IG GROUP HOLDINGS PLC
ANNUAL REPORT 2016
CONTENTS
AT A GLANCE
’2016 was another
record year for IG,
with revenue up 14%
to £456.3 million.
Our investments in
improving online
marketing, developing
new offices and
extending our product
set are beginning to
pay off.’
Peter Hetherington
Chief Executive Officer
19 July 2016
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COMPANY OVERVIEW
At a Glance
CHAIRMAN’S STATEMENT
STRATEGIC REPORT
Chief Executive Officer’s Review
Our Business
Our Product Suite
Our Clients and Business Model
Our People
Our Strategic Objectives
Our Operational Strategy in Action
Key Performance Indicators (KPIs)
Business Conduct and Sustainability
Operating and Financial Review
Managing Our Risks
CORPORATE GOVERNANCE REPORT
Chairman’s Introduction to Corporate Governance
Corporate Governance Statement
The Board
Nomination Committee
Directors’ Remuneration Report
Audit Committee
Board Risk Committee
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditors’ Report
FINANCIAL STATEMENTS
Group Income Statement
Statements of Financial Position
Cash Flow Statements
Notes to the Financial Statements
INVESTOR RESOURCES
Five-Year Summary
Examples
Glossary
Global Offices
Shareholder and Company Information
This report is fully accessible online at:
iggroup.com/ar2016
FOUR-YEAR
COMPOUND
ANNUAL
GROWTH RATES
4.4%
DILUTED
EARNINGS
PER SHARE
5.6%
REVENUE(1)
8.7%
TOTAL
DIVIDEND
PER SHARE
2.9%
PROFIT
BEFORE TAX
8.9%
OWN FUNDS
GENERATED FROM
OPERATIONS
REVENUE(1)
PROFIT BEFORE TAX
OWN FUNDS GENERATED
FROM OPERATIONS
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FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
DILUTED EARNINGS
PER SHARE
TOTAL DIVIDEND
PER SHARE
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FY12
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FY15
FY16
(1) Throughout this report Revenue refers
to net trading revenue (ie excluding
interest on segregated client funds
and after taking account of introducing
partner commissions).
The shaded area indicates the underlying
performance in financial year 2015.
Movement based on statutory figures with
underlying movement included in narrative.
CHAIRMAN’S STATEMENT
In my second annual statement to you as Chairman of IG, I am pleased to report on a year
of strong growth for the Company in revenue and profit, with both hitting new highs.
The good financial results are driven primarily
by improving performance from our digital and
mobile marketing in our more established markets,
supported by reasonably volatile financial markets,
and our investments in Switzerland, Dubai and
Nadex beginning to produce returns.
This year has produced a challenging backdrop
against which to execute our strategy. As you know,
our previous Chief Executive Officer (CEO) retired
and our Chief Financial Officer (CFO) resigned
during the first half of this financial year. After a
thorough process, the Board appointed Peter
Hetherington as CEO in December last year. Earlier
this month, we also appointed Paul Mainwaring
as CFO, subject to FCA approval. The succession
process has gone smoothly, thanks to the skill and
dedication of Peter and his Executive team.
We remain committed to growing our business
within our current global footprint and beyond,
as opportunities allow. We set out a vision some
time ago to be the default choice for active traders
globally. At the half-year results in January, we
expanded upon this to include non-leveraged
products such as execution-only stockbroking
(share dealing) and portfolio-based investing
(IG Investments). This will allow us to appeal to
sophisticated and active investors across a range of
their needs and in different stages of their lives.
Our strategic clarity is coupled with a total
commitment to operational efficiency. This
ranges from the strides we are making in online
marketing, through the incremental improvements
to our client onboarding process, to the
enhancements to execution and risk management
practices that are allowing us to extract increasing
value from every client trade.
Our people are core to our operational success.
Recent attrition levels in our London office have
been too high, due to competition for the scarce
skills we require to prosper. In response, we have
increased some salary levels to help retain key
staff. At the same time, we are expanding our
presence in Krakow and Bangalore to access key
skills competitively. We expect our London office to
remain at the core of our operations.
Shortly after the year-end the UK electorate
voted to leave the EU. I continue to be impressed
by how the broader team in IG handles such
volatile events.
Andy Green
Chairman
4
IG Group Holdings plc Annual Report 2016
IG Group Holdings plc Annual Report 2016 The team prepared meticulously for what turned out to be a
night of severe and sudden movements in financial markets. I am
very pleased to report that they steered the business through
unscathed. They concentrated on the interests of our clients
leading up to and throughout the period, with clear client
communications and margin-setting policy. The result, however,
does throw up new challenges for IG, and will divert some
resources over the next couple of years, as we decide on the best
course of action to secure the future of our European business. In
doing this, we will also consider any relevant elements of other
forthcoming legislation in this area.
Regulatory compliance remains a key tenet of IG’s operating model.
We are regulated in 17 jurisdictions across the world. While we
can never guarantee we will not fall foul of a specific regulation,
our intention is always to comply and we continue to invest in our
capability here, with the aim of maintaining our good track record.
’Our strategic clarity is coupled
with a total commitment to
operational efficiency.’
DIVIDEND
This has been another strong year for cash generation at IG.
In line with the Board’s previously stated intention to pay out,
as an ordinary dividend, approximately 70% of the Group’s
annual earnings, the Board is recommending a final dividend
of 22.95 pence per share, taking the full-year dividend to 31.40
pence per share, 11.5% ahead of the prior year.
The Board will maintain a capital structure and cash position
in the business to enable it to withstand any changes in the
regulatory environment or structural shocks in the financial markets,
while providing sufficient headroom to take advantage of any
investment opportunities.
BOARD
The Board structure has changed significantly in the past year. In my
statement last year I noted the retirement and acknowledged the
great contribution of our CEO, Tim Howkins. In October, Chris Hill,
CFO, stepped down from the Board and left IG, to take up a CFO
role elsewhere. As I said at the time, we were sorry to lose Chris but
understood his decision.
In December, following a thorough search process, the Board
appointed Peter Hetherington as the new CEO. Peter was
previously Chief Operating Officer and has been a member of the
IG Board since 2002. The Board was delighted to confirm Peter as
CEO, and believes he brings the right mix of business knowledge
and fresh thinking to the CEO role. In July 2016, we announced
that Paul Mainwaring had been selected by the Board as CFO,
subject to FCA approval. Paul was previously CFO of Tullett Prebon
plc and we are looking forward to welcoming him to the Board in
due course.
In September, June Felix joined the Board as a Non-Executive
Director. June is currently president of Verifone in Europe
and brings with her significant international experience along
with knowledge of product innovation in the financial and
digital sectors. Also in September, Malcolm Le May joined the
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Board as Senior Independent Director and Chairman of the
Remuneration Committee.
Malcolm brings to the Board deep knowledge of the financial
services and investments sectors and a wealth of experience on
the boards of publicly listed businesses. I would like to welcome
them both to IG. Following these changes, your Board continues to
comply with provision B.1.2 of the 2014 UK Corporate Governance
Code (‘the Code’).
The intention again this year is to put every Board Director up for
election or re-election at the AGM, in compliance with paragraph
B.7.1 of the Code.
REMUNERATION
In response to the attrition levels mentioned earlier, this year we
carried out a targeted salary benchmarking exercise, to ensure
our overall remuneration structure enables us to recruit and retain
high-quality people. We also introduced a flexible benefits scheme,
which allows our employees to choose the mix of benefits which
suits their individual circumstances. This will increase our overall
remuneration costs, but I believe makes us increasingly competitive
in a tough labour market. In determining the remuneration of the
CEO and CFO, the Remuneration Committee took into account
the growth of the business and the competitiveness of salaries at
all levels of the Company, and benchmarked these roles against
companies of comparable size and complexity in financial services
and the FTSE 250.
IG’S PEOPLE
Once again, I and the rest of the Board want to thank all the
people who work at IG for delivering another record year for the
Company. We were extremely impressed, if not surprised, by the
way our people pulled together during the uncertainty caused by
the CEO and CFO’s departures during the first half of the year, and
by the way they have rallied behind Peter, as new CEO. We are in
no doubt that our people remain our key asset.
LOOKING FORWARD
We have been investing heavily over the last few years in
transitioning IG, from a very successful but relatively narrow
specialist, to a broader-based business, through product extension,
geographic expansion and platform development. We are
now coming towards the end of this particular project investment
phase. This year, as well as delivering results from those
investments, we have a number of important initiatives planned,
which Peter considers in more detail in his statement, as we
seek new opportunities to grow and to expand our knowledge
and experience across an emerging range of exciting digital
financial products.
The Board is committed to delivering on the strategy we have
agreed, to the benefit of all our stakeholders. IG’s success is built
on placing clients at the heart of our business and we aim to further
enhance our leadership position by providing them with even
better technology and continuous improvements to their overall
experience. With our recent investments beginning to bear fruit
and exciting plans for the year ahead, I am increasingly confident
about the future.
Andy Green
Chairman
19 July 2016
5
IG Group Holdings plc Annual Report 2016
CHIEF EXECUTIVE OFFICER’S REVIEW
This is my first opportunity to present full-year financial results, and I am pleased to
be reporting on such a strong outcome. Revenue was ahead by 14% at £456.3 million
(2015 underlying: £400.2 million). Performance was strong across the board, with each
half-year setting a new high.
Peter Hetherington
Chief Executive Officer
6
IG Group Holdings plc Annual Report 2016 The year was particularly marked by sharp market movements in
our first and third quarters, which presented short-term trading
opportunities for our clients. However, I am particularly pleased by
the continued strategic and operational progress we made in the
year, which I will expand upon later.
Profit before tax rose by 7.6% to £207.9 million (2015 underlying:
£193.2 million), with a £6.4 million negative impact year-on-year in
betting duty and net interest on client funds and a 17% increase
in operating costs. Cost increases reflected targeted investment
in advertising and marketing, where the payback remains
compelling, increased data fees due to the growth in client
numbers, higher employee costs due to the impact of headcount
increases through the prior year and higher discretionary
remuneration following the improved business performance. Profit
after tax was up by 9% at £164.3 million (2015 underlying: £150.7
million). Diluted earnings per share was up by 8.5% at 44.58 pence
(2015 underlying: 41.07 pence).
Revenue in the year was ahead in all of our geographic regions.
The UK contributed almost 51% of the Group revenue in the year,
up 9% at £231.1 million, with a similar sequential half-on-half
growth rate. The pattern was similar in Australia, where revenue
was ahead of the prior year by 8% at £64.0 million. Revenue in
Europe was ahead by 22%, at £98.6 million, with all countries
in this region ahead of the prior year and a strong year-on-year
performance in Switzerland, where the office opened part way
through the prior year; the sequential half-on-half growth rate here
was 16%. The Rest of World segment was ahead of the prior year
by 30%. Once again all countries were ahead of the prior year,
with a particularly strong revenue performance in the US and an
excellent start in the new Dubai office.
As our Chairman, Andy Green, mentioned, just after the end of
our financial year, we experienced a real-world test of our systems,
processes and risk management with the UK’s EU Referendum.
This sort of event brings out the best in IG’s people. We prepared
meticulously, providing regular communications and adjustments
for our clients to ensure they understood the potential for market
moves and stress testing our technology even more than normal.
As it turned out, the event was more dramatic than most people
anticipated, with some of the most extreme movements we have
seen in financial markets. I am delighted with the way IG handled
the event itself and the immediate aftermath. While IG avails itself
of the ‘passporting’ regime in using its UK licence to operate
across the EU, the decision to leave the EU does not change
much in the short-term. We will put plans in place to deal with this
outcome, as we monitor the progress in political discussions, and
be ready to act if required to ensure we can continue to operate
in Europe.
MiFID II is currently scheduled to come into force in January
2018. This provides enhanced intervention rights for individual
state regulators. Ahead of this, as we announced in March, the
French regulator, the AMF, stated its intention to restrict electronic
advertising of derivative products to retail clients. Although this
intention is not yet law, it appears there is sufficient will to ensure
this happens and therefore we assume this comes into force
sometime during this calendar year. The precise extent of the
restriction is not yet clear but it is likely to adversely impact new
client acquisition for the French business, which accounted for 5%
of this year’s revenue and new accounts.
STRATEGIC AND
OPERATIONAL PROGRESS
In my first-half statement in January, I clarified my approach to
taking IG forward. We are concentrating on three key levers
for growth:
❚ Product diversification
❚ Geographic development
❚ Maximising the current opportunity
– Optimising marketing efficiency and client conversion
– Increasing client activity and retention
– Maximising client value
PRODUCT DIVERSIFICATION
Having grown to be a clear market leader in certain of our more
mature markets, the UK and Australia in particular, we see great
value in being able to offer clients a broader suite of trading
and investment products, which fulfil a greater portion of their
needs throughout their life. This also allows us to reach out with
the IG brand to a broader range of potential clients through a
product set they understand well, with some of those clients,
those for whom it’s entirely appropriate, ultimately choosing
also to use a leveraged product. In September 2014, we took
our first step outside our core leveraged-product arena, with the
launch of execution-only stockbroking in the UK. We evolved
our offering early in 2016, in response to a slightly disappointing
take-up, including altering our pricing structure and renaming it
share dealing. These changes coincided with the ISA season in
the UK, so it is difficult to understand their precise impact, but
we have seen an uplift in the account opening rates. At the end
of the year we had over 11,000 funded accounts and, perhaps
more importantly, we had around 2,900 active clients in May.
We continue to see around 15% of new clients going on to use
the leveraged product set and initial indications suggest they
are valuable clients. We rolled out this product to Australia in
early July and hope to build here on the learnings from our UK
experience to date.
’I am particularly pleased by
the continued strategic and
operational progress we made
in the year.’
We are close to launching a portfolio-based investment product
through IG Investments, in partnership with BlackRock, the biggest
asset manager in the world. Initially this will be UK only but we
expect to expand it to Australia over time. This is the next natural
extension of the IG brand and provides us with another route to
market. Over the longer term, this allows us to build a separate,
more predictable revenue stream. The model portfolios we will
offer will be built on exchange traded funds (ETFs), which lend
themselves to one of IG’s core competencies, namely real-time
trade execution. ETFs are low-fee products, which will enable us
to offer a low-cost service to clients, based on market-leading
technology and transparency. We plan to add a customisation
ability for clients, which we anticipate will appeal to more
sophisticated clients.
7
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
GEOGRAPHIC DEVELOPMENT
MAXIMISING THE CURRENT OPPORTUNITY
We will adjust our approach to suit the opportunity. Over time we
believe there will be opportunities to expand our business into
fresh geographies. Recent examples of this are Switzerland and
Dubai. These two offices are performing ahead of plan, with a
particularly strong finish to this year in Dubai. Unlike other offices,
the revenue in these countries is coming from fewer, larger-value
clients, particularly in Dubai, which leads us to expect growth to
be strong but unpredictable from month to month. Both of these
countries required a lengthy licensing process, a relatively material
infrastructure and local regulatory capital.
We will seek to address certain adjacent or proximate markets
without the overhead of a local presence. These markets will be
targeted by the most relevant sales office, with the assistance
of our improved online marketing capabilities, a new affiliates
programme, slim local language websites and the required local
language skills. This approach is central to our recent decision
to pursue a hub strategy in Europe, where we are centralising
our capabilities in specific strategic countries. As part of this, we
closed our offices in Norway and the Netherlands and will now
serve our current clients and build these businesses from Sweden,
Germany and the UK.
There remains significant opportunity within our current
geographic footprint. As global leader in our market, there are
many countries where our market share does not reflect this.
We see this as an opportunity, rather than a disappointment.
’In the UK and Australia in
particular, we see great value
in being able to offer clients a
broader suite of trading and
investment products, which
fulfil a greater portion of their
needs throughout their life.’
We may seek to extend our product set where there are specific
local circumstances which support that, but generally, in countries
where our market share is not reflective of our aspirations, we will
focus on the core leveraged product and progressing towards a
market-leading position.
This year, we launched an affiliates programme to market
our product through a range of partners. This is still early stage,
but the progress to date has been encouraging in some countries.
This provides us with an entrepreneurial route to market, with a
very transparent cost per account. We will continue to progress
this positively, while remaining protective of our record of
regulatory compliance.
In the short to medium term, there is a real opportunity for IG
to improve at all the things we already do. As the business grew
rapidly through the past 10-15 years, inefficiencies crept in to
some of our processes, particularly around the way we market,
onboard and engage clients through their life with IG. We
are making progress in extracting increasing value from every
client opportunity.
Optimising marketing efficiency and client conversion
Over the last couple of years, we have overhauled our online
marketing, recognising its growing importance, through personnel
and process change. We have centralised our marketing
spend in regional hubs and now use a data-based algorithmic
methodology. In the last financial year we opened just over
100,000 accounts, 42% ahead of the prior year, and the second
half of this year was 35% ahead of the first half. So, we are making
great progress at targeting new clients. These figures do however
belie the fact that there is still considerable friction, and therefore
opportunity, in the application process. We have put in place
many changes this year, accompanied by a strict testing regime
and feedback loop where possible, to improve the conversion rate
for prospective clients who begin the application process. Many
of these are almost imperceptible, but incremental. However, the
more significant ones include: taking advantage of electronic ID
verification databases in countries where these were previously
unavailable, particularly in Europe; enabling ID document upload
through the mobile app; redesigning our mobile application form;
establishing a dynamic verification routine within the application
which shows clients clearly what documentation they require at
each stage of the account opening process and much improved
client communications.
Our conversion rate from opened accounts to trading accounts
has dropped a little in the year. In absolute terms, it is still a strong
picture, with first trades ahead of the prior year by 29%, and the
second half of this year 24% ahead of the first half. Part of the
decline in the conversion rate is due to the increasing proportion
of applications commencing on mobile devices – for the last few
months of the year, this has been running at around 50% of all
applications; currently these do not convert as well as those that
come through the web-based platform, either into valid open
accounts or into trading accounts. It is also due in part to the
magnitude of the uplift in applications – a good problem to have –
and the reassurance we require before allowing someone to trade;
this often includes a direct conversation and we are employing
more client-facing staff to assist clients to get through to trading.
Less successful at this stage has been our acquisition of generic
top-level domains (gTLDs), where we have decided to write-off the
investment this year. We have launched some websites using our
gTLDs, for example news.markets, and licensed many domains to
third parties, but this is moving slower than we initially anticipated.
We continue to believe that our ownership of certain gTLD strings
positions us well as the internet structure evolves, but we have
trimmed our short-term ambitions and we are focusing on using
the small number of sites we have at this stage to broaden IG’s
presence and attract clients.
8
IG Group Holdings plc Annual Report 2016 ’The business starts this year in good shape, and we are
delivering a number of initiatives which should continue to
support future growth.’
OUTLOOK
We made good progress in 2016, strategically, operationally
and financially. The business starts this year in good shape, and
we are delivering a number of initiatives which should continue
to support future growth. The launch of limited risk accounts
is a key step in providing current and prospective clients with
increased choice and will allow us to broaden our reach. We aim
to improve retention of existing clients and to appeal to new
clients by releasing our investments product in the UK in the first
half of this financial year; this will be an important achievement in
the evolution of IG and continues our repositioning in our more
mature markets. We are also approaching the end of the testing
phase for our new web trading platform, and expect to release it
before the end of this calendar year.
Demand for our products and application numbers remain strong.
Given this demand, and the improvements we have made to
our online targeting capability, we intend to increase marketing
investment again significantly this year, as long as the payback
remains compelling. Including the impact of the remuneration
changes at the end of the financial year, and modest increases in
other operating costs, we currently expect the overall absolute
rise in operating costs in the 2017 financial year to be in line with
the increase last year, on an underlying basis. However, given the
nature of this cost growth, it will be increasingly discretionary and
more closely aligned with revenue.
In summary, 2016 was a successful year for IG, and the business is
in robust health. I am delighted to be leading such an energised
team, and we remain confident that we can deliver further
attractive growth going forward.
Peter Hetherington
Chief Executive Officer
19 July 2016
Increasing client activity and retention
Our desire is to delight our clients with our technology and our
service and to retain them for as long as possible. There is an
overlap in this growth lever with our product diversification, a
mechanism for deepening our relationships with clients. However,
there are a number of other initiatives which will differentiate
IG. This year, we rolled out our market movement notifications
service, primarily via push alert to a mobile device. This allows
a client to move seamlessly from a timely trading idea to the
dealing platform and is individually targeted to each client’s
interests. During July 2016, we will launch our limited risk trading
account, an important step in helping some clients to manage
better the risk/reward balance in their trading. This guarantees a
client cannot incur debt, and may enable us to attract additional
clients, previously concerned by the nature of the trading risks.
We are in the middle of the testing our new web trading platform,
the mainstay of IG and our industry. Our current platform could be
described as visually a little tired, but it remains technologically
cutting-edge. It is also very familiar to many of our clients and
therefore we will approach the changeover carefully and include a
long period of dual-running. As long as the testing feedback is
positive, we continue to expect to roll out the initial version in
2016. We will then iterate this to ensure all current functionality is
available, along with the suite of new features we are planning.
Maximising client value
We continue to optimise our risk management within
our technology suite and with strong governance as we approach
specific events. This year we increased our absolute risk limits and
made them dynamic, where they rise and fall as markets open and
close to take advantage of liquidity and client volume. Although
we intend to retain our low-variability revenue stream – IG has
only had three negative revenue days in the past five years – we
continue to run back-testing simulations of various scenarios to
get increasingly close to the optimal position, while remaining
neutral on market direction. We overlay this technological risk
management with manual oversight.
This was extremely successful at the time of the EU Referendum,
where we prioritised long-term value over short-term gain, raising
client margin rates significantly and encouraging our clients to
consider carefully the merits of holding a position through such
uncertainty. This approach protected both clients and IG.
’We continue to optimise
our risk management within
our technology suite and with
strong governance as we
approach specific events.’
9
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR BUSINESS
OUR VISION
We aim to be the default financial platform for active traders and sophisticated investors in
our chosen markets.
BUILDING ON OUR HERITAGE
IG is a global leader in online trading and the trusted partner
for 152,600 active traders. A FTSE 250 company with market
capitalisation of £3.0 billion(1), we have a long history of
profitability and financial strength.
In 1974 we began life as the UK’s original spread betting provider,
introducing a completely new, accessible way for people to trade
on gold, by defining it as an index. Since then, our innovative,
client-focused approach has enabled us to grow and expand our
business and product range internationally, and today we are the
world’s No.1 CFD provider as well as maintaining our considerable
UK market leadership in spread betting.(2)
As we look to the future, as well as continuing to grow our number
of clients globally, there is an opportunity to strengthen and
extend our relationship with them by offering a wider spectrum
of products, beyond our original leveraged trading services. Our
hallmark transparency, financial security and platform technology
underpin new initiatives that will enable us to attract clients at
different stages of their investment lifecycle. We began this
process with the successful introduction of our share dealing
service in September 2014, which is now exposing our brand to a
broader audience and bringing valuable new clients to our entire
product suite.
We are shortly to launch, in the UK, a sophisticated and innovative
portfolio-based product, for longer-term investment purposes, in
partnership with BlackRock, the world’s leading asset manager.
By providing a broader range of products that cater for differing
investment objectives and risk appetites, we seek to forge
longer-lasting relationships with our clients, remaining their partner
of choice as their needs change over time.
Meanwhile, we continue to focus on optimising our core offering.
A completely new, cutting-edge trading platform will give our
clients a faster, more responsive, personalised trading experience.
We have also invested heavily in improving the client recruitment
process, using a number of techniques to create a broader,
smoother pathway for prospects interested in using our products.
Throughout the past four decades, our operating model and risk
management strategy have been thoroughly tested and have
proved highly resilient. Our business has continually adapted to
a changing world and the technological and economic backdrop,
and we will continue to innovate as we look to the next phase of
our growth.
IG RETAIL BRANDS
(1) Based on the share price at 19 July 2016.
(2) Based on number of active UK financial spread betting accounts (Investment Trends
UK Leveraged Trading Report, September 2015); for CFDs, based on revenue
excluding FX (published financial statements, September 2015).
10
KEY DATES
1974
IG Index was founded, becoming the UK’s first spread
betting company.
1982
We were the first company in the UK to offer spread
betting on the FT30.
1995
IG Index became the first UK company to allow spread
betting on individual shares.
1998
The company became the first to launch an online
dealing platform for financial spread betting.
2002
IG Markets Australia became the country’s first
CFD provider.
2003
Our product range expanded as binary betting
was introduced.
2006
New offices opened in Germany and Singapore.
2007
Our browser-based trading platform was launched. New
offices opened in the US, Spain and France.
2008
The Group opened an office in Italy. The Group
launched the UK’s first dedicated spread betting
iPhone app.
2009
Nadex.com was launched in the US. IG Markets
introduced PureDMA. Offices opened in Sweden
and Luxembourg.
2010
We acquired the Ideal CFDs business in South Africa.
CFD iPhone app launched.
2012
Our Insight, news and analysis centre launched. New
office opened in Dublin.
2013
Spread betting and CFD offerings brought together
under IG.com. Introduction of forex trading via Meta
Trader 4 platform.
2014
Introduced execution-only stockbroking as part of our
comprehensive share trading package. New office
opened in Switzerland.
2015
Sunday trading was launched and IG designed the
first trading app for Apple Watch. New office
opened in Dubai.
2016
IG expands its stockbroking offering into ISAs and SIPPs.
Enters into a partnership with BlackRock, the biggest
asset manager in the world, to launch a portfolio-based
investment product.
IG Group Holdings plc Annual Report 2016 OUR GLOBAL OPERATIONS
We have sales offices across Europe, the Middle East, Africa, Australia, Asia and the US, and our growing expertise in online
marketing, search engine optimisation and multi-language client service enables us to extend our reach into countries where we have
no physical presence. Using a centralised marketing strategy, we now target prospects and serve clients in 156 countries, efficiently and
cost-effectively.
