921
(395)
14,402
2,323
3,937
3,938
(386)
5,041
(403)
148,440
122,670
120,479
115,366
Goodwill primarily relates to the purchase of IG Group plc by IG Group Holdings plc – detail is provided in note 16. The client list acquired
with the business of Ideal CFDs has been amortised on a sum-of-digits basis over three years.
Development costs relate to both internally generated intangible assets and third-party software acquired to further enhance the Group’s
own proprietary software.
Software and licences relate entirely to external purchases of off-the-shelf, commercially available software for internal consumption within
the Group.
Domain names include the cost of acquiring IG.com and a suite of complementary domains to support the Group’s global brand. As
at 31 May 2014 this also includes an industry-specific generic top-level domain (gTLD). Additional gTLDs have been acquired for no
capital outlay.
The expected useful lives of each class of intangible asset are set out in note 40, Accounting Policies.
Company
Cost:
At 1 June 2012 and 31 May 2013
Additions
At 31 May 2014
Accumulated amortisation:
At 1 June 2012 and 31 May 2013
Provided during the year
At 31 May 2014
Net book value – 31 May 2014
Net book value – 1 June 2012 and 31 May 2013
Please refer to the Group Intangible Assets disclosure above regarding discussion of domain names.
Domain
names
£000
–
1,580
1,580
–
26
26
1,554
–
119
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15. INVESTMENT IN SUBSIDIARIES
PARENT COMPANY – INVESTMENT IN SUBSIDIARIES
At cost:
At the beginning of the year
Additions(1)
At the end of the year
2014
£000
459,977
11,623
471,600
Company
2013
£000
438,128
21,849
459,977
The following UK entities, all of which are 100% owned by the Group, are not subject to an audit by virtue of s479A of the Companies Act
2006 relating to subsidiary companies: IG Finance 5 Limited (06752558), IG Finance 9 Limited (07306407), and extrabet Limited (04560348).
The following UK entities, all of which are 100% owned by the Group, are exempt from the requirement to prepare individual accounts by
virtue of s394A of the Companies Act 2006 relating to the individual accounts of dormant subsidiaries: IG Nominees Limited (04371444),
IG Finance (05024562), IG Finance Two (05137194), IG Finance Three (05297886), IG Finance Four (05312015), IG Forex Limited (06808361),
IG Spread Betting Limited (06806588), IG Finance 8 Limited (06807656) and ITS Market Solutions Limited (04768327).
16. IMPAIRMENT OF GOODWILL
(1) Additions in the year ended 31 May 2014 comprise the investment relating to equity-settled share-based payments for subsidiary employees of £6,555,598 (2013: £4,309,000)
and the purchase of shares in the Company’s immediate subsidiary, IG Group Limited, of £5,067,309 (2013: £17,540,000).
ANALYSIS OF GOODWILL
Goodwill has been allocated for impairment-testing purposes to the cash-generating units (CGUs), as follows:
The following companies are all owned directly or indirectly by IG Group Holdings plc:
Name of company
Subsidiary undertakings held directly:
Country of
incorporation
Holding
Voting rights
Nature of business
IG Group Limited
IG Jersey Cashbox Limited
UK
Jersey
Ordinary shares
Ordinary shares
Subsidiary undertakings held indirectly:
IG Index Limited
IG Markets Limited
IG Markets South Africa Limited
IG Australia Pty Limited
IG Asia Pte Limited
UK
UK
UK
Australia
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Singapore
Ordinary shares
North American Derivatives Exchange Inc
IG Securities Limited(1)
USA
Japan
Ordinary shares
Ordinary shares
IG Switzerland S.A.
Market Data Limited
Market Risk Management Inc
IG Infotech (India) Private Limited
IG Nominees Limited
IG Knowhow Limited
extrabet Limited
Broker Connect Inc
LLC IG Dev
IG Finance
IG Finance Two
IG Finance Three
IG Finance Four
IG Finance 5 Limited
IG Forex Limited (previously called
IG Finance 6 Limited)
IG Spread Betting Limited (previously
called IG Finance 7 Limited)
IG Finance 8 Limited
IG Finance 9 Limited
ITS Market Solutions Limited
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings(1)
IG US Holdings Inc
Market Data Japan KK
FXOnline Japan Co., Limited
Switzerland
Ordinary shares
UK
USA
India
UK
UK
UK
USA
Belarus
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Gibraltar
Gibraltar
Gibraltar
USA
Japan
Japan
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
(1) IG Securities Limited and Fox Japan Holdings have a year-end of 31 March due to local Japanese law.
Employee Benefit Trusts:
IG Group Holdings plc Inland Revenue Approved Share Incentive Plan (UK Trust)
IG Group Limited Employee Benefit Trust (Jersey Trust)
IG Group Employee Equity Plan Trust (Australian Trust)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding company
Non-trading
Spread betting and IT development
CFD trading, foreign exchange
and market risk management
CFD trading
Sales and marketing office
CFD trading and foreign exchange
Exchange
CFD trading and foreign exchange
CFD trading and foreign exchange
Data distribution
Market maker
Software development
Nominee company
Software development
Non-trading
Software development
Software development
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Non-trading
Financing
Financing
Holding company
Holding company
Holding company
Non-trading
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Notes to the Financial Statements
UK
Australia
US
South Africa
2014
£000
Group
2013
£000
100,012
100,012
934
4,535
1,177
934
4,998
1,359
106,658
107,303
UK goodwill arose on the purchase of IG Group plc by IG Group Holdings plc on 5 September 2003. Goodwill disclosed as Australia arose on
the acquisition of the non-controlling interest in IG Australia Pty Limited in the year ended 31 May 2006. Goodwill arising on the acquisitions
of Nadex (formerly HedgeStreet), and the associated exchange technology and licence, and Ideal CFD’s has been allocated to the separate
US and South African CGUs respectively.
IMPAIRMENTS DURING THE FINANCIAL YEAR ENDED 31 MAY 2014
There was no indication of an ‘impairment trigger’ existing on any of the CGUs (2013: £nil), nor any impairment recognised during the year
ended 31 May 2014.
IMPAIRMENT-TESTING AT YEAR-END
The goodwill associated with each CGU has been subject to an impairment test at 31 May 2014, as set out in the following disclosures. For
the purposes of impairment-testing of goodwill, the carrying amount of each CGU is compared to the recoverable amount of each CGU
and any deficits are provided. The carrying amount of a CGU includes only those assets that can be attributed directly, or allocated on a
reasonable and consistent basis.
The estimated recoverable amount for the UK CGU of £1.3 billion is based upon fair value less costs of disposal. This is £1.2 billion in excess
of the carrying amount of the CGU.
The estimated recoverable amount of the US CGU, however, is based upon a value-in-use calculation due to the difficulty in determining a
fair value for this CGU. For the US CGU this is calculated as the total of the present value of projected future cash flows and a terminal value.
SENSITIVITY TO CHANGES IN ASSUMPTIONS
The UK, Australian and South African CGU’s reported a segment operating profit, after the allocation of central costs, of £117.5 million,
£31.3 million and £2.1 million respectively for the year ended 31 May 2014 (refer to note 4, Segment Information). Furthermore, the UK
CGU represents 52% of the Group’s net trading revenue for the year ended 31 May 2014. The Board-approved budget for the financial
year ending 31 May 2015 and longer-term strategic plans for the Group forecast at least a similar level of performance for these CGUs to
continue. As a result, both the single-year operating profit and thus the recoverable amount of the UK, Australian and South African CGUs
is significantly in excess of the carrying value. Accordingly, the outcome of the impairment review for the CGUs is not considered to be
sensitive to the assumptions used.
The Directors have performed a sensitivity analysis around the assumptions used in the value-in-use calculation of the goodwill associated
with the US CGU. The US CGU comprises both the Nadex exchange and associated market-making business (the ‘Nadex exchange
business’) as well as the wider commercial use of the exchange technology within the Group. While the Nadex exchange business remains
loss-making, the wider commercial use of the technology by the Group provides other significant economic benefits which, taken alone,
support the carrying value of the goodwill. For this reason the Directors consider that a reasonably possible change in a key assumption
would not cause the unit’s carrying amount to exceed its recoverable amount. In the event of the Nadex exchange business failing to
generate sufficient profits, the deferred tax asset of £1.7 million held in relation to carry forward tax losses might suffer impairment.
KEY ASSUMPTIONS USED IN FAIR VALUE LESS COSTS OF DISPOSAL CALCULATIONS
The fair value less costs of disposal of the UK CGU has been calculated using an earnings multiple determined by reference to the
Company’s quoted market capitalisation and the Group’s segmental operating profit. As the business model of this CGU is largely
synonymous with that of the Group, this methodology is deemed to be appropriate.
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. IMPAIRMENT OF GOODWILL (CONTINUED)
KEY ASSUMPTIONS USED IN VALUE-IN-USE CALCULATIONS
Projected future cash flows for the US CGU were based upon the Board-approved budget for the financial year ending 31 May 2015.
Forecasts to the year ending 31 May 2019 were then extrapolated from the budget using a range of client recruitment, client retention
rates and average revenue per client assumptions. These were based upon actual amounts measured in prior periods which were projected
forward in accordance with expected trends. This methodology is consistent with that used for the 31 May 2013 year-end impairment review.
The revenue growth rates disclosed in the following table are consistent with the long-term growth rates of other
Group businesses measured over a five-year period.
The calculation of value-in-use for the US CGU is most sensitive to the following assumptions:
• Client recruitment and retention rates
• Average revenue per client
• The discount rate
• The long-term growth rate used for the terminal value calculation
Cash flows were translated into sterling using year-end exchange rates.
The cash flows were discounted using a pre-tax discount rate as disclosed in the table below. This was derived using a region-specific,
market-based cost of equity and debt assumption, in order to reflect both the financing cost and risk associated with the US CGU. The
long-term growth rate (g) used in the terminal value calculation of the US CGU is also disclosed below, and is equivalent to, or lower than,
the respective long-term growth rate for the US economy.
Cash-generating unit
US
Discount rate
Average years 1-5 growth rate
2014
16.8%
2013
14.9%
2014
44.3%
2013
40.5%
2014
1.9%
g
2013
1.9%
On the basis of the results of the above analysis, there was no impairment of goodwill during the year.
17. TRADE RECEIVABLES
Amounts due from brokers(1)
Other amounts due to the Group(2)
Amounts due from clients(3)
2014
£000
Group
2013
£000
303,861
283,940
21,283
2,334
15,003
1,693
327,478
300,636
(1) Amounts due from brokers represent balances with brokers where the combination of cash held on account and the valuation of open financial-derivative positions results in
an amount due to the Group. At 31 May 2014 the actual broker margin requirement was £285.1 million (2013: £245.7 million) with the balance being excess cash margin held
at brokers.
(2) Other amounts due to the Group include balances that will be transferred to the Group’s own cash from segregated client funds on the following working day, in accordance
with the UK’s Financial Conduct Authority (FCA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates. This also includes amounts due
from banking counterparties or held within segregated client funds in relation to monies transferred by clients to the Group that remain unsettled at the year-end. The
Group is required to segregate these client funds at the point of client funding and not at cash settlement.
(3) Amounts due from clients arise when a client’s total funds deposited with the Group are insufficient to cover any trading losses incurred and are stated net of an allowance
for impairment (refer to note 36).
18. CASH AND CASH EQUIVALENTS
Gross cash and cash equivalents(1)
Less: segregated client funds(2)
Own cash and title transfer funds(3)
2014
£000
Group
2013
£000
959,906
921,869
(858,419)
(823,524)
101,487
98,345
Company
2013
£000
245
–
245
2014
£000
–
–
–
(1) Gross cash and cash equivalents include the Group’s own cash, proceeds from drawdown of the committed banking facility (2014 and 2013: £nil), 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 established under the UK’s Financial Conduct Authority (FCA) ‘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 total available liquidity including undrawn committed borrowing facilities is disclosed in note 19 to the Financial Statements.
122
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Notes to the Financial Statements
19. LIQUIDITY ANALYSIS AND RISK MANAGEMENT
The following section provides an analysis of the Group’s available liquidity and the liquidity requirements that result from the Group’s
business model, and sets out the key measures used by the Group to monitor and manage the level of liquidity available to the Group.
The key measures used by the Group are explained below:
Liquid assets: These are total liquid assets that the Group can access. These include cash held at bank (both own cash and title transfer
funds) as well as at brokers, the liquid assets buffer held by the Group and other cash amounts due to the Group.
Own funds: These are liquid assets less title transfer funds. Title transfer funds are client monies held by the Group under a Title Transfer
Collateral Arrangement (TTCA).
Available liquid assets: Certain of the Group’s funds are not immediately available for the purposes of central market risk management
as they are required to provide regulatory capital balances in regulated subsidiaries. Additionally, the Group’s overseas businesses
require working capital balances to fund daily operations and to ensure sufficient liquidity is available to fund the local client segregation
requirements. Available liquid assets are therefore liquid assets less both amounts held in overseas subsidiaries and amounts due from
segregation – each of which are not considered immediately available to the Group.
Net available liquidity: This is the remaining liquidity available to the Group after the funding of the broker margin requirement associated
with market risk management.
Total available liquidity: This measure is the total of the Group’s liquid assets and the Group’s undrawn committed banking facilities.
In order to mitigate liquidity risks, the Group regularly stress-tests its three-year liquidity forecast to validate the appropriate level of
committed unsecured bank facilities held. On 15 July 2014 the Group completed the renewal negotiations of the liquidity facility with a
syndicate of three banks. In doing so, the Group has maintained the size of the overall facility at £200.0 million. Of the total committed
banking facility, £120.0 million is available for a period of one year and £80.0 million is available for three years respectively. The drawings
made under the Group’s facility in the year ended 31 May 2014 are disclosed in note 19(c).
Additionally, the Group’s Japanese business, IG Securities Limited, has a ¥300 million (£1.8 million) liquidity facility as at 31 May 2014
(2013: ¥300 million (£2.0 million)).
The following notes have been provided to further explain the derivation of liquid assets, own funds, available liquid assets, net available
liquidity and total available liquidity. The generation of own funds is disclosed in note 19(d).