Our UK headquarters in the City of London is supported by two major growing operational hubs in Krakow, Poland, and Bangalore,
India. These are positioned to take advantage of local pools of talent in a variety of disciplines.
CHICAGO
STOCKHOLM
DÜSSELDORF
DUBLIN
KRAKOW
LONDON
GENEVA
LUXEMBOURG
MILAN
DUBAI
BANGALORE
MADRID
PARIS
JOHANNESBURG
SINGAPORE
TOKYO
SALES OFFICES
HQ
OPERATIONAL HUBS
MELBOURNE
-
1,408
TOTAL EMPLOYEES
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
£231.1 million in the
2016 financial year, with
64,500 active clients trading
EUROPE
❚ Entered the market in
Germany in 2006, with
rapid expansion across
Europe from 2007
❚ Offices located in
France, Germany, Italy,
Luxembourg, Spain,
Sweden and Switzerland
❚ Annual revenue of
£98.6 million in the
2016 financial year, with
35,000 active clients trading
AUSTRALIA
❚ Entered the market in 2002
REST OF WORLD
❚ Began expansion in 2006
❚ Office located
in Melbourne
❚ Annual revenue of
£64.0 million in the
2016 financial year, with
19,800 active clients trading
in Singapore
❚ Offices located in Dubai,
Japan, Singapore, South
Africa and the US
❚ Annual revenue of
£62.6 million in the
2016 financial year, with
33,300 active clients trading
857
EMPLOYEES
210
EMPLOYEES
76
EMPLOYEES
265
EMPLOYEES
11
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR PRODUCT SUITE
We provide our clients with a broad product set, both in terms
of markets to trade and the number of platforms available. Our
market-leading technology enables fast, flexible trading on an
extensive range of global indices, shares, forex, commodities and
other instruments.
At the core of our product range is leveraged trading. Most
of our global revenue comes from CFDs and financial spread
betting (in the UK and Ireland), with an increasing proportion
generated by binaries trading, including our US retail derivatives
exchange, Nadex.
Our aim is to anticipate and respond to our clients’ changing
needs. As part of this process, in the UK and Australia, we are
developing a comprehensive product range that will suit shifting
risk appetites and investment objectives throughout a lifetime.
This includes a suite of unleveraged products, starting with the
introduction of share dealing and ISAs in the UK last year and the
recent addition of SIPPs this year.
We are also launching, in the UK, a new wealth management
offering, in partnership with market-leading exchange traded
fund (ETF) provider BlackRock. We believe that the long-term
investment market is already beginning to experience disruption,
and we can take advantage here through the exceptional strength
of our technology combined with BlackRock’s product and
portfolio construction expertise.
Together, our range of leveraged and unleveraged products will
help us attract and serve both active traders and sophisticated
investors, broadening our reach into new target audiences and
extending the lifetime of our clients with us.
Together, our range of
leveraged and unleveraged
products will help us attract
and serve both active traders
and sophisticated investors.
CONTRACTS FOR DIFFERENCE (CFDS)
CFDs are derivatives contracts 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 CFDs in more than 17 countries globally
We explain how a CFD works on page 168.
SPREAD BETTING
Financial spread betting, available in the UK and Ireland, is a
tax-free(2) alternative to trading, enabling clients to bet on the
price movement of an asset. Like a CFD, it enables clients to
capitalise on changes in an asset’s price without owning the asset
itself. 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(3)
❚ We hold 44% of the UK financial spread betting market(4)
We explain how spread betting works on page 170.
NADEX
Nadex is our US derivatives exchange, enabling US and
overseas investors to trade options on global financial markets in
retail-sized contracts.
The main product we offer is the binary option, which provides
a flexible way for clients to trade with limited risk, although the
spread product, also limited risk, is becoming more popular.
❚ Nadex is the first and largest US-based
retail-oriented exchange
❚ The business has seen a two-year compound growth of 89%
(1) Based on revenue excluding FX, from published Financial Statements,
September 2015.
(2) Tax laws are subject to change and depend on individual circumstances. Tax law may
differ in a jurisdiction other than the UK.
(3) Based on number of active UK spread betting accounts (Investment Trends Ltd UK
Leveraged Trading Report, September 2015).
(4) Investment Trends Ltd UK Leveraged Trading Report, July 2015.
12
IG Group Holdings plc Annual Report 2016 WEALTH MANAGEMENT
The building block of our new wealth management offering
is the exchange traded fund (ETF) – a passive investment
vehicle that is rapidly increasing in popularity and becoming
much more mainstream in the UK and Europe, following a
pattern set by the US.
On its own, an ETF gives clients a low-fee way of tracking
an index geography or a sector. Because ETFs trade on
recognised exchanges, clients can do this through the share
dealing platform. We will be enabling clients in the UK
to choose from a range of model ETF-based investment
portfolios with different risk profiles. These portfolios are
constructed and regularly rebalanced by the IG Investments
portfolio team. Clients benefit from IG’s world-class
technology, execution and customer service, combined with
BlackRock’s market-leading expertise in asset allocation. We
believe our offering is extremely well placed to challenge
the traditional high-fee approach to wealth management,
and will provide investors with a low-cost, transparent and
flexible solution.
We consider the wealth management sector to be a
significant long-term opportunity, and our marketing
initiatives will include educational programmes to continue
raising awareness and understanding of ETFs within
the market.
❚ The ETF market is currently growing at
around 18% per annum
❚ BlackRock is the world’s largest ETF provider, with
over 760 exchange traded products (ETPs) listed
on exchanges worldwide and over 36% market
share globally
13
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 markets to
decide whether the answer will be yes or no.
Binary contracts are unrestricted by low volatility, giving clients the
opportunity to trade in even the flattest markets. They are also a
limited-risk product, where the maximum potential gain or loss
is known at the outset. Our binary offering also includes ‘sprint
markets’ – short-term, fixed-risk trades.
This product forms a key part of our ongoing strategy to provide a
range of services for clients throughout their lifetime.
❚ Our binaries have seen a CAGR of 34% over the past
three years
❚ Binaries now represent 11% of our overall revenue, up from
9% in the prior year
SHARE DEALING, ISAs AND SIPPs
Our online, execution-only share dealing service is powered by
the same market-leading technology as our spread betting and
CFD services. Clients have access to live, streaming prices and a
transparent execution process, as well as a cost-effective way to
trade international equities. At the start of 2016, we reduced and
simplified our charging structure to give clients even better value
for money. We also allow clients to use their stock portfolio as
collateral to initiate leveraged trading, and those clients who use
both products benefit from lower, preferential fees on their share
dealing account. Following the recent launch of SIPPs in the UK,
we believe we now have a market-leading proposition.
Share dealing is an important part of our product offering in the
UK and will become so soon in Australia, two countries where we
are market leaders for leveraged trading, and it offers us a new
and exciting route to growth. We also launched the service in
Germany, the Netherlands, Austria and Ireland, but the main thrust
in these countries remains developing our leveraged market share.
❚ The market in the UK for online, execution-only stockbroking is
around ten times the size of the market for leveraged products
❚ Around 70% of clients opening share dealing accounts are
new to IG, and around 15% of these clients have subsequently
started using our leveraged products
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR CLIENTS AND BUSINESS MODEL
RETAIL CLIENTS
Our core focus continues to be the active
trader – a knowledgeable, demanding
and valuable client who expects highly
sophisticated technology and uses it
frequently, often placing large trades.
However, investment requirements
and appetite for risk can change over
time, affected by factors such as family
or financial commitments or the need
to plan for retirement, and this offers
us the opportunity to broaden our
product set to also appeal to relatively
sophisticated investors.
Our 42-year heritage and integrity has
developed our brand strength to a point
where we have sufficient credibility to
broaden our range of products in the
UK and Australia into stockbroking and
investment portfolios, including ISAs and
SIPPs. By doing so, we will be able to
deepen and lengthen our relationship
with our clients by catering for their
evolving needs.
OUR CLIENTS
CLIENT ACQUISITION
Acquiring a new client begins with a highly targeted global marketing effort, with
offline activity managed locally by each office and our increasingly sophisticated online
marketing effort controlled from regional hubs. By using an algorithmic approach, and
continuously testing this through a feedback loop, we are able to determine which
advertising and search terms have been most valuable for client recruitment in each country.
This enables us to reach larger numbers of the right prospects more efficiently.
As well as marketing our products directly, we provide a number of education, news and
analysis services which encourage people to engage with IG and learn about our products.
These include the learn.spreadbetting website and IG Academy app, launched this year,
as well as the IG Live TV channel and a suite of YouTube videos. These assets reinforce our
commitment to transparency, ensuring our new and existing clients are well informed about
our services.
THE CONVERSION JOURNEY
Once a prospect has decided to become an IG client, our focus shifts to ensuring the
journey is as smooth as possible, removing any obstacles or areas of friction, while ensuring
we comply fully with all our regulatory requirements.
This involves constantly iterating online and mobile application forms in response to
client progress rates. We are also making better use of electronic verification methods
that check a client’s identity against government data in real-time, where available. This is
dramatically shortening the typical timescale to open an account in countries where the
facility exists, cutting it from three days to within the same day in Germany and Austria, for
example. For occasions when further security checks are still required, we have introduced a
new way for clients to quickly upload photographs of their documents from their phone or
computer to our website.
We currently have 152,600 active clients around the world, and
the majority of these engage directly with us.
INSTITUTIONAL CLIENTS
IG also provides a number of services
to corporate entities. These range from
purely supplying price feeds to operating
full white-label platforms. Accounting for
8% of our revenue, the institutional sector
is a significant part of our business, but
is currently significantly smaller than our
strong retail division. However, it is an
area where we have the potential to grow
without any substantial increase in our
cost base.
INTRODUCED BUSINESS
The mainstay of our institutional division has historically been introduced business. In
this case our clients are regulated entities who do not have their own front-end offering
and want to take advantage of our award-winning dealing technology and expertise.
They introduce their clients to us and we handle all trading activity and provide back-end
support. The introducer manages the client relationship.
We can also provide a white-labelled version of our platform with the client’s own branding.
This enables clients to integrate our trading facilities seamlessly with their other services and
maintain consistency throughout their marketing assets.
DIRECT INSTITUTIONS
Increasingly, small asset managers, hedge funds, broker dealers and competitors lack
sufficient scale to gain direct access to the major hedging counterparties. Balance-sheet
constraints have recently forced banks who might previously have offered a source of
liquidity for these clients to withdraw from the market. IG is taking advantage of this
growing segment of the market by taking on these clients and providing them with a forum
to trade. This business is profitable and growing.
We carefully assess the risk and potential returns from each client and only partner
with reputable institutions that are committed to the same rigorous standards of regulatory
compliance as ourselves, and that fit our risk profile. We usually provide a price feed to
the client’s own platform or offer the facility to connect to us via a direct API (application
programming interface), with the client paying spread or commission depending on
what they trade. This enables clients to fully integrate their trading strategies with the IG
infrastructure via their own front end or a number of third-party solutions.
14
IG Group Holdings plc Annual Report 2016 BUSINESS MODEL
CLIENT JOURNEY
1
DISCOVERING IG VIA OUR
CAREFULLY TARGETED
MARKETING
2
BECOMING A
CLIENT QUICKLY
AND EASILY
❚ Optimised global
online acquisition
❚ Transparent, targeted advertising
❚ Accessible educational tools
❚ Market news and expert insight
❚ Full compliance with FCA and
other regulators’ requirements
❚ Fast, smooth application process
❚ Electronic ID verification
❚ Secure, simple document upload
3
ACCESSING FINANCIAL
MARKETS THROUGH A
SUITE OF PRODUCTS FOR
CHANGING NEEDS
❚ Spread betting
❚ CFDs
❚ Binaries
❚ Share dealing
❚
ISAs
❚ SIPPs
❚ ETF portfolios
HOW WE ADD VALUE
BRAND STRENGTH
❚ Global leader in online trading
❚ Reputation for authority
and integrity
❚ 42-year heritage
❚ Robust balance sheet
❚ Access to over 10,000 markets
TECHNOLOGY
AND INNOVATION
❚
Industry-leading apps,
charts and tools
❚ Secure, stable platform
❚ Fast, reliable execution
❚ Continuous improvement
❚ Responsive to client needs
42 YEARS
HOW WE GENERATE REVENUE
EXPERT SERVICE
❚ High-calibre client service staff
❚ Dedicated 24h telephone support
❚ Sophisticated interaction-
management system
❚ Products designed in response
to client feedback
Our principal revenue sources on our core leveraged products are the dealing spreads or commission charges we apply to each
transaction, according to the asset and product type being traded net of our hedging costs. As clients are trading on margin, we also
levy a financing charge for positions held overnight. Our share dealing offer charges a flat fee commission per trade in UK shares.
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.
15
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
OUR PEOPLE
Our people are the lifeblood of the service we deliver to our clients. Their skills and
passion drive our success in all aspects of our business, from designing and building
innovative products and cutting-edge platforms to handling client queries professionally
and resolving issues.
OUR VALUES
❚ Hallmark quality
❚ Passion for progress
❚ Transparency in dealing
❚ Meritocratic opportunity
Our success is founded on offering unparalleled access to financial
markets, through market-leading platforms, tools, products and
services, and presenting them with absolute clarity and integrity.
We take extremely seriously our responsibility to ensure that
clients fully understand the technical nuances and the potential
risks as well as the rewards of our products.
By focusing on quality, transparency and fairness, we are able
to build long-term relationships with the people who use our
services. We continually seek ways to further assist and engage
with current or prospective clients.
We recognise that the strength of our team is pivotal in forging
rewarding, enduring relationships with our clients, and we
are committed to recruiting the right talent and providing the
best environment, culture, training and support for our people
to flourish.
In 2016, IG was recognised as one of Britain’s Top Employers
for the ninth year running. This is testament to our positive
workplace culture.
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.
16
OUR PEOPLE STRATEGY
To ensure that we have the right people in place at every level
of the organisation, with the right skills and in the right locations,
we have developed a five-year strategy. This encompasses
recruitment, training, career development and retention.
The strategy is in its first year, but is already yielding significant
benefits.
N D
RIT Y A
SU R E M E N T
LA
A
C
E
M
PEOPLE
STRATEGY
A
N
T
A
D
L
E
G
N
R
O
T
W
TH
PER
AN
D
F
O
R
R
M
E
A
W
N
A
C
R
E
D
T
N
ME
G
R KIN
O N
W O
E N V I R
❚ We are a global employer
with people in 17 countries
❚ We employ over 1,400 staff
❚ Over 90% of employees feel
that there is a strong sense
of teamwork and cooperation
in IG
❚ We have been certified
as one of Britain’s Top
Employers for nine
consecutive years
IG Group Holdings plc Annual Report 2016
Our goal is to align people with the overall organisational
structure more effectively.
CLARITY AND MEASUREMENT
We have established mechanisms to collect data that will help us
manage our people more effectively, and to communicate that
data in clearer, more meaningful ways.
For example, following the analysis of our attrition data, we were
able to adjust some salaries to ensure our offer was attractive
in the market. In addition, we adjusted our performance
evaluation process to align people more closely with business
and personal performance KPIs and provide more regular,
meaningful feedback.
Eoin McCoy
Head of IG Poland
’Our team in Krakow is
selected from the local
pools of talent, and we’ve
grown rapidly to become a
key resource supporting the
global business.’
PERFORMANCE AND REWARD
Our goal is to align people with the overall organisational structure
more effectively. This involves ensuring that we have the right
staff, in the best department structure and the optimum locations,
to deliver the levels of product quality and customer service our
clients demand.
During the year, therefore, we have determined the five key pillars
for our business success:
❚ Clients
❚ Delivery
❚ Returns
❚ Control
❚ People
We have aligned the organisation to these pillars, with clear
executive-level accountability. We have also begun to expand our
teams in Bangalore and Krakow to take advantage of local pools
of talent, creating centralised hubs of expertise in IT, marketing
and client service to support the global business.
In order to attract and retain the right people, we offer a
competitive reward package to recognise performance and
encourage our key talent to be part of our future. We believe that
working together as a team is vital to our global success.
Therefore, as well as offering a market-related salary structure
that is regularly benchmarked, we include the majority of our
employees in a group bonus scheme. Bonus levels are linked to
the financial success and ongoing stability of IG, and are based on
both company and individual performance, as discussed during
the annual appraisal process. Bonuses are distributed at the end of
each financial year.
The remainder of our employees who are not part of the main
bonus scheme are included in specific sales-related bonus
schemes. We also reward our high-potential employees through
long-term incentive plans.
We offer our employees in the UK, Australia and the US
the chance to share in our success via our tax-advantaged
share-purchase schemes. An average of 37% of eligible employees
took part in our share plans in 2016.
To complement these direct financial rewards, this year we are
also introducing flexible benefits across the UK.
TALENT AND GROWTH
Having recruited good people, we also invest in them by ensuring
that they have the appropriate training and gain the experience
required to perform their jobs effectively and help deliver the
Group’s strategy and business plan. Staff at all levels and in
all functions across IG are supported and developed through
effective appraisal reviews and career planning sessions.
Our newly introduced people strategy will ensure that in-house
coaching expertise and mentoring supports our employees at all
stages of their career, from induction to role transition, gaining
technical knowledge and building leadership skills.
As an international company, we are also able to offer overseas
development opportunities for selected individuals.
17
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR PEOPLE CONTINUED
This year we recognised the increasing need to introduce a more
transparent and formal succession-planning process. This is both
for the benefit of employees, making our people fully aware of
the career opportunities available to them, and also to ensure
continuity for the business when a key member of our team
moves on.
In terms of development areas, we still have more to do in clearly
setting out career structures and advancement opportunities, and
in improving reward and recognition.
Our HR team has used the insights provided by the survey to
develop our new people strategy, which we believe will address the
areas where improvement is needed.
’When the opportunity for
a secondment to London
came up, I was excited and
the decision was easy. The
experience and knowledge I’ve
gained during my secondment
are invaluable for my personal
and professional development.’
Hui Shan Beh
Group Accountant
Finance (on secondment from Melbourne)
We continue to support our managers in their career progression
with our Inspirational Development programme, which focuses
on the outcomes of 360° feedback and the behaviours associated
with generating high performance. All of our strategic and senior
management team attend at least one structured programme,
and 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.
WORKING ENVIRONMENT
FLEXIBLE WORKING
We believe that a vibrant, dynamic yet supportive culture is
central to employee engagement. We aim to provide the right
environment for our employees to thrive so they can give their
best performance.
This year we will manifest this in major updates to the physical
office facilities and our working practices, introducing a hot-desk
system. With laptops replacing fixed desktop devices, our people
will enjoy a new flexibility to work in different project teams, at the
office or remotely, according to their needs and preferences.
EMPLOYEE FEEDBACK
We believe that understanding our employees’ perceptions,
motivations or concerns and gathering their feedback is crucial to
help us formulate our people strategy and decide which employee
engagement initiatives to take forward, so this year we again
partnered with IBM to deliver our employee engagement survey,
and were delighted to achieve an 89% response rate.
Highlights include the finding that over 90% of our employees
feel that there is excellent cooperation and a strong sense of
teamwork within their departments. They also report that IG shows
a strong commitment to ethical business conduct, that managers
treat their teams with respect and that the senior leadership team
is committed to providing high-quality products and services
to clients.
EQUALITY AND DIVERSITY
We maintain our commitment to equality and diversity, recognising
that a broad workforce is fundamental to our business. We
welcome individuals who bring different approaches, perspectives
and ideas. By challenging customs and encouraging creativity,
these people can support the business in successfully achieving
its goals.
Commercially and for every other best-practice reason, we are an
equal-opportunities employer. We strongly believe that to succeed
as a global business, we need to make the most of the potential
of the workforce in every country where we operate. We have
extensive human resource policies in place to ensure that we attract
the right people, and that those who join us can develop without
experiencing discrimination or harassment. We continuously
reinforce the need to treat all employees fairly, working to create
an environment free from bullying, where people of all grades or
positions enjoy dignity and respect.
We fully consider and encourage applications for employment
from disabled persons with aptitudes and abilities in line with
our requirements. Where existing employees become disabled,
temporarily or permanently, our policy is to provide continuing
employment wherever practicable in the same or an alternative
position. Appropriate training and/or graduated back-to-work
programmes, in conjunction with the occupational health
professionals, help achieve this aim.
WELLBEING AND SAFETY
We are fully committed to our employees’ health and wellbeing,
providing private medical cover, permanent health insurance and
life assurance as benefits for all staff. To help our people enjoy
healthy lifestyles, our flexible benefits include reduced-price
gym membership. We also offer savings on bicycles under the
government-backed cycle-to-work initiative, as well as providing
free-of-charge bicycle parking at our London office. A confidential
employee-assistance programme is available to all our Head Office
employees and their immediate families, offering a 24/7 telephone
counselling service for impartial advice on all matters, from housing
to personal finance.
We are committed to offering each employee a safe and healthy
working environment. 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.
COMMUNICATION
To recruit the talent we need, it is important for us to project the
right messages about who we are and what we stand for as a
business. These messages must also be clear and accurate, to
ensure we set the right expectations for our new joiners. We are
constantly evaluating perceptions of IG as an employer, looking at
ways to communicate more effectively with our present and future
staff in the different countries where we operate.
Initiatives have included the launch of a new, improved intranet and
the appointment of company-wide ‘engagement champions’ who
can facilitate two-way communication between staff and the human
resources and senior management teams.
18
IG Group Holdings plc Annual Report 2016 In terms of gender, our workforce is made up as follows at 31 May 2016:
BOARD
FEMALE 2
MALE 5
PERCENTAGE FEMALE 29%
PERCENTAGE MALE 71%
SENIOR LEADERSHIP
TEAM
FEMALE 3
MALE 17
PERCENTAGE FEMALE 15%
PERCENTAGE MALE 85%
SENIOR
MANAGEMENT TEAM
FEMALE 17
MALE 68
PERCENTAGE FEMALE 19%
PERCENTAGE MALE 81%
TEAM MEMBERS
FEMALE 368
MALE 928
PERCENTAGE FEMALE 28%
PERCENTAGE MALE 72%
TOTAL
FEMALE 390
MALE 1018
PERCENTAGE FEMALE 28%
PERCENTAGE MALE 72%
COMMUNITY ENGAGEMENT
We are keen to encourage our people to engage in activities
that both help their own development and contribute to local
communities, so we are proud to support a wide variety of 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.
‘Joining IG as a developer, I didn’t
see my leadership potential. I’ve
been empowered and given training,
mentoring and support, and now I
head a software engineering team.
IG helped me grow in my career.’
Lidia Oosthuizen
Technical team lead
19
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR STRATEGIC OBJECTIVES
OBJECTIVE
PRIORITIES FOR 2016/2017
PROGRESS IN 2015/2016
ADDRESS THE NEEDS OF ACTIVE
TRADERS AND SOPHISTICATED
INVESTORS
Our goal is to build lasting, valuable relationships with
our clients. Having previously targeted active traders,
who are attractive because they tend to deal frequently
and in large sizes, we have now widened our product
range to appeal additionally to sophisticated investors.
These clients select providers who offer the best tools
and products and the highest standards of integrity to
manage their long-term finances. IG is ideally positioned
to fulfil their needs, and so to enhance client loyalty and
improve retention.
❚
❚
Launch new self-directed wealth management platform
with a suite of model ETF portfolios, in partnership
with BlackRock
Launch completely new trading platform, with
technology developed to place us at the forefront of
the industry
❚ Focus on continued improvements to our educational
offering, including an extensive new suite of concise
video guides
ACHIEVE, MAINTAIN OR EXTEND
LEADERSHIP IN OUR CHOSEN
MARKETS
❚ Continue to recruit clients and grow revenue in share
dealing, as well as promoting our leveraged and
other products
❚ Further enhance the application process to maximise
Our market leadership in CFDs and spread betting
reflects the unrivalled service, products and platform
technology we provide. We will continue to strengthen
our position in these core products, while also creating
competitive new offerings in the stockbroking and wealth
management fields. These initiatives will be founded
on our existing strengths – cutting-edge technology,
transparency, integrity and expert client service – helping
to drive the long-term profitability of our business.
STRENGTHEN OUR
GLOBAL REACH
Having initially executed our international expansion
by establishing a network of local offices, we are now
in a position where we can also grow the footprint of
our business without the need for a physical presence
in each new country. The strength of our single, global
brand, combined with our expertise in online marketing
techniques, enables us to expand across borders and
recruit new clients in a highly cost-effective way.
DELIVER QUALITY SERVICE TO
OUR CLIENTS
By maintaining absolute integrity, delivering excellent
customer service and fast and reliable execution with
transparent pricing, we strive to make our clients feel
secure and confident in trading with us. This results in a
longer, more mutually profitable relationship.
completion rates
❚ Continue to develop our newly opened operations in
Switzerland and Dubai, both of which performed above
our expectations
❚ Continue to launch further localised websites focused on
new client acquisition
❚
Launched an additional five new localised websites for client acquisition
❚ Rolled out share dealing platform to Australia in July 2016
❚ Focused on growing the profitability of Switzerland and Dubai
❚ Further improve and personalise our service to clients,
taking a more proactive approach based on data and
alerts from our contact management tool
❚
Improve the efficiency of payments in and out of client
accounts, including introducing more payment methods
and working to smooth issues with local banking
procedures and regulations in certain territories
❚ Create a new charting team to cover Europe
❚ Benchmark our customer support against companies
in other sectors, via membership of the Institute of
Customer Service
SUSTAIN OUR TECHNOLOGY
LEADERSHIP
The market-leading functionality, speed and security
of our platform and its proven resilience are essential
to maintaining client satisfaction, enhancing client
acquisition and retention. We will continue to invest in
our core online platform to stay at the forefront of the
market, while also focusing on improving the functionality
we offer on mobile devices.
❚
❚
❚
❚
Launch our new trading platform and continue to
introduce further enhancements
Invest further resources to reduce the timescale between
account application and trading
Introduce further improvements in charting,
personalisation and functionality for mobile apps
Launch new market movement service, alerting clients to
specified behaviour patterns in markets on their watchlist
20
❚
❚
❚
❚
❚
❚ Successfully re-launched online share dealing. 70% of clients are new to IG and around
15% subsequently begin trading leveraged products
❚ Further refined our share dealing service to focus on both price and product leadership
❚ Expanded our shares service to include a SIPP account
Launched IG Academy app, an educational tool for potential new customers, receiving
five-star ratings across Apple and Android app stores
Launched learn.spreadbetting, an educational website covering the essentials a new
spread bettor needs to know
Launched five additional specialised websites offering tailored content on subjects
such as forex trading and spread betting
❚ Developed limited-risk accounts for clients requiring a greater degree of protection
launching in July 2016
❚ Maintained our position as UK market leader for CFDs and spread betting
❚ Continued to lead the CFD market in Australia
❚ Created a smoother, faster account-opening process for new applicants, including
electronic ID verification and easy document upload, resulting in a 42% uplift in
number of opened accounts
Introduced new interactive contact management system, delivering each of the 240
interactions we receive every hour to the right client service representative, in the right
location, to handle it most effectively
❚ Saw an increase in Live Chat conversations from 2,000 to 7,000 per month
❚ Created a new technical support team for charting in APAC, providing
around-the-clock service in combination with London
Launched an online peer-to-peer support community, which now has 3,000 members
and receives over 30,000 views each month
❚ Trained our client service team in relationship management skills and focused on
recruiting new staff who display talent in this area
❚ Empowered our client service staff to make appropriate concessions when handling
client issues and complaints
❚ Developed new online trading platform, now undergoing final testing
❚ Partially rolled out My IG account dashboard in the UK, with more than 4,000 clients
now logging in daily
❚
Launched IG Academy educational app on iPhone and Android devices, the first time
we have designed content initially for the mobile environment only
❚ Enhanced our mobile platform with the introduction of an economic calendar, Signal
Centre and a major market moves alert service, as well as improved charting
❚ Redesigned the account application process with the introduction of electronic ID
verification and document upload tools
IG Group Holdings plc Annual Report 2016 ADDRESS THE NEEDS OF ACTIVE
TRADERS AND SOPHISTICATED
INVESTORS
Our goal is to build lasting, valuable relationships with
our clients. Having previously targeted active traders,
who are attractive because they tend to deal frequently
and in large sizes, we have now widened our product
range to appeal additionally to sophisticated investors.
These clients select providers who offer the best tools
and products and the highest standards of integrity to
manage their long-term finances. IG is ideally positioned
to fulfil their needs, and so to enhance client loyalty and
improve retention.
ACHIEVE, MAINTAIN OR EXTEND
LEADERSHIP IN OUR CHOSEN
MARKETS
Our market leadership in CFDs and spread betting
reflects the unrivalled service, products and platform
technology we provide. We will continue to strengthen
our position in these core products, while also creating
competitive new offerings in the stockbroking and wealth
management fields. These initiatives will be founded
on our existing strengths – cutting-edge technology,
transparency, integrity and expert client service – helping
to drive the long-term profitability of our business.
STRENGTHEN OUR
GLOBAL REACH
Having initially executed our international expansion
by establishing a network of local offices, we are now
in a position where we can also grow the footprint of
our business without the need for a physical presence
in each new country. The strength of our single, global
brand, combined with our expertise in online marketing
techniques, enables us to expand across borders and
recruit new clients in a highly cost-effective way.
DELIVER QUALITY SERVICE TO
OUR CLIENTS
By maintaining absolute integrity, delivering excellent
customer service and fast and reliable execution with
transparent pricing, we strive to make our clients feel
secure and confident in trading with us. This results in a
longer, more mutually profitable relationship.
OBJECTIVE
PRIORITIES FOR 2016/2017
PROGRESS IN 2015/2016
❚
❚
Launch new self-directed wealth management platform
with a suite of model ETF portfolios, in partnership
with BlackRock
Launch completely new trading platform, with
technology developed to place us at the forefront of
❚ Focus on continued improvements to our educational
offering, including an extensive new suite of concise
the industry
video guides
❚ Successfully re-launched online share dealing. 70% of clients are new to IG and around
15% subsequently begin trading leveraged products
❚ Further refined our share dealing service to focus on both price and product leadership
❚ Expanded our shares service to include a SIPP account
❚
Launched IG Academy app, an educational tool for potential new customers, receiving
five-star ratings across Apple and Android app stores
❚
❚
Launched learn.spreadbetting, an educational website covering the essentials a new
spread bettor needs to know
Launched five additional specialised websites offering tailored content on subjects
such as forex trading and spread betting
❚ Developed limited-risk accounts for clients requiring a greater degree of protection
launching in July 2016
❚ Continue to recruit clients and grow revenue in share
dealing, as well as promoting our leveraged and
❚ Further enhance the application process to maximise
other products
completion rates
❚ Maintained our position as UK market leader for CFDs and spread betting
❚ Continued to lead the CFD market in Australia
❚ Created a smoother, faster account-opening process for new applicants, including
electronic ID verification and easy document upload, resulting in a 42% uplift in
number of opened accounts
❚ Continue to develop our newly opened operations in
Switzerland and Dubai, both of which performed above
❚ Continue to launch further localised websites focused on
our expectations
new client acquisition
Launched an additional five new localised websites for client acquisition
❚
❚ Rolled out share dealing platform to Australia in July 2016
❚ Focused on growing the profitability of Switzerland and Dubai
❚ Further improve and personalise our service to clients,
taking a more proactive approach based on data and
alerts from our contact management tool
❚
Improve the efficiency of payments in and out of client
accounts, including introducing more payment methods
and working to smooth issues with local banking
procedures and regulations in certain territories
❚ Create a new charting team to cover Europe
❚ Benchmark our customer support against companies
in other sectors, via membership of the Institute of
Customer Service
❚
Introduced new interactive contact management system, delivering each of the 240
interactions we receive every hour to the right client service representative, in the right
location, to handle it most effectively
❚ Saw an increase in Live Chat conversations from 2,000 to 7,000 per month
❚ Created a new technical support team for charting in APAC, providing
around-the-clock service in combination with London
❚
Launched an online peer-to-peer support community, which now has 3,000 members
and receives over 30,000 views each month
❚ Trained our client service team in relationship management skills and focused on
recruiting new staff who display talent in this area
❚ Empowered our client service staff to make appropriate concessions when handling
client issues and complaints
❚ Developed new online trading platform, now undergoing final testing
❚ Partially rolled out My IG account dashboard in the UK, with more than 4,000 clients
Invest further resources to reduce the timescale between
now logging in daily
❚
Launched IG Academy educational app on iPhone and Android devices, the first time
we have designed content initially for the mobile environment only
❚ Enhanced our mobile platform with the introduction of an economic calendar, Signal
Centre and a major market moves alert service, as well as improved charting
❚ Redesigned the account application process with the introduction of electronic ID
verification and document upload tools
SUSTAIN OUR TECHNOLOGY
LEADERSHIP
The market-leading functionality, speed and security
of our platform and its proven resilience are essential
to maintaining client satisfaction, enhancing client
Launch our new trading platform and continue to
introduce further enhancements
account application and trading
Introduce further improvements in charting,
acquisition and retention. We will continue to invest in
personalisation and functionality for mobile apps
our core online platform to stay at the forefront of the
market, while also focusing on improving the functionality
we offer on mobile devices.
Launch new market movement service, alerting clients to
specified behaviour patterns in markets on their watchlist
❚
❚
❚
❚
KPIs (SEE PAGE 28)
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 46)
REGULATORY
OPERATIONAL AND IT
MARKET
CREDIT
COMPETITOR
LIQUIDITY
CONDUCT
REPUTATIONAL
PEOPLE
21
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
OUR OPERATIONAL
STRATEGY IN ACTION
In the Chief Executive Officer’s Review we discussed the three
key levers that would enable us to grow the business and
achieve our priorities, both in 2017 and going forward:
❚ PRODUCT DIVERSIFICATION
❚ GEOGRAPHIC DEVELOPMENT
❚ MAXIMISING
THE CURRENT OPPORTUNITY
In this section we will highlight some examples of this work in
action, to give a feel for the progress we are making, as well as
new initiatives that we have undertaken.
’The online share dealing
market represented a
huge opportunity for
us with around 1 million
potential clients in the
UK alone, compared with
less than 100,000 for
leveraged products.’
Ian Peacock
Head of UK and Ireland
22
COMMISSION-FREE
INVESTING IN OUR ISA
Buy and sell exchange traded funds (ETFs) for free until 30 April 2016. *
Open your ISA at IG.com/isa
The value of investments can fall as well as rise
and you may get back less than you initially invested.
IG.com/isa
INDICES | SHARES | FOREX | COMMODITIES
* From 1 March until 30 April 2016, there will be no commission charged on the purchase or sale of any ISA-eligible
exchange traded product (ETP) available in an IG ISA. After 30 April 2016, usual commission rates will apply. Please
read the ETP’s prospectus or key investor information document (KIID) before investing. Tax laws are subject to change.
INVEST IN ETFs COMMISSION
FREE WITH OUR ISA
Buy and sell exchange traded funds (ETFs) with zero commission until 30 April 2016. *
Open your ISA at IG.com/isa
IG.com/isa
INDICES | SHARES | FOREX | COMMODITIES
IG Group Holdings plc Annual Report 2016 PRODUCT DIVERSIFICATION
SHARE DEALING, ISAs, SIPPs AND WEALTH MANAGEMENT
In September 2014 we launched our execution-only
stockbroking service in the UK and Ireland, later extending it
to the Netherlands, Germany and Austria. This was our first
significant diversification from leveraged trading and a key
part of our strategy to broaden our product range and reach a
new, larger audience in the countries where we were already
market leaders.
The launch was a qualified success with 70% of the clients
signing up for the service being new to IG and approximately
15% of those, for whom it was appropriate, then going on to
trade using leveraged products. It also proved that IG was
capable of marketing its products to a more mainstream,
potentially less active client group. Despite these encouraging
aspects the number of new clients and therefore the revenue
generated was lower than had been anticipated.
Therefore, earlier this year Ian Peacock, Head of UK and Ireland,
and his team worked on reviewing the strategy:
’We are very clear that the online share dealing market
represented a significant opportunity for us with around
one million users of this product in the UK alone, compared
with less than 100,000 for leveraged products. So I knew if we
could get the offer right, the prize was to open up the entire
IG offering to a far larger client base. But we weren’t achieving
the volume of clients and trades that we had expected. We
therefore conducted a fundamental review of the strategy,
centered on client feedback.’
This feedback showed that the product was very popular
among clients, with a platform that, thanks to IG’s core
technological competence, was seen as industry leading.
However, it was only possible to understand the superiority
of the platform by using it, and our price offering wasn’t
compelling enough to encourage people to switch from
their current provider and experience it. As a result we were
acquiring fewer clients than we had forecast.
Ian Peacock:
’We realised fairly quickly that, given the importance of being
able to offer the broader product set to this new market, our
strategy would be best served by focusing on acquiring clients
through a combination of both product and price leadership.’
We also reviewed our regional plan, and decided that,
rather than introducing the product in all countries where
we offer spread betting or CFDs, it would be better
to focus on the UK and Australia. Here we are already
recognised as the market leader in leveraged products, and
our stockbroking offering would act as a platform play to roll
out our full product set. We would then have the opportunity to
offer the product in other regions once we had achieved market
leadership in leveraged products there.
We therefore re-launched the product in March of this year in
the UK, under the name of share dealing, and had the initial
launch in Australia in July.
Ian again:
’We now have one of the strongest offerings in the market
from a product and price point of view. Early signs are that the
improved price positioning is a success.’
We now have the opportunity to offer further products on the
back of our improved market position, with our ISA product
tripling its number of clients against this time last year in the
critically important March and April time period. We have
also launched a new SIPP offering in the UK during May this
year. And although it is early days, the initial signs are that the
uptake is positive.
Our next step is to extend into self-directed investment
products with IG Investments due to be launched this year.
Wealth management is a market that is ripe for disruption
and we will seek to achieve this through the strength of
our technology, coupled with a low and transparent pricing
structure. We have therefore entered into a partnership with
BlackRock, the largest exchange traded products (ETPs)
provider in the world at 36% market share. BlackRock is
creating a suite of model portfolios specifically for IG clients,
with a range of risk profiles.
Commenting on this, Ian said:
’The launch of our portfolio-based investment products is
the logical next extension from our share dealing, ISA and
SIPP offerings. Together, BlackRock and IG will have an
investment proposition where IG provides the technology, the
execution and the retail product, while BlackRock provides the
asset-allocation expertise to create the right portfolios suited to
our clients’ needs.’
Ian ended by saying:
‘I am confident our product will evolve to further strengthen IG’s
position at the forefront of innovation in the trading, investing
and wealth management space.’
’We now have one of the
strongest offerings in the
market from a product
point of view. Early signs
are that the improved price
positioning is a success.’
23
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR OPERATIONAL
STRATEGY IN ACTION
CONTINUED
GEOGRAPHIC DEVELOPMENT
ONLINE MARKETING
Until relatively recently, each IG region and office had its own
marketing budget that was spent locally. This activity was driven
by regional marketing departments and provided us with limited
ability to determine which campaigns had been most effective.
Matthew Elliott
Head of Online Operations
‘The need to manage
online marketing in a
more streamlined fashion,
to become more efficient,
was the catalyst for us to
centralise spend.’
In 2013, we established our unified global IG brand, acquiring
the IG.com domain. This pivotal event gave us the framework to
consolidate our global web traffic through a single route in order
to focus on online leadership – something that is increasingly
important for acquiring, educating and providing a high level of
service for clients in our industry.
Matthew Elliott, Head of Online Operations, and his team played
a key role in implementing a new approach to online marketing at
IG. He explains:
‘The need to manage online marketing in a more streamlined
fashion, to become more efficient, was the catalyst for us to
centralise spend. At the same time we also invested in building
our search engine optimisation (SEO) capability and pooled our
paid search budgets under the oversight of a new team.’
24
IG Group Holdings plc Annual Report 2016 ’The effect of every
action we take now needs
to be measurable, to inform
future spend. The impact
of non-digital advertising
is, unfortunately, almost
impossible to measure.
It therefore plays a very
limited role in our activity.’
Using this centralised, in-house marketing team and an algorithmic
approach enables us to deploy our marketing spend in the most
efficient way globally. We are able to react immediately to world
events, creating campaigns rapidly and rolling them out to every
relevant region, with local adjustments if necessary. Algorithms
and tests determine the performance of different keywords and
advertising creatives in each country, and then the marketing
team can direct resources rapidly to those that have proved most
effective locally.
Having a centralised team means we have also built a centre
of excellence, which allows us to attract and retain great
talent, in turn helping us to keep improving and innovating in
digital marketing.
We have also been particularly successful in SEO and now
rank increasingly well in the majority of our local markets for the
key words that define the industry.
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Ensure you understand the risks and costs involved with CFD and FX trading by reading the Risk Disclosure Statement at IG.com.sg.
Issued by IG Asia Pte Ltd (Co. Reg. No.200510021K), regulated by MAS. App Store is a service mark of Apple Inc. Google Play is a
trademark of Google Inc.
Matthew comments:
’We spend our time constantly testing different creatives to see
what works. We focus on the customer’s journey to the point
where they sign up for an IG account. We get the feedback fast
and can respond almost instantly.
’As our online capability has improved, we have had the
confidence to spend more on acquiring customers, because we
have a very clear idea of the timescale in which our investment
pays back.’
This has driven a move away from non-digital advertising, with
only 35% of IG’s total marketing spend being used for
this medium.
Matthew explains:
’The effect of every action we take now needs to be
measurable, to inform future spend. The impact of
non-digital advertising is, unfortunately, almost impossible to
measure. It therefore plays a very limited role in our activity.’
The development of our cross-border online marketing and
SEO skills has also enabled us to attract clients in regions
where we may not have a physical presence. As a result, we
can now operate far more efficiently and cost-effectively across
borders, through being excellent online. This promises to bring
significant cost advantages going forward.
Ensure you understand the risks and costs involved with CFD and FX trading by reading the Risk Disclosure Statement at IG.com.sg. Issued by IG Asia Pte Ltd (Co. Reg. No.200510021K), regulated by MAS.
*World’s largest retail CFD provider by revenue (excluding FX). Source: Published fi nancial statements. As at July 2014. App store is a service mark of Apple Inc. Google Play is a trademark of Google Inc.
25
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OUR OPERATIONAL
STRATEGY IN ACTION
CONTINUED
MAXIMISING THE
CURRENT OPPORTUNITY
CLIENT ONBOARDING AND
BETTER CONVERSION
Elaine Fahy
Interim Head of Onboarding Operations
’Our focus has been on
removing obstacles to
account opening – creating a
better experience for clients
and consequently getting
more of them, faster through
the process.’
26
During the past year, one of IG’s key priorities has been to speed
up the process between a new client deciding to create an
account and funding the account and trading.
Elaine Fahy, Interim Head of Onboarding Operations, and her
team have been instrumental in driving the project:
’Our focus has been on removing obstacles to account opening
– creating a better experience for clients and consequently getting
more of them, faster through the process.’
The team has made great progress in the year. For example,
building on the proven success of our electronic ID (eID)
verification processes in the UK and Australia, we have also
introduced solutions in Germany, Austria, the Netherlands,
Belgium, China and Hong Kong this year. The eID provider checks
information such as name, date of birth and address to see if
they match various data sets. This delivers significant benefits for
clients as they can get through the application in real-time, greatly
reducing the waiting period before they can use their account.
There is also no need for IG personnel to manually chase follow-up
information and approve applications.
IG Group Holdings plc Annual Report 2016 Elaine commented:
’Thanks to eID verification, IG has seen a significant reduction in
the time period between application and account opening – for
example from three days to same day in Germany and Austria.
This makes a huge difference to the experience for our clients and
increases our conversion rate.’
Where the eID provider has questioned an element of the client’s
application, we have introduced restricted accounts where funds
cannot be withdrawn. This means we can open an account with
restricted conditions with the proviso that the client provides the
missing piece of identification within 30 days. If the information is
not forthcoming in that timescale then we deactivate the account.
Where further information is needed to verify a client’s identity,
we have facilitated this process by introducing a secure
document-upload service. Clients can photograph the required
documents and upload them securely via a mobile device directly
through our trading platform. Elaine explained:
’We are critically evaluating every possible bottleneck in the
application process and seeking to remove it. So, for example,
we have a new application form in the UK and Germany, where
progress can be saved, so the client can exit and then return later
and pick up where they left off. And once the form is complete, we
have improved the journey to becoming an active trader by linking
new clients directly through to our trading platform to explore the
markets, fund their account or upload any required documents,
depending on their preference.’
This client focus has had some pleasing results with the number of
successful applications up 49%, the number of open accounts up
42% and the number of first trades up 29%. Elaine concluded:
’The hard statistical measures have been very encouraging but
we have also been delighted with our progress against the softer
measures of success. Client satisfaction with the onboarding process
was 10% higher in the latter two quarters of FY2016 than in the
previous quarters.’
’Thanks to eID verification, IG
has seen a significant reduction
in the time period between
application and account
opening – for example from
three days to same day in
Germany and Austria. This
makes a huge difference to the
experience for our clients and
increases our conversion rate.’
Matthew Brief
Head of Dealing
NEW INITIATIVES
LIMITED-RISK ACCOUNTS AND TRADING
We take very seriously our responsibility to help clients
understand the risk associated with trading and to provide
them with tools to manage this. This is important not only from
a regulatory perspective, but it also makes sound business
sense: given our business model, it is in IG’s interest to develop
long relationships with clients, and those who are more
successful are likely to stay with us over the long-term and
become more valuable.
In July we are introducing a new type of account focused
particularly on clients who may have less experience of our
products, who are less wealthy or who simply wish to take
on less risk with each trade. These limited-risk accounts are
set up so that the client knows the maximum potential loss
at the outset and cannot lose more than they have on their
account. This will give clients total certainty on the potential
downside and enable them to feel more secure and more
confident to trade.
Having a limited risk account type means that we may be able
to attract additional clients who previously perceived the risk to
be too high.
In addition, for all account types we have introduced a new,
fairer way of charging for guaranteed stops.
Matthew Brief, Head of Dealing, explains:
’We no longer charge a premium when a client adds a
guaranteed stop to a position – the charge only applies if the
stop is triggered. This innovation, along with a number of
reductions in our guaranteed stop premiums, means that IG
now offers the best value in the market for limited-risk trading
on most major indices and FX pairs.’
Together, our new limited-risk trading facilities enable more
clients to enjoy peace of mind by putting an absolute cap on
loss, potentially free of charge.
27
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT KEY PERFORMANCE INDICATORS (KPIs)
We use nine key financial and operational
performance metrics, including the net
promoter score to the right, to measure
our performance and our progress against
the short-term and long-term goals of
the business.
The shaded area indicates the underlying performance.
Movement based on statutory figures with underlying movement included
in narrative.
£400.2m
FY15
£388.4m
FY16
£456.3m
17%
£2,941
£2,854
£2,990
4.8%
FY15
FY16
FY15
FY16
REVENUE
Revenue performance demonstrates business growth in terms of
global reach, range of products offered to clients, active clients
and revenue per client, and is also a driver of the staff bonus pool.
Statutory revenue grew by 17% to £456.3 million, while on an
underlying basis this is up 14%. The strong performance is driven
by a combination of improving results from our digital and mobile
marketing, supported by reasonable volatility in the financial
markets and good returns from our investments in Switzerland,
Dubai and Nadex.
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 both
client activity and quality. On a statutory basis, revenue per client
is 4.8% higher than the prior year, while on an underlying basis it is
up 1.7%. This was up across all regions.
136,100
136,100
152,600
12%
ACTIVE CLIENTS
Active clients are those clients who have opened at least one trade
in the period. Active clients in 2016 are up 12% from 136,100 to
152,600, reflecting a record year for the onboarding of new clients
and frequent market events that provided opportunities for our
clients throughout the year.
£193.2m
FY15
£169.5m
FY16
£207.9m
23%
28
IG Group Holdings plc Annual Report 2016
PROFIT BEFORE TAX (PBT)
PBT is up 23% on the prior year’s statutory results and up 7.6%
on an underlying basis, primarily driven by the strong revenue
performance. A detailed commentary on our PBT performance
is provided in the Operating and Financial Review section of
this report.
IG Group Holdings plc Annual Report 2016
NET PROMOTER SCORE
(NPS)(1)
To better understand how well we
deliver quality services to our clients,
we use NPS, as well as other measures
of satisfaction, to assess the extent of
client recommendations. During 2016,
we improved our NPS scores in five out
of six markets that Investment Trends
measures and we continue to see
an upward trend in overall customer
satisfaction with IG as measured by our
own client surveys.
(1) All NPS data presented in this report is provided
by Investment Trends Pty Limited (please refer
to the Investor Resources section on page
179 for further details). 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).
UK SPREAD BETTING
GERMANY
IG’S MOST
RECENT NPS
INDUSTRY
AVERAGE
AUSTRALIA
IG’S MOST
RECENT NPS
INDUSTRY
AVERAGE
UK CFDs
IG’S MOST
RECENT NPS
INDUSTRY
AVERAGE
20%
5%
IG’S MOST
RECENT NPS
INDUSTRY
AVERAGE
SINGAPORE
29%
8%
27%
IG’S MOST
RECENT NPS -14%
16%
INDUSTRY
AVERAGE
-19%
24%
7%
FRANCE
IG’S MOST
RECENT NPS
INDUSTRY
AVERAGE
35%
7%
41.07p
FY15
35.99p
FY16
44.58p
24%
DILUTED EARNINGS PER SHARE (DEPS)
DEPS includes all components of the Group’s performance based
on profitability and capital structure. DEPS is a key measure in
the award and vesting of our executive and senior management
share plans. This year, DEPS increased by 24% on a statutory
basis and 8.5% on an underlying basis, reflecting the growth in the
after-tax profitability.
£159.2m
FY15
£136.8m
FY16
£197.9m
45%
28.15
28.15
31.4
12%
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 on our own funds generated from
operations can be found in the Operating and Financial Review
section of this report.
DIVIDEND PER SHARE
Shareholder returns are central to our strategy and reflect the
strength of our business, our capital position and our expectations
of future performance. In line with the Board’s previously stated
intention to an approximately 70% pay out, the Board has
recommended a final dividend of 22.95 pence per share, resulting
in a full-year dividend of 31.40 pence, up 12% on the prior year.
99.95%
99.95%
99.99%
0.04%
PLATFORM UPTIME
The availability of the dealing platform is key to our clients’
confidence in trading with IG. Our system uptime percentage is
99.99%, ahead of the 99.95% achieved in 2015. This is a record
for our annual performance in this area and testament to our
dedication and resilience.
IG Group Holdings plc Annual Report 2016
29
FY15
FY16
FY15
FY16
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
BUSINESS CONDUCT AND SUSTAINABILITY
After over 40 years in business, we understand that sustainable long-term returns stem from
good conduct. We seek to act with integrity towards our staff, our clients, our regulators
and the markets, maintaining a reputation for professionalism and ethical practice.
CLIENT SUPPORT AND EDUCATION
We provide extensive educational resources for our clients,
including an introduction programme that promotes responsible
trading, an interactive educational app and a wide range of
seminars and webinars. We continually look to keep this content
engaging and targeted towards our clients’ needs.