19(A) LIQUID ASSETS AND OWN FUNDS
‘Liquid assets’, stated net of borrowings, and ‘own funds’ are the key measures the Group uses to monitor the overall level of liquidity
available to the Group. The derivation of both liquid assets and own funds are shown in the following table:
Cash held, including title transfer funds(1)
Amounts due from brokers(2)
Financial investments – liquid assets buffer(3)
Other amounts due to the Group(4)
Liquid assets
Less:
Drawdown of committed banking facility
Title transfer funds
Own funds
Note
18
17
21
17, 22
22
2014
£000
101,487
303,861
82,457
20,450
2013
£000
98,345
283,940
50,468
15,003
508,255
447,756
–
–
(20,974)
(18,465)
487,281
429,291
(1) Own cash and title transfer funds represent cash held on demand with financial institutions (please refer to note 18).
(2) 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. These positions are held to hedge client market exposures in accordance with the Group’s market risk management policy.
(3) Financial investments represent UK government securities held in accordance with the BIPRU 12 liquidity standards and the Group’s regulatory oversight by the UK’s
Financial Conduct Authority (FCA). This is the Group’s ‘liquid assets buffer’.
(4) Other amounts due to the Group include balances that will be transferred to the Group’s own cash from segregated client funds on the following working day in accordance
with the FCA ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates. This also includes amounts due from banking counterparties or
held within segregated client funds in relation to monies transferred by clients to the Group that remain unsettled at the year-end. The Group is required to segregate these
client funds at the point of client funding and not at cash settlement.
’
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123
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. LIQUIDITY ANALYSIS AND RISK MANAGEMENT (CONTINUED)
19(B) THE GROUP’S LIQUIDITY REQUIREMENTS
The Group requires day-to-day liquidity for each of: the full segregation of client monies; the funding of regulatory and working capital in
overseas businesses; the funding of margin requirements at brokers to hedge the underlying client positions under both normal and stressed
conditions; the funding of a liquid asset buffer and amounts associated with general working capital.
The available liquid assets measure excludes cash amounts tied up in both the requirement to segregate client funds and in the regulatory
and working capital of overseas businesses, as they are not considered to be available for the purposes of central market and liquidity
risk management.
These requirements are analysed in the following table:
Liquid assets
Less amounts required to ensure appropriate client money segregation
Less amounts required for regulatory and working capital of overseas businesses(1)
Available liquid assets
Less broker margin requirement(2)
Net available liquidity
Of which:
Held as a liquid assets buffer(3)
Drawdown of committed banking facility(4)
Note
19(a)
17, 22
17
21
2014
£000
508,255
(20,450)
(28,666)
459,139
(285,102)
174,037
82,457
–
2013
£000
447,756
(15,003)
(32,542)
400,211
(245,689)
154,522
50,468
–
(1) The Group’s regulated subsidiaries in Singapore, Japan, South Africa and the US all have minimum cash holding requirements associated with their respective regulatory
capital requirements. Additionally the Group’s regulated business or subsidiaries in Australia, Singapore, Japan, South Africa and the US are required to segregate individual
client funds in segregated client money bank accounts. This daily segregation requirement occurs prior to the release of funds from the UK (note: market risk management
is performed centrally for the Group in the UK) in relation to the associated hedging positions held at external brokers. Accordingly cash balances are held in each of the
overseas businesses in order to ensure client money segregation obligations are met. These regulatory or working capital cash balances are not available to the Group
for the purposes of market risk management. It is anticipated that following the granting of a regulatory license in Switzerland the overseas regulatory and working capital
balances will increase.
(2) Positions are held with external brokers in order to hedge client market risk exposures in accordance with the Group’s market risk management policies.
(3) The liquid assets buffer is not available to the Group in the ordinary course of business, however utilisation is allowed in times of liquidity stress and therefore it is considered
as available for the purposes of overall liquidity planning.
(4) The short-term banking facility was undrawn at 31 May 2014 and 31 May 2013.
19(C) LIQUIDITY MANAGEMENT AND 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 while this applies specifically
to the Group’s FCA 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. A result of this policy is that short-term (less than one week) 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 potentially required to fund higher
margin requirements at brokers to hedge increased underlying client positions. These additional requirements are funded from the Group’s
available liquid assets 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 appropriate
level of committed unsecured bank facilities held.
These facilities were drawn to a maximum of £50.0 million for a period of 30 days, but partially repaid down to £25.0 million for a further
32 days in October to December 2013, and to £30.0 million for 28 days during February and March 2014 following the reduction in available
liquidity after payment of dividends and at a time of relatively high levels of broker margin. In the year ended 31 May 2013 the facilities were
drawn down to a maximum of £25.0 million for a period of 22 days in April 2013, when the broker margin requirement reached a level of
£294.7 million and the Group held a liquid assets buffer of £50.5 million.
As well as the three-year liquidity forecast, the Group also produces more detailed short-term liquidity forecasts and detailed stress tests
such that appropriate management actions or liquidity facility drawdown can occur prior to a period of expected liquidity requirements.
Additionally the Group’s Japanese business, IG Securities Limited has a ¥300 million (£1.8 million) liquidity facility as at 31 May 2014
(2013: ¥300 million (£2.0 million)).
124
Financial Statements
Notes to the Financial Statements
A number of measures are used by the Group for managing liquidity risk, one of which is the level of total available liquidity. For this purpose
total liquidity is calculated as set out in the following table inclusive of the undrawn committed facility.
Liquid assets
Undrawn committed banking facility(1)
Total liquidity (including facilities)(2)
2014
£000
2013
£000
508,255
447,756
200,000
180,000
708,255
627,756
(1) Drawdown of the committed banking facility is capped at 80% of the actual broker margin requirement on the drawdown date. The maximum available drawdown was
£200.0 million at 31 May 2014 (2013: £180.0 million) based on the broker margin requirements on those dates, of which £nil was drawn down as at 31 May 2014
(31 May 2013: £nil).
(2) Stated inclusive of the liquid assets buffer of £82.5 million (2013: £50.5 million) that is held by the Group in satisfaction of the FCA requirements to hold a ‘liquid asset buffer’
against potential liquidity stress under BIPRU 12. Utilisation of the liquid assets buffer is allowed in times of liquidity stress, and therefore it is considered as available for the
purposes of overall liquidity planning.
The Group’s total liquidity enables the funding of large broker margin requirements when required – the total available liquidity that can
be utilised for market risk management at 31 May 2014 should be considered in light of the intra-period-high broker margin requirement
of £290.3 million (2013: £297.5 million), the requirement to hold a liquid assets buffer, the continued growth of the business (both for client
trading and geographic expansion), the Group’s commitment to segregation of individual clients money and the declared final dividend for
the year ending 31 May 2014, all of which draw upon the Group’s liquidity.
19(D) OWN FUNDS GENERATED FROM OPERATIONS
The following Cash Flow Statement summarises the Group’s generation of own funds during the year and excludes all cash flows in relation
to monies held on behalf of clients. Additionally, both amounts due from brokers and the liquid assets buffer have been treated as ‘cash
equivalents’ and included within ‘own funds’ in order to provide a clear presentation of the Group’s cash resources. The derivation of own
funds is explained in note 19(a), and is stated net of amounts drawn on the Group’s committed banking facility. A narrative explanation of the
key cash flows disclosed in the following Cash Flow Statement is provided within the Operating and Financial Review.
Operating activities
Profit before tax
Depreciation and amortisation
Other non-cash adjustments(1)
Income taxes paid
Own funds generated from operations
Movement in working capital(1)
(Outflow) / inflow from investing activities
Interest received
Purchase of property, plant and equipment and intangible assets
Purchase of non-controlling interests
Outflow from financing activities
Interest paid
Equity dividends paid to owners of the parent
Other outflow from financing activities
Total outflow from investing and financing activities
Increase in own funds
Own funds at 1 June
Exchange losses on own funds
Own funds at 31 May
2014
£000
2013
£000
194,723
192,208
9,697
3,897
12,166
3,204
(47,761)
(53,247)
160,556
154,331
(3,298)
(12,038)
1,537
(11,504)
–
(1,988)
(84,827)
(33)
2,172
(16,762)
(1,319)
(3,175)
(81,615)
(33)
(96,815)
(100,732)
60,443
429,291
(2,453)
41,561
388,221
(491)
487,281
429,291
(1) For the comparative year 31 May 2013 £1,043,000 has been reclassified in order to include the recovery or impairment of trade receivables within working capital rather
than other non-cash adjustments, reducing ‘other non-cash adjustments’ from £4,247,000 to £3,204,000 and reducing the ‘movement in working capital’ from £13,081,000
to £12,038,000.
19(E) SUBSEQUENT EVENTS
The Group has on 15 July 2014 completed the renegotiation of the £200.0 million liquidity facility with a syndicate of three banks. In doing
so the Group has renewed the £120.0 million element of the facility available for a period of one year (with an option to extend for a further
year) and renegotiated the £80.0 million element of the facility to be available for a further three years respectively from 31 July 2014. Please
refer to note 38.
A final dividend of 22.40 pence per share, amounting to £81,814,000, was proposed by the Board on 18 July 2014.
In the Directors’ opinion the Group has sufficient liquidity available to meet operational requirements under both normal and stressed
conditions. Liquidity management is also dependent on credit risk management, subsequently described in note 36(ii).
’
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A
I
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A
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S
S
T
A
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E
M
E
N
T
S
T
R
A
T
E
G
I
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R
E
P
O
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T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
R
E
P
O
R
T
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
I
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125
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. CASH GENERATED FROM OPERATIONS
23. OTHER PAYABLES
Operating activities
Operating profit / (loss)
Ad justments to reconcile operating profit to net cash flow from
operating activities:
Net interest income on segregated client funds
Depreciation of property, plant and equipment
Amortisation of intangible assets
Note
13
14
Non-cash foreign exchange losses / (gains) in operating profit
Share-based payments
(Increase) / decrease in trade and other receivables(1)
Increase / (decrease) in trade and other payables
Decrease in provisions
Other non-cash items
Cash generated from operations
2014
£000
Group
2013
£000
195,255
191,928
Company
2013
£000
(3,122)
2014
£000
(2,282)
(5,500)
4,656
5,041
8,572
6,556
(40,934)
2,819
–
–
(8,188)
6,050
6,116
(2,399)
4,309
(78,372)
(52,228)
(202)
(612)
–
–
–
–
6,556
80,492
1,007
–
–
–
–
–
–
4,309
84,801
(3,641)
–
–
176,465
66,402
85,773
82,347
(1) For the comparative year of 31 May 2013 £1,043,000 relating to ‘recovery of trade receivables’ has been reclassified into ‘increase in trade and other receivables’ reducing
‘increase in trade and other receivables’ from £79,415,000 to £78,372,000.
21. FINANCIAL INVESTMENTS
UK government securities:
At 1 June
Purchase of securities
Maturity of securities and coupon receipts
Accrued interest
Net gains / (losses) transferred to equity
At 31 May
Less non-current portion
Current portion
2014
£000
50,468
91,294
(59,598)
234
59
82,457
(32,150)
50,307
Group
2013
£000
–
50,486
–
20
(38)
50,468
–
50,468
Accruals
Other taxes and social security
Amounts due to Group companies (note 34(b))
Dividends on redeemable preference shares
Included within accruals are amounts in relation to employee bonuses.
24. PROVISIONS
At the beginning of the year
Utilised in the year
At the end of the year
25. LITIGATION
2014
£000
50,506
2,825
–
3
Group
2013
£000
51,534
2,244
–
3
Company
2013
£000
6,164
–
26,293
3
2014
£000
7,155
–
544
3
53,334
53,781
7,702
32,460
2014
£000
–
–
–
Group
2013
£000
1,353
(1,353)
–
On the 27 March 2013, the High Court dismissed the claim against IG Markets Limited, which dated from late 2010, in relation to the
insolvency of Echelon Wealth Management Limited, a former client of IG Markets Limited. No provision had been made in the Group
Statement of Financial Position as at 31 May 2012.
Subsequently the claimants chose not to appeal and have paid a substantial contribution to the legal costs incurred by the Group as
disclosed in note 5.
26. REDEEMABLE PREFERENCE SHARES
Company and Group
2014
£000
2013
£000
40
40
The UK government securities are held by the Group in satisfaction of the FCA requirements to hold a ‘liquid asset buffer’ against potential
liquidity stress under BIPRU 12.
Allotted, called up and fully paid:
40,000 preference shares of £1 each
The effective interest rates of securities held at the year-end range from 0.41% to 0.66%.
Financial investments are shown as current assets when they have a maturity less than one year and are held as ‘available-for-sale’. The fair
value of securities held is based on closing market prices at the year-end as published by the UK Debt Management Office. Please refer to
note 36(i)(c) for a maturity profile.
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% (2013: 8%).
22. TRADE PAYABLES
Amounts due to title transfer clients
Amounts due to clients(1)
Other trade payables
2014
£000
20,974
833
95
Group
2013
£000
18,465
–
582
21,902
19,047
(1) 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 Conduct Authority (FCA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates.
126
Financial Statements
Notes to the Financial Statements
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A
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S
S
T
A
T
E
M
E
N
T
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
R
E
P
O
R
T
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
I
N
V
E
S
T
O
R
R
E
S
O
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127
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27. SHARE CAPITAL
COMPANY AND GROUP
Allotted and fully paid:
(i) Ordinary shares (0.005p)
At 1 June 2012
Issued during the year
At 31 May 2013
Issued during the year
At 31 May 2014
(ii) B shares (0.001p)
At 31 May 2013 and 31 May 2014
Number of shares
Share capital
£000
Share premium account
£000
363,315,023
1,579,901
364,894,924
859,707
365,754,631
65,000
18
–
18
–
18
–
206,291
467
206,758
–
206,758
–
During the year to 31 May 2014, 859,707 (2013: 1,579,901) ordinary shares with an aggregate nominal value of £43 (2013: £79) were issued
following the exercise of long-term incentive and value-sharing plan awards for a consideration of £43 (2013: £467,000).
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.