Based on client feedback, and following the launch of our
in-house TV studio in 2014, we increased the amount of original
video content we supply for this purpose. Clients can now get
instant access to expert tutorials, which cover everything from
fundamental trading concepts to risk management.
We also provide an extensive range of trading tools, such as
regular free news, commentary and analysis on IG TV and via
the News and Analysis 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.
IG Academy app
SUSTAINABLE BUSINESS
Our conduct as a business is driven by our values of hallmark
quality, passion for progress, transparency in dealing and
meritocratic opportunity. These values have been an organic
and fundamental part of our historic growth and success. However,
with growth comes the challenge of maintaining that culture and
with it appropriate conduct. For this reason, we decided to define
our values clearly and communicate them to staff, giving our
people a strong framework and direction to help them realise our
overall vision. In this way we have embedded sound corporate
conduct in the culture of the business, so it is not simply a risk or
regulatory requirement.
Conduct undoubtedly represents a real risk to all firms within the
financial industry and our clients. For this reason we have actively
engaged in the agenda and developed a risk management
strategy, entrenching various quantitative and qualitative
measures to identify, measure, manage and monitor conduct
risk. Our strategic initiatives include producing monthly Key Risk
Indicators (KRIs) and dashboards for conduct risk, with a rolling
plan of thematic conduct risk reviews and formalised conduct
consideration prior to project sign-off.
In this way we ensure effective communication of the tone
from the top throughout the organisation. We apply high
standards across our businesses, and specifically in our corporate
governance – as set out in the Corporate Governance Report
and the Directors’ Report in compliance with the UK Corporate
Governance Code. The sections below demonstrate how we do
this in practice.
COMMITMENT TO OUR CUSTOMERS
We aim to put our customers at the heart of everything we do,
and we strive to ensure that we understand our clients’ needs
and consistently deliver fair outcomes and positive experiences.
We have a very low tolerance for poor consumer outcomes, and
we are committed to investing in process, training and culture to
prevent unsatisfactory customer experiences and to address root
causes where any practice falls short. 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 strategic initiatives, and we regularly seek and
review 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 now process 100% of active client trades
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.
30
IG Group Holdings plc Annual Report 2016 ’We are using sophisticated
technology to make sure
our clients get fast support,
from the right person,
whenever and however
they contact us.’
Lizzie Counihan
Head of Operations
31
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT BUSINESS CONDUCT AND SUSTAINABILITY CONTINUED
OUR COMMITMENT
A sense of responsibility manifests itself in everything we do. It has
underpinned our conduct as a business since our inception, playing
an instrumental role in the growth and success of IG Group.
PROTECTING OUR CLIENTS’ DATA AND FUNDS
We prioritise the security of our clients’ information and have
achieved the ISO 27001:2005 certificate for information
security management.
We fully segregate funds for retail individuals, in compliance with
the regulations, and we hold segregated client money entirely
separately from our own money across a diverse range of banks.
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.
CLIENT APPROPRIATENESS
Our products are not appropriate for everyone, and we recognise
that good conduct is particularly vital in relation to marketing and
client recruitment to prevent poor consumer outcomes. We have
a number of procedures that ensure our advertising reaches the
right audience, and that our clients appreciate the risks involved
with our products and understand how our services work.
We follow strict guidelines to ensure that we only promote our
products to a target audience within appropriate sectors and
demographic groups. We also conduct rigorous checks to ensure
that all promotions are clear, fair and not misleading, and that risks
are not downplayed compared to the benefits of our products.
Before we allow a prospective client to open an account, we
carry out an assessment to determine whether our products are
appropriate for them. We actively question applicants and must be
satisfied that clients have the necessary knowledge or experience
to understand the risks involved. To further assess whether our
products could produce poor outcomes, we ask clients for details
of their income and savings, both at account opening and in
rolling reviews. Based on the results of these assessments, we may
choose to provide an applicant with a clear warning about the
appropriateness of the product or restrict them to a type of account
where risk is limited. We may also decline to open an account, or
indeed close an account if it has already been opened.
LIMITING CLIENT LOSSES
We have a number of services designed to help clients limit any
losses they may make.
Our clients can choose to attach guaranteed stops to their positions,
so that they know their maximum possible loss at the outset of
a trade. This year we have introduced an innovative new charging
system that encourages our clients to use guaranteed stops. No
premium is payable for attaching a guaranteed stop unless it is
triggered, so clients will frequently receive protection free of charge.
IG is the first provider to offer guaranteed stops on this basis.
Our close-out monitor (COM), which seeks to automatically
liquidate clients’ positions when their margin has been significantly
eroded, is also a means by which we help protect clients. At
31 May 2016, 99.91% of all client accounts were subject to the
automatic COM procedure. Further details are set out in note 36
to the Financial Statements.
In July 2016, we are also introducing a limited-risk account. This is
the default account we offer to less experienced clients or clients
towards the lower end of the wealth acceptance scale. Clients who
are eligible for our other account types can also request a
limited-risk account, if they so wish.
We prioritise the security of our
clients’ information and have
achieved the ISO 27001:2005
certificate for information
security management.
OUR ENVIRONMENTAL IMPACT
As a business that 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 still take any necessary actions to
ensure that we minimise the impact of our operations on the
surrounding environment.
Running and maintaining our IT infrastructure comprises the
main source of our environmental impact. This 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.
This year we continued to decommission and virtualise 240
legacy rack-mounted servers, migrating onto a hyper-converged
infrastructure which has a lower environmental impact. 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 second-largest
consumer of energy. We apply a number of energy-saving
processes and have a far-reaching recycling policy, which
encompasses not only a proportion of our daily office waste, but
also extends to our IT equipment when we replace hardware,
while trying to ensure that we use any desktop equipment for its
maximum useful life.
32
IG Group Holdings plc Annual Report 2016 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. The rollout of our modern office project
is also helping us to work in a more energy-efficient way and
reduce our environmental impact. Employees are now able to
work from home using laptops, which consume less power than
desktop computers and reduce the need for work-related travel. By
converting to a ’hot desk’ working environment, we will ultimately
be able to use our office space more efficiently and cut costs. To
date we have deployed laptops to 52% of our London staff and all
of our Krakow employees.
The global nature of our business, with employees located in
17 countries, results in the need for our people to travel around the
globe to provide local support for staff and clients. We have taken
further steps to minimise these journeys by installing state-of-the-art
video-conferencing facilities. We use Skype for Business to
provide environment-friendly video-conferencing, both from desks
and in meeting rooms across our Head Office and seven of our
global offices.
EMISSIONS DATA
We provide emissions data in respect of the financial year ended
31 May 2016 in the Mandatory Greenhouse Gas Emissions Report
and Greenhouse Gas Emissions Intensity Ratio tables below. 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:
❚ We have based our methodology on the principles of the
Greenhouse Gas (GHG) Protocol
❚ We have reported on all the measured emissions sources
required under The Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013, except where stated
❚ This includes emissions under Scope 1 and 2, except where
stated, but excludes any emissions from Scope 3
❚
In line with the revised GHG Protocol, market-based factors
have been identified and presented for the UK
Conversion factors for electricity, gas and other emissions are
those published by the Department for Environment, Food and
Rural Affairs for 2015-2016. Conversion factors for UK electricity
(market-based methodology) are published by electricityinfo.org.
Statement of exclusions
Global diesel use (for vehicles) has been excluded from the report
on the basis that it is not material to our carbon footprint.
The scope of reporting for our fugitive emissions has been
restricted to the United Kingdom. Other regions have been
excluded due to lack of data or immateriality.
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
2014-15
CO2e TONNES
2015-16
CO2e TONNES
2015-16
CO2e TONNES
LOCATION-BASED
MARKET-BASED
161.77
34.93
196.70
4,007.64
4,007.64
4,204.34
429.9
54.5
484.4
3,914.6
3,914.6
4,399.0
429.9
54.5
484.4
4,000.4
4,000.4
4,484.8
GREENHOUSE GAS EMISSIONS INTENSITY RATIO
EMISSION TYPE
Turnover (£)
Intensity Ratio, location-based method (tCO2e/£100,000)
Intensity Ratio, market-based method (tCO2e/£100,000)
TOTAL FOOTPRINT (SCOPE 1 AND SCOPE 2) – CO2e
PREVIOUS YEAR
(2014-15)
CURRENT YEAR
(2015-16)
YEAR-ON-YEAR
VARIANCE
388.4m
10.82
N/A
456.3m
9.64
9.83
17%
(11%)
N/A
EMISSION CATEGORY
EMISSION SOURCE
OPERATION OF FACILITY
PURCHASED ENERGY
COMBUSTION
ELECTRICITY
NATURAL GAS
LPG
OTHER DELIVERED FUELS
F-GAS
MANAGED VEHICLES
IG Group Holdings plc Annual Report 2016
3333
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
’By focusing on in-depth data analysis,
we’re able to optimise client recruitment
and client value, ultimately enhancing our
profitability as a business.’
Adam Dance
Director of Business Development
34
IG Group Holdings plc Annual Report 2016 35
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OPERATING AND FINANCIAL REVIEW
During 2016, IG has again demonstrated the strength of its business model, allowing it to
grow revenue and profit in all locations. The Group continued to diversify its geographical
spread by launching an office in Dubai, with revenues from outside the UK now
representing 49% (2015: 47%) of the Group revenues.
OPERATING REVIEW
IG has delivered record revenue in the year of £456.3 million, 14%
up on the prior year on an underlying basis (2015: £400.2 million).
The prior year results were affected by the Swiss franc de-pegging
event in January 2015. The underlying results in 2015 exclude
the impact of this event. We consider it appropriate to continue
to report against the underlying comparatives to enable a clear
indication of the year-on-year performance.
Profit before tax was £207.9 million, 7.6% up on the prior year on
an underlying basis (2015: £193.2 million). The Group effective tax
rate reduced to 21.0% from 22.0% in the prior year (underlying),
reflecting the full-year impact of the reduction in the UK
corporation tax rates to 20%. Diluted earnings per share was 44.58
pence, 8.5% ahead of the prior year on an underlying basis (2015
underlying: 41.07 pence).
On a statutory basis, Group revenue was 17% ahead of the prior
year (2015: £388.4 million), with profit before tax up 23% (2015:
£169.5 million), profit after tax up 25% (2015: £131.9 million), and
diluted earnings per share up 24% (2015: 35.99p).
Active client numbers continued to grow ahead of the prior year
to 152,600 (12.1%) and the average revenue per client was up
1.7% to £2,990. As in the previous year, the revenue was higher
in the second half of the year at £241.5m compared to £214.8m
in the first half. The second half included a record quarter for the
Group in Q3 of £122.0m, driven by the high volatility caused by
significant sell-offs in the financial markets at the start of 2016
which triggered more trading opportunities for clients.
IG remains highly cash-generative, supporting the dividend payout
ratio of 70%, resulting in a full-year dividend of 31.40 pence per
share, an increase of 12% on the prior year.
Underlying revenue
UK
Europe
Australia
Rest of World
Total
Statutory revenue
UK
Europe
Australia
Rest of World
Total
FY16
FY15
Revenue
£m
Clients
000s
Revenue
£m
231.1
98.6
64.0
62.6
456.3
64.5
35.0
19.8
33.3
152.6
211.9
80.9
59.2
48.2
400.2
FY16
FY15
Revenue
£m
Clients
000s
Revenue
£m
231.1
98.6
64.0
62.6
456.3
64.5
35.0
19.8
33.3
152.6
206.0
76.9
58.1
47.4
388.4
Clients
000s
60.4
29.7
18.7
27.3
136.1
Clients
000s
60.4
29.7
18.7
27.3
136.1
% change in
revenue per
client from FY15(1)
2.1%
3.0%
1.9%
6.7%
1.7%
% change in
revenue per
client from FY15(1)
5.1%
8.6%
3.9%
8.4%
4.8%
(1) The financial tables above contain numbers which have been rounded, while all year-on-year percentages are calculated from underlying unrounded numbers.
36
IG Group Holdings plc Annual Report 2016 UNITED KINGDOM
AUSTRALIA
The Australia segment comprises the Melbourne office and also
includes revenue from New Zealand and other countries in the
Asia Pacific region. Revenue in Australia was up by 8.1% from
the prior year, to £64.0 million (2015: £59.2 million). Revenue in
Australia was stronger in the second half of the year, following
the trend of the broader Group, delivering £33.6 million against
£30.4 million for the first half, with the third quarter also being a
record for this region. Enhancements in the client account opening
journey and marketing strategy contributed to a 6% increase from
the prior year in active client numbers, albeit with client numbers
8.0% lower in the second half of the year compared to the first.
Average revenue per client also improved 1.9% ahead of the
prior year.
An annual market research study, released in June 2016,
concluded that IG’s market share of the retail CFD industry had
remained flat at 38%, having increased from 33% in the previous
year.(1) IG remained the clear industry leader. As with the UK, this
measure is based on the number of primary accounts.
In July 2016 we launched the execution-only stockbroking offering
in the Australia region.
REST OF WORLD
The Rest of World segment comprises the offices in Singapore,
Japan, South Africa and Dubai, and our retail exchange,
Nadex, in the US. Revenue for the period in the Rest of World
region was ahead of the prior year by 30% at £62.6 million
(2015: £48.2 million). All countries in the Rest of World segment
experienced growth, with particularly strong results in the US,
more than doubling prior year revenue and a strong contribution
from the newly opened Dubai office, which outperformed in its
first year. Active client numbers were 22% ahead of the prior year
and revenue per client was up 6.7% to £1,882 (2015: £1,764).
Revenue per client is lower in the region due to the nature of the
product set in the US, but it has been boosted this year by the
higher revenue per client in Dubai, which is attracting a higher
average value client base. With the region growing at a fast pace,
revenue was higher in the second half at £34.1 million compared
to the first half of £28.5 million. The Rest of World segment
accounted for 14% of Group revenue in the period, against 12% in
the prior year.
REVENUE BY REGION
UK (51%)
EUROPE (22%)
AUSTRALIA (13%)
REST OF WORLD (14%)
The UK and Ireland, comprising the offices in both London and
Dublin, had a 9.0% increase in revenue from the prior year at
£231.1 million (2015: £211.9 million), with the second half of the
year (£120.8 million) outperforming the first half (£110.4 million).
The UK benefited through the year from particularly volatile
periods in financial markets, in both August 2015 and in early
2016, the latter contributing to the UK having record revenue
in the third quarter. Active client numbers were up 6.8% from
prior year at 64,500, with a 9% increase in the second half of the
year, driven by both volatility and by the continuing success in
acquiring new clients. Revenue per client for the year increased by
2.1% from the prior year, at £3,585, with particular strength in the
record third quarter. The UK segment accounted for 51% of Group
revenue, against 53% in the prior year.
IG remained the clear market leader within spread bettors in the
UK, increasing market share from 40% to 44% and within CFD
traders, increasing market share from 26% to 29%.(1) Drawing
precise quantitative conclusions from market share research is
increasingly difficult, given the measurement is based purely on
the number of primary accounts and makes no allowance for the
value of individual clients.
The execution-only stockbroking offering launched in September
2014 in the UK. Client numbers have continued to grow steadily
with over 11,000 funded accounts at the end of May, 67% of which
are new to IG. A proportion of clients who began as share dealing
clients, and for whom it is entirely appropriate, are going on to use
the leveraged trading products.
IG remained the clear market
leader within spread bettors in
the UK, increasing market share
from 40% to 44%.
EUROPE
Europe comprises revenues from Germany, France, Italy, Spain,
the Netherlands, Sweden, Norway, Luxembourg and Switzerland
offices. Revenue in Europe increased by 22% from the prior year
to £98.6 million (2015: £80.9 million), with second half revenue
of £53.0 million, up 16% on the first half. Active client numbers
were 18% ahead of the prior year with growth across almost all
countries in the region, and revenue per client was up 3.0% to
£2,812 (2015: £2,730). The European segment accounted for 22%
of Group revenue in the year, against 20% in the prior year.
During the second half of the year, annual market research studies
were published for Germany, France and, for the first time,
Spain. They concluded that IG’s market share of the retail CFD
industry in Germany had slipped to 9%, in France it had fallen one
percentage point to 27% and in Spain it was 7%.(1)
(1) 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 179 for further details).
37
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OPERATING AND FINANCIAL REVIEW CONTINUED
FACTORS IMPACTING REVENUE
FINANCIAL REVIEW
SUMMARY GROUP INCOME STATEMENT
Year ended
31 May 2016
Year ended
31 May 2015
Underlying(1)
Year ended
31 May 2015
Statutory
£m
456.3
3.4
£m
400.2
4.5
£m
388.4
4.5
(11.2)
(5.9)
(6.3)
0.6
0.6
0.6
449.1
(241.5)
207.6
0.3
207.9
(43.6)
164.3
399.4
(206.1)
193.3
(0.1)
193.2
(42.5)
150.7
387.2
(217.6)
169.6
(0.1)
169.5
(37.6)
131.9
44.58p
41.07p
35.99p
31.40p
28.15p
28.15p
Net trading revenue(2)
Net interest
on segregated
client funds
Betting duty
and financial
transaction taxes
Other operating
income
Net operating income
Operating expenses
Operating profit
Net finance income/
(expense)
Profit before tax
Tax expense
Profit for the year
Diluted earnings
per share
Total dividend
per share
(1) The term ‘underlying’ reflects the results before the impact of the Swiss franc event
(refer to note 2 of the Financial Statements).
(2) Net trading revenue excludes net interest on segregated client funds and is reported
after taking account of introducing partner commissions.
Net operating income
Net trading revenue increased by 14% to £456.3 million (2015:
£400.2 million) with growth experienced in all geographic
locations. Net interest income on segregated client funds
decreased by £1.1 million to £3.4 million (2015: £4.5 million),
driven by a reduction in interest rates in countries where funds
are held.
Betting duties paid by the Group, in relation to losses for UK
spread betting and binaries clients, increased by £5.4 million to
£10.9 million (2015: £5.5 million) following the heightened market
volatility in August 2015 and early 2016. The Italian Financial
Transaction Tax incurred by the Group decreased by £0.1 million
to £0.3 million (2015: £0.4 million).
The absence of proprietary trading by IG and the hedged nature
of the business model – ie hedging with third parties to cover
the residual risk above pre-set limits – delivers a more stable
revenue stream, irrespective of the direction of underlying market
movements. During the year we have made further improvements
in optimising the revenue return on client trading activity and
in maximising the value of natural client offset. More detail is
provided in the Chief Executive Officer’s Statement.
ASSET MIX
IG has consistently benefited from the broad range of asset classes
it enables clients to trade, resulting in a more stable revenue
stream in different market conditions. This year we derived 50%
of our underlying revenue from clients trading indices (2015: 48%)
and had another strong year in shares trading, delivering 15% of
Group revenue (2015: 17%). Client forex trading delivered 17% of
Group revenue, down from 19% in the prior year, but marginally
up at an absolute level. Commodities contributed 8% of Group
revenue (2015: 7%), with binaries contributing the remaining 11%,
up on 9% in the prior year with the strongest growth here coming
from the US.
Equity Indices Commodities Binaries
Forex
Shares
Revenue (£m)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY15
FY16
70
60
50
40
30
20
10
0
38
IG Group Holdings plc Annual Report 2016
Operating expenses
Advertising and marketing costs
Operating expenses increased by 17% to £241.5 million, partially
driven by the increase in staff headcount related to strategic
investments and the associated costs. This is largely the full-year
impact of headcount increases in the prior year. There was a
significant rise in variable marketing costs, as we increased
our spend based on the fast payback it was delivering. There
was also a rise in performance-related pay, linked to the strong
financial performance.
Year ended
31 May 2016
Year ended
31 May 2015
Underlying
Year ended
31 May 2015
Statutory
Employee
remuneration costs
Advertising and
marketing
Premises-related costs
IT, market data and
communications
Legal and professional
Regulatory fees
Net charge for
impaired trade
receivables
Other costs
Depreciation,
amortisation and
impairment
£m
113.5
49.7
12.1
19.3
6.8
5.7
1.8
19.9
12.7
£m
97.9
37.8
11.1
16.4
5.9
7.1
1.1
18.1
10.7
£m
94.3
37.8
11.1
16.4
5.9
7.1
16.2
18.1
10.7
Advertising and marketing costs increased by £11.9 million to
£49.7 million (2015: £37.8 million).
The Group remained focused on increasing its online marketing
presence to drive client recruitment. The Group also recently
moved to a centralised online marketing model which has
resulted in a significant increase in the number of clients recruited.
The Group is now in the third year of its three-year partnership
with Harlequins Rugby Club and is one of three principal partners
of the club. The partnership is consistent with the Group’s
strategic approach to increase visibility of the IG brand and
value proposition.
Depreciation, amortisation and impairment
Included in the charge is £2.7 million in respect of the write-off of
the generic top-level domains (gTLDs).
Operating profit margins
The Group uses operating profit margin, which includes an
allocation of central costs, as an indicator of regional performance.
Operating profit increased by 7.4% to £207.6 million (2015:
£193.3 million). The Group operating profit margin (operating
profit expressed as a percentage of net trading revenue)
decreased to 45.5% (2015: 48.3%), reflecting the ongoing
investment in strategic development, additional investment in
the share dealing offering, along with the lagged impact of the
increase in marketing spend.
The following table summarises operating profit margin by region:
Operating expenses
241.5
206.1
217.6
Employee remuneration costs
Employee remuneration costs increased by 16% to £113.5 million
(2015: £97.9 million). This is largely the full-year impact of the
headcount increases in the prior year together with inflationary
pay rises, higher discretionary remuneration and higher market
rates for new hires.
UK
Australia
Europe
Rest of World
Group
Year ended
31 May 2016
Year ended
31 May 2015
Underlying
Year ended
31 May 2015
Statutory
49.3%
59.4%
34.6%
34.5%
45.5%
57.2%
60.3%
27.6%
30.2%
48.3%
52.1%
59.2%
18.1%
29.5%
43.7%
While revenue per client and the number of clients in all the
locations has increased, operating profit margins declined in
our largest regions. This reduction in profit margin is driven by
a combination of direct costs such as increased investment in
marketing the Group’s products, salaries and variable IT costs.
Year ended
31 May 2016
Year ended
31 May 2015
Underlying
Year ended
31 May 2015
Statutory
£m
83.3
21.9
8.3
113.5
£m
74.0
17.1
6.8
97.9
£m
74.0
14.0
6.3
94.3
Total salaries
Performance-
related bonuses and
commissions
Share schemes
Employee
remuneration costs
The movements in headcount are as follows:
Average headcount
Year-end headcount
Year ended
31 May 2016
Year ended
31 May 2015
1,412
1,408
1,287
1,400
39
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT OPERATING AND FINANCIAL REVIEW CONTINUED
Taxation expense
REGULATORY CAPITAL RESOURCES
Throughout the year, the Group maintained a significant excess
over the capital resources requirement, both on a consolidated
and individual regulated entity basis.
The Group 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. Due to
the nature of the business model, requiring IG to hedge residual
risk, the Group considers that its liquidity requirements will
continue to significantly exceed its regulatory capital requirements
and therefore manages this carefully to ensure it is able to
withstand extreme levels of volatility in financial markets.
The following table summarises the Group’s Pillar 1 capital
adequacy on a consolidated basis:
Shareholders’ equity per audited
financial statements
Less: Foreseeable dividend
Investment in own shares
Common Equity Tier 1 Capital
Less: Intangible assets
Less: Investment in own shares
Less: Deferred tax asset
Total capital resources
31 May 2016
Restated*
31 May 2015
£m
663.0
(84.0)
1.8
580.8
(125.1)
(1.8)
(7.2)
446.7
£m
591.4
(71.8)
1.2
520.8
(124.0)
(1.1)
(7.1)
388.6
Total Risk Exposure Amounts – Pillar 1
(1,568.4)
(1,401.3)
Total Capital Ratio
28.5%
27.7%
Capital conservation buffer
Counter-cyclical buffer
Total Capital Ratio (including
combined buffer)
(9.8)
–
–
–
28.3%
27.7%
* Prior year capital ratios have been restated to reflect recognition of
foreseeable dividends.
The effective rate of taxation for the year ended 31 May 2016
decreased to 21.0% from the underlying rate of 22.0% for the
prior year. The effective rate for the current year has continued to
benefit from the reduction in the UK corporation tax rate to 20.0%.
The Group’s effective tax rate remains dependent on the mix of
geographic revenue and profitability as well as the tax rates levied
in those geographies.
Following legislative changes, the Group was not caught by
the Bank Corporation Tax surcharge introduced in the UK in
January 2016.
The calculation of the Group’s tax charge involves a degree of
estimation and judgement, in particular with respect to certain
items whose tax treatment cannot be finally determined until
agreement has been reached with the relevant tax authority (refer
to note 10 of the Financial Statements).
Diluted earnings per share
Diluted earnings per share increased by 8.5% to 44.58 pence from
41.07 pence in the year ended 31 May 2016.
Diluted earnings per share is used as a primary measure of
underlying profitability and as a financial measure in relation to the
Executive Director and senior management share plans.
Dividend policy
IG remains highly cash-generative and we seek to reflect this
in the direct cash returns to shareholders. IG has a progressive
dividend policy and it remains the Board’s intention to pay out,
as an ordinary dividend, approximately 70% of Group post-tax
earnings. Accordingly, the Board is recommending a final dividend
of 22.95 pence per share, giving a full-year dividend of 31.40
pence per share.
In 2015, despite the impact of the Swiss franc event, the full-year
dividend was held constant with the 2014 full-year dividend at
28.15 pence. This equated to 78% of post-tax statutory earnings
and 68% of post-tax earnings on an underlying basis.
CASH RESOURCES AND LIQUIDITY
In order to provide a clear presentation of the Group’s liquid
assets, both amounts due from brokers and financial investments
have been treated as ‘cash equivalents’ and included within ‘own
funds’. A detailed version of the cash flow and the derivation of
own funds are provided in note 19 of the Financial Statements.