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:
1,223,411 (2013: 1,207,619) ordinary shares of 0.005p each
Purchased during the year:
4,968 (2013: 97,075) ordinary shares of 0.005p each
Exercised/re-allocated during the year:
181,652 (2013: 81,283) ordinary shares of 0.005p each
At the end of the year:
1,046,727 (2013: 1,223,411) ordinary shares of 0.005p each
Company and Group
2014
£000
2013
£000
1,456
1,508
30
441
(397)
(493)
1,089
1,456
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 2014, 389,725 ordinary shares (2013: 559,762) were held in the trust and
at the year-end have reduced shareholders’ equity by £2,344,196 (2013: £3,241,022). These include 151,711 ordinary shares (2013: 252,580)
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 £912,542 (2013: £1,462,438).
The Group has a Jersey-resident Employee Benefit Trust which holds shares in the Company. At the 31 May 2014, the trust held 512,075
(2013: 512,075) ordinary shares which are available to satisfy awards under the long-term share plans and Directors’ deferred bonus award.
The shares held at the year-end have reduced shareholders’ equity by £26 (2013: £26). The market value of the shares held conditionally at
the year-end was £3,080,131 (2013: £2,964,914).
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 2014, 9,790 ordinary shares (2013: 12,412) were held in the trust and at the year-end have reduced shareholders’ equity by £58,887
(2013: £71,865). These include nil ordinary shares (2013: 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 nil (2013: nil).
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 2014, 33 (2013: 237) B shares were sold by B shareholders to the Trust. The Trust sold 4,025 (2013: 28,905)
ordinary shares in order to realise the funds necessary to purchase these B shares. The Trust unconditionally held 63,892 (2013: 63,859)
B shares at the year-end. The Trust also held 1,108 (2013: 1,141) B shares and 135,137 (2013: 139,162) ordinary shares which it may sell in order
to satisfy its obligations to B shareholders, all of whom are current or former employees.
128
Financial Statements
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 taxation. The foreign currency translation reserve includes amounts in relation to the translation of
overseas subsidiaries. The available-for-sale reserve includes unrealised gains or losses in respect of financial investments.
Group
At 1 June 2012
Equity-settled employee share-based payments
Ex cess of tax deduction benefit on share-based
payments recognised directly in equity (note 10)
Foreign currency translation on overseas subsidiaries
Exercise of Australian share-incentive plans
Exercise of US share-incentive plans
Exercise of UK share-incentive plans
Purchase of own shares
Acquisition of non-controlling interest
Loss on financial investments
At 31 May 2013
Equity-settled employee share-based payments
Foreign currency translation on overseas subsidiaries
Exercise of Australian share-incentive plans
Exercise of US share-incentive plans
Exercise of UK share-incentive plans
Utilisation of own shares
Purchase of own shares
Gain on financial investments
At 31 May 2014
Company
At 1 June 2012
Equity-settled employee share-based payments
Exercise of Australian share-incentive plans
Exercise of US share-incentive plans
Exercise of UK share-incentive plans
Purchase of own shares
At 31 May 2013
Equity-settled employee share-based payments
Exercise of Australian share-incentive plans
Exercise of US share-incentive plans
Exercise of UK share-incentive plans
Utilisation of own shares
Purchase of own shares
At 31 May 2014
Share-
based
payments
(note 30)
£000
29,477
4,309
13
–
(5)
(20)
(488)
–
–
–
33,286
6,556
–
(17)
(3)
(178)
146
–
–
Foreign
currency
translation
£000
59,876
–
–
(4,575)
–
–
–
–
–
–
55,301
–
(6,452)
–
–
–
–
–
–
Own shares held
in Employee
Benefit Trusts
(note 28)
£000
Transactions
with non-
controlling
interests
£000
Available-
for-sale
reserve
£000
(1,508)
(2,302)
–
–
–
5
–
488
(441)
–
–
–
–
–
–
–
–
–
199
–
(1,456)
(2,103)
–
–
17
–
178
202
(30)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(38)
(38)
–
–
–
–
–
–
–
59
21
Share-
based
payments
(note 30)
£000
Own shares held
in Employee
Benefit Trusts
(note 28)
£000
25,104
4,309
(5)
(20)
(488)
–
28,900
6,556
(17)
(3)
(178)
146
–
(1,508)
–
5
–
488
(441)
(1,456)
–
17
–
178
202
(30)
Total
other
reserves
£000
85,543
4,309
13
(4,575)
–
(20)
–
(441)
199
(38)
84,990
6,556
(6,452)
–
(3)
–
348
(30)
59
85,468
Total
other
reserves
£000
23,596
4,309
–
(20)
–
(441)
27,444
6,556
–
(3)
–
348
(30)
35,404
(1,089)
34,315
39,790
48,849
(1,089)
(2,103)
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129
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. EMPLOYEE SHARE PLANS
The maximum number of SIP shares that can vest based on the awards made are:
The Company operates four employee share plans; a sustained performance plan (SPP), a long-term incentive plan (LTIP), a value-sharing
plan (VSP) and a share-incentive plan (SIP), all of which are equity-settled. The SPP and a new LTIP have been awarded in the current year in
place of the VSP. The expense recognised in the Income Statement in respect of share-based payments (including associated social security
costs) was £7,077,000 (2013: £4,414,000).
30(A) CURRENT SCHEMES
Sustained performance plan (SPP)
Following a review of executive remuneration, and shareholder approval at the Annual General Meeting (AGM) in October 2013, the SPP
award was introduced in the current year to replace the VSP award for the Group’s Executive Directors and other selected senior employees.
The Remuneration Committee has responsibility for agreeing any awards under the plan and for setting the policy for the operation of the
plan, including agreeing performance targets and which employees should be invited to participate.
The legal grant of awards under the SPP is post the relevant performance period. At the outset of the financial year the Remuneration
Committee approves, and communicates to the participants, performance conditions and a pre-defined maximum monetary award in terms
of multiple of salary. The grant of awards, in the form of equity settled par-value options, is based upon three performance conditions: Total
Shareholder Return (TSR), diluted earnings per share and operational non-financial performance. Awards subsequently vest in tranches over
the long term (up to seven years), so the participant retains an ongoing substantial stake in the share price performance of the Company.
As a ‘shared understanding’ under IFRS2 is established between the Company and participants at the scheme outset, the costs associated
with the SPP are accounted for as share-based payments from this time.
Further information on the Company’s SPP awards is given in the Directors’ Remuneration Report.
Awards under the SPP will be granted post year-end following the approval of actual performance against targets set by the Remuneration
Committee. A ten-day share-price averaging period that will commence after the Company’s closed period is utilised to convert notional
salary awarded into a number of options.
The weighted average exercise price of all SPP awards is 0.005p.
Long-term incentive plan (LTIP)
In the current year a new LTIP award has been made available to senior management that are not invited to participate in the SPP, in order to
replace the legacy VSP.
LTIP awards allow the award of nominal cost options which vest when specific performance targets are 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 LTIP awarded in the current year vests after three years with a predefined number of shares allocated pro-rata, based on achieving
diluted earnings per share growth of between zero and 9%, with straight-line vesting in between.
The maximum number of LTIP awards that can be exercised are:
Award date
28 Nov 2013
Total
Share price
at award
Expected
vesting date
584.00p
28 Nov 2016
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
(number)
–
–
446,001
446,001
(8,268)
(8,268)
–
–
437,733
437,733
The weighted average exercise price of all LTIP awards is 0.005p.
Share-incentive plan (SIP)
SIP awards are made available to all UK, Australian and US employees. The Executive Directors have 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 (2013: £1,500 / A$3,000) of partnership shares,
with the Company typically 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 US 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.
130
Financial Statements
Notes to the Financial Statements
Country
of award
UK
Award date
21 Jul 10
Australia
05 Aug 10
UK
28 Jul 11
Australia
01 Aug 11
UK
27 Jul 12
Australia
22 Aug 12
UK
Australia
Total
26 Jul 13
15 Jul 13
Share price
at award
Expected
vesting date
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
(number)
483.85p
489.90p
443.74p
444.77p
456.00p
432.02p
580.00p
572.50p
21 Jul 13
05 Aug 13
28 Jul 14
01 Aug 14
27 Jul 15
22 Aug 15
26 Jul 16
15 Jul 16
42,716
3,043
51,344
4,059
81,526
5,664
–
–
188,352
–
–
–
–
–
–
59,990
4,968
64,958
–
–
(3,041)
(902)
(7,715)
(1,416)
(3,533)
(540)
(42,716)
(3,043)
(676)
(451)
(658)
(944)
–
(648)
–
–
47,627
2,706
73,153
3,304
56,457
3,780
(17,147)
(49,136)
187,027
Of the above SIP awards exercised during the year ending 31 May 2014, the average weighted share price at exercise was:
Country of award
UK
Australia
UK
Australia
UK
Award date
28 Jul 11
01 Aug 11
27 Jul 12
22 Aug 12
26 Jul 13
578.00p
559.00p
579.25p
556.25p
599.25p
The weighted average exercise price of all SIP awards is £5.737.
30(B) FAIR VALUE OF EQUITY-SETTLED AWARDS
The fair value of the equity-settled share-based payments to employees is determined at the date at which a shared understanding of the
terms and conditions of the arrangement is reached between the Company and the participants. The weighted average fair value of the
equity-settled awards granted or deemed as such under IFRS2 during the year was £11,212,802 (2013: £18,365,223).
For SIP awards, the fair value is determined to be the share price at the grant date without making an adjustment for expected dividends, as
awardees are entitled to dividends over the vesting period.
For LTIP awards, the fair value at grant date is determined by taking the share price at grant date. An adjustment for the present value of
future dividends is not required, as dividend equivalents are awarded on options granted under the LTIP.
For potential SPP awards made under the Total Shareholder Return (TSR) criteria, fair value is calculated using an option-pricing model
prepared by advisers. For the SPP awards made under the earnings-per-share and non-financial operational measures, the fair value is
determined by taking the share price at deemed grant date less the present value of future dividends for the duration of the performance
period. Dividend equivalents accrue under the SPP on awarded but unvested options post the performance period. Post vesting (minimum
holding period) dividend equivalents cease to accrue on unexercised options.
The inputs below were used to determine the fair value of the TSR element of the SPP award issued on 28 November 2013:
Date of deemed grant
28 November 2013
Share price at grant date (pence)
Expected life of awards (years)
Risk-free sterling interest rate (%)(1)
IG’s expected volatility (%)(2)
Benchmark index correlation (%)
Interim dividend estimate(3)
584p
1
–
20.86%
19.1%
5.75p
(1) Due to minimal exercise price the risk-free rate has no impact on the fair value calculation.
(2) Based on historical TSR volatility of IG Group Holdings plc measured daily over a period prior to the date of grant and commensurate with the remaining
performance period.
(3) The dividend paid in the period from the deemed grant date to the end of the performance period, from which date dividend equivalents accrue on awarded but
unvested options.
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131
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. EMPLOYEE SHARE PLANS (CONTINUED)
30(B) FAIR VALUE OF EQUITY-SETTLED AWARDS (CONTINUED)
The weighted average fair values per award granted are as follows:
Year ended 31 May 2014
Year ended 31 May 2013
At the beginning
of the year
Awarded
during the year
Lapsed
during the year
Exercised
during the year
At the end
of the year
267.13p
279.09p
583.42p
238.61p
305.11p
290.50p
254.55p
192.01p
241.10p
267.13p
30(C) LEGACY SCHEMES
Value-sharing plan (VSP)
The VSP award was an annual award introduced during the year ended 31 May 2011. In the current year, however, the VSP awards have
been replaced by the SPP for executives and selected senior management and LTIP awards for other senior management. VSP awards were
conditional awards made available to Executive Directors and other senior staff. Participants do not pay to receive awards or to exercise
options. The VSP performance period is over three years, with a pre-defined number of shares allocated for each £10 million 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 VSP is based
upon two performance conditions, Total Shareholder Return (TSR) and profit before taxation.
The maximum number of VSP shares that can vest based on the awards made are:
Award date
29 Oct 10
29 Oct 10
20 Jul 11
20 Jul 11
01 Aug 12
01 Aug 12
Total
Share price
at award
Expected
vesting date
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
(number)
528.50p
528.50p
450.00p
450.00p
449.70p
449.70p
29 Oct 13
29 Oct 14
31 Jul 14
31 Jul 15
31 Jul 15
31 Jul 16
1,831,999
1,808,440
3,064,441
3,040,752
3,763,606
3,763,641
17,272,879
–
–
–
–
–
–
–
(1,679,797)
(1,686,547)
(2,927,582)
(2,941,888)
(271,614)
(281,452)
(9,788,880)
(135,145)
–
(36,645)
–
–
–
17,057
121,893
100,214
98,864
3,491,992
3,482,189
(171,790)
7,312,209
Of the above VSP exercised during the year ending 31 May 2014, the average share price at exercise was:
Award date
29 October 2010
20 July 2011
Average share price at exercise
609.13p
553.50p
Exercise of awards in relation to the July 2011 grant results from the departure of A R MacKay. These awards vested early at the discretion of
the Remuneration Committee, as disclosed in the Remuneration Report for the year ended 31 May 2013.
The weighted average exercise price of all VSP awards is 0.005p.
Historic long-term incentive plan (LTIP)
The historic 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.
These historic 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 had to be achieved before any options vested, and the awards vested fully once the maximum performance target
was achieved.
132
Financial Statements
Notes to the Financial Statements
The maximum number of LTIP awards that can be exercised are:
Award date
04 Oct 06
23 Jul 07
14 Aug 07
30 Sep 08
25 Sep 09
Total
Share price
at award
Expected
vesting date
At the start
of the year
Awarded
during the year
(number)
Lapsed
during the year
(number)
Exercised
during the year
(number)
At the end
of the year
(number)
261.75p
312.25p
311.00p
313.75p
318.80p
04 Oct 09
23 Jul 10
14 Aug 10
30 Sep 11
25 Sep 12
32,639
197,588
14,700
80,538
378,402
703,867
–
–
–
–
–
–
–
–
–
–
–
–
(32,639)
(181,636)
(14,700)
(80,538)
(378,402)
(687,915)
–
15,952
–
–
–
15,952
Of the above LTIP exercised during the year ending 31 May 2014, the average share price at exercise was:
Average share price at exercise
Award date
599.50p
04 June 2006
572.79p
23 July 2007
14 August 2007
613.00p
30 September 2008 589.14p
25 September 2009 582.89p
The weighted average exercise price of all LTIP awards is 0.005p.
31. CAPITAL COMMITMENTS
Capital expenditure contracted for at the year-end but not yet incurred is as follows:
Property, plant and equipment
Intangible assets
2014
£000
870
–
870
Group
2013
£000
189
162
351
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
2014
£000
4,921
16,417
17,868
39,206
2014
£000
2,290
9,617
15,316
27,223
2013
£000
4,419
15,547
19,626
39,592
2013
£000
2,242
9,472
16,033
27,747
The Group’s main leases on its UK headquarters and several of its smaller offices include annual inflationary rent increase clauses.
33. TRANSACTIONS WITH DIRECTORS
The Group had no transactions with its Directors other than those disclosed in the Directors’ Remuneration Report.
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133
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. RELATED-PARTY TRANSACTIONS
The Group’s financial instruments are classified as follows:
34(A) GROUP
The Directors and other members of management classified as ‘persons discharging management responsibility’ in accordance with the
Financial Services and Markets Act 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 together with their connected parties was as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
2014
£000
2,708
253
4,048
7,009
2013
£000
2,558(1)
175(1)
1,346
4,079
(1) Includes £nil for loss of office for A R MacKay (2013: £140,000 and £21,000 respectively). For further information refer to the Directors’ Remuneration Report.
34(B) COMPANY
The Company pays for certain expenses incurred by subsidiaries and received preference dividends from IG Group Limited of £nil
(2013: £41.2 million). In the year ending 31 May 2013, post the receipt of the dividend the preference shares held in IG Group Limited were
redesignated as ordinary shares.
The Company had the following amounts outstanding with subsidiaries at the year-end:
Loans to related parties
Loans from related parties
2014
£000
132,987
544
2013
£000
163,576
26,293
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.
35. FINANCIAL INSTRUMENTS
ACCOUNTING CLASSIFICATIONS AND FAIR VALUES - GROUP
The table opposite 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.
‘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 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.
134
Financial Statements
Notes to the Financial Statements
Group
As at 31 May 2014
Financial assets
Cash and cash equivalents
Financial investments
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
Trade payables – due to clients
Redeemable preference shares
Group
As at 31 May 2013
Financial assets
Cash and cash equivalents
Financial investments available-for-sale
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 to the Group 17
Financial liabilities
Trade payables – due to title transfer clients
Redeemable preference shares
22
26
FVTPL –
held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Available-
for-sale
£000
Total
carrying
amount
£000
Fair value
£000
Note
18
21
17
17
22
22
26
–
–
101,487
–
12,302
(35,666)
(23,364)
–
–
175,916
151,309
327,225
2,334
21,283
(23,364)
452,329
–
–
–
–
–
–
–
–
–
82,457
101,487
82,457
101,487
82,457
–
–
–
–
–
188,218
115,643
303,861
2,334
21,283
188,218
115,643
303,861
2,334
21,283
82,457
511,422
511,422
–
–
–
–
–
833
–
833
20,974
–
40
21,014
–
–
–
–
20,974
20,974
833
40
833
40
21,847
21,847
FVTPL –
Held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Available-
for-sale
£000
Total
carrying
amount
£000
Fair value
£000
Note
18
21
17
–
–
98,345
–
16,784
(20,858)
(4,074)
–
–
179,475
108,539
288,014
1,693
15,003
(4,074)
403,055
–
–
–
–
–
–
–
–
–
50,468
98,345
50,468
98,345
50,468
–
–
–
–
–
196,259
87,681
283,940
1,693
15,003
196,259
87,681
283,940
1,693
15,003
50,468
449,449
449,449
–
–
–
–
–
–
18,465
40
18,505
–
–
–
18,465
18,465
40
40
18,505
18,505
FINANCIAL INSTRUMENT VALUATION HIERARCHY
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
Group
As at 31 May 2014
Financial assets
Trade receivables – due (to) / from brokers
Financial investments
Level 1(1)
£000
Level 2(2)
£000
Level 3(3)
£000
Total fair
value
£000
(35,666)
82,457
12,302
–
–
–
(23,364)
82,457
(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
(2013: none). During the year ended 31 May 2014, there were no transfers (2013: none) between Level 1 and Level 2 fair value measurements,
and no transfers into or out of Level 3 fair value measurements (2013: none).
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A
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S
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A
T
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G
I
C
R
E
P
O
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T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
R
E
P
O
R
T
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
I
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E
S
T
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S
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S
135
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35. FINANCIAL INSTRUMENTS (CONTINUED)
Group
As at 31 May 2013
Financial assets
Trade receivables – due from brokers
Financial investments
Level 1
£000
Level 2
£000
Level 3
£000
Total fair
value
£000
(20,858)
50,468
16,784
–
–
–
(4,074)
50,468
RECONCILIATION OF THE MOVEMENT IN LEVEL 3 OF THE VALUATION HIERARCHY
Group
Financial liabilities
Trade receivables – due to clients
At 1 June
2013
£000
Gains or
losses in
revenue(1)
£000
Cash-
settled
positions(2)
£000
Transfers
£000
At 31 May
2014(3)
£000
–
26,780
(26,780)
–
–
(1) Disclosed in trading revenue in the Income Statement. This represents client positions that have closed in the year as well those open at year-end.
(2) Value of client positions that have cash settled in the year.
(3) Value of open, unsettled client positions at year-end disclosed in trading revenue in the Income Statement.
Group
Financial liabilities
Trade receivables – due to clients
At 1 June
2012
£000
Gains or
losses in
revenue
£000
Cash-
settled
positions
£000
Transfers
£000
At 31 May
2013
£000
–
20,984
(20,984)
–
–
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
Company
As at 31 May 2014
Financial assets
Cash and cash equivalents
Amounts due from Group companies (note 34(b))
Financial liabilities
Amounts due to Group companies (note 34(b))
Redeemable preference shares
Company
As at 31 May 2013
Financial assets
Cash and cash equivalents
Amounts due from Group companies (note 34(b))
Financial liabilities
Amounts due to Group companies (note 34(b))
Redeemable preference shares
FVTPL –
held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Available-
for-sale
£000
Total
carrying
amount
£000
Fair value
£000
–
–
–
–
–
–
–
132,987
132,987
–
–
–
–
–
–
544
3
547
–
–
–
–
–
–
–
132,987
132,987
–
132,987
132,987
544
3
547
544
3
547
FVTPL –
held for
trading
£000
Loans and
receivables
£000
Other
amortised
cost
£000
Available-
for-sale
£000
Total
carrying
amount
£000
Fair value
£000
–
–
–
–
–
–
245
163,576
163,821
–
–
–
–
–
–
26,293
3
26,296
–
–
–
–
–
–
245
163,576
163,821
245
163,576
163,821
26,293
26,293
3
3
26,296
26,296
136
Financial Statements
Notes to the Financial Statements
ITEMS OF INCOME, EXPENSE, GAINS OR LOSSES - GROUP
Gains and losses arising from financial assets and liabilities classified as fair value through the profit and loss, held for trading amounted to
net gains of £370,408,000 (2013: £361,857,000).
Finance income (refer to note 8) totalled £1,456,000 (2013: £2,036,000). An amount of £1,456,000 (2013: £1,994,000) 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 broker and interest receivable calculated using the Effective Interest Rate methodology financial investments.
Finance costs (refer to note 9) totalled £1,988,000 (2013: £1,756,000). An amount of £382,000 represents interest expense on financial
liabilities not at fair value through profit or loss (2013: £283,000). The remainder, £1,606,000 (2013: £1,473,000) represents fee expense arising
from maintaining the Group’s committed bank facilities.
FINANCIAL INSTRUMENTS SUBJECT TO OFFSETTING, ENFORCEABLE MASTER NETTING AGREEMENTS AND
SIMILAR ARRANGEMENTS
Within the Group’s terms and conditions with individual clients and brokers are standard netting-agreement clauses. The effect of these
netting arrangements, including rights of set-off associated within the Group’s recognised financial assets and financial liabilities is as follows:
Group
As at 31 May 2014
Financial assets
Cash and cash equivalents(1)
Financial investments available-for-sale
Trade receivables – due from brokers(2)
Trade receivables – due from all clients(3)
Trade receivables – other amounts due to the Group
Financial liabilities
Trade payables – due to brokers(2)
Trade payables – due to all clients(1)(3)
Redeemable preference shares
Gross amounts
before offsetting
£000
Amounts set off in
the balance sheet
£000
Note
Net amounts
presented in the
balance sheet
£000
18
21
17
17
17
22
26
959,906
82,457
379,501
282,055
21,283
(858,419)
–
(75,640)
(279,721)
–
1,725,202
(1,213,780)
75,640
1,159,947
40
1,235,627
(75,640)
(1,138,140)
–
(1,213,780)
101,487
82,457
303,861
2,334
21,283
511,422
–
21,807
40
21,847
(1) ‘Cash and cash equivalents’ has been grossed up for segregated client funds which comprise individual client funds held in segregated client money accounts established
under the UK’s Financial Conduct Authority (FCA) ‘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.
(2) ‘Trade receivables – due from brokers’ represent balances with brokers where the combination of cash held on account (disclosed as loans and receivables) and the net
valuation of financial derivative open positions (disclosed as held for trading) results in an amount due to the Group. The net financial derivative open positions have been
presented gross according to whether individual positions held at brokers are in a profit or loss position.
(3) ‘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.
Therefore, as well as being presented gross of segregated client money discussed in (1) above, client open positions have been presented gross according to whether
individual client positions are in a profit or loss position.
Group
As at 31 May 2013
Financial assets
Cash and cash equivalents
Financial investments available-for-sale
Trade receivables – due from brokers
Trade receivables – due from clients
Trade receivables – other amounts due to the Group
Financial liabilities
Trade payables – due to brokers
Trade payables – due to all clients
Redeemable preference shares
Gross amounts
before offsetting
£000
Amounts set off in
the balance sheet
£000
Note
Net amounts
presented in the
balance sheet
£000
18
21
17
17
17
22
26
921,869
50,468
385,179
286,349
15,003
(823,524)
–
(101,239)
(284,656)
–
1,658,868
(1,209,419)
101,239
1,126,645
40
1,227,924
(101,239)
(1,108,180)
–
(1,209,419)
98,345
50,468
283,940
1,693
15,003
449,449
–
18,465
40
18,505
’
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137
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. FINANCIAL RISK MANAGEMENT
Responsibility for risk management, including financial risks, resides
at all levels within the Group, starting with the Board of Directors. Our
Corporate Governance structure, including details of how the Board
delegates responsibility for internal control and risk management
to our Audit and Risk Committees, is described in detail in the
Corporate Governance Report section of the Annual Report.
underlying market outcome. The overwhelmingly short-term nature
of these contracts 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.
The Group’s Internal Capital Adequacy Assessment Process
(ICAAP) and Individual Liquidity Adequacy Assessment (ILAA),
while applying specifically to the Group’s FCA entities, provide an
ongoing assessment of the risks the Group considers to have the
potential to have a significant detrimental impact on its financial
performance and future prospects and describe how the Group
mitigates these risks subject to the Group’s risk appetite.
Financial risks arising from financial instruments are analysed into
market, credit, concentration and liquidity risks, and these are
discussed below.
(I) MARKET RISK
Market risk is the risk that changes in market prices will affect
the Group’s income or the value of its holdings of financial
instruments. This is analysed into market price, currency and
interest rate risk components.
The Group’s market risk is managed 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 considers 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.
The Group’s real-time market-position-monitoring system allows it
to monitor its market exposure against these limits continuously. If
exposures exceed these limits, the policy requires that hedging is
undertaken to bring the exposure back within the defined limit.
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.
Where the Group has residual positions in markets for which it has
not been possible or cost-effective to hedge, the Executive Risk
Committee determines the appropriate action and reviews these
exposures regularly, subject to the risk management framework
approved by the Board.
Binary bets and options 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
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 £2,726,000
(2013: £16,459,000), against an exposure limit of £20,000,000
(2013: £16,500,000) and an average equity exposure limit for the year
of £18,250,000 (2013: £16,500,000). As noted earlier in this section
the Group’s Market Risk Policy requires that when the exposure
exceeds the exposure limit hedging is undertaken to bring the
exposure back within that limit as soon as practical.
The Group has no significant concentration of market risk.
No sensitivity analysis is presented for equity market price risk as the
impact of reasonably possible market movements on the Group’s
net trading revenue and equity are not significant, being less
than the Group’s average daily net trading revenue from financial
instruments. Changes in market risk variables have no direct impact
on the Group’s equity as the Group has no financial instruments
designated in hedging relationships.
Other market-price risk
The Group also has market-price risk as result of its trading activities
(offering bets and contracts for difference (CFDs) on interest-
rate derivatives and commodities) which is hedged as part of the
overall market risk management. The exposure is monitored on a
Group-wide basis and is hedged using exchange-traded futures and
options. Exposure limits are set by the Executive Risk Committee for
each product, and also for groups of products where it is considered
that their price movements are likely to be positively correlated.
The exposure to interest rate derivatives and commodities at the
year-end are as follows:
Interest-rate derivatives
Commodities
2014
£000
11,153
4,721
2013
£000
(2,492)
(6,177)
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 are not significant. Changes in risk variables
have no direct impact on the Group’s equity as the Group has no
financial instruments designated in hedging relationships.
(b) Foreign-currency risk
The Group is exposed to two sources of foreign-currency risk.
(i) Translational foreign-currency risk
Translation exposures arise from financial and non-financial items
held by an entity with a functional currency different from the
Group’s presentation currency. The functional currency of each
company in the Group is that denominated by the country of
incorporation as disclosed in note 15. The Group does not hedge
translational exposures as they do not have a significant impact on
the Group’s capital resources.
138
Financial Statements
Notes to the Financial Statements
(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 opposite. Limits on the exposures which the Group will accept in each currency are set by the Executive Risk Committee
and the Group hedges its exposures as necessary with market counterparties. Foreign currency risk is managed on a Group-wide basis, while
the Company’s exposure to foreign-currency risk is not considered by the Directors to be significant.