Cash generation remains strong with own funds generated from
operations of £197.9 million (2015: £159.2 million).
The cash conversion rate, calculated as own funds generated from
operations divided by profit before tax, has remained high at 95%
(2015: 82%).
‘Own funds’ increased by £79.3 million (2015: £18.4 million) after
adjustments for movements in working capital balances and the
outflow from investing and financing activities principally including
£13.7 million in relation to capital expenditure (2015: £12.4
million) and £103.1 million (2015: £112.8 million) in relation to the
final 2015 and interim 2016 dividend payments.
40
IG Group Holdings plc Annual Report 2016
BALANCE SHEET HIGHLIGHTS
Liabilities
Trade and other payables include accruals and amounts due
to clients in relation to both title transfer funds and customer
deposits with the Group’s Swiss banking subsidiary.
The increase in the trade and other payables is driven by the
increase in title transfer funds and client monies deposited with
the Group’s Swiss bank subsidiary together with accruals for
performance-related pay.
The Group’s net assets at 31 May 2016 were £663.0 million
(2015: £591.4 million).
31 May 2016 31 May 2015
£m
125.1
136.0
218.8
290.9
(114.2)
6.4
663.0
£m
124.0
108.4
148.8
281.8
(78.9)
7.3
591.4
Intangible assets
Financial investments
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Other assets
Total net assets
Intangible assets
The Group continues to invest in technology to enhance client
experience, to improve the capacity and resilience of dealing
platforms and information security, all of which are critical to the
success of the business.
Intangible assets purchased during the year include £0.6 million
(2015: £1.5 million), relating to domain names.
Intangible assets also include goodwill of £107.1 million (2015:
£107.1 million) of which £100.0 million arose on the acquisition of
IG Group plc and its subsidiaries in 2003.
Financial investments
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.
At 31 May 2016 the Group held £82.6 million as liquid assets
buffer and £53.4 million as collateral with brokers. The increase in
financial investments of £27.6 million is mainly due to the purchase
of two securities for £61.3 million and the maturity of one for
£34.5 million.
Current assets
Trade and other receivables include amounts due from brokers,
amounts due to be received from segregated client money
accounts and prepayments.
Amounts due from brokers increased by £6.3 million, driven by
increased broker margin requirements at year-end.
Client money and assets
Total monies held on behalf of clients at year-end was £956.3
million (2015: £930.5 million) of which £917.3 million (2015:
£913.6 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 £39.0 million
relates to ‘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 and
customer deposits with our banking operation in Switzerland.
Although the levels of client money can vary depending on the
overall mix of financial products being traded by clients, the
long-term increase in the level of client money placed by clients
with the Group is considered a positive indicator of future client
propensity to trade.
41
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
’Ensuring fair outcomes
for clients and the financial
markets is at the heart of
everything we do at IG.
We are meticulous about
compliance with regulations to
ensure our customers get the
levels of service and protection
they deserve.’
Joe McCaughran
Chief Compliance Officer
42
IG Group Holdings plc Annual Report 2016
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
IG Group Holdings plc Annual Report 2016
IG Group Holdings plc Annual Report 2016
43
43
STRATEGIC REPORT
MANAGING OUR RISKS
Our strategy depends on the effective management of our business risks. By identifying
the nature and potential impact of these risks, we can design and operate processes that
ensure our risks are effectively controlled and mitigated. Over time, we have developed a
robust and consistent Risk Management Framework that we continually seek to improve.
In this section we explain how we manage risk in accordance with our risk appetite which is underpinned by the Group’s Risk
Management Framework. We also explain in detail the key risks we face, our governance structure for risk management and the
reporting cycle that we use to monitor and report on risk.
EVALUATING PRINCIPAL RISKS
AND SETTING OUR RISK APPETITE
The Board is responsible for the Group’s risk management and
internal control processes. Risk management is an integral part
of the Group’s activities. This starts with evaluating the principal
risks to which the Group is exposed and determining the Board’s
risk appetite.
The risk appetite defines the amount of risk the Board is prepared
to accept, both on an individual risk and aggregate basis, in
pursuit of its business objectives and strategic goals.
Risk is assessed across the Group using a clearly defined risk
management framework which incorporates both internal and
external factors.
The Group has a set of Key Risk Indicators (KRIs) which balance
quantitative and qualitative measures to provide an indication of
increasing or declining risk levels over an appropriate timescale
and provides parameters within which the business can operate.
To establish effective governance over risk, we have developed a
Risk Management Framework to identify, measure, manage and
monitor the risks faced by the business.
It comprises our Risk Governance Framework and Risk
Reporting Cycle.
RISK GOVERNANCE FRAMEWORK
The diagram to the right sets out the framework for the Board
and Executive Committees, independent control functions and
ongoing business operations that exercise governance over risk.
Our Risk Management
Framework provides the
Board with assurance that we
have evaluated and managed
our risks as far as possible,
within appropriate predefined
boundaries.
RISK REPORTING CYCLE
Risk monitoring and reporting in IG is undertaken daily with several daily reports covering key market, credit and liquidity metrics.
Formal risk reporting comprises the following key risk reports:
REPORT/FORUM
FREQUENCY
CONTENT
EXECUTIVE RISK COMMITTEE
DASHBOARD
WEEKLY
Market, credit, liquidity and operational risk exposures
including stress testing results, review of high risk clients and
summary of operational incidents.
BOARD RISK REPORT
MONTHLY
ICAAP/ILAA REVIEW
QUARTERLY
Capital and liquidity metrics; summary of market, credit and
operational risk profile; conduct and regulatory risk summary;
information security and cyber risk.
Review of regulatory capital and liquidity position of the
Group, including review of Pillar 2 risks and temporary capital
add-ons held in respect of specific risk issues.
44
IG Group Holdings plc Annual Report 2016 THE BOARD
❚ Evaluates risk and determines risk governance arrangements
❚ Sets and reviews the risk appetite and the key risk indicators
❚ Reviews and challenges updates from the Board
Risk Committee
❚ Reviews and challenges the system of internal controls and
risk management
❚ Reviews and challenges capital and liquidity stress-testing
❚ Approves the Corporate Governance Report in the
Annual Report
BOARD COMMITTEES
EXECUTIVE COMMITTEES
BOARD RISK COMMITTEE
❚ Evaluates risks and determines risk
management arrangements
❚ Considers the risk appetite and KRIs for the current
and future strategy and recommends for approval by
the Board
❚ Reviews and challenges the Internal Capital Adequacy
Assessment Process (ICAAP), Internal Liquidity
Adequacy Assessment (ILAA) and Recovery Plan
❚ Ensures rigorous stress-testing and scenario-testing of
the Group’s business
❚ Ensures a sufficient level of risk mitigation is in place
❚ Reviews the Group’s major risk exposures
❚ Considers the adequacy and effectiveness of
the technology infrastructure and supporting
documentation in the Risk Management Framework
❚ Provides input to the Remuneration Committee on
the alignment of the remuneration policy to risk
performance
REMUNERATION COMMITTEE
❚ Reviews the structure and level of remuneration
throughout the business and assesses the impact of
remuneration on risk
AUDIT COMMITTEE
❚ Receives annual reporting from the Board Risk
Committee on the Group’s internal controls and Risk
Management Framework
❚ Reviews an assessment of the control environment, via
internal audit reports, and progress on implementing
both internal and external audit recommendations
❚ Monitors and reviews the internal audit function’s
effectiveness in the overall context of the Group’s
internal controls and risk-management systems
NOMINATION COMMITTEE
❚
Identifies and recommends suitable candidates
for appointment to the Board to ensure that its
composition meets Group’s needs
❚ Ensures that succession plans are in place
EXECUTIVE COMMITTEE
❚ Sets out IG’s Values
❚ Oversees the execution of the IG Strategy on behalf
of the Board
❚ Agrees and recommends the Business Plan to the
Board and manages the delivery of the agreed
Business Plan
❚ Defines and allocates overall budgets and resources
to ensure the organisation has the capabilities and
resources to deliver the objectives in the Business Plan,
and oversees the control of costs
❚ Ensures there is an effective management structure and
organisation within the Group which is consistent with
the effective delivery of the Business Plan
❚ Oversees performance across IG including performance
against agreed Key Performance Indicators in all
aspects of IG’s operations
❚ Reviews and approves major change and key
investment initiatives and, where required, submits for
Board approval
❚ Discusses any matter which any member of the
Committee believes to be of such importance that it
should be brought to the attention of the Committee
EXECUTIVE RISK COMMITTEE
❚ Oversees the day-to-day risk management activity
across the Group
❚ Evaluates the risks in the context of Group’s risk appetite
❚ Maintains the Risk Management Framework
❚ Receives, analyses and evaluates risk MI
❚ Deals with specific risk issues as they arise
❚ Analyses the regulatory environment for
forthcoming changes
❚ Evaluates new business transactions
ICAAP AND ILAA COMMITTEE
❚ Oversees the results of the ongoing stress-testing
and scenario-testing process, ensuring that risks are
continuously identified and assessed
❚ Considers the impact on capital and liquidity of changes
in strategy or the operating environment
❚ Reviews the KRIs on a quarterly basis
CLIENT MONEY COMMITTEE
❚ Oversees the processes and controls over segregating
client funds and the Financial Conduct Authority (FCA)’s
client assets (CASS) operational oversight function
❚ Monitors and reviews the levels of prudent margin in the
UK and buffers in client money pools outside the UK
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.
INTERNAL AUDIT | FINANCE | RISK | COMPLIANCE | LEGAL
CONTROL FUNCTIONS
In addition to the control functions, we have embedded risk management into our underlying business operations. Heads of departments 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 coordinating the identification, measurement and monitoring of risk across the business.
INTERNAL CONTROLS IMPLEMENTED BY MANAGEMENT
BUSINESS OPERATIONS
45
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT PRINCIPAL RISKS
The Directors have carried out a robust assessment of the principal risks facing the Company. This is a continual process particularly in
the regulatory environment under which we operate. We prepare an ICAAP, ILAA and Recovery and Resolution Plan each year all of
which focus on the risks we face, stress-testing of our business model and projections to ensure the business is solvent, liquid and viable.
Our principal risks and the mitigation actions taken are detailed below:
KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
COMMENTARY
LAST YEAR
❚ We engage with regulators and policymakers in the jurisdictions we operate or intend
to expand our product offering into, as part of policy consultations and by investing
in public relations programmes ensuring we have access to up-to-date information on
regulatory change.
❚ We participate in discussions with regulators that are considering changing their regulations
in order to allow retail derivative trading.
❚ Our compliance, legal and risk teams provide a robust line of defence, ensuring that our
processes and controls are effective in ensuring compliance with regulatory obligations.
❚ 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, continuing
to support changes which promote protection for clients and greater clarity of the risks
they face.
REGULATORY RISK
Regulatory risk is one of our most
significant risks and we look at it from
three different angles:
Change risk
is the risk that one of our regulators
introduces new regulations or the
regulatory environment itself changes
impacting on the way we operate
our business.
Expansion risk
is the risk that policy and regulation in
jurisdictions where we do not currently
operate remain onerous and closed to
our business model.
Breach risk
is the risk that we breach a regulation
that applies to our business, leading to
a client or market detriment, sanctions,
fines, reputational damage or, in
extreme situations, loss of license.
OPERATIONAL AND INFORMATION TECHNOLOGY (IT) RISK
This is the risk of financial loss,
disruption or damage to our reputation
due to inadequate or failed internal
processes and IT systems.
These risks can also arise from human
error or external events that we
cannot influence.
Cyber risk is a constant threat in the
modern online environment.
The reliability of our client trading
platforms is key to delivering
our strategy.
MARKET RISK
❚ We have designed and implemented a system of internal controls to manage operational
risk in line with the Risk Appetite Statement and Risk Management Framework.
❚ We run a complete disaster recovery solution to ensure we provide clients with a consistent
and uninterrupted level of service.
❚ We operate 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
on-going business continuity planning and regular testing.
❚ We invest significantly in the technology infrastructure to ensure that these platforms 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.
❚ The Executive Risk Committee reviews our Key Risk Indicators on a monthly basis, a process
which includes monitoring levels of core system uptime and deal latency.
❚ We have a dedicated team which has implemented a robust, multi-layered system,
providing round-the-clock monitoring and intruder-prevention controls.
This is the risk that the fair value of
financial assets and financial liabilities
will change due to movements in
market prices.
IG takes market risk in order to facilitate
real-time client dealing and as such,
taking market risk is inherent to
delivering quality service to clients.
❚ This is managed on a real-time basis, monitoring all client positions against market risk
limits set by the Board for ‘operational efficiency’.
❚ We hedge most of our residual market risk exposure, not taking proprietary positions
based on an expectation of market movements. However, not all net client exposures are
hedged and therefore 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.
❚ We invest in technology that enables real-time and constant monitoring of our market
exposure. If exposures exceed our pre-agreed limits, our risk-management policy requires
the positions hedged to bring the exposure back into line with these limits.
46
❚ The industry continues to witness increased levels of government and regulatory
intervention in the financial sector with increasing regulatory rules and laws both in
the UK and overseas affecting the Group’s operations. We are closely monitoring
this and working with the respective regulators.
❚ As our business becomes more complex and geographically diverse, this risk also
grows, and we remain committed to increasing our investment in our framework to
manage risk controls.
❚ 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.
❚ Details with respect to the results of the UK EU Referendum are also covered in the
CEO’s statement.
❚ Further details and examples of our Change risks on pages 52 to 53.
❚ The aim of the Group’s operational risk management is to manage operational risks
in line with pre-defined appetites, and to protect both customers and the Group
whilst delivering sustainable growth.
❚ All our IT and data security systems conform to the ISO 27001:2005 Information
Security Management System standards.
❚
IG is heavily dependent on technology to enable its processes to operate effectively
as well as providing innovative products to its clients. Hence outages can have a
negative impact. Core up-time over a rolling 12-month period is currently running at
99.96% against a tolerance of 99.80%. This represents a total outage time over the
previous 12 months of 1 hour 40 minutes.
❚ As with many companies we are periodically subject to attempts to gain access to
our systems from the exterior including distributed denial of service (DDOS) attacks.
Our systems are constantly monitored and tested by our cyber security team and we
have withstood these attempts throughout the year.
❚ Each year we physically locate the UK office to our offsite disaster recovery location
and this process continued to operate without issues again this year.
❚ Our market risk profile remains largely unchanged in the past year.
❚ Risk limits are reviewed regularly to ensure they remain appropriate, and real-time
monitoring of compliance with risk limits is monitored by the Risk team, with
escalation to the Executive Risk Committee for exceptions.
IG Group Holdings plc Annual Report 2016
KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
LAST YEAR
COMMENTARY
ADDRESS OUR CLIENTS’
NEEDS OVER THEIR
LIFE CYCLE, BE THEY
ACTIVE TRADERS
OR SOPHISTICATED
INVESTORS
ACHIEVE, MAINTAIN
OR EXTEND MARKET
LEADERSHIP IN
OUR CHOSEN
INVESTMENT NICHE
STRENGTHEN
GLOBAL REACH
DELIVER QUALITY
SERVICES TO OUR
CLIENTS
SUSTAIN
TECHNOLOGY
LEADERSHIP
REGULATORY RISK
Regulatory risk is one of our most
❚ We engage with regulators and policymakers in the jurisdictions we operate or intend
significant risks and we look at it from
three different angles:
Change risk
is the risk that one of our regulators
introduces new regulations or the
regulatory environment itself changes
impacting on the way we operate
our business.
Expansion risk
to expand our product offering into, as part of policy consultations and by investing
in public relations programmes ensuring we have access to up-to-date information on
regulatory change.
❚ We participate in discussions with regulators that are considering changing their regulations
in order to allow retail derivative trading.
❚ Our compliance, legal and risk teams provide a robust line of defence, ensuring that our
processes and controls are effective in ensuring compliance with regulatory obligations.
❚ 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, continuing
is the risk that policy and regulation in
to support changes which promote protection for clients and greater clarity of the risks
jurisdictions where we do not currently
they face.
operate remain onerous and closed to
our business model.
Breach risk
is the risk that we breach a regulation
that applies to our business, leading to
a client or market detriment, sanctions,
fines, reputational damage or, in
extreme situations, loss of license.
OPERATIONAL AND INFORMATION TECHNOLOGY (IT) RISK
This is the risk of financial loss,
❚ We have designed and implemented a system of internal controls to manage operational
disruption or damage to our reputation
risk in line with the Risk Appetite Statement and Risk Management Framework.
due to inadequate or failed internal
❚ We run a complete disaster recovery solution to ensure we provide clients with a consistent
processes and IT systems.
and uninterrupted level of service.
These risks can also arise from human
error or external events that we
cannot influence.
Cyber risk is a constant threat in the
modern online environment.
The reliability of our client trading
platforms is key to delivering
our strategy.
MARKET RISK
❚ We operate 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
on-going business continuity planning and regular testing.
❚ We invest significantly in the technology infrastructure to ensure that these platforms 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.
❚ The Executive Risk Committee reviews our Key Risk Indicators on a monthly basis, a process
which includes monitoring levels of core system uptime and deal latency.
❚ We have a dedicated team which has implemented a robust, multi-layered system,
providing round-the-clock monitoring and intruder-prevention controls.
This is the risk that the fair value of
❚ This is managed on a real-time basis, monitoring all client positions against market risk
financial assets and financial liabilities
limits set by the Board for ‘operational efficiency’.
will change due to movements in
❚ We hedge most of our residual market risk exposure, not taking proprietary positions
market prices.
IG takes market risk in order to facilitate
real-time client dealing and as such,
taking market risk is inherent to
delivering quality service to clients.
based on an expectation of market movements. However, not all net client exposures are
hedged and therefore 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.
❚ We invest in technology that enables real-time and constant monitoring of our market
exposure. If exposures exceed our pre-agreed limits, our risk-management policy requires
the positions hedged to bring the exposure back into line with these limits.
❚ The industry continues to witness increased levels of government and regulatory
intervention in the financial sector with increasing regulatory rules and laws both in
the UK and overseas affecting the Group’s operations. We are closely monitoring
this and working with the respective regulators.
❚ As our business becomes more complex and geographically diverse, this risk also
grows, and we remain committed to increasing our investment in our framework to
manage risk controls.
❚ 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.
❚ Details with respect to the results of the UK EU Referendum are also covered in the
CEO’s statement.
❚ Further details and examples of our Change risks on pages 52 to 53.
❚ The aim of the Group’s operational risk management is to manage operational risks
in line with pre-defined appetites, and to protect both customers and the Group
whilst delivering sustainable growth.
❚ All our IT and data security systems conform to the ISO 27001:2005 Information
Security Management System standards.
❚
IG is heavily dependent on technology to enable its processes to operate effectively
as well as providing innovative products to its clients. Hence outages can have a
negative impact. Core up-time over a rolling 12-month period is currently running at
99.96% against a tolerance of 99.80%. This represents a total outage time over the
previous 12 months of 1 hour 40 minutes.
❚ As with many companies we are periodically subject to attempts to gain access to
our systems from the exterior including distributed denial of service (DDOS) attacks.
Our systems are constantly monitored and tested by our cyber security team and we
have withstood these attempts throughout the year.
❚ Each year we physically locate the UK office to our offsite disaster recovery location
and this process continued to operate without issues again this year.
❚ Our market risk profile remains largely unchanged in the past year.
❚ Risk limits are reviewed regularly to ensure they remain appropriate, and real-time
monitoring of compliance with risk limits is monitored by the Risk team, with
escalation to the Executive Risk Committee for exceptions.
47
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
COMMENTARY
LAST YEAR
Financial institutions credit risk
❚ All financial institutions are subject to ongoing credit review.
❚ Exposure limits are set and approved by the Executive Risk Committee.
❚ We regularly monitor key metrics, including balances held and changes in short-term and
long-term credit ratings.
Individual client credit risk
❚ Only clients that pass certain suitability criteria are accepted.
❚ We run training programmes to educate clients in aspects of trading and risk management,
as well as encouraging them to collateralise their accounts to an appropriate level.
❚ We conduct a pre-deal credit check on every client order.
❚ We operate a number of risk management tools for clients to manage their exposures,
including: guaranteed and non-guaranteed stops, limit orders, extended trading hours,
trading via mobile platforms.
❚ Our overall credit risk exposure is managed through real-time monitoring of client positions
via our ‘close-out monitor’ (COM) and through the use of tiered margining.
❚ The COM is an automated process whereby accounts which have fallen below the
liquidation threshold are automatically identified and closed.
❚ We only grant credit against unrealised losses for a very small number of generally
long-standing clients, with credit terms such that any losses arising are payable immediately
on the closure of transactions.
❚ We recognise that we operate in a highly competitive industry and the emergence of
smaller firms domiciled in less regulated environments brings a variety of risks.
❚ We continuously monitor our competitor activity, pricing and operations including through
Investment Trends surveys.
❚ We monitor the potential impact of key innovation from our competitors as well as poor
competitor activity which may have consequences with our regulators.
❚ 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 client funds.
❚ Total available liquidity is monitored on a daily basis, including the committed unsecured
banking facilities.
❚ Daily stress tests are carried out and the level of committed unsecured bank facilities is
validated by stress testing our three year liquidity forecast.
CREDIT RISK
This is the risk that a counterparty
fails to perform its obligations,
resulting in financial loss to the Group.
The principal sources of credit risk
are from financial institutions and
individual clients.
Individual 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.
This can lead to a client’s deposited
funds being insufficient to cover
trading losses.
COMPETITOR RISK
This is the risk that the market
proposition of our competitors is
more compelling, leading to a loss
of clients and revenue for the Group.
Additionally, this is a risk that the
actions of our competitors affects
the way that our regulators view
our industry.
LIQUIDITY RISK
This is the risk that we will be unable
to meet payment obligations as they
fall due.
48
❚ Our credit risk profile remains largely unchanged in the past year.
❚ Margin rates are regularly reviewed to ensure they appropriately reflect the risk of
trading, while also remaining competitive.
❚ We continue to monitor our overall credit exposure against our risk appetite on a
daily basis.
❚ Our market share of the leveraged business sector has remained strong in particular
in our well established markets such as the UK and Australia: spread betting in UK
at 44% (2015: 40%), CFD in the UK at 29% (2015: 26%) while in Australia our CFD
market share remained flat at 38% (compared to data released in September 2015),
having increased from 33% in the previous year as per Investment Trends reports.
❚ During the past 18 months we have expanded our product offering becoming more
appealing to a wider customer base and we continue to focus on strengthening our
❚ The Group remains focused on the development of our leading market position,
continuously investing in our products and services, and the infrastructure to
brand in those markets.
support them.
❚ Total available liquidity, including committed unsecured facilities and after
accounting for broker margin, at 31 May 2016 was £786.7 million (2015: £724.0
million). This includes the liquid assets buffer, which consists of £80.6 million of UK
government securities held, as required by the FCA as part of the ILAA process, to
provide a safeguard in times of stress.
❚ Our unsecured banking facilities amount to £160.0 million (2015: £200.0 million) at
year-end. This was reduced from £200.0 million in July 2015 following an internal
review of the Group’s required facility levels. In times of extreme market volatility we
have drawn down the facility as a precautionary measure.
IG Group Holdings plc Annual Report 2016 KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
LAST YEAR
COMMENTARY
ADDRESS OUR
CLIENTS’ NEEDS OVER
THEIR LIFE CYCLE, BE
THEY ACTIVE TRADERS
OR SOPHISTICATED
INVESTORS
ACHIEVE, MAINTAIN
OR EXTEND MARKET
LEADERSHIP IN
OUR CHOSEN
INVESTMENT NICHE
STRENGTHEN
GLOBAL REACH
DELIVER QUALITY
SERVICES TO OUR
CLIENTS
SUSTAIN
TECHNOLOGY LEADERSHIP
This is the risk that a counterparty
Financial institutions credit risk
CREDIT RISK
fails to perform its obligations,
resulting in financial loss to the Group.
The principal sources of credit risk
are from financial institutions and
individual clients.
Individual 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.
This can lead to a client’s deposited
funds being insufficient to cover
trading losses.
❚ All financial institutions are subject to ongoing credit review.
❚ Exposure limits are set and approved by the Executive Risk Committee.
❚ We regularly monitor key metrics, including balances held and changes in short-term and
long-term credit ratings.
Individual client credit risk
❚ Only clients that pass certain suitability criteria are accepted.
❚ We run training programmes to educate clients in aspects of trading and risk management,
as well as encouraging them to collateralise their accounts to an appropriate level.
❚ We conduct a pre-deal credit check on every client order.
❚ We operate a number of risk management tools for clients to manage their exposures,
including: guaranteed and non-guaranteed stops, limit orders, extended trading hours,
trading via mobile platforms.
❚ Our overall credit risk exposure is managed through real-time monitoring of client positions
via our ‘close-out monitor’ (COM) and through the use of tiered margining.
❚ The COM is an automated process whereby accounts which have fallen below the
liquidation threshold are automatically identified and closed.
❚ We only grant credit against unrealised losses for a very small number of generally
long-standing clients, with credit terms such that any losses arising are payable immediately
on the closure of transactions.
COMPETITOR RISK
This is the risk that the market
proposition of our competitors is
❚ We recognise that we operate in a highly competitive industry and the emergence of
smaller firms domiciled in less regulated environments brings a variety of risks.
more compelling, leading to a loss
❚ We continuously monitor our competitor activity, pricing and operations including through
of clients and revenue for the Group.
Investment Trends surveys.
❚ We monitor the potential impact of key innovation from our competitors as well as poor
competitor activity which may have consequences with our regulators.
Additionally, this is a risk that the
actions of our competitors affects
the way that our regulators view
our industry.