The Group monitors transactional foreign-currency risks including currency statement of financial position exposures, equity, commodity,
interest and other positions denominated in foreign currencies and bets and trades on foreign currencies. The Group’s net exposure to
foreign-exchange risk based on notional amounts at each year-end was as follows:
US dollar
Euro
Australian dollar
Yen
Other
2014
£000
(2,436)
(1,834)
949
(8,829)
3,598
2013
£000
577
3,026
(1,799)
231
(6,290)
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 or 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
Within one year
2014
£000
2013
£000
Between two
and five years More than five years
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
Total
2013
£000
Re deemable preference shares (8%)
–
–
–
Fi nancial investments available-for-sale
50,307
50,468
32,150
Floating rate
Cash and cash equivalents
Tr ade receivables – due from brokers
101,487
303,861
98,345
283,940
Tr ade payables – amounts due to clients
(20,974)
(18,465)
–
–
–
434,681
414,288
32,150
–
–
–
–
–
–
(40)
(40)
(40)
(40)
–
–
–
–
–
–
–
–
82,457
50,468
101,487
303,861
98,345
283,940
(20,974)
(18,465)
(40)
(40)
466,791
414,248
Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Please refer to note 21 for effective
interest rates received.
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% (2013: 0.25%) per annum fall and a 0.5% (2013: 0.5%) rise in interest rates, at the
beginning of the year, as these are considered ‘reasonably possible’. The impact of such a fall in interest rates would reduce net interest
income on segregated client funds by approximately £1.6 million (2013: £2.4 million) per annum. The impact of such a rise in interest rates
would increase net interest income on segregated client funds by approximately £3.3 million (2013: £4.2 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.
(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 a change in the financial institution’s corporate structure). Proposed maximum exposure limits for
these financial institutions are then reviewed and approved by the Executive 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.
’
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139
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. FINANCIAL RISK MANAGEMENT
(CONTINUED)
(II) CREDIT RISK (CONTINUED)
(a) Financial-institution credit risk (continued)
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 Executive Risk Committee
• Any change in short- and long-term credit rating
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 general policy is that all
financial institutional counterparties holding client money accounts
must have minimum 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 a locally systemically important institution. These criteria
also apply 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, settling or recalling balances at
each broker on a daily basis in line with the collateral requirements.
In addition, the majority of deposits are made on an overnight
or breakable-term basis, which enables the Group to react
immediately to any deterioration in credit quality, and deposits of an
unbreakable nature or requiring notice are only held with a subset
of counterparties which have been approved by the Executive Risk
Committee. At 31 May 2014 there were no deposits held on an
unbreakable basis (2013: £nil).
(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 increased margin requirements on larger
positions and our client suitability criteria, and is supported by
an extensive training program which aims to educate clients in all
aspects of trading and risk management, which encourages them to
collateralise their accounts at an appropriate level in excess of the
minimum requirement.
The principal types of client credit risk exposure are managed under
the Group’s Client Credit Management Policy and depend on the
type of account and any credit offered to clients as follows:
Clients subject to the Group’s ‘close-out monitor’
The Group’s management of client credit risk is supported by an
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
the COM liquidation process is eroded, the client is requested to
deposit additional funds up to at least the required margin level
and will also be restricted from increasing their market positions. If,
subsequently, the client’s intra-day losses increase such that their
total equity falls below the specified liquidation level, positions will
be liquidated immediately, resulting in reduced credit-risk exposure
for the Group.
In addition a subset of clients have 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 only a subset of more liquid
products are available to trade. Clients with any type of account
may still choose to use guaranteed stops (where available and on
payment of the premium).
The majority of client positions are monitored on the Group’s
real-time COM system or are limited-risk accounts with guaranteed
stops. As at 31 May 2014, 99.81% (2013: 98.83%) 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.
Each client with a credit limit is also assigned a liquidation level,
breach of which will result in closure of positions. Credit accounts
are small in number, are not actively promoted and in general they
are not made available to new clients.
Risk-based tiered margins
The Group applies a tiered-margin requirement for equities
and other instruments with risk-adjusted margin requirements
dependent on several factors including the volatility and liquidity of
the underlying instrument.
This has resulted in potential margin 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.
140
Financial Statements
Notes to the Financial Statements
These tiered margins, in addition to the COM discussed earlier, contribute to the further mitigation of the Group’s client counterparty
credit-risk exposure.
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 Conduct Authority (FCA) ‘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.
Group
Individually impaired
Gross exposure
Allowance for impairment
Past due but not impaired
Ageing profile:
0-3 months
> 6 months
Neither past due nor impaired
Credit rating:
AA+ and above
AA to AA-
A+ to A-
BBB+ to BBB-
BB+ to B
CCC
Unrated(1)
Total carrying amount
Cash and cash
equivalents
(note 18)
Trade receivables – due
from brokers
(note 17)
Trade receivables – due
from clients
(note 17)
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,118
86,708
5,079
116
–
466
101,487
101,487
11,905
81,015
5,009
7
–
409
98,345
98,345
55,109
247,355
61,103
219,795
72
–
–
1,325
303,861
303,861
6
–
–
3,036
283,940
283,940
11,485
(10,644)
841
11,247
(10,836)
411
346
–
346
–
–
–
–
–
–
1,147
1,147
2,334
410
–
410
–
–
–
–
–
–
872
872
1,693
(1) Amounts due from brokers are primarily related to the Group’s operations in South Africa. Unrated amounts due from clients relate to open positions. Prepayments and
other receivables are all unrated (2013: all unrated).
The financial investments are UK Government securities held by the Group in satisfaction of the FCA requirements to hold a ‘liquid asset
buffer’ against potential liquidity stress under BIPRU 12. As such they are rated as AA+.
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
2014
£000
2013
£000
10,836
17,202
2,926
(1,319)
(1,461)
(338)
955
(1,389)
(6,228)
296
10,644
10,836
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.
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. FINANCIAL RISK MANAGEMENT (CONTINUED)
(III) CONCENTRATION RISK (CONTINUED)
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 established under the UK’s Financial Conduct Authority (FCA) ‘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 2014
Financial assets
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Other amounts due to the Group
Total financial assets
Group
As at 31 May 2013
Financial assets
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Other amounts due to the Group
Total financial assets
UK
£000
Europe
£000
Australia
£000
Rest of
World
£000
Total
£000
74,334
82,457
92,540
1,942
14,235
1,178
–
51,800
242
–
6,464
–
19,511
–
52,228
107,293
77
1,619
73
5,429
101,487
82,457
303,861
2,334
21,283
265,508
53,220
60,388
132,306
511,422
UK
£000
Europe
£000
Australia
£000
Rest of
World
£000
Total
£000
66,964
50,468
96,175
1,242
9,489
2,658
–
80,092
156
–
6,028
–
53,029
78
214
22,695
–
98,345
50,468
54,644
283,940
217
5,300
1,693
15,003
224,338
82,906
59,349
82,856
449,449
The comparative disclosure has been restated in order to include Japan with the Rest of the World, consistent with the Group’s
segmental disclosures.
The Group’s largest credit exposure to any one individual broker at 31 May 2014 was £79,038,000 (A- rated) (2013: £61,103,500, AA- rated).
Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at 31 May 2014 was £61,480,000 (AA+ rated)
(2013: £60,773,000, A rated). 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 2014 and 31 May 2013.
(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. For further details refer to note 19.
Derivative and non-derivative cash flows by remaining contractual maturity – Group
The following tables present the undiscounted cash flows receivable and payable (excluding interest payments) by the Group under
derivative and non-derivative financial assets and liabilities allocated to the earliest period in which the Group can be required to pay
although the remaining contractual maturities may be longer.
Amounts payable on demand
As at 31 May 2014
Financial assets
Cash and cash equivalents
Financial investments
Trade receivables – due (to) / from brokers
Trade receivables – due from clients
Trade receivables – other amounts due to the Group
Financial liabilities
Trade payables – due to clients
Derivative
£000
Non-derivative
£000
Total
£000
–
–
(23,364)
–
–
101,487
82,457
327,225
2,334
21,283
101,487
82,457
303,861
2,334
21,283
(23,364)
534,786
511,422
–
(20,974)
(20,974)
(23,364)
513,812
490,448
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Financial Statements
Notes to the Financial Statements
Derivative trade receivables disclosed in the table at the bottom of page 142 represent the Group’s open positions with brokers.
Non-derivative trade receivables and payables disclosed in this table represent cash margin held at brokers, UK Government securities
and client debtors. Derivative and non-derivative cash flows are presented alongside each other in this table 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 at the bottom of page 142 as repayable on demand, as positions can be closed at any time by
clients and can also be closed by the Group, in accordance with the Group’s margining rules. If after closing a position a client is in surplus,
then the amount owing is repayable on demand by the Group.
Amounts payable on demand
As at 31 May 2013
Financial assets
Cash and cash equivalents
Financial investments available-for-sale
Trade receivables – due (to) / from brokers
Trade receivables – due from clients
Trade receivables – other amounts due to the Group
Financial liabilities
Trade payables – due to clients
Derivative
£000
Non-derivative
£000
–
–
98,345
50,468
Total
£000
98,345
50,468
(4,074)
288,014
283,940
–
–
1,693
15,003
1,693
15,003
(4,074)
453,523
449,449
–
(4,074)
(18,465)
(18,465)
435,058
430,984
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 2014 and 2013, 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 2014 (2013: £nil).
At 31 May 2014 the Company held cash and cash equivalents of £194 (2013: £245,000) available on demand and redeemable preference
shares of £40,000 (2013: £40,000) the terms of which are disclosed in note 26.
37. CAPITAL MANAGEMENT AND RESOURCES
CAPITAL MANAGEMENT
The Group is supervised on a consolidated basis by the UK’s Financial Conduct Authority (FCA). 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 FCA 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 2013 Internal Capital Adequacy Assessment Process (ICAAP) was approved by the Board in December 2013. There have been
no capital requirement breaches during the financial year. The Group also regularly undertakes three-year stress-testing and scenario-testing
of its main financial and operational risks to project its future capital and liquidity adequacy requirements.
The disclosures required of the Group under the Capital Requirements Regulation (Pillar III) will be made on the Group’s corporate website
iggroup.com. These will provide additional information which will allow market participants to assess key pieces of information on a firms
capital, risk exposures, risk assessment process and hence the capital adequacy of the firm.
RETURN ON ASSETS
In accordance with the Capital Requirements Directive IV (CRD IV) and the IFPRU prudential regulations the Group is required to disclose a
return-on-assets metric. This has been calculated as ‘profit for the year’ divided by ‘shareholders’equity’:
Return on assets
2014
25.8%
2013
27.9%
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
37. CAPITAL MANAGEMENT AND RESOURCES (CONTINUED)
CAPITAL RESOURCES
The Group had significant surplus regulatory capital resources over the Pillar 1 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 Reviews.
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
Less: deferred tax asset(1)
Total capital resources (CR)
Capital resources requirement (CRR) – Pillar 1
Surplus
2014
570.8
(122.7)
(1.1)
(5.7)
441.3
(115.4)
325.9
2013
508.4
(120.5)
(1.5)
–
386.4
(115.1)
271.3
(1) The new CRD IV requirements which came into force on 1 January 2014 require deferred tax assets relating to future profitability to be deducted from Tier 1 Capital in the
determination of capital resources for the Group.
38. SUBSEQUENT EVENTS
The Group has on 15 July 2014 completed the renegotiation of the £200.0 million liquidity facility with a syndicate of three banks. In doing
so the Group has renewed the £120.0 million element of the facility available for a period of one year (with an option to extend for a further
year) and renegotiated the £80.0 million element of the facility to be available for a further three years respectively from 31 July 2014.
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 2014
were authorised for issue by the Board of the Directors on 22 July 2014 and the Statements of Financial Position signed on the Board’s behalf
by Tim Howkins and Christopher Hill. IG Group Holdings plc is a public limited company incorporated and domiciled in England and Wales.
The Company’s ordinary shares are traded on the London Stock Exchange.
The Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted by the European Union (EU) and IFRIC interpretations as they apply to the Financial Statements of the Group and of the Company
for the year ended 31 May 2014 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 available-for-sale financial
assets and financial assets and liabilities (including derivatives) at fair value through profit or loss.
The principal accounting policies adopted by the Group and the Company are set out in note 40.
40. ACCOUNTING POLICIES
40.1 BASIS OF PREPARATION
The accounting policies which follow have been applied in preparing the Financial Statements for the year ended 31 May 2014.
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 for the year dealt with in the Financial Statements of IG Group
Holdings plc is £85,814,000 (2013: £124,337,000). 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 (2013: £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.
40.1.1 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.
40.2 BASIS OF CONSOLIDATION
(a) Subsidiaries
The Group Financial Statements consolidate the Financial Statements of IG Group Holdings plc and the entities it controls (its subsidiaries)
made up to the reporting date as listed in note 15.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the
investee so as to obtain benefit from its activities, and is achieved through direct or indirect ownership of voting rights; currently exercisable
or convertible potential voting rights or by way of contractual agreement. The results, cash flows and final positions 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
144
Financial Statements
Notes to the Financial Statements
on consistent accounting policies. All inter-company balances and
transactions between Group entities, including unrealised profits
arising from them, are eliminated on consolidation.
On acquisition, the assets, liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. The cost of an acquisition is measured at the fair value
of consideration paid including an estimate of any contingent or
deferred consideration. Contingent or deferred consideration is
re-measured at each Statement of Financial Position date with
periodic changes to the estimated liability recognised in the
Consolidated Income Statement. Acquisition-related costs are
expensed as incurred. Any excess of the cost of acquisition over
the fair values of the identifiable net assets acquired is recognised
as goodwill. Any deficiency of the cost of acquisition below the fair
values of the identifiable net assets acquired (discount on acquisition)
is credited to the Income Statement 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.
(b) Non-controlling interests
Where the Group and a non-controlling shareholder enter into a
forward contract (symmetrical put and call options) under which
the Group is required to purchase the non-controlling interest
for its fair value (formulae-based valuation), at the forward date,
the Group continues to recognise the non-controlling interest at
the proportionate share of the acquiree’s identifiable net assets,
until expiry of the arrangement. The forward liability is also
recognised for management’s best estimate of the present value
of the redemption amount with a corresponding entry in equity.
The accretion of the discount on the liability is recognised as a
finance charge in the Consolidated Income Statement. The liability
is re-measured to the final redemption amount with any periodic
changes to the estimated liability recognised in the Consolidated
Income Statement. On expiry of the forward, the liability is
eliminated as paid and any difference in the value of the
non-controlling interest to the exercise price deducted from equity.
On an acquisition by acquisition basis non-controlling interests
are measured either at fair value or at the non-controlling interest
proportionate share of the acquiree’s net assets.
The Group 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.
40.3 FOREIGN CURRENCIES
The functional currency of each company in the Group is that of
the country of incorporation (as disclosed in note 15) as this is
consistent with the primary economic environment in which the entity
operates. The Group’s most significant functional currency is sterling.
Transactions in other currencies are initially recorded in the functional
currency by applying spot exchange rates prevailing on the dates
of the transactions. At each Statement of Financial Position date,
monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange prevailing
on the same date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined. Gains
and losses arising on translation are taken to the Income Statement,
except for exchange differences arising on monetary assets and
liabilities that form part of the Group’s net investment in a foreign
operation. These are taken directly to equity until the disposal of the
net investment, at which time they are recognised in profit or loss.
On consolidation, the assets and liabilities of the Group’s overseas
operations are translated into sterling at exchange rates prevailing
on the Statement of Financial Position date. Income and expense
items are translated at the average exchange rates for the period.
Exchange differences arising, if any, are classified as equity and
taken directly to a translation reserve. Such translation differences
are recognised as income or as expenses in the period in which
the operation is disposed of. Goodwill and fair value adjustments
arising on the acquisition of a foreign entity are treated as assets
and liabilities of the foreign entity and translated at the closing rate.
40.4 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 five years
over two, three or
five 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.
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. ACCOUNTING POLICIES (CONTINUED)
40.5 GOODWILL
Goodwill arising on consolidation represents the excess of
the cost of acquisition (fair value of consideration paid) over
the Group’s interest in the fair value of the identifiable assets,
liabilities and contingent liabilities of a business at the date of
acquisition. Goodwill is recognised as an asset and is allocated to
cash-generating units for purposes of impairment testing. Cash-
generating units represent the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.
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.
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.
40.6 INTANGIBLE ASSETS
Intangible assets are carried at cost less accumulated amortisation
and accumulated impairment losses.
Intangible assets acquired separately from a business are carried
initially at cost. An intangible asset acquired as part of a business
combination such as a trade name or customer relationship is
recognised at fair value outside goodwill if the asset is separable
or arises from contractual or other legal rights and its fair value
can be measured reliably. Expenditure on internally developed
intangible assets, excluding development costs, is taken to the
Income Statement in the year in which it is incurred. Development
expenditure is recognised as an intangible asset only after all the
following criteria are met:
• The project’s technical feasibility and commercial viability can
be demonstrated
• The availability of adequate technical and financial resources and
an intention to complete the project have been confirmed
• The correlation between development costs and future revenue
has been established
Following initial recognition, the historic cost model is applied,
with intangible assets being carried at cost less accumulated
amortisation and accumulated impairment losses.
Intangible assets with a finite life are amortised over their expected
useful lives, as follows:
Development costs
Software and licences
Trade names
Client lists and
customer relationships
Domain names
and generic top-level
domains
–
–
–
–
–
straight-line basis over three years
straight-line basis over the contract
term of up to five years
sum-of-digits method over two years
sum-of-digits method over
three years
straight-line basis over ten 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.
40.7 IMPAIRMENT OF NON-FINANCIAL ASSETS
At least annually, or when impairment-testing is required, the
Directors review the carrying amounts of the Group’s property, plant
and equipment and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss.
If any such indication exists (or at least annually for goodwill), the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
The recoverable amount is the higher of fair value less selling costs
and value-in-use. In assessing value-in-use, the estimated future
cash flows are discounted to their present values using a pre-tax
discount rate. This rate reflects current market assessments of the
time value of money as well as the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. Impairment losses are recognised as an
expense immediately.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognised
impairment loss is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognised. If that is the case,
the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount
that would have been determined, had no impairment loss been
recognised for the asset in prior years. A reversal of an impairment
loss is recognised as income immediately, although impairment
losses relating to goodwill may not be reversed.
146
Financial Statements
Notes to the Financial Statements
40.8 INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are stated at cost less accumulated
impairment losses.
40.9 FINANCIAL INSTRUMENTS
40.9.1 CLASSIFICATION, RECOGNITION
AND MEASUREMENT
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.
(a) Financial assets and financial liabilities at fair value
through profit or loss
Financial assets and financial liabilities classified as held for
trading, or designated as such on inception, are included in
this category and relate to the financial derivative open positions
included in trade receivables – due from brokers and trade
payables – due to clients as shown in the Statement of Financial
Position and related notes. Financial instruments are classified as
held for trading if they are expected to settle in the short-term.
The Group uses derivative financial instruments, in order to hedge
derivative exposures arising from open client positions, which are
also classified as held for trading.
All financial instruments at fair value through profit or loss are
carried in the Statement of Financial Position at fair value with
gains or losses recognised in revenue in the Consolidated
Income Statement.
Determination of fair value
Financial instruments arising from open client positions and the
Group’s hedging positions are stated at fair value and disclosed
according to the valuation hierarchy required by IFRS 7. Fair values
are predominantly determined by reference to third-party market
values (bid prices for long positions and offer prices for short
positions) as detailed below:
Level 1: valued using unadjusted quoted prices in active markets for
identical financial instruments.
Level 2: valued using techniques where a price is derived based
significantly on observable market data. For example, where an
active market for an identical financial instrument to the product
offered by the Group to its clients or used by the Group to hedge its
market risk does not exist.
Level 3: valued using techniques that incorporate information
other than observable market data that is significant to the
overall valuation.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater
than 12 months after the end of the reporting period. These are
classified as non-current assets. The Group’s loans and receivables
comprise ‘trade receivables’, ‘cash and cash equivalents’ and trade
payable ‘amounts due to title transfer clients’.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any other categories.
They are included in non-current assets unless the investment
matures or management intend to dispose of it within 12 months
of the end of the reporting period. The Group’s available-for-sale
assets comprise ‘financial investments’.
40.9.2 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.
(a) Financial assets
A financial asset is derecognised where the rights to receive cash
flows from the asset have expired; the Group retains the right to
receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a
‘pass-through’ arrangement or the Group has transferred its rights
to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. Where the Group
has transferred its rights to receive cash flows from an asset and
has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset
is recognised to the extent of the Group’s continuing involvement
in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
(b) Financial liabilities
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated
as a derecognition of the original liability and the recognition of
a new liability, such that the difference in the respective carrying
amounts together with any costs or fees incurred are recognised in
profit or loss.
40.10 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.
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147
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. ACCOUNTING POLICIES (CONTINUED)
40.11 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 or 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.
40.12 CASH AND CASH EQUIVALENTS
Cash comprises cash on hand and demand deposits which may be
accessed without penalty. Cash equivalents comprise short-term
highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insignificant risk of
changes in value. For the purposes of the Consolidated Cash Flow
Statement, net cash and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding bank overdrafts.
The Group holds money on behalf of clients in accordance with the
client money rules of the UK Financial Conduct Authority (FCA) 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 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 18 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 transfer funds are accordingly held on the Group’s
Statement of Financial Position with a corresponding liability to
clients within trade payables.
40.13 FINANCIAL INVESTMENTS
Financial investments are held as available-for-sale and are
non-derivative financial assets that are not classified as held for
trading, designated at fair value through profit or loss, or loans and
receivables. Financial investments are recognised on a trade date
basis. They are initially recognised at fair value plus directly related
transactions costs. They are subsequently carried at fair value. Fair
value is the quoted market price of the specific investments held.
Financial investments available-for-sale are carried at fair value.
Unrealised gains or losses are reported in equity (in the available-
for-sale reserve) and in other comprehensive income, until such
investments are sold, collected or otherwise disposed of, or until
any such investment is determined to be impaired. On disposal of
an investment, the accumulated unrealised gain or loss included
in equity is recycled to the Income Statement for the period
and reported in other income. Gains and losses on disposal are
determined using the average cost method.
Interest on financial investments are included is included in interest
using the Effective Interest Rate (EIR) method.
The EIR is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, the Group estimates cash
flows considering all contractual terms of the financial instrument
(eg prepayment, call and similar options) but shall not consider
future credit losses. The calculation includes all fees and points paid
or received between parties to the contract that are an integral part
of the effective interest rate (see IAS 18 Revenue), transaction costs,
and all other premiums or discounts.
At the year-end date the Group considers whether there is
objective evidence that a financial investment is impaired. In case
of such evidence, it is considered impaired if its cost exceeds
the recoverable amount. The recoverable amount for a quoted
financial investment is determined by reference to the market price.
A quoted financial investment is considered impaired if objective
evidence indicates that the decline in market price has reached
such a level that recovery of the cost value cannot be reasonably
expected within the foreseeable future.
If a financial investment is determined to be impaired, the
cumulative unrealised loss previously recognised in equity is
recycled to profit for the period.
40.14 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.
40.15 PROVISIONS
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable that
an outflow of resources will be required to settle the obligation and
when the amount can be reliably estimated.
40.16 BORROWINGS
Borrowings are recognised initially at their issue proceeds less
transaction costs incurred. Subsequently, taking into consideration
the term of the borrowings, an assessment is made whether to
state at amortised cost, with any difference between net proceeds
and the redemption value being recognised in the Income
Statement over the period of the borrowings using the effective
interest rate method.
All borrowing costs are expensed as they are incurred.
40.17 EMPLOYEE BENEFITS
(a) Pension obligations
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. Once the
contributions have been paid the Group has no legal or constructive
obligations to pay further contributions.
(b) Bonus schemes
The Group recognises a liability and an expense for bonuses based
on formulae that take into consideration the revenue or earnings
attributable to the Group’s shareholders after certain adjustments
and also based on operational non-financial measures.
(c) Termination benefits
Termination benefits are payable when an employment contract
is terminated by the Group. The Group recognises termination
benefits when the Group can no longer withdraw the offer of
those benefits.
148
Financial Statements
Notes to the Financial Statements
40.18 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 year.
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 years 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.
40.19 SHARE CAPITAL
(a) 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.
(b) 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.
(c) Share-based payments
The Company operates three employee share plans: a share-
incentive plan, a sustained performance plan and a long-term
incentive plan. Previously the Group operated a value-sharing plan,
all of which are all equity-settled.
For market-based vesting conditions, the cost of these awards is
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.
For non-market-based vesting conditions, at each Statement of
Financial Position date before vesting, the cumulative expense
is calculated representing the extent to which the vesting period
has expired and management’s best estimate of the achievement
or otherwise of non-market conditions determining the number
of equity instruments that will ultimately vest. The movement in
cumulative expense since the previous Statement of Financial
Position date is recognised in the Income Statement as part of
administrative expenses, with a corresponding entry in equity.
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.
40.20 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 previously under Financial Instruments. Trading
revenue also includes spread, commission and funding charges
made to clients in respect of the opening, holding and closing of
financial spread bets, contracts for difference or binary bets.
Revenue is recognised when it is probable that economic benefits
associated with the transaction will flow to the Group and the
revenue can be reliably measured.
Trading revenue also includes member fees charged by the Group’s
regulated futures and options exchange.
Trading revenue is reported gross of introductory partner
commission as these amounts are directly linked to trading revenue.
Introductory partner commission, along with betting duties and
financial transaction taxes paid, is disclosed as an expense in
arriving at net operating income.
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149
IG Group Holdings Plc 2014 Annual Report|
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. ACCOUNTING POLICIES (CONTINUED)
40.20 REVENUE RECOGNITION (CONTINUED)
Finance revenue and interest income on segregated client funds is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable. The effective interest
rate is the rate which exactly discounts estimated future cash
receipts over the expected life of the financial asset to that asset’s
net carrying amount. Interest income on segregated client funds is
disclosed within revenue and therefore operating profit, as this is
consistent with the nature of the Group’s operations.
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 or loss and has been disclosed net of
introductory partner commission as this is consistent with the
management information received by the Chief Operating
Decision Maker.
Dividends receivable are recognised when the shareholder’s right to
receive the payment is established.
40.21 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.
40.22 EXCEPTIONAL ITEMS
Exceptional items are those items of income and expense that the
Group considers are material and/or of such a nature that they merit
separate presentation in order to aid a reader’s understanding of
the Group’s financial performance.
40.23 FINANCE COSTS AND INTEREST EXPENSE ON
SEGREGATED CLIENT FUNDS
Finance costs and interest expense on segregated client funds
are accrued on a time basis by reference to the principal amount
charged at the effective interest rate applicable. The effective
interest rate is the rate that exactly discounts the future expected
cash flows to the carrying amount of the liability. Issue costs are
included in the determination of the effective interest rates.
Interest expense on segregated client funds is disclosed within
operating profit as this is consistent with the nature of the
Group’s operations.
40.24 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.
40.25 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.
40.26 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), who for the Group is the Executive
Directors, in order to assess the performance and to allocate
resources to those ‘operating segments’. The Group has therefore
determined its operating segments based on the management
information received on a regular basis by the Executive Directors
of the IG Group Holdings plc Board, as they are considered to be
the CODM. Operating segments that do not meet the quantitative
thresholds required by IFRS 8 are aggregated.
The Group 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.
40.27 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 2013.