LIQUIDITY RISK
This is the risk that we will be unable
❚ Due to the very short-term nature of our financial assets and liabilities, we do not have any
to meet payment obligations as they
material mismatches in our liquidity maturity profiles. Short-term liquidity ‘gaps’ can arise,
fall due.
due to our commitment to segregate all client funds.
❚ Total available liquidity is monitored on a daily basis, including the committed unsecured
banking facilities.
❚ Daily stress tests are carried out and the level of committed unsecured bank facilities is
validated by stress testing our three year liquidity forecast.
❚ Our credit risk profile remains largely unchanged in the past year.
❚ Margin rates are regularly reviewed to ensure they appropriately reflect the risk of
trading, while also remaining competitive.
❚ We continue to monitor our overall credit exposure against our risk appetite on a
daily basis.
❚ Our market share of the leveraged business sector has remained strong in particular
in our well established markets such as the UK and Australia: spread betting in UK
at 44% (2015: 40%), CFD in the UK at 29% (2015: 26%) while in Australia our CFD
market share remained flat at 38% (compared to data released in September 2015),
having increased from 33% in the previous year as per Investment Trends reports.
❚ During the past 18 months we have expanded our product offering becoming more
appealing to a wider customer base and we continue to focus on strengthening our
brand in those markets.
❚ The Group remains focused on the development of our leading market position,
continuously investing in our products and services, and the infrastructure to
support them.
❚ Total available liquidity, including committed unsecured facilities and after
accounting for broker margin, at 31 May 2016 was £786.7 million (2015: £724.0
million). This includes the liquid assets buffer, which consists of £80.6 million of UK
government securities held, as required by the FCA as part of the ILAA process, to
provide a safeguard in times of stress.
❚ Our unsecured banking facilities amount to £160.0 million (2015: £200.0 million) at
year-end. This was reduced from £200.0 million in July 2015 following an internal
review of the Group’s required facility levels. In times of extreme market volatility we
have drawn down the facility as a precautionary measure.
49
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
COMMENTARY
LAST YEAR
CONDUCT RISK
This 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.
❚ Our Group conduct risk strategy puts consumer and market outcomes at the heart of
the business. All client calls are recorded and our compliance team monitor these on a
regular basis.
❚ Training is being rolled out to fully embed the conduct risk strategy into the current
business practices and culture of the Group.
❚ We evaluate suitability and only offer access to products where knowledge and wealth
considerations have been evaluated.
REPUTATIONAL RISK
This is the risk of damage to the
perception of the Group by public
opinion, its customers, investors or any
other interested party.
❚ We actively monitor steps and changes being made by regulators and the industry ensuring
that the Group remains compliant. This includes ongoing training for all employees.
❚ We have a dedicated investor relation team dealing with shareholders, journalists and
the members of the public on all matters that may affect the reputation of the Group.
❚ We continue to embed a culture and tone from the top of doing the right thing for our
clients, our staff and our industry.
PEOPLE RISK
This is the risk that the Group has
an incorrect level and mix of people
to execute its business strategy,
combined with the inability to attract,
develop, motivate and retain talented
employees.
❚ We regularly review the Group’s resource requirements, talent mapping and succession
planning including the most appropriate locations to deploy our staff.
❚ We operate a remuneration system which is linked to revenue performance and a bi-annual
appraisal system to provide regular assessment of individual performance and identification
of training and development needs.
❚ Benchmarking of remuneration packages of all employees is undertaken annually.
❚ The Group invites all employees to participate in the annual employee survey to gauge
employees’ satisfaction and feedback on improvements.
❚ We continue to invest in the development of our people with tailored training to meet
their needs.
50
❚
IG has a very low tolerance for poor customer outcomes and therefore we are
committed to investing in process, training and culture to mitigate the risks. Where
our monitoring system detects an unfair outcome, we will act swiftly to remedy and
prevent reccurrence.
❚ Given the diversity of sources from which it can arise, the Group’s objective is to
identify these risks and ensure they are duly attended to so that their probability is
reduced and the eventual impact is mitigated.
❚ The Group had no significant operational losses within the year.
❚ The departure of previous CEO & CFO has resulted in the change of key-personnel
within the business, but the swift appointment of a new internally experienced CEO
and a newly appointed CFO has helped to reduce this risk.
❚ The responses from employees following the recent annual employee survey shows
that flexible working and flexible benefits are highly rated. As a result, the Group
is addressing these issues through a new flexible benefits scheme.
IG Group Holdings plc Annual Report 2016
KEY RISK
MITIGATING ACTIONS
LINK TO
STRATEGY
CHANGE FROM
LAST YEAR
COMMENTARY
ADDRESS OUR
CLIENTS’ NEEDS OVER
THEIR LIFE CYCLE, BE
THEY ACTIVE TRADERS
OR SOPHISTICATED
INVESTORS
ACHIEVE, MAINTAIN
OR EXTEND MARKET
LEADERSHIP IN
OUR CHOSEN
INVESTMENT NICHE
STRENGTHEN
GLOBAL REACH
DELIVER QUALITY
SERVICES TO OUR
CLIENTS
SUSTAIN
TECHNOLOGY LEADERSHIP
CONDUCT RISK
This is the risk that the Group’s conduct
❚ Our Group conduct risk strategy puts consumer and market outcomes at the heart of
the business. All client calls are recorded and our compliance team monitor these on a
poses to the achievement of fair
outcomes for consumers or to the
regular basis.
sound, stable, resilient and transparent
❚ Training is being rolled out to fully embed the conduct risk strategy into the current
operation of the financial markets.
business practices and culture of the Group.
❚ We evaluate suitability and only offer access to products where knowledge and wealth
considerations have been evaluated.
REPUTATIONAL RISK
This is the risk of damage to the
perception of the Group by public
❚ We actively monitor steps and changes being made by regulators and the industry ensuring
that the Group remains compliant. This includes ongoing training for all employees.
opinion, its customers, investors or any
❚ We have a dedicated investor relation team dealing with shareholders, journalists and
other interested party.
the members of the public on all matters that may affect the reputation of the Group.
❚ We continue to embed a culture and tone from the top of doing the right thing for our
clients, our staff and our industry.
PEOPLE RISK
This is the risk that the Group has
❚ We regularly review the Group’s resource requirements, talent mapping and succession
an incorrect level and mix of people
planning including the most appropriate locations to deploy our staff.
to execute its business strategy,
❚ We operate a remuneration system which is linked to revenue performance and a bi-annual
combined with the inability to attract,
appraisal system to provide regular assessment of individual performance and identification
develop, motivate and retain talented
of training and development needs.
employees.
❚ Benchmarking of remuneration packages of all employees is undertaken annually.
❚ The Group invites all employees to participate in the annual employee survey to gauge
employees’ satisfaction and feedback on improvements.
❚ We continue to invest in the development of our people with tailored training to meet
their needs.
❚
IG has a very low tolerance for poor customer outcomes and therefore we are
committed to investing in process, training and culture to mitigate the risks. Where
our monitoring system detects an unfair outcome, we will act swiftly to remedy and
prevent reccurrence.
❚ Given the diversity of sources from which it can arise, the Group’s objective is to
identify these risks and ensure they are duly attended to so that their probability is
reduced and the eventual impact is mitigated.
❚ The Group had no significant operational losses within the year.
❚ The departure of previous CEO & CFO has resulted in the change of key-personnel
within the business, but the swift appointment of a new internally experienced CEO
and a newly appointed CFO has helped to reduce this risk.
❚ The responses from employees following the recent annual employee survey shows
that flexible working and flexible benefits are highly rated. As a result, the Group
is addressing these issues through a new flexible benefits scheme.
51
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT
REGULATORY CHANGE RISKS
As the regulatory environment continues to evolve, there are a number of events, policy initiatives and proposals in development that
may impact or have already impacted our sector as described below.
CHANGE AND IMPACT ON GROUP
IMPACT
LEVEL
STATUS AND
MITIGATING
ACTIONS
UK/EU Referendum – a change to the UK’s membership in the European
Union: The Group’s business in continental Europe is offered pursuant to the EU
passporting regime for financial services. On 23 June 2016, the UK elected for the
UK to leave the European Union. Any change to the UK’s membership status of the
European Union could have an impact on how the Group is able to operate in the
European Union.
HIGH
We expect there to be
a period before any
changes are effective, that
will allow for alternative
options to be considered
and implemented. We
continue to monitor
developments carefully.
We have expended
significant efforts
throughout the year to
understand the many
stakeholders’ interests.
We continue to monitor
developments carefully.
We have expended
significant efforts
throughout the year to
understand the many
stakeholders’ interests.
We continue to monitor
developments carefully.
We continue to monitor
developments carefully.
MEDIUM
MEDIUM
MEDIUM
We continue to monitor
MiFID II carefully
and to take part in
industry consultations
where appropriate.
MEDIUM
ESMA committee on speculative products: A committee of the European regulator
ESMA (European Securities and Markets Authority) has been established to consider
the marketing and selling of speculative products (CFDs, forex and binaries) to retail
clients across the European Union under MiFID (Markets in Financial Instruments
Directive). The intention of the committee is to ensure that there is regulatory
convergence across the European Union. Guidelines on the marketing and selling of
speculative products have been issued and we expect further clarifying practices to
be issued. We do not consider that our interpretation of MiFID and its requirements
is materially different to ESMA’s interpretation. However, any material change in
interpretation or the introduction of any new requirements by ESMA in relation to how
our industry should market or sell its products across the European Union may have a
material impact on our European business.
French marketing restrictions and Belgian marketing and product restrictions:
In France, there are proposed measures that would restrict the ability for our products
to be advertised electronically to retail clients. A proposed law has been submitted
for consideration and the impact will depend on whether the measures are introduced
and, if so, the form in which they are introduced.
In Belgium, a regulation has been passed, but is yet to be approved, restricting
the types of products that can be offered to retail clients and marketing practices
in relation to those products. We believe the proposed restrictions are aimed at
providers with a presence in Belgium and therefore will not impact our business.
Financial Transactions Tax (FTT) in the European Union: The Enhanced Cooperation
FTT effort, involving 10 of the 28 member states, has continued this year. It remains
unclear what the ultimate outcome of the Enhanced Cooperation FTT will be. Progress
to this point has been extremely slow. There remains the political will within a group
of member states for the introduction of an Enhanced Cooperation FTT, although this
group has decreased in number since last year. The lack of detail makes the potential
impact on our revenue from Europe difficult to assess.
Markets in Financial Instruments II Directive (MiFID II): The MiFID II dossier has
continued to develop this year. The MiFID II and Markets in Financial Investments
Regulation (MiFIR) Level One texts have been adopted and the majority of the
detailed Level Two texts will be finalised shortly. The application of MiFID II will be
delayed by one year from January 2017 to January 2018. MiFID II provides new
powers to regulators to intervene in certain circumstances and prohibit or restrict the
marketing, distribution or sale of financial products. The exercise of these powers in
relation to our products by a regulator would have a negative impact on our business.
Other than the potential exercise of these powers, we remain of the view that MiFID II
is unlikely to pose a threat to our UK and European businesses.
52
IG Group Holdings plc Annual Report 2016 CHANGE AND IMPACT ON GROUP
IMPACT
LEVEL
STATUS AND
MITIGATING
ACTIONS
European Markets Infrastructure Regulation (EMIR): The main impact of this
legislation on our business is increased reporting requirements to trade repositories. In
the medium-to-longer term the risk mitigation measures for over the counter trading
will increase slightly IG’s margin requirements with some of our hedging brokers.
Packaged Retail and Insurance Based Investments Products Regulation (PRIIPS):
This will impose an obligation on us from January 2017 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.
Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation
(CRR): The European Union began implementing these rules from 1 January 2014 and
further requirements are to be introduced in the coming years. The most significant
changes for IG relate to changes in capital requirements and liquidity requirements
that are being phased in. There are also new corporate governance and remuneration
obligations that are not expected to have a significant impact.
Monetary Authority of Singapore (MAS) regulatory framework for margined
derivatives: As previously reported, in 2013 the MAS confirmed that it would 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. Although these rules have not yet been introduced, we consider there is a
good possibility they will be introduced in the future. If introduced, it is intended that
the rules will not apply to accredited investors, defined by virtue of their wealth or
income level.
Base Erosion and Profit Shifting (BEPS): The Organisation for Economic
Cooperation and Development (OECD) has developed proposals to address
perceived international tax avoidance by high profile multinationals. The final
proposals for each focus area of the BEPS action plan have been agreed. Countries
will now implement the proposals and have agreed to continue work on BEPS until
2020. None of the action plans are expected to significantly impact the Group’s
tax profile.
LOW
LOW
LOW
LOW
LOW
The remaining rules are
close to being finalised.
The risk mitigation
measures are not
expected to impact us
until September 2020.
We are putting together a
Key Investor Information
Document (“KIID”) which
will be provided to UK
and European clients from
January 2017.
We have modelled
the impact of these
changes through to
full implementation of
requirements in 2020
and do not expect
any significant impact
to our capital or
liquidity positions.
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.
We will continue to
monitor the impact of
the implementation
of the BEPS proposals
in countries where
we operate.
53
IG Group Holdings plc Annual Report 2016STRATEGIC REPORT VIABILITY STATEMENT
The Group believes it adequately manages and mitigates its
principal risks through the arrangements described above. In
addition, there are further relevant Group business planning and
review processes that we operate.
Business planning process
The Group’s formalised forecasting and planning cycle consists
of a strategic plan, an annual budget for the current year and
financial projections for a further two years. The three year
forecasting period ending 31 May 2019 is the length of time over
which the Board strategically assesses the business; the period of
time the Board would typically look to payback of investments;
and is the period over which the Group reviews its regulatory
capital requirements.
The first year of the planning period has a greater degree of
certainty and is, therefore, used to set detailed financial targets
across the Group – it is also used by the Remuneration Committee
to set targets for the annual incentive scheme.
The three-year period provides less certainty of outcome, but
provides a robust planning tool against which strategic decisions
can be made and addresses the requirements for the ICAAP
evaluation and reporting. These forecasts are also considered
when setting targets for the executive and senior management
share plans.
The key assumption underpinning the forecasts is the ongoing
supportive regulatory environment in which the Group operates.
Stress testing
The Group undertakes stress testing to provide the Board with a
robust assessment of the potential consequences of principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity.
The types of scenarios used include the collapse of a major
financial services firm; major currency appreciation; cyber-attacks;
and the loss of regulatory licences. Additionally, the Group has
undertaken reverse stress testing to understand what scenarios
break the business model. With appropriate management actions,
the Group was resilient to all severe, but plausible, scenarios.
Statement
Overall the Directors consider the Group is well placed to manage
its business risks successfully, having taken into account the current
economic outlook, the consequences of principal risks facing the
business in severe but plausible scenarios, and the effectiveness of
any mitigating actions.
On the basis of these and other matters considered and reviewed
by the Board during the year, the Directors have reasonable
expectations that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three year period
ending 31 May 2019.
The Directors also considered it appropriate to prepare the
financial statements on the going concern basis as explained in
note 40 to the accounts.
54
IG Group Holdings plc Annual Report 2016 CORPORATE GOVERNANCE
CONTENTS
CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
Statement of Compliance
THE BOARD
Leadership
Effectiveness
Accountability
Remuneration
Engagement with shareholders
NOMINATION COMMITTEE
Chairman’s overview
Membership and attendance
Role of the Nomination Committee
Main activities during the financial year
Committee evaluation
Diversity statement
Committee allocation of time
DIRECTORS’ REMUNERATION REPORT
Chairman’s overview
Director’s remuneration policy
Annual report on remuneration (audited)
AUDIT COMMITTEE
Chairman’s overview
Role of the Audit Committee
Membership and attendance
Main activities during the financial year
Committee effectiveness
Committee allocation of time
BOARD RISK COMMITTEE
Chairman’s overview
Role of the Board Risk Committee
Membership and attendance
Main activities during the financial year
Committee allocation of time
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Responsibility statement
56
57
57
58
60
63
66
66
67
68
68
68
68
68
69
69
69
70
70
72
81
90
90
90
91
91
94
94
95
95
95
95
96
97
98
101
101
55
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT CHAIRMAN’S INTRODUCTION TO
CORPORATE GOVERNANCE
Our results are all the more creditable against a background of a significant amount of
change at Board level and would not have been possible without Peter’s strong leadership,
the support and dedication of all staff and an enduring governance culture which puts high
ethical standards and fair client outcomes at the heart of all we do.
The strength of the Board is enhanced by a strong relationship
between the Chairman and CEO. Peter was appointed permanent
CEO on 4 December 2015 following his period as Interim CEO
and following a thorough search. We speak regularly outside of
formal Board meetings and are developing a strong relationship
which respects our complementary but different roles. After an
extremely thorough search process for a permanent CFO, Paul
Mainwaring joined the Group on 11 July 2016 as CFO designate,
replacing Mark Ward as originally planned. Following regulatory
approval, Paul takes up the role on a permanent basis and joins
the Board. With Peter now established as CEO, in 2017 we will
focus on executive level succession planning throughout IG.
Further details of changes to the Board can be found in the
Nomination Committee section on pages 68 to 69.
As Chairman, my primary role is to provide leadership of the
Board and to ensure its effectiveness on all aspects of its role.
This year, given the significant amount of change at Board level
we once again undertook a questionnaire-based independent
external evaluation of the Board and its Committees. Directors
were encouraged to seek meetings with the external provider
on any matter of specific concern. No such meetings were
requested. In summary, the review concluded that the Board and
its Committees continue to operate effectively. More information
on the evaluation process and its findings can be found on pages
65 to 66.
No board can operate effectively or efficiently without a cohesive
strategy. The executive management and the Board substantially
improved our strategy process in 2016, which in turn improved
the quality of the debate. We will continue to build on these
improvements, including changing the timetable of our strategy
discussions to better support our business planning and risk
management processes.
The Board supported the introduction of a comprehensive
programme to improve the quality of papers and management
information used at Board meetings. In 2017 we will bed in these
improvements and refine them further to support continued
improvement in the quality of debate and decision making.
The way the Group has applied all aspects of the UK Corporate
Governance Code is set out in the following Corporate
Governance Report.
In his first year-end Chief Executive’s statement, Peter
Hetherington reported on another strong set of results and the
drive to generate continuous improvement and value from our
existing business.
The Board of Directors is committed to maintaining the highest
standards in the way the Company is directed, governed and
managed. We believe that good quality governance underpins
IG’s ability to deliver sustainable future growth and long-term
value creation for shareholders.
I would like to thank Board colleagues for their continued
support in ensuring timely, robust and constructive challenge
and debate around the Board table. Both June Felix, appointed
as a Non-Executive Director on 4 September 2015 and
Malcolm Le May who was appointed on 10 September 2015
as a Non-Executive Director, Chairman of the Remuneration
Committee and Senior Independent Director, have brought fresh
perspectives to the already diverse range of thought, skills and
experience present on the Board.
Andy Green
Chairman
56
IG Group Holdings plc Annual Report 2016 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 September 2014. The Code is published by the Financial Reporting Council (FRC) and further information can be
found on its website at frc.org.uk.
The Board considers that the Company has been compliant with its provisions for the year ended 31 May 2016.
OVERVIEW OF CORPORATE GOVERNANCE FRAMEWORK
INDEPENDENT
EXTERNAL
AUDITORS
Appoint the
auditors
SHAREHOLDERS
Elect the Board
THE BOARD
Five independent Non-Executive Directors (NEDs), Chief Executive Officer, Chief Financial Officer and Non-Executive Chairman
CHIEF EXECUTIVE OFFICER AND EXECUTIVE DIRECTORS
BOARD COMMITTEES
MANAGEMENT COMMITTEES
Nomination
Committee
(Five independent NEDs
and
Non-Executive Chairman)
Remuneration
Committee
(Three independent
NEDs and Non-Executive
Chairman)
Executive Risk
Committee
Client Money
Committee
Senior
management
team
Audit
Committee
(Three independent
NEDs)
Board Risk
Committee
(Four independent
NEDs)
ICAAP and ILAA
Committee
Executive
Committee
57
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT THE BOARD
The Board is responsible for promoting and ensuring the long-term success of the
Group through the creation and delivery of sustainable shareholder value.
Andy Green
Chairman
Peter Hetherington
Chief Executive Officer
Malcolm Le May
Senior Independent
Non‑Executive Director
Appointed:
Appointed:
Appointed:
9 June 2014 (Deputy Chairman)
25 February 2003 (Chief Operating Officer)
10 September 2015
16 October 2014 (Chairman)
4 December 2015 (Chief Executive Officer)
Andy has in-depth board experience and
knowledge of major listed companies, having
served as Group Chief Executive of Logica
plc and having held board roles in BT Group
including the role of CEO of Group Strategy
and Operations. He was also a board member
of the CBI. Andy’s other current roles enable
him to bring to the Board a wide perspective on
technology and digital development.
Other current appointments:
Andy is the Senior Independent Non-Executive
Director of ARM Holdings plc and Avanti
Communications Group plc. He holds a number
of other roles, including chairing DockOn AG
and Digital Catapult. He is a trustee of Abesu Ltd
and Tech Partnership Limited, President of
UK Space and co-chairman of the Space
Leadership Council.
Committee membership:
❚ Nomination Committee (Chair)
❚
Remuneration Committee
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 2003, he joined the Board following
his appointment as Chief Operating Officer.
Within that role, Peter was responsible for IT
as the company principally became an online
business. His role developed to encompass the
leadership of the sales and marketing functions.
He was appointed Interim Chief Executive
Officer in October 2015 and Chief Executive
Officer in December 2015. Peter graduated
from Nottingham University with a degree in
economics, and from the London Business School
with a masters in finance. Peter’s considerable
experience, built over 20 years in the business, is
invaluable in his role as Chief Executive Officer.
Other current appointments:
None
Committee membership:
None
Malcolm served as Senior Independent Director
of Pendragon plc and was a Non-Executive
Director and Chairman of the Investment
Committee at RSA Insurance Group plc. Prior
to this, he held various executive roles at
Morgan Grenfell plc, Drexel Burnham Lambert,
Barclays de Zoete Wedd Holdings, UBS AG,
ING Barings Ltd, Morley Fund Managers (now
Aviva Investors), JER Partners Ltd where he
was European President and Matrix Securities
Limited. Malcolm’s broad experience and
knowledge of the financial services and
investment sectors, along with his extensive
experience on the boards of publicly listed
companies, is of immense value as the Company
continues to deliver on its strategic initiatives.
Other current appointments:
Malcolm is the Senior Independent
Non-Executive Director and Chairman of the
Remuneration Committee at Provident Financial
plc and a Non-Executive Director and Chairman
of the Remuneration Committee of Hastings
Group Holdings plc. He is a partner at Opus
Corporate Finance LLP and holds advisory roles
at Juno Capital LLP and Heidrick & Struggles.
Committee membership:
❚ Audit Committee
❚
Remuneration Committee (Chair)
❚ Nomination Committee
58
IG Group Holdings plc Annual Report 2016 June Felix
Non‑Executive Director
Stephen Hill
Non‑Executive Director
Jim Newman
Non‑Executive Director
Sam Tymms
Non‑Executive Director
Appointed:
4 September 2015
Appointed:
28 April 2011
Appointed:
1 October 2013
Appointed:
22 May 2013
June has held various executive
management positions at a
number of large multi-national
businesses, including Citibank
where she was managing director
of global healthcare, Citi Enterprise
Payments and IBM Corporation,
where she led their global Banking
and Financial Markets business.
She began her career at P&G in
brand management marketing.
June brings to the Board significant
international experience and
knowledge of the digital sector
as well as experience in product
innovation and delivery.
Other current appointments:
June is the president of Verifone,
Europe and Russia, with
responsibility for the operation of
the Verifone business throughout
Europe and Russia.
Committee membership:
❚ Nomination Committee
❚ Board Risk Committee
Stephen brings significant and
extensive board experience having
previously served as the CEO of
Betfair plc and holding managerial
roles at Pearson plc, including
the role of CEO of the Financial
Times Group. He was Chairman
of Interactive Data Corporation
in the US as well as a member of
the boards for Royal Sun Alliance
Insurance Group plc, Psion
plc, Channel 4 and Ofcom.
Other current appointments:
Stephen is 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. He was appointed
Chairman of the Alzheimer’s Society
effective 6 September 2016.
Committee membership:
❚ Board Risk Committee (Chair)
❚
Remuneration Committee
❚ Nomination Committee
A qualified Chartered Accountant,
Jim was Finance Director for
Resolution plc, having joined
the company as Group Financial
Controller. Jim spent ten years
at Aviva, where he was Group
Integration Director for the CGU/
Norwich Union merger and
Finance Director of Norwich Union
Life, Aviva’s UK life insurance
business. He was formerly the
Corporate Development Director
for Friends Life Group, where his
responsibilities included overseeing
the final separation and integration
of the UK life business acquired
by Resolution plc, as well as the
delivery of the overall group change
portfolio and strategic corporate
development. 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 of considerable benefit to
the Board.
Other current appointments:
None
Committee membership:
❚ Audit Committee (Chair)
❚ Board Risk Committee
❚
Remuneration Committee
❚ Nomination Committee
Sam began her career 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 the
Board with considerable insight into
regulatory expectations.
Other current appointments:
Sam is 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.
Committee membership:
❚ Board Risk Committee
❚ Audit Committee
❚ Nomination Committee
Biographical details of Directors appointed following the date of this Annual Report can be found in the Notice of Annual General Meeting.
59
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
THE BOARD CONTINUED
LEADERSHIP
ROLE OF THE BOARD
The Board is collectively responsible for providing effective
leadership to the Company by promoting and ensuring
long-term success of the Group through the creation and delivery
of sustainable shareholder value. It provides guidance and
entrepreneurial leadership by setting the strategic direction of
the Group and overseeing management’s implementation of the
strategy within a framework of prudent and 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 suppliers,
investors, employees 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 Board maintains and periodically reviews a list of matters
that are reserved to, and can only be approved by the Board.