NEW AND AMENDED STANDARDS ADOPTED BY
THE GROUP
The following new standards and interpretations are effective for
accounting periods beginning 1 June 2013 but have not had a
material impact on the presentation of, nor the results or financial
position of the Group:
• Amendment to IAS 12, ’Income Taxes’ on deferred tax
(effective 1 January 2012) (endorsed 1 January 2013)
• Amendment to IAS 1, ’Presentation of Financial Statements’
on OCI (effective 1 July 2012)
• IFRS 13 ‘Fair Value Measurement’ (effective 1 January 2013)
• IFRS 10 ‘Consolidated Financial Statements’
(effective 1 January 2013)
• IFRS 11 ‘Joint Arrangements’ (effective 1 January 2013)
• 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 28 ‘Investment in Associates and Joint
Ventures’ (effective 1 January 2013)
• Amendments to IFRS 7, ‘Financial Instruments:
Disclosures’, on financial asset and financial liability offsetting
(effective 1 January 2013)
• Amendment to IAS 27 ‘Separate Financial Statements’
(effective 1 January 2013)
• Amendment to IAS 19 ‘Employee Benefits’
(effective 1 January 2013)
• Annual improvements 2011 (effective 1 January 2013)
150
Financial Statements
Notes to the Financial Statements
Other new standards, amendments and interpretations, including
those listed below, have been issued but are not effective for
accounting periods beginning 1 June 2013 and have not been
early-adopted by the Group:
• Amendment to IAS 32 ‘Financial Instruments: Presentation’
on offsetting financial assets and financial liabilities
(effective 1 January 2014)
• Amendments to IFRS 10 ‘Consolidated Financial Statements’
(effective 1 January 2014)
• Amendments to IAS 36 ‘Impairment of Assets’
(effective 1 January 2014)
• Amendments to IAS 39 ‘Financial Instruments: Recognition and
Measurement’ on novation of derivatives and hedge accounting
(effective 1 January 2014)
• Amendment to IAS 19 ‘Employee Benefits’ (effective 1 July 2014)
• Annual improvements 2012 (effective 1 July 2014)
• Annual improvements 2013 (effective 1 July 2014)
• IFRS 9 ‘Financial Instruments’ – classification and measurement
(effective 1 January 2018)
• Amendments to IFRS 9 ‘ Financial Instruments’ regarding general
hedge accounting (effective 1 January 2018)
• IFRIC 21 ‘Levies’ (effective 1 January 2014)
The new standards and amendments above are not expected
to have a material impact on the Group or Company apart
from IFRIC 21 ‘Levies’. This will impact the accounting for the
Financial Services Compensation Scheme (FSCS) levy for the year
commencing 1 June 2014. FSCS levies are raised in respect of the
financial year of the FSCS which runs from 1 April to the following
31 March. The levy is payable in its entirety if the Group is in
operation under its FCA license on 1 April, being the obligating
event, and is levied relating to revenues of the Group’s prior year.
IFRIC 21 requires the levy to be recognised in full in the Income
Statement on 1 April 2015. The existence of relevant activity in the
previous period is necessary, but not sufficient, to create a present
obligation, neither does the future operation of the business after
1 April result in the charge being spread over the FSCS financial
year, this being the previous accounting treatment adopted by
the Group. Therefore, in the next financial year the levy will be
expensed to the Income Statement in full on 1 April 2015 with
no charge in the first half of the year. Prior year comparatives will
be restated under the IFRIC with an equity reserves adjustment
recognised for the FSCS levy as at 1 April 2013.
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151
IG Group Holdings Plc 2014 Annual Report|
FIVE-YEAR SUMMARY
GROUP INCOME STATEMENT
For the year ended 31 May
Net trading revenue
Other net operating income
Net operating income
Administrative expenses
Depreciation, amortisation and amounts
2014
£000
2013
£000
2012(1)
£000
2011(1)
£000
2010
£000
370,408
361,857
366,812
312,721
298,551
3,759
6,051
2,358
5,875
1,172
374,167
(169,215)
367,908
(163,804)
369,170
(172,897)
318,596
(145,075)
299,723
(133,782)
written off property, plant and equipment
(9,697)
(12,176)
(10,760)
(10,308)
(8,654)
Operating profit
Finance income
Finance costs
195,255
191,928
185,513
163,213
157,287
1,456
(1,988)
2,036
(1,756)
2,487
(2,283)
2,401
(2,411)
2,664
(2,312)
Profit before taxation
194,723
192,208
185,717
163,203
157,639
Amortisation and impairment of intangibles
arising on consolidation(2)
Profit before taxation from continuing
operations
Tax expense
–
–
–
(150,703)
(17,298)
194,723
192,208
185,717
12,500
140,341
(47,688)
(50,460)
(48,583)
(32,792)
(38,855)
Loss from discontinued operations
–
–
(374)
(5,002)
–
Profit / (loss) for the year
147,035
141,748
136,760
(25,294)
101,486
(1) The 2012 and 2011 numbers have been restated to remove the discontinued Sport business and present as a discontinued operation.
(2) In 2010 and 2011, the Group presented adjusted administrative expenses and adjusted profit before taxation to adjust for the amortisation or impairment
of intangible assets associated with the Group’s Japanese or Sport business. In the year ending 31 May 2014, the adjusted and unadjusted administrative
expenses and profit before taxation are equivalent.
152
Investor Resources
Five-Year Summary
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 May
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Financial investments
Deferred tax assets
Current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
Financial investments
TOTAL ASSETS
Liabilities
Current liabilities
Trade payables
Other payables
Provisions
Income tax payable
Non-current liabilities
Deferred tax liabilities
Provisions
Redeemable preference shares
Total liabilities
Capital and reserves
Total shareholders’ equity
Non-controlling interests
Total equity
TOTAL EQUITY AND LIABILITIES
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
13,038
122,670
32,150
5,711
14,469
120,479
–
9,470
15,555
115,366
–
11,915
16,761
117,202
–
11,264
9,632
265,328
–
14,264
173,569
144,418
142,836
145,227
289,224
327,478
12,287
101,487
50,307
491,559
665,128
21,902
53,334
–
20,178
95,414
–
–
40
40
300,636
10,278
98,345
50,468
459,727
604,145
19,047
53,781
–
24,289
97,117
–
–
40
40
222,342
9,745
228,156
–
460,243
603,079
61,076
64,815
1,353
28,652
270,104
8,199
124,528
–
402,831
548,058
83,490
45,149
1,427
37,060
206,243
7,084
128,097
–
341,424
630,648
57,673
44,825
1,377
38,863
155,896
167,126
142,738
–
–
40
40
–
1,991
40
2,031
11,463
1,779
40
13,282
95,454
97,157
155,936
169,157
156,020
569,674
506,988
446,997
378,700
–
–
146
201
569,674
665,128
506,988
604,145
447,143
603,079
378,901
548,058
471,449
3,179
474,628
630,648
Each of the 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 2014.
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FIVE-YEAR SUMMARY (CONTINUED)
OTHER METRICS
CLIENT METRICS
Year ended 31 May
2014
2013
2012
2011
2010
Year ended 31 May
2014
2013
2012
2011
2010
Own funds generated from operations
£160.6m
£154.3m
£140.7m
£137.7m
£114.4m
Earnings per share (EPS)
Basic earnings per share
Diluted earnings per share
Dividend per share
Interim dividend per share
Final dividend per share
Total dividend per share
Dividend payout ratio (against diluted EPS)
Profit margin
Profit before taxation margin(2)
40.32p
40.18p
5.75p
22.40p
28.15p
70.06%
39.02p
38.80p
37.90p(1)
37.54p(1)
32.86p(1)
32.57p(1)
5.75p
17.50p
23.25p
59.92%
5.75p
16.75p
22.50p
59.94%
5.25p
14.75p
20.00p
61.41%
30.98p
30.77p
5.00p
13.50p
18.50p
60.12%
52.57%
53.10%
50.60%
52.20%
52.80%
(1) EPS presented for the continuing business. Adjusted and unadjusted EPS measures are equivalent.
(2) Calculated as profit before tax divided by net trading revenue.
Average revenue per client
Number of active clients
Number of clients opened
Number of clients trading for the first time
£2,937
126,108
54,957
33,709
£2,659
136,063
55,889
37,914
£2,560
143,304
67,593
48,029
£2,341
133,580
71,344
49,246
£2,425
120,689
81,155
55,674
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Five-Year Summary
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IG Group Holdings Plc 2014 Annual Report|
EXAMPLES
BUYING A SPREAD BET
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. This is known as ‘going long’. 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 1 - OPENING THE POSITION
STEP 4 - CLOSING THE POSITION
A plc is trading in the market at 144.5p/144.7p and our quote for A plc on a daily funded bet is 144.3p/144.9p. 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.
Later that day, 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 148.6p/148.8p and our daily quote is 148.4p/149.0p.
IG OFFER
PRICE
144.9p
UNDERLYING
SHARE PRICE
A plc
144.5p/144.7p
IG BID
PRICE
144.3p
Expecting the market will
rise, you open the bet at the
OFFER PRICE
GOING LONG
BET
DETAILS
OFFER PRICE
SIZE (£ PER POINT)
144.9p
£100.00
INITIAL DEPOSIT REQUIREMENT (1)
£723.00
£100.00 (bet size) x 144.6p (the mid-price) x 5% (the deposit factor)
SPREAD(2)
£20.00
Difference between the market price and our quote
(144.9p-144.7p) x £100.00 per point
STEP 2
When you open the position, you are required to have
the initial £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 while
the position is open.
At this stage you may choose to add a stop to your position.
If you choose a guaranteed stop (only available for certain
products), we guarantee that your position will be closed at
this level and your maximum loss is therefore fixed. There is
a small charge for a guaranteed stop, which will be added
to the transaction cost. You may also choose to add a non-
guaranteed stop, which will trigger a closing order when this
level is breached. Non-guaranteed stops are free, but you
may not be closed at this level, particularly if the market gaps.
STEP 3
In this example we have kept things simple and assumed
no corporate actions occur. However, we will also reflect
the impact of any corporate action on the underlying share,
such as a dividend or a rights issue, on your positions. For
more details, please see our website, IG.com.
(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, IG.com.
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Examples
IG OFFER
PRICE
149.0p
UNDERLYING
SHARE PRICE
A plc
148.6p/148.8p
IG BID
PRICE
148.4p
The market has risen –
you sell at the IG BID PRICE
CLOSING POSITION
BET
DETAILS
BID PRICE
SIZE (£ PER POINT)
148.4p
£100.00
GROSS PROFIT
£390.00
Calculated as the market price movement of the share
(148.6p-144.7p) x £100.00 per point)
SPREAD
£20.00
Calculated at 148.6p-148.4p x £100.00 per point
Of course, had the market moved in the opposite direction, you would have made a loss of £100 for every penny the share price fell,
which may have exceeded your initial deposit.
STEP 5 - CALCULATING THE PROFIT OR LOSS
ITEM
Buying spread (Step 1)
Selling spread (Step 4)
Gross profit (Step 4)
IG hedging gain(1)
Net gain
In the example above, if the bet had
remained open at 10pm, and assuming
one-month LIBOR of 0.49%, a funding
charge of £1.23 would have been applied
against the client account and recorded
as revenue for IG (calculated as (£100
x 150.0p [assumed end-of-day price] x
2.99%) / 365 = £1.23).
CLIENT
(£20.00)
(£20.00)
IG(1)
£20.00
£20.00
£390.00
(£390.00)
N/A
£350.00
£390.00
£40.00
For many markets (eg 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%).
(1) 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. Therefore our net profit is £40.00, which is recorded in trading revenue and is
equivalent to the spread included in our quoted prices.
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IG Group Holdings Plc 2014 Annual Report|
EXAMPLES (CONTINUED)
SELLING A CFD
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. This is known as ‘going short’. On day two the share price has indeed fallen, and you
decide to close your position.
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.
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 1 - DAY ONE - OPENING THE POSITION
The quoted bid/offer price for B plc is 80.25p/80.35p.
STEP 5 - DAY TWO - CLOSING THE POSITION
On day two, the share price has fallen and you decide to close the position.
OFFER
PRICE
MID-
PRICE
80.35p
B plc
80.30p
BID
PRICE
80.25p
Expecting the market will
fall, you sell at the
BID PRICE
GOING SHORT
TRADE
DETAILS
BID PRICE
SIZE (SHARES)
80.25p
20,000
INITIAL MARGIN REQUIREMENT (1)
£803.00
20,000 (number of shares) x 80.30p (the mid-price)
x 5% (the margin percentage)
COMMISSION(2)
£16.05
20,000 (number of shares) x 80.25p (the bid price)
x 0.10% (commission)
STEP 2
STEP 3
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
£803.00 and the commission is £16.05,
so the available funds in your account
will fall from £1,000.00 to £180.95
(ie £1,000.00-£803.00-£16.05). It is
important to note that the £803.00 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 while the position is open.
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 30 May 2014, the
current LIBOR rate was 0.49%, while
the spread was 2.50%, resulting in a
net financing charge of 2.01% 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
2.99%. This is re-calculated daily.
END-OF-DAY
PRICE
(DAY ONE)
80.75p
DAILY INTEREST CHARGED
£0.89
20,000 x 80.75p x 2.01%/365 days
STEP 4
In this example we have kept things
simple and assumed no corporate
actions occur. However, we will also
reflect the impact of any corporate
action on the underlying share, such
as a dividend or a rights issue, on your
positions. For more details, please see
our website, IG.com.
(1) The margin percentage (and therefore margin requirement) depends on the size of your CFD position and other factors such as the volatility and liquidity of the
underlying share. In this example we have used a margin requirement of 5%.
(2) Commissions are variable, but for UK FTSE 100 CFDs (as assumed for B plc), this was 0.10% on 30 May 2014.
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Examples
OFFER
PRICE
MID-
PRICE
78.35p
The market has fallen – you
buy at the IG OFFER PRICE
CLOSING POSITION
B plc
78.30p
BID
PRICE
78.25p
Of course, had the market moved in the opposite direction, you
would have made a loss of £100 for every penny the share price
gained, which may have exceeded your initial margin outlay.
STEP 6 - CALCULATING THE PROFIT OR LOSS
TRADE
DETAILS
OFFER PRICE
SIZE (SHARES)
78.35p
20,000
COMMISSION(1)
£15.67
20,000 x 78.35p x 0.10%
PROFIT PER SHARE
1.9p
Difference between opening bid and closing offer prices
(80.25p-78.35p)
GROSS PROFIT ON TRADE
£380.00
20,000 x 1.9p
ITEM
Selling commission (Step 1)
Financing charge (Step 3)
Buying commission (Step 5)
Gross profit (Step 5)
IG hedging gain(2)
Net gain
CLIENT
(£16.05)
(£0.89)
(£15.67)
IG(2)
£16.05
£0.89
£15.67
£380.00
(£380.00)
N/A
£347.39
£380.00
£32.61
When you open your position you may
choose to add a stop. If you choose
a guaranteed stop (only available for
certain products), we guarantee that your
position will be closed at this level and
your maximum loss is therefore fixed.
There is a small charge for a guaranteed
stop, which will be added to the
transaction cost. You may also choose to
add a non-guaranteed stop, which will
trigger a closing order when this level
is breached. Non-guaranteed stops are
free, but you may not be closed at this
level, particularly if the market gaps.
(1) Commissions are variable, but for UK FTSE 100 CFDs (as assumed for B plc), this was 0.10% on 30 May 2014.
(2) 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 £32.61, which is recorded in trading revenue and consists
of the commission and financing charges levied on the client.
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IG Group Holdings Plc 2014 Annual Report|
GLOSSARY OF TERMS
Term
ABI
AGM
Basel III
Notes
Association of British Insurers
Annual General Meeting
The comprehensive set of reform measures designed to strengthen regulation, supervision and
risk management in the banking sector
Binary bet
A special form of spread bet with only two outcomes at expiry: if a specified result is achieved,
the bet is closed at a level of 100. If the result is not achieved, the bet closes at 0
CFTC
The US Commodities Futures Trading Commission
Term
KPIs
KRIs
LIBOR
LTIP
MAS
MiFID
Notes
Key Performance Indicators
Key Risk Indicators
London inter-bank offered rate – a benchmark interest rate published by leading London banks
Long-term incentive plan
The Monetary Authority of Singapore
Markets in Financial Instruments Directive – EU law covering financial regulation in all
member states
Close-out monitor
(COM)
The Group’s automatic real-time position-closing system (see the Managing Our Business Risk
section in the Strategic Report and note 36 to the Financial Statements)
Multilateral trading
facility (MTF)
A non-exchange financial-trading venue providing an alternative to traditional stock exchanges
Contract for
difference (CFD)
A CFD is a contract to exchange the difference in the price of an asset between the time the
contract is opened and the time it is closed. An example is shown on page 158
CSR
Corporate social responsibility
Direct market access
(DMA)
DMA enables clients to interact directly with the market, including participating in the order book
of a stock exchange
DTRs
EBA
EPS
ESMA
The FCA’s Disclosure and Transparency Rules
European Banking Authority
Earnings per share
European Securities and Markets Authority
Exposure monitor
Our real-time technology solution which constantly measures our financial exposure to all
traded instruments
FCA
FINMA
FRC
FSB
FSCS
FTT
Financial Conduct Authority (UK regulator)
The Swiss Financial Market Supervisory Authority
Financial Reporting Council
Financial Services Board (South Africa)
Financial Services Compensation Scheme
Financial Transaction Tax
Fugitive emissions
Greenhouse gas emissions caused by intentional or unintentional releases, eg equipment leaks
or hydrofluorocarbon emissions from the use of refrigeration and air-conditioning equipment
GHG emissions
Greenhouse gas emissions
Goodwill
GTLDs
IAS
ICAAP
IFRIC
IFRS
IIA
ILAA
An intangible asset representing the additional value that arises as a result of the acquisition of
the acquired company by another at a value greater than that of the target company’s assets
Generic top-level domains – represented by the characters following the dot at the end of an
internet domain name, eg .com, .net
International Accounting Standard
Internal Capital Adequacy Assessment Process. The ICAAP is an internal document which
identifies the controls we use to mitigate risks to the Group’s capital and assesses and quantifies
our capital requirements
International Financial Reporting Interpretations Committee
International Financial Reporting Standards
Institute of Internal Auditors
Nadex
The North American Derivatives Exchange, our US-based retail derivatives exchange business
Net Promoter Score
(NPS)
NPS is calculated by asking respondents how likely they are to recommend a 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 0-6)
OTC
PRIPs
‘Over the counter’ refers to non-exchange-traded financial instruments
Packaged Retail Investment Products
Regulatory capital
resources
The total capital available to the Group, as calculated under the EU Capital Requirements
Regulation and the Financial Conduct Authority’s IFPRU 3 rules
Rest of World
One of our four reporting segments, consisting of our operations in Japan, Singapore,
South Africa and the US
RREV
Research Recommendations Electronic Voting
Scope 1/2/3
emissions
The three classifications of emissions required to be considered under the mandatory
GHG reporting
SIP
SPP
Spread bet
Share-incentive plan
Sustained performance plan
A bet on whether a financial market (the underlying market) will rise or fall. We offer two prices
on every market, and the difference is known as the bid/offer spread. If you think a market is set
to rise you ‘buy’ at the higher (offer) price, and if you think it will fall you ‘sell’ at the lower (bid)
price. Your subsequent gain or loss on the bet will be determined by the direction and degree
of any movement in the underlying market. An example is shown on page 156
Tiered margins
We use a system of margin tiers that reflect the degree of risk involved in client trades.
Generally, the riskier the traded instrument or the larger the trade size, the higher the level of
margin required, up to 100%
Title Transfer
Collateral
Arrangement (TTCA)
A financial agreement to transfer money to cover obligations, such that that money will not be
regarded as client money, which must be segregated, although IG retains the liability to repay
the client
TSR
Total Shareholder Return
UK Corporate
Governance Code
(the Code)
The Code sets out standards of good practice in board leadership and effectiveness,
remuneration, accountability and relations with shareholders. Provision B7.1 states that all
directors of FTSE 350 companies should be subject to annual election by shareholders
Up/down binary bet
A specific type of binary bet where the outcome is expressed as being above or below the
current market value (ie the market has moved up or the market has moved down)
Individual Liquidity Adequacy Assessment. The ILAA is an internal document which identifies the
controls we use to mitigate liquidity risks and assesses and quantifies our liquidity requirements
Volatility-based
binary bet
A category of binary bet where the achievement of a specific outcome is directly related to the
volatility of the underlying market
IOSCO
International Organization of Securities Commissions
ISA
ISS
JFSA
International Standards on Auditing
Institutional Shareholder Services Inc
Japanese Financial Services Agency
160
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Glossary of Terms
VSP
Value-sharing plan
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IG Group Holdings Plc 2014 Annual Report|
GLOBAL OFFICES
LONDON
(HEADQUARTERS)
IG (IG Index Limited and
IG Markets Limited)
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
UNITED KINGDOM
+44 (0)20 7896 0011
helpdesk.uk@ig.com
IG.com
MILAN
IG Markets Limited
Via Paolo da Cannobio, 33
7° Piano
20122 Milano
ITALY
+39 02 0069 5595
italiandesk@ig.com
IG.com/it
OSLO
IG Markets Limited
Akersgata 20
0158 Oslo
NORWAY
+47 22 400 200
info.no@ig.com
IG.com/no
PARIS
IG Markets Limited
17 Avenue George V
75008 Paris
FRANCE
+33 (0)1 70 98 18 18
info.fr@ig.com
IG.com/fr
STOCKHOLM
IG Markets Limited
Stureplan 2
114 35 Stockholm
SWEDEN
+46 (0)8 505 15 000
info.se@ig.com
IG.com/se
EUROPE (EXCLUDING UK)
AMSTERDAM
IG Markets Limited
World Trade Center Amsterdam
Toren G – 3e verdieping
Strawinskylaan 387
1077 XX Amsterdam
NETHERLANDS
+31 (0)20 794 6610
info.nl@ig.com
IG.com/nl
DUBLIN
IG (IG Index Limited and
IG Markets Limited)
72 Charlemont Street
Dublin 2
REPUBLIC OF IRELAND
+1 800 995 362
dublinoffice@ig.com
IG.com/ie
DÜSSELDORF
IG Markets Limited
Berliner Allee 10
40212 Düsseldorf
GERMANY
+49 (0)211 882 370 00
info.de@ig.com
IG.com/de
LUXEMBOURG
IG Markets Limited
15 rue du fort Bourbon
L1249
LUXEMBOURG
+352 24 87 11 17
info.lu@ig.com
IG.com/lu
MADRID
IG Markets Limited
Paseo de la Castellana 13
Planta 1a Derecha
28046 Madrid
SPAIN
+34 91 787 61 61
info.es@ig.com
IG.com/es
162
Investor Resources
Global Offices
ASIA PACIFIC
NORTH AMERICA
SOUTH AFRICA
CHICAGO
North American
Derivatives Exchange, Inc
311 South Wacker Drive
Suite 2675
Chicago, IL 60606
US
JOHANNESBURG
IG Markets South Africa Limited
The Place
1 Sandton Drive
Sandton, Gauteng
2196 Johannesburg
SOUTH AFRICA
+1 312 884 0100
customerservice@nadex.com
nadex.com
+27 (0)10 344 0051
helpdesk.za@ig.com
IG.com/za
MELBOURNE
IG Australia Pty Limited
Level 15
55 Collins Street
Melbourne VIC 3000
AUSTRALIA
+61 (0)3 9860 1799
helpdesk.au@ig.com
IG.com/au
SINGAPORE
IG Asia Pte Limited
9 Battery Road
#01-02 Straits Trading Building
SINGAPORE 049910
+(65) 6390 5133
helpdesk@ig.com.sg
IG.com.sg
TOKYO
IG Securities Limited
Shiodome City Center 10F
1-5-2 Higashi-shinbashi
Minato-ku, Tokyo 105-7110
JAPAN
+81 (0)3 6704 8500
info.jp@ig.com
IG.com/jp
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163
IG Group Holdings Plc 2014 Annual Report|
SHAREHOLDER AND COMPANY INFORMATION
REGISTRARS
Computershare Investor
Services plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
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
SHAREHOLDER INFORMATION
RECEIVING SHAREHOLDER INFORMATION BY EMAIL
You can opt to receive shareholder information from us by
email rather than by post. We will then email you whenever we
add shareholder communications to the Company website. To
set this up, please visit www.investorcentre.co.uk/ecomms and
register for electronic communications (e-comms).
If you subsequently wish to change this instruction or revert
to receiving documents or information by post, you can do
so by contacting the Company’s registrars at the address
shown in the Company Information opposite.
You can also contact them by telephone on 0871 495 2032.
Calls to this number are charged at 8p per minute from a BT
landline. Other telephone providers’ costs may vary. These
prices are for indication purposes only; if in doubt, please
check the cost of calling this number with your phone
line provider. Lines are open 8.30am – 5.30pm, Mon-Fri
excluding bank holidays.
SHAREHOLDER ENQUIRIES
If you have any queries relating to your shareholding,
dividend payments or lost share certificates, or if any of your
details change, please contact Computershare by visiting
www.investorcentre.co.uk or by using the contact
details above.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
The company has a sponsored Level 1 American Depositary
Receipt (ADR) programme, with Citibank N.A. acting as the
depositary bank, which enables US investors to invest in IG
shares though an ADR, denominated in US dollars. IG’s ADR
programme trades in the US over-the-counter (OTC) market,
under the symbol IGGHY. Each ADR currently represents
one ordinary share.
E: citiadr@citi.com W: www.citi.com/dr
T: UK +44 (20) 7508 2708 US +1 (212) 723 5435
DIVIDEND DATES(1)
Ex-dividend date
Record date
Last day to elect for dividend
reinvestment plan
Annual General Meeting
Final dividend payment date
2015 interim dividend
23 October 2014
24 October 2014
4 November 2014
16 October 2014
18 November 2014
February 2015
ANNUAL SHAREHOLDER CALENDAR(1)
Company reporting
Final results announced
Annual Report published
Annual General Meeting
22 July 2014
16 September 2014
16 October 2014
INTERIM REPORT
As part of our e-comms programme, we have decided not
to produce a printed copy of our Interim Report. We will
instead publish the report on our website, where it will be
available around mid-January each year.
(1) Please note that these dates are provisional and subject to change.
COMPANY
INFORMATION
DIRECTORS
Executive Directors
T A Howkins (Chief
Executive)
P G Hetherington
C F Hill
Non-Executive Directors
J R Davie (Chairman)
S G Hill
D M Jackson
J A Newman
S J Tymms
R P Yates (Senior
Independent Director)
COMPANY SECRETARY
B E Messer
INDEPENDENT
AUDITORS
PricewaterhouseCoopers
LLP
Chartered Accountants
and Statutory Auditors
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
HSBC Bank plc
8 Canada Square
London
E14 5HQ
SOLICITORS
Linklaters
1 Silk Street
London
EC2Y 8HQ
CAUTIONARY STATEMENT
INDEX
Certain statements included in our 2014 Annual Report, or
incorporated by reference to it, may constitute ‘forward-
looking statements’ in respect of the Group’s operations,
performance, prospects and/or financial condition.
By their very nature, forward-looking statements involve
uncertainties because they relate to events, and depend
on circumstances, that will or may occur in the future. If
the assumptions on which the Group bases its forward-
looking statements change, actual results may differ from
those expressed in such statements. The forward-looking
statements contained herein reflect knowledge and
information available at the date of this Annual Report
and the Group undertakes no obligation to update these
forward-looking statements except as required by law.
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.
MARKET SHARE
Market share data has been provided by Investment Trends
Pty Limited (website: www.investmenttrends.co.uk). Contact:
Pawel Rokicki (email: pawel@investmenttrends.co.uk).
Unless stated, market share data is sourced from the
following current reports:
Accounting policies
Active clients
Amortisation
Assets and liabilities
Audit Committee
Auditors’ remuneration
Auditors’ report
Binaries
Board of Directors
Broker margin
Capital expenditure
Cash flow
Charitable donations
Client money
Contracts for difference (CFDs)
Depreciation
Diluted earnings per share
Dividend
Dividend – key dates
Employees
Financial calendar
Five-year summary
Key Performance Indicators
• Investment Trends August 2013 Australia CFD Report
• Investment Trends December 2013 Australia Online
Liquidity
Nadex
Broking Report
Net Promoter Score (NPS)
• Investment Trends February 2013 Australia FX Report
Nomination Committee
• Investment Trends April 2014 France CFD/FX Report
Offices
• Investment Trends May 2014 Germany CFD/FX Report
• Investment Trends November 2013 Singapore
CFD/FX Report
• Investment Trends December 2013 UK Leveraged
Trading Report
Operating costs
Political donations
Regulatory risk
Remuneration
Revenue per client
Risk
Shareholder information
Shareholders – major interests
Spread betting
Strategic objectives
Subsequent events
Total Shareholder Return (TSR)
Trading revenue
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106
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114, 91
100
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13, 158
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24, 117
6, 25
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15, v
25
58
162
36
97
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24
42, 138
164
98
14, 156
9, 16, 18
98
87
24, 112
164
Investor Resources
Shareholder and Company Information
2014 Annual Report
165
165
2014 Annual ReportIG Group Holdings Plc |
IG Group Holdings plc
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
T: +44 (0)20 7896 0011
F: +44 (0)20 7896 0010
W: iggroup.com
166
IG Group Holdings Plc