These include setting Group strategy; approval of major
acquisitions, divestments and capital expenditure; approval
of annual budgets; approval of changes to the Group’s capital
structure including reduction of capital; approval of expansion
plans into new business or geographies; reviewing operational
and financial performance; appointment and termination of the
Directors and Company Secretary; approval of policies related
to Directors’ remuneration and severance of Directors’ contracts;
ensuring adequate succession planning for the Board and senior
management; setting the risk appetite of the Group and approval
of any changes to the Group’s risk management policy that
materially increases the Group’s risk profile.
A formal schedule of matters specifically reserved for the Board’s
decision can be found on the Group’s website.
Specific matters have been delegated to Board Committees
and each Committee has its own terms of reference, which are
available on the Group’s website.
The matters that have not been specifically reserved for the
Board Committees are delegated to the Executive Directors.
These include the development, recommendation and
implementation of the strategic plans for the Group; the
development and implementation of the risk management
systems, policies and procedure; the promotion of a good
standard of corporate governance and shareholder engagement
and monitoring the Group’s operating and financial results.
BOARD STRUCTURE
The Board is made up of the Chairman, Executive Directors,
including the Chief Executive Officer, and independent
Non-Executive Directors.
There is a division of responsibilities between the Chairman and
the Chief Executive Officer.
Chairman
The Chairman, Andy Green, provides strong and effective
leadership to the Board and ensures the Board is structured
effectively. 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 Chairman works closely with the Chief Executive
Officer, Peter Hetherington, to ensure that the strategies and
actions agreed by the Board are effectively implemented.
Chief Executive Officer
The Chief Executive Officer 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. He leads,
manages and develops the Group’s senior leadership team and
ensures the Board receives accurate, timely and clear information.
The Board has delegated this responsibility to him, and he is
accountable to the Board.
Executive Directors
The Executive Directors support the Chief Executive Officer
in implementing the Group’s strategy and in the operational
performance of the business.
Non-Executive Director
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.
60
IG Group Holdings plc Annual Report 2016 Senior Independent Director
ATTENDANCE AT BOARD MEETINGS
Malcolm Le May is Senior Independent Non-Executive Director
and in this role he provides a sounding board for the Chairman
and supports him in the delivery of his objectives. He serves as a
trusted intermediary for the other Directors when necessary. He
maintains an understanding of the major issues and concerns of
major shareholders and informs the Board of these issues. The
Senior Independent Non-Executive Director is also available to
shareholders if they have concerns which communication via the
normal channels of Chairman, Chief Executive Officer or other
Executive Directors has failed to resolve, or when shareholders
prefer to speak directly to him. He is responsible for evaluating the
performance of the Chairman on behalf of the other Directors.
Company Secretary
The Company Secretary, Tony Lee, supports and works closely
with the Chairman, the Chief Executive Officer and the Board
Committee Chairmen in setting agenda items for meetings of
the Board and its Committees. He ensures that accurate, timely
and high-quality information flows within the Board, the Board
Committees and between Directors and senior management. In
addition, he supports the Chairman in the designing and delivery
of Director induction programmes. The Company Secretary
also advises the Board on corporate governance issues and
Board procedures.
HOW THE BOARD OPERATES
The Board meets regularly at least five times a year – and attends
an additional off-site strategy day to review strategic options
open to the Group in the context of the economic and regulatory
environment. There were seven scheduled 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. Where Directors are unable to attend
meetings, they are encouraged to give the Chairman their views
on the matters to be discussed.
The Chairman and Non-Executive Directors meet formally in the
absence of the Executive Directors at least twice a year. There
were three such meetings during the year.
The number of full Board meetings attended by each Director
during the year, including the Board strategy day, is set out below:
BOARD
MEETINGS
ELIGIBLE TO
ATTEND
MEETINGS
ATTENDED
CHAIRMAN
Andy Green
7
7
INDEPENDENT NON-EXECUTIVE DIRECTORS
Stephen Hill(1)
Roger Yates(2)
Sam Tymms
Jim Newman
June Felix(3)
Malcolm Le May(4)
EXECUTIVE DIRECTORS
Tim Howkins(5)
Christopher Hill(6)
Peter Hetherington
7
2
7
7
6
6
2
2
7
6
1
7
7
6
6
2
2
7
(1) Stephen Hill did not attend one meeting due to illness.
(2) Roger Yates retired from the Board on 15 October 2015.
(3) June Felix was appointed as a Non-Executive Director on 4 September 2015.
(4) Malcolm Le May was appointed as a Non-Executive Director on 10 September 2015.
(5) Tim Howkins retired as the Chief Executive Officer on 15 October 2015.
(6) Christopher Hill resigned as the Chief Financial Officer on 30 October 2015.
BOARD ACTIVITIES DURING THE YEAR
The Board meeting agendas during the year included business
across the key areas of strategy, governance, risk and financial
performance, as highlighted in the following chart.
BOARD ALLOCATION OF TIME
QUARTERLY FORECAST AND
BUDGET
STRATEGY
BUSINESS, OPERATIONAL
HIGHLIGHTS AND CURRENT
TRADING
RISK AND GOVERNANCE
FINANCIAL PERFORMANCE
OTHER
61
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
THE BOARD CONTINUED
STRATEGY
❚ Reviewed and discussed the Group’s long-term strategy
❚ Discussed the strategic purpose of limited-risk accounts
❚ Analysed the health of the IG brand
❚ The Board engaged an external company Oliver Wyman to perform an
analysis of the Group’s strategy in order to support the Board’s strategic
decision-making process
❚ Evaluated the Company’s geographic strategy and options for proceeding with IG
Investments and the portfolio-based investments offering
QUARTERLY FORECAST AND
BUDGET
❚ The Board received updates as to how the business was tracking against
budget. The Board was also alerted to material changes in budget assumptions
❚ Discussed the risks and opportunities for the FY16 Budget
❚ Reviewed and approved the budget for the next financial year
BUSINESS, OPERATIONAL
HIGHLIGHTS AND
CURRENT TRADING
❚ Regularly received updates on business progress and the issues and challenges
faced by management
RISK AND GOVERNANCE
❚ Discussed IG’s risk management and internal control systems in accordance with the
UK Corporate Governance Code
❚ Regularly received reports on key compliance issues identified during the year and
any regulatory changes affecting IG
❚ Reviewed and approved the Individual Capacity Adequacy Assessment
Process (ICAAP), the Individual Liquidity Adequuacy Assessment (ILAA) and
the Group’s Recovery Plan prepared in line with the EU Business Recovery and
Resolution Directive
❚ Received regular updates on developments in corporate governance
❚ Reviewed the financial performance of the Group and approved all financial
results announcements, the Annual Report with the respective financial
statements and dividends
❚ Reviewed a three-year forecast based on the existing core business
FINANCIAL PERFORMANCE
OTHER
❚ Undertook an external evaluation of its effectiveness and the effectiveness of each
Board Committee and individual Directors
❚ Approved the appointments of new Non-Executive Directors, the Chief Executive
Officer and the Chief Financial Officer
BOARD COMMITTEES
Certain governance responsibilities have been delegated by the Board to Board Committees to ensure that there is independent
oversight of internal control and risk management and to assist the Board with carrying out its responsibilities. 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, iggroup.com
A brief description of the roles of each Committee is set out below.
AUDIT
COMMITTEE
BOARD RISK
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION COMMITTEE
❚
❚
Responsible for the integrity of
the Financial Statements of the
Group, including its Annual and
Interim Reports
Reviews and recommends to
the Board the effectiveness
of the Group’s Internal Audit
function and risk management
system, annual internal
audit plan, appointment,
re-appointment and removal of
the external auditors
❚
❚
Responsible for providing
oversight and advice to the
Board in relation to current
and future risk exposures of
the Group and promoting a
risk awareness culture within
the Group
Recommends to the Board the
design and implementation of
risk management policy and
measurement strategies across
the Group, the Group’s risk
profile, risk appetite and key risk
indicators for the current and
future strategy
❚
❚
Responsible for making
recommendations to the Board
on the Group’s senior executive
remuneration policy
Reviews and recommends to the
Board the Group’s remuneration
policy which is consistent with
effective risk management, the
framework for the remuneration
of the Company’s Chairman
and Executive Directors
and all share-based awards
under the Group’s Employee
Incentive Schemes
❚
❚
Responsible for reviewing the
composition of the Board and
Board Committees to ensure
that they are appropriately
balanced in terms of knowledge,
skills and experience
Reviews and recommends to
the Board appointments to
the Board and to other senior
management positions
62
IG Group Holdings plc Annual Report 2016 The Chairman of each Board Committee reports to the Board on
the matters discussed at Committee meetings. The minutes of
each Committee meeting are made available to all Directors with
the exception of Nomination Committee minutes which were not
made available to Executive Directors during the CEO search.
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.
EFFECTIVENESS
BOARD COMPOSITION
The Board’s size and the skills and experience of its members,
have a significant impact on its effectiveness. It aims to maintain
a balance in terms of experience and skills of individual Board
members. These factors are regularly reviewed to ensure that the
Board has the right mix of skills and experience for constructive
discussion and, ultimately, effective Board decisions. The breadth
of skills and experience on the Board is set out below:
❚ Financial Services
❚ Finance and Accountancy
❚ Government and Regulatory
❚ Marketing
❚ PR
❚ Technology/Digital
❚ Chief Executive experience
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.
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 are required
to 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 and assessed by the Board and approved
where appropriate.
SUCCESSION PLANNING AND APPOINTMENTS TO
THE BOARD
The Board uses succession planning to ensure that Executives
with the necessary skills, knowledge and expertise are in place to
deliver our 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.
The Nomination Committee has specific responsibility for the
appointment of Non-Executive and Executive Directors and it
recommends new appointments to the Board. It regularly reviews
the structure, size and composition required of the Board and
makes recommendation to the Board as appropriate. More
information on the work of the Committee can be found in the
report of the Nomination Committee on pages 68 to 69. The
Board as a whole is also involved in overseeing the development
of management resources across the Group.
DIRECTOR INDEPENDENCE
LENGTH OF TENURE OF NON-EXECUTIVE DIRECTORS
The Company is, and following the appointment of the Chief
Financial Officer, will continue to be fully compliant with the
UK Corporate Governance Code, 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.
The independence of the Non-Executive Directors is considered
by the Board and reviewed on an annual basis, as part of the
Board effectiveness review. The Board considers factors such
as length of tenure and relationships or circumstances which
are likely to affect or appear to affect the Director’s judgement
in determining whether they remain independent. Following
this year’s review, the Board concluded that all of the
Non-Executive Directors continue to remain independent in
character and judgement and are free from any business or
other relationships which could materially affect the exercise of
their judgement.
3
3
0-3 YEARS
3-6 YEARS
63
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT THE BOARD CONTINUED
INDUCTION
On appointment, each new Director receives a full and formal bespoke 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, organisation structure charts, history of the Group, industry and regulatory
reports and relevant company policies. Newly appointed Directors also meet the company’s external auditors 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.
Non-Executive Directors Induction
Both Malcolm Le May and June Felix’s induction programme were comprehensive and covered among other things, the following:
COMPANY STRUCTURE, HISTORY,
STRATEGY AND BUSINESS
❚ Briefing on Group history and management structure
❚ Group strategy including opportunities and threats
❚ Strategy and Business Model (including peer comparison and what could
break the business)
❚ Material business lines and markets, including international markets
❚ Growth trajectory, strengths, challenges and future plans
GOVERNANCE AND REGULATORY
❚ Board and Board Committee Terms of Reference
RISK MANAGEMENT, CAPITAL AND
LIQUIDITY
❚ Board and Committee procedures
❚ Share dealing and market abuse responsibilities
❚
Listing obligation for directors
❚ Regulatory framework and proposals impacting the business
❚ Key responsibilities for regulated activities and financial crime issues
and challenges
❚ Market Risk, Credit Risk, Operational Risk, Remuneration Risks and other key
risks and priorities
❚ Risk appetite and assessment of its effectiveness
❚ Key current aspects of the liquidity regime and regulatory expectations
❚ Stress testing including reverse stress testing for capital and liquidity
PRODUCTS, FINANCE, MARKETING
AND SHAREHOLDER ENGAGEMENT
❚
IG’s various products and markets in which clients can trade
❚ Business plan, standalone and consolidated balance sheets, budgeting
process and financial projections
❚ Overview of marketing plans and marketing budgets
❚ Overview of the share register and key institutional shareholders
IT, HR AND REMUNERATION
❚ Current and future strategic projects
❚ Key strategies to mitigate personnel risk and reduce staff turnover
❚ Remuneration strategy
64
IG Group Holdings plc Annual Report 2016 The first stage of the review involved Lintstock engaging
with the Chairman and the Company Secretary to set the
context for the evaluation, and to tailor the surveys used
to the specific circumstances of IG Group while ensuring
consistency of questioning to facilitate ongoing analysis of
performance improvement.
The Board considered the focus of the review and, in addition to
those areas identified in 2015, agreed to focus on how the Board
Committees work with each other and the Board with a particular
focus on the management of risk.
All Board members and the Company Secretary completed a
web-based survey addressing the performance of the Board
and its Committees, the Chairman and individual Director
performance. The review addressed the following core areas of
Board performance:
❚ The composition of the Board was assessed with the need to
finalise the recruitment of the CFO highlighted
❚ The Board enjoyed a programme of continuing education
through presentations and workshops held outside formal
Board meetings. This programme would be enhanced during
the 2017 financial year
❚ There had been improvements to Board agenda planning, time
management at meetings, the quality of the papers provided
and the interaction between Board Committees and the Board
❚ The evaluation of the approach to consideration of strategy
and strategic priorities received detailed attention and
comment. The Directors’ views as to the top strategic issues
facing the Company were identified
❚ The level of the Board’s focus on risk was seen as appropriate
and oversight of various specific aspects of risk received
positive ratings
Lintstock subsequently produced a report of its findings that were
discussed with the Chairman and provided to the Board. Overall,
the results indicate that the Board is operating effectively with a
number of areas reviewed and rated positively.
During 2016, management and the Board undertook a thorough
programme to improve the quality of Board papers and
management information used at Board meetings. Significant
progress was made on improving the consistency of papers
provided. In 2017, we will refine and bed in these improvements
to support continued improvement in the quality of debate and
decision making.
With Peter Hetherington now established in his CEO role, we will
be focusing on succession planning at executive level and
throughout the business, including the induction of the new CFO.
Importantly, we continued to improve our strategy process in 2016
and will build on that during the coming year. This will include
changing the timetable of our strategy discussions to better
drive our business planning and risk management processes
while continuing to ensure that senior management provides
active participation into Board discussions on strategy.
ONGOING PROFESSIONAL DEVELOPMENT
Given the rapidly changing environment in which the Group
operates, all Directors are given regular updates on changes
and developments in the business. The Company Secretary on
a regular basis updates the Board on any relevant legislative,
regulatory and governance changes.
Training opportunities are provided through internal meetings,
presentations and briefings by internal advisers, business heads as
well as external advisers. During the year, the Directors attended
briefing sessions on strategic foundations, the Group’s Investments
Business Plan, cyber security, the EU Market Abuse Regulation and
a briefing to further increase the Directors’ understanding of the
Group’s business model.
The Directors also attended workshops on the Group’s stress
testing exercises (i.e. testing whether the Group’s financial position
and risk profile provide sufficient resilience to withstand the impact
of severe economic stress) to gain a better insight into the risks
and stress scenarios facing the Company.
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
The Board has full and timely access to all relevant information to
enable it to perform its duties effectively. The Company Secretary
ensures appropriate and timely information flows within and to
the Board and its Committees, enabling the Board to exercise its
judgement and make fully informed decisions when discharging its
duties. 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 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. The Company Secretary is also responsible
for advising the Board, through the Chairman, on all corporate
governance matters. Directors receive financial and risk information
on the company on a regular 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 underwent a
performance evaluation during the course of the year. All Directors
will stand for election or re-election at the AGM.
BOARD EVALUATION
Each year, an evaluation of the effectiveness of the Board is
conducted. In 2016, an external evaluation was carried out by
Lintstock Limited as part of a three-year programme which began
in 2015.
Lintstock has no other connection with the Company.
Following recent changes to the composition of the Board,
and upon the recommendation of Lintstock, it was agreed that
the 2016 evaluation would again be survey based. In addition,
Directors were invited to seek meetings with Lintstock on any
matter of specific concern. No such matters were raised or
meetings sought.
As part of the review, consideration was given to areas identified
following the 2015 review, where in-depth questions were
provided on the succession planning process, time allocated to
strategy and where it fits into the annual cycle and improvements
in information provided to the Board.
65
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT THE BOARD CONTINUED
Additional priorities for the Board in the coming year include:
❚ Further developing and embedding the Group’s
management and internal controls systems and principal risks
faced by the Group via a three-line defence structure.
people strategy
❚ Continuing to manage and enhance our understanding and
management of cyber threats
❚ Ensuring that the Group’s risk timetable and various risk
processes are driven holistically and reviewed in an efficient
and timely manner
We will report on actions taken and progress made in next year’s
Annual Report.
Led by Malcolm Le May, the Senior Independent Director, a review
of the Chairman’s performance was carried out by the Board using
a questionnaire completed by the Executive Directors and the
Non-Executive Directors. The performance of the Chairman was
discussed without the Chairman present.
The evaluation of the performance and contribution of each
Director was conducted with reference to a self-performance
review questionnaire completed by each Director.
The reviews concluded that each Director continues to perform
effectively and demonstrate commitment to the role.
TIME COMMITMENT
Following the Board evaluation process detailed above, the Board
is satisfied that each of the Directors is able to allocate sufficient
time to the Company to discharge their responsibilities effectively.
Externally, there has been no increase in the other significant
commitments of the Chairman of the Company during the year
which would impact the time he has to fulfil the role.
ACCOUNTABILITY
FINANCIAL AND BUSINESS REPORTING
The Strategic Report on pages 7 to 29 describes the business
model and strategy whereby the Company generates and
preserves value over the long-term and delivers the objectives of
the Company.
A statement of the Directors’ responsibilities in respect of the
Financial Statements is set out on page 101 and a statement
regarding the use of the going-concern basis in preparing these
Financial Statements is provided in the Directors’ report on
page 100.
RISK MANAGEMENT AND INTERNAL CONTROL
The Group is exposed to a number of business risks in providing
products and services to its clients. The Board is responsible for
establishing the overall appetite for these risks, which is detailed
and approved in the Risk Appetite Statement. The Board has
responsibility for ensuring the maintenance of the Group’s risk
management and internal control systems and for annually
reviewing them.
The framework under which risk is managed in the business is
supported by a system of internal controls designed to embed
the management of business risk throughout the Group. The
risk management and internal controls systems are designed to
manage rather than eliminate the risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
Through reports from the Board Risk Committee and the Audit
Committee, consideration of the ICAAP, ILAA and Recovery
Plan, the Board regularly reviews and monitors the Group’s risk
A robust assessment of the principal risks facing the Group has
been carried out, including those that would threaten its business
model, future performance, solvency and liquidity. We outline
the risks to which the Group is exposed and our framework under
which risk is managed, including a description of its system of
internal controls, in the ‘Managing Our Risks’ section on pages 44
to 54.
An annual formal review of the effectiveness of the Group’s
system of risk management and internal controls has been
carried out by the Board to support the statements included
in the Annual Report and Accounts. The review focused upon
the overall risk governance framework, the setting of IG’s risk
appetite, the key risk assessment and monitoring activities across
the firm, the processes and controls in place to manage risks
and for escalating exceptions highlighted by risk management
processes. No weaknesses or control failures significant to the
Group were identified.
There are risk management and internal controls systems in place
for identifying, evaluating and managing the principal risks facing
the Group in accordance with the Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting
published by the Financial Reporting Council.
Throughout the year and up to the date of this Report, the
Group has operated a system of internal controls that provides
reasonable assurance of effective operations covering all controls,
including financial and operational controls and compliance with
laws and regulations.
INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The Group’s financial reporting process has been designed to
provide reasonable assurance regarding the reliability of the
financial reporting and preparation of financial statements,
including consolidated financial statements, for external purposes
in accordance with IFRS. The annual review of the effectiveness of
the Group’s system of internal controls included reviews of systems
and controls relating to the financial reporting process.
Internal controls over financial reporting include procedures and
policies that:
❚ Pertain to the maintenance of records that, in reasonable detail
accurately and fairly reflect the transactions and disposals of
the Group’s assets
❚ Provide reasonable assurance that transactions are recorded
as necessary to permit the preparation of Financial Statements
and that receipts and expenditures are being made only
in accordance with authorisations of management and
respective Directors
❚ Provide reasonable assurance regarding prevention or timely
detection of unauthorised acquisition, use or disposal of
Group assets that could have a material effect on the Group’s
Financial Statements
REMUNERATION
The responsibility for the determination of remuneration
arrangements for the Chairman, and Executive Directors has been
delegated to the Remuneration Committee. Information on the
Remuneration Committee and the Directors’ Remuneration Report
can be found on pages 70 to 89.
66
IG Group Holdings plc Annual Report 2016 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.
In order to ensure that the members of the Board develop
an understanding of the views of major shareholders, there is
regular dialogue with institutional investors and shareholders,
presentations by management and Investor Roadshows 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.
Meetings with the Company’s largest institutional shareholders and
market analysts are held to discuss governance, business strategy
and financial performance by the Chairman and the Executive
Directors. Non-Executive Directors are also available to meet and
hear the views of the institutional shareholders when required.
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, roadshow feedback 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 receives an Investor
Perception study to identify shareholders’ concerns and actions
undertaken for its resolution.
The Chairman and the Senior Independent Non-Executive Director
are available to meet shareholders on request and ensure 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.
AGM
The AGM provides the Board with the opportunity to
communicate with private and institutional investors and we
welcome and encourage their participation at the meeting. The
Chairman aims to ensure that all the Directors, including the
Chairmen of the Board Committees, are available at the AGM to
answer questions. The 2015 AGM was a successful event attended
by all the Directors. Roger Yates and Tim Howkins did not seek
re-election and stepped down from the Board of the Company.
All the proposed resolutions were passed with the percentage of
votes in favour of each resolution ranging from 93.09% to 99.91%.
The 2016 AGM will be held on 21 September 2016. The Notice
of the Meeting sets out the resolutions to be proposed at the
meeting. A copy of the Notice is available on the Company’s
website iggroup.com. 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 publish these on
the Company’s website on the same day.
67
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT NOMINATION COMMITTEE
Andy Green, Chairman of the Nomination Committee, gives his review of the Committee’s
activities during the financial year.
ROLE OF THE NOMINATION
COMMITTEE
The principal role and responsibilities of the Committee include:
❚ Reviewing the composition of the Board and Board
Committees to ensure that they are appropriately balanced in
terms of skills, knowledge diversity and experience
❚ Ensuring that there is a formal, rigorous and transparent
procedure for the appointment of new Directors
❚
Identifying and nominating for approval by the Board, suitable
candidates to fill Board vacancies as and when they arise
❚ Ensuring 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.
MAIN ACTIVITIES DURING THE
FINANCIAL YEAR
The Committee’s main focus has been on overseeing the selection
process and appointment to the roles of Chief Executive Officer
and Chief Financial Officer following the departure of Tim Howkins
and Christopher Hill from the Board respectively.
In July 2015, we announced that Tim Howkins would be retiring
from the Board as Chief Executive Officer at the Company’s AGM
the following October. Peter Hetherington, the Chief Operating
Officer, was appointed interim Chief Executive Officer and the
Committee commenced the search for a permanent successor to
Tim Howkins. Russell Reynolds, an executive search firm which has
no other connection with the Company, was engaged following a
selection process to assist with the search for a suitable candidate.
The Committee agreed and prepared a candidate specification
based on objective criteria, setting out the knowledge, skill,
experience and attributes required. These include, among others:
❚ Having the ability to lead the Group in meeting its strategic
objectives and responding positively to the immediate and
strategic challenges facing the Group and the industry
❚ A track record of guiding a business/division through periods
of transformation to meet growth and diversification objectives
❚ A track record of increasing shareholder/stakeholder value from
within a growth-oriented, highly competitive industry
❚ Having a strong business acumen and experience of an
international consumer-focused online and mobile platform
business model
From the candidate specification, a longlist of potential external
and internal candidates was drawn up from which a shortlist was
compiled. Candidates on the shortlist were interviewed by me,
following which a proposal was made to the Committee on the
candidates. Briefing reports on the shortlisted candidates were
reviewed by the Committee and the candidates were interviewed
by members of the Committee.
After a series of interviews, extensive discussion and a thorough
search process by the Committee, Peter Hetherington emerged as
the preferred candidate and his appointment as Chief Executive
Officer was recommended to the Board, with the appointment
taking effect from 4 December 2015.
Andy Green
Chairman of the Nomination Committee
CHAIRMAN’S OVERVIEW
For the Company to achieve its objectives and long-term strategy,
it is essential that the Board is progressively refreshed and
well balanced in terms of structure, skill, experience, diversity
and knowledge. The Nomination Committee is tasked with
the responsibility for identifying and recommending suitable
candidates for appointment to the Board to ensure that its
composition in this regard meets the Company’s needs.
MEMBERSHIP AND ATTENDANCE
The Committee consists of independent Non-Executive Directors
and meets as necessary to discuss appointments to the Board. The
Chairman of the Board is also the Chairman of the Committee and
the Company Secretary acts as the Secretary of the Committee.
The Chief Executive Officer also attends, but is not involved in
decisions relating to his own succession.
During the year the Committee met eight times to consider Board
composition and succession planning.
MEETINGS ELIGIBLE
TO ATTEND
MEETINGS
ATTENDED
Andy Green
Stephen Hill
Roger Yates(1)
Sam Tymms(2)
Jim Newman(3)
June Felix(4)
Malcolm Le May(5)
9
9
5
9
9
6
6
9
9
3
8
8
4
6
(1) Roger Yates stepped down as a member of the Committee from 15 October 2015.
(2) Sam Tymms was unable to attend one meeting called at short notice due to
prior commitments.
(3) Jim Newman was unable to attend a meeting called at short notice due to
prior commitments.
(4) June Felix joined the Committee on 25 September 2015. She was unable to attend
two meetings called at short notice due to prior commitments.
(5) Malcolm Le May joined the Committee on 25 September 2015.
68
IG Group Holdings plc Annual Report 2016 DIVERSITY STATEMENT
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,
starting on page 16.
The Directors recognise the importance of gender diversity on
the Board and understand the significant benefits that come with
having a diverse Board. However, we believe that diversity is a
wider issue and includes variations in experience, skills, personal
attributes and background. Nonetheless, we set an aspirational
target to achieve 25% female representation on the Board.
We will 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 and we insist
on having both male and female candidates when drawing up
longlists and shortlists of candidates.
COMMITTEE ALLOCATION OF TIME
BOARD COMPOSITION
SUCCESSION PLANNING
OTHER
Andy Green
Chairman, Nomination Committee
19 July
During the year, the Committee also commenced the search
for a new Chief Financial Officer. Spencer Stuart and Russell
Reynolds, executive search firms, with no other connection to the
Company, were engaged following a selection process to assist
with the search of a suitable candidate. As with the search for a
replacement Chief Executive Officer, a position and candidate
specification was prepared, taking into account the desired skills,
knowledge and experience required for the role. These include,
among others:
❚ Having outstanding finance and leadership credentials
gathered in a high-quality, regulated, financial services business
❚ Having proven operational/commercial and functional change
management skills
❚ Having broad and relevant sector knowledge from retail
financial services, asset management, insurance or the broker
dealer sector
Following a number of interviews and extensive discussions, Paul
Mainwaring was appointed as Chief Financial Officer designate on
11 July 2016. Following regulatory approval Paul takes up the role
on a permanent basis and joins the Board.
During the year, Roger Yates stepped down from the Board as
Senior Independent Director and Chairman of the Remuneration
Committee and Malcolm Le May was appointed to the Board in
September 2015 as his successor. For his appointment, the Board
took into account his broad experience and knowledge of the
financial services and investment sectors.
Last year, we also reported that following a discussion around
long-term Board composition and required skills, the Committee
had commenced the search for a Non-Executive Director
with digital experience. In September 2015, the Committee
recommended to the Board the appointment of June Felix as
a Non-Executive Director of the Company. June brings to the
Board significant international experience and knowledge of the
digital sector.
We reported on the search and selection process for both
Malcolm and June’s positions in our 2015 Annual Report.
In addition to overseeing appointments to the Board, the
Committee reviewed membership of the Board Committees.
Following the Committee’s recommendation, and with the Board’s
approval, June Felix and Malcolm Le May joined the Board Risk
Committee and the Audit Committee respectively and also
became members of the Nomination Committee. In addition, Jim
Newman joined the Remuneration Committee in September 2015.
COMMITTEE EVALUATION
During the year, an evaluation of the performance of the
Committee and its members was undertaken in line with the
Committee’s Terms of Reference. The evaluation process was
externally facilitated by Lintstock Limited as part of the overall
annual Board effectiveness review, details of which can be found
on pages 65 to 66. The performance of the Committee was
positively rated overall and the evaluation concluded that the
Committee operates effectively.
69
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT DIRECTORS’ REMUNERATION REPORT
The Remuneration Committee’s objective is to ensure remuneration encourages, reinforces
and rewards the delivery of shareholder value.
CHAIRMAN’S OVERVIEW
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 May 2016 comprising
this statement, the Remuneration Policy Report and the Annual
Report on Remuneration.
In this year’s report, we have sought to refine the disclosures.
However, the overall structure of the executive remuneration
package and the principles that underpin it remain unchanged.
We continue to operate under the Directors’ Remuneration Policy
that has been in place since June 2013 and which was approved
in a binding vote by over 96% of our shareholders at the AGM
in 2014.
There will be a single advisory vote at this year’s AGM with regards
to this annual statement and the Annual Report on Remuneration
that details both amounts paid in respect of the year ended 31
May 2016 and the intended operation of the remuneration
policy for the coming year. I hope you agree that how we have
rewarded our Executives is commensurate with the Group’s
performance and that you will support this year’s resolution at the
forthcoming AGM.
THE BUSINESS CONTEXT IN 2016
As noted within the Operating and Financial Review section of the
Annual Report on pages 36 to 41, the Group delivered another
strong financial performance in 2016. Revenue increased by
14% on 2015’s underlying results to £456.3 million, while diluted
earnings per share (DEPS) increased by 8.5% against last year’s
underlying results to 44.58 pence per share.
Over the past year, IG has expanded its core leverage business
seeing growth in all locations including Switzerland and Dubai,
which have both delivered ahead of expectations. Our product
offering has also seen growth: the share dealing platform
continues to attract new customers supporting our overall
strategy. We have also opened our Poland office as an IT and
Operations hub.
INCENTIVE OUTCOMES FOR 2016
Since 2013, the Company’s Executive Directors have participated
in a single incentive scheme, the sustained performance plan (SPP)
which measures performance over annual and trailing three-year
periods. This Plan replaced both the previous annual bonus and
long-term incentive plans.
The year to 31 May 2016 is therefore the third year of the
Executive’s variable remuneration being awarded under the plan.
Similar to the prior years’ SPP, the 2016 award is driven by three
metrics: diluted earnings per share (DEPS), total shareholders’
return (TSR) and non-financial metrics presented in more detail in
the Remuneration Policy section on pages 83 to 84.
In respect of the strong annual and trailing three-year performance
for the period ended 31 May 2016, the Committee has awarded
90% of the maximum potential award under the SPP compared
with 41% in the prior year.
The overall SPP outcome is higher than last year as a result of the
strong performance in 2016 against all metrics. The results of 2015
were negatively impacted by the Swiss franc event in January 2015
on both the EPS and the non-financial performance measures.
Malcolm Le May
Chairman of the Remuneration Committee
Our remuneration report covers the remuneration of the
Executive and Non-Executive Directors of IG Group Holdings
plc (the Company and the Group) and is organised into the
following main sections:
CHAIRMAN’S OVERVIEW
DIRECTORS’ REMUNERATION POLICY
ANNUAL REPORT ON REMUNERATION
Statement of implementation of remuneration policy
in 2016 and Single Figure of Remuneration
70
72
81
81
70
IG Group Holdings plc Annual Report 2016
The Company has set out an extensive explanation of the
judgements it has made in determining the above awards.
This disclosure is set out in the Annual Report on Remuneration
on page 81.
MANAGEMENT CHANGES
After 16 years with the Company, Tim Howkins retired from his
position as Chief Executive Officer with effect from 15 October
2015. Tim received no payment in lieu of notice and was treated
in line with our policy for retirees. Full details can be found on
page 81.
Peter Hetherington was appointed Interim Chief Executive Officer
from 15 October 2015. Subsequently, he was appointed Chief
Executive Officer on 4 December 2015. Peter’s salary has been
set at £575,000 and reflects the skills, knowledge and experience
that Peter brings to the role and the increased complexity of the
business as it has expanded its product offering in new territories.
Having conducted a thorough search process, the Committee
is comfortable that Peter’s salary reflects the normal market
rate for the role. The Committee, as a secondary consideration,
also conducted a benchmarking exercise looking at CEOs in
companies of broadly similar scale and complexity. Having
considered the result, the Committee is further reassured that the
new salary reflects the market rate for this position in a company
of this size and complexity.
Christopher Hill resigned from his position as Chief Financial
Officer and served notice on 10 August 2015. Christopher
continued his role and ceased to be a director on 30 October
2015. Christopher was on gardening leave for the remainder of his
six months notice period and received salary, pension and benefits
during this time. Christopher’s outstanding share awards lapsed in
line with our remuneration policy. Further details can be found on
page 82.
Mark Ward was appointed Interim Chief Financial Officer on 15
January 2016, although this was not in an executive capacity.
Following the Board’s search for a permanent Chief Financial
Officer, Paul Mainwaring was appointed as Chief Financial Officer
designate. Following Financial Conduct Authority (FCA) approval,
Paul takes up the role on a permanent basis and joins the Board.
Paul will receive a basic salary of £400,000. He will be eligible to
participate in IG’s sustained performance plan details of which are
set out on page 74. The maximum award will be four times base
salary for ’stretch performance’ and an anticipated award of two
times base salary at ’target performance’. Paul will also receive a
pension and a benefits allowance totalling 17% of base salary.
❚
Malcolm Le May(1)
Roger Yates(2)
Stephen Hill(3)
Andy Green
Jim Newman(4)
SCHEDULED
MEETINGS ELIGIBLE
TO ATTEND
SCHEDULED
MEETINGS
ATTENDED
4
3
6
6
3
4
2
5
6
3
(1) Malcolm Le May joined the Committee on 10 September 2015.
(2) Roger Yates stepped down as Chairman of the Committee on 15 October 2015.
(3) Stephen Hill did not attend one meeting due to illness.
(4) Jim Newman joined the Committee on 25 September 2015.
COMMITTEE ALLOCATION OF TIME
SALARY AND BONUS SCHEME
ARRANGEMENTS
INCENTIVE AWARDS
REMUNERATION REGULATION
REMUNERATION REPORTING
REMUNERATION POLICY
OTHER
POLICY REVIEW AND REGULATORY CHANGE
The current Remuneration Policy has a three-year life and a vote
on a new or revised Remuneration Policy will be required at
the 2017 AGM. Therefore, over the course of the next year the
Committee will be reviewing the current remuneration structure
and will consult with shareholders once that review has concluded.
The Committee will continue to monitor and review potential
legislative changes to remuneration regulations that could impact
the current policy and it is prepared to act accordingly if such
changes affect the Group.
IMPLEMENTATION OF POLICY IN 2016/17
The Committee has determined that Peter’s base salary remains
unchanged at the 1 June 2016 review date.
Starting 1 June 2016, we introduced flexible benefits for all
employees in the UK. This provides a personal benefits pot, similar
in value to the Group’s pension matching offering, which allows
staff members to manage and decide whether to have this paid
into their pension plan, used for other benefits or taken as cash.
The impact on the Executive Directors pay-out will be minimal
as the Company’s pension contribution will remain at 15% of
salary and there will continue to be the opportunity to receive the
pension contribution as a cash supplement.
For 2017, the Committee will use the same SPP metrics described
above, with the same weightings. Accordingly, annual DEPS will
drive 45% of the maximum potential award, with relative TSR
(measured over the trailing three years) and annual non-financial
metrics accounting for 35% and 20% respectively.
In relation to the DEPS targets, as with past years, the Committee
has used a set of internal and external reference points to set
targets. The target range will be disclosed and explained in next
year’s remuneration report.
I hope that you will support the advisory vote on the remuneration
resolution at the AGM.
Malcolm Le May
Chairman, Remuneration Committee
19 July 2016
71
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
DIRECTORS’ REMUNERATION POLICY
The Directors’ Remuneration Policy describes the framework,
principles and structures that guide the Remuneration
Committee’s decision-making process in the area of Executive
Directors’ remuneration in line with the Committee’s objective to
ensure that remuneration encourages, reinforces and rewards the
growth of shareholders’ value.
❚ Determines and reviews the Group’s remuneration policy,
ensuring it is consistent with effective risk management across
the Group, and considers the implications of this remuneration
policy on risk
❚ Determines and agrees the policy for the remuneration of the
Board Chairman and the Executive Directors
❚ Reviews pay, benefits and employment conditions and the
remuneration trends across the Group
❚ Approves 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
❚ Monitors regulatory developments, including those affecting
UK-listed companies and financial services firms, to ensure the
Company’s remuneration policy is consistent with these
❚ Establishes the selection criteria, appoints and sets the terms
of reference for any remuneration consultants who advise
the Committee
The Committee’s terms of reference can be found on our
corporate website at iggroup.com.
The policy was unanimously approved at the 2014 Annual General
Meeting and there is no vote on the Directors’ Remuneration
Policy at the 2016 Annual General Meeting as it is unchanged.
The role of the Remuneration Committee and the objective of the
remuneration policy are described below.
REMUNERATION COMMITTEE’S ROLE
❚ Makes recommendations to the Board on the Group’s senior
executive remuneration policy
❚ 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
❚ Sets and agrees with the Board a competitive and transparent
remuneration framework which is aligned to the Group’s
strategy and is in the interest of both the Company and
its shareholders
❚ Determines the contractual terms, remuneration and other
benefits for the Executive Directors
KEY ELEMENTS OF REMUNERATION
PURPOSE AND LINK TO
STRATEGY
OPERATION
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.
Reflects the market value of the role
and the postholder’s experience,
competency and performance within
the Company.
BENEFITS
Competitive, cost-effective
benefits to help recruit and retain
Executive Directors.
PENSION
Base 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:
❚ 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 may include, for example, private medical insurance, discounted health club
membership and life assurance.
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.
OPPORTUNITY
PERFORMANCE
METRICS
RECOVERY OR
WITHHOLDING
The general policy is to pay around mid-market levels, with annual increases typically in
No performance
No recovery or
metrics apply to
withholding applies
base salary.
to base salary.
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 2017 are:
Chief Executive Officer – £575,000; Chief Financial Officer – £400,000
The aim is to provide market-competitive benefits, and their value may vary from year
No performance
No recovery or
to year, depending on the cost to the Company from third-party providers.
metrics apply to
withholding applies
Benefits constitute a small percentage of total remuneration.
base salary.
to base salary.
Market-competitive, cost-effective
retirement benefits attract and retain
Executive Directors.
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.
The Company may contribute up to 15% of base salary to pension, an equivalent cash
No performance
No recovery or
allowance in lieu, or a mixture of both.
metrics apply to
withholding applies
base salary.
to base salary.
72
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED OBJECTIVES OF THE REMUNERATION POLICY
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 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 shareholders and 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 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.
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 for 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 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 below 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.
PURPOSE AND LINK TO
OPERATION
OPPORTUNITY
STRATEGY
BASE SALARY
BENEFITS
PENSION
Provides a sound basis on which to
Base salaries are normally reviewed by the Committee annually, and are usually fixed for 12
recruit and retain key employees of
months commencing 1 June. Any salary increase may be influenced by:
appropriate calibre to deliver the
strategic objectives of the Company.
Reflects the market value of the role
and the postholder’s experience,
competency and performance within
❚ 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
the Company.
❚ Commercial need
❚ Periodic benchmarking of similar roles at comparable companies selected on the basis of
comparable size, complexity, geographic spread and business focus
Competitive, cost-effective
Benefits may include, for example, private medical insurance, discounted health club
benefits to help recruit and retain
membership and life assurance.
Executive Directors.
individual circumstances.
Relocation and related benefits may be offered where a Director is required to relocate.
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 2017 are:
Chief Executive Officer – £575,000; Chief Financial Officer – £400,000
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.
Cash alternatives may be provided for any or all of these benefits, depending on
Benefits constitute a small percentage of total remuneration.
PERFORMANCE
METRICS
RECOVERY OR
WITHHOLDING
No performance
metrics apply to
base salary.
No recovery or
withholding applies
to base salary.
No performance
metrics apply to
base salary.
No recovery or
withholding applies
to base salary.
Market-competitive, cost-effective
The Group contributes to Executive Directors’ personal pension plans. Executives have the
retirement benefits attract and retain
option to receive part, or all, of their pension contribution as a cash allowance in lieu of
The Company may contribute up to 15% of base salary to pension, an equivalent cash
allowance in lieu, or a mixture of both.
Executive Directors.
Company pension contributions.
No performance
metrics apply to
base salary.
No recovery or
withholding applies
to base salary.
73
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT KEY ELEMENTS OF REMUNERATION
PURPOSE AND LINK TO
STRATEGY
OPERATION
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
This aligns the interests of
management and shareholders and
promotes a long-term approach to
performance and risk management.
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.
A share ownership policy was introduced from the financial year ended 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.
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.
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.
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.
We are initially operating the SPP by reference to five consecutive ‘plan years’. The first plan year
was the financial year which ended 31 May 2014.
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.
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 (i.e. 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
Financial year ending
% of cumulative shares in plan account vesting
Plan year 1
Plan year 2
Plan year 3
Plan year 4
Plan year 5
31 May 2014
31 May 2015
31 May 2016
31 May 2017
31 May 2018
40.0%
40.0%
33.3%
33.3%
33.3%
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.
74
OPPORTUNITY
PERFORMANCE METRICS
HMRC or non-UK
No performance metrics apply to base salary.
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.
RECOVERY OR
WITHHOLDING
No recovery or
withholding applies to
base salary.
The maximum plan
The quantum of any awards granted is dependent on performance against the
The Committee
contribution in respect
targets set by the Committee for each relevant financial year.
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.
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 is measured against an appropriate comparator group. For the first
plan year, performance was based on that plan year alone; for the second plan
year, performance was based on plan years 1 and 2. For plan years 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.
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% will be payable for achieving threshold performance,
rising to full pay-out 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.
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
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.
❚ Non-financial – these may comprise strategic goals, operational and client
terminated for serious
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED
PURPOSE AND LINK TO
OPERATION
STRATEGY
ALL-EMPLOYEE SHARE SCHEMES
All employees including Executive
The SIP is a flexible, tax-efficient, all-employee plan. Partnership, Free, Dividend and Matching
Directors are encouraged to
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.
This aligns the interests of
A share ownership policy was introduced from the financial year ended 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.
SUSTAINED PERFORMANCE PLAN (SPP)
Approved by shareholders at the
We are initially operating the SPP by reference to five consecutive ‘plan years’. The first plan year
2013 AGM, the SPP provides
was the financial year which ended 31 May 2014.
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
management and shareholders and
promotes a long-term approach to
performance and risk management.
a single incentive plan for
Executive Directors rather than
having separate annual and
long-term plans.
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.
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.
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.
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 (i.e. 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
Financial year ending
% of cumulative shares in plan account vesting
Plan year 1
Plan year 2
Plan year 3
Plan year 4
Plan year 5
31 May 2014
31 May 2015
31 May 2016
31 May 2017
31 May 2018
40.0%
40.0%
33.3%
33.3%
33.3%
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.
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.
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.
OPPORTUNITY
PERFORMANCE METRICS
No performance metrics apply to base salary.
RECOVERY OR
WITHHOLDING
No recovery or
withholding applies to
base salary.
The quantum of any awards granted is dependent on performance against the
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 is measured against an appropriate comparator group. For the first
plan year, performance was based on that plan year alone; for the second plan
year, performance was based on plan years 1 and 2. For plan years 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% will be payable for achieving threshold performance,
rising to full pay-out 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.
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.
75
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
NOTES TO THE POLICY TABLE
The performance measures that are used in the sustained 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
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.
Diluted earnings per
share (DEPS)
DEPS is a key indicator of the profits generated for
shareholders, and a reflection of both revenue growth
and cost control.
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 (e.g. adjusting for the effects of any
share buybacks).
Non-financial performance
Specific
non-financial measure
Specific non-financial criteria include system reliability,
customer satisfaction, effective risk management,
sustaining the Company’s excellent reputation and
maintaining a good standing with regulators. Each of
these measures has a direct impact on a number of
the Group’s KPIs, for example, system reliability is a
key measure of the resilience of our trading platforms,
which is an essential element of revenue generation and
client satisfaction.
Customer satisfaction is also measured using the Net
Promoter Score (NPS) data supplied by Investment
Trends. NPS is a measure of whether clients would
recommend IG Group.
The basket of measures chosen is considered to provide
a broader assessment of executive delivery than financial
metrics alone.
The Committee approved, in advance, a
basket of non-financial measures for the
year-ended 31 May 2016.
Following the end of the year the
Committee assesses performance relative
to prior years, internal targets and sector
averages. Assessment is undertaken ‘in
the round’, taking account of activities and
achievements during the year.
For example, for NPS, performance is
assessed through comparison of the
Group’s performance against other
companies in the sector, with the aim of
maintaining a high NPS score relative to the
sector average.
Execution and delivery of
key strategic initiatives
The delivery of the Group’s strategic initiatives is key
to the delivery of the strategy and will, over time, drive
financial performance and growth.
As part of the Board’s strategy planning,
there is a clear plan of strategic initiatives
provided to the Remuneration Committee
at the start of the year, which details the
underlying projects set for delivery in the
short-to-medium term. The Remuneration
Committee uses this plan to judge
performance and management’s execution
and delivery of key strategic initiatives.
76
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT 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 Market Abuse
Regulations, 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 (e.g. 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 value-sharing plan (VSP) and any other
share plans operated by the Company described in more detail in
the following section.
ILLUSTRATING THE APPLICATION
OF REMUNERATION POLICY
As a result of the Company’s remuneration policy, a
significant proportion of the remuneration received by
Executive Directors depends on the Group’s performance.
The chart below shows how total pay for the Chief Executive
Officer 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
are effective as at 1 June 2016 and the benefits value is the
actual value for the year ended 31 May 2015.
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.
£4,000
£3,500
£3,000
s
0
0
0
£
£2,500
£2,000
£1,500
£1,000
£500
£-
SPP
Fixed Pay
81%
68%
100%
32%
19%
Minimum Target Maximum
P G Hetherington
77
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
Sustained performance plan (SPP) awards
Executive Directors are 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.
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 disposal of the participant’s employing company
or the business for which they work by 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 (i.e. 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 disposal of the participant’s
employing company or the business for which they work by 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.
Change of control
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 benefits (including pension) as set out above.
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 contract are available for inspection at the
Company’s registered office.
78
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED 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 judgement 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.
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 pay-outs 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, life assurance and other
flexible 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 both, 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 72 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 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.
79
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT CHAIRMAN AND NON-EXECUTIVE DIRECTORS
The table below summarises each element of the remuneration policy applicable to the Chairman and the Non-Executive Directors.
PURPOSE
AND LINK TO
STRATEGY
To attract and retain
Non-Executive
Directors of
appropriate calibre
and experience.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
RECOVERY OR
WITHHOLDING
No performance
metrics apply.
No recovery or
withholding applies.
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.
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.
80
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED ANNUAL REPORT ON REMUNERATION (AUDITED)
This part of the report includes a summary of how we implemented the policy in the financial year ended 31 May 2016 (including
payment and awards in respect of incentive arrangements), and how we will apply the remuneration policy for the financial year ending
31 May 2017. We also give details of the Remuneration Committee’s operation, the Directors’ share interests and how shareholders
voted at the 2015 AGM.
IMPLEMENTATION OF REMUNERATION POLICY IN THE FINANCIAL YEAR ENDING 31 MAY 2016
Total Single Figure of Remuneration – Executive Directors
Contribution to SPP plan account(4)
Name of Director
Year
Fees/basic
salary
Benefits in
kind(2)
Pension(3)
Vested
element
Deferred
element
P G Hetherington(1)
C F Hill
T A Howkins
£000
£000
£000
£000
2016
2015
2016
2015
2016
2015
498
283
249
331
183
472
1
1
1
1
–
1
75
43
34
50
27
71
689
292
–
273
–
390
£000
1,378
439
–
409
–
585
Total
£000
2,067
731
–
682
–
975
Total
£000
2,641
1,058
284
1,064
210
1,519
(1) In 2015, P G Hetherington was paid a reduced pro-rata salary of £283,400, based upon a £354,300 full-time equivalent salary, to reflect his flexible working arrangements.
(2) Benefits can include private medical cover, discounted gym membership and life assurance cover.
(3) The Group contributes 15% of basic salary to personal pensions for each of the Executive Directors, who also have the option to receive part, or all, of their pension entitlement in
cash. The additional cash payment is counted in lieu of pension, and is not treated as base salary for the purposes of calculating other benefits. In 2015, both T A Howkins and C
F Hill elected to restrict pension contributions to £40,000 and receive the balance of the pension contribution as an additional cash payment. P G Hetherington elected to receive
the full pension contribution as an additional cash payment.
(4) Figures provided are the values of the SPP contributions in respect of performance for the periods ending 31 May 2016 and 31 May 2015 (ie plan years 3 and 2). The vested
element is the proportion of the plan year contribution for the relevant period 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 85.
The Remuneration Committee determined that this normal good
leaver treatment should apply in Tim’s case, taking account of the
following points:
❚ Tim is retiring after a long and distinguished career with the
Company, including the last 9 years as CEO
❚ The strong performance of the Company (financial, share price
and internationalisation)
❚ No incentive award will be provided in respect of Tim’s service
in 2015/16
❚ The three-year phased vesting of outstanding awards (up
to 2018) will provide post-cessation continued alignment
with shareholders
❚ Clawback and malus provisions will remain in place on the
deferred amount
❚ Tim is retiring; the Committee retains the discretion to
reconsider the above release of deferred awards if Tim takes
up a new appointment without the prior approval of
the Committee
TIM HOWKINS
On 21 July 2015, after 16 successful years at IG and almost 9 as
Chief Executive, Tim announced his intention to retire at the AGM
on 15 October 2015. Over his career at IG, Tim had been part of
and led extremely dedicated teams which have built IG from a
single office in London to a global leader in the industry.
Tim received his base salary, fringe benefits, and pension for
his employment with the Company up to the date of the AGM
and received no payment in lieu of notice for the unexpired part
of his six-month notice period beyond the AGM date. Tim did
not receive an incentive award in respect of the 2015/16 year,
although he served four and a half months in that year.
Tim held deferred awards earned for prior years’ performance
under the sustained performance plan (SPP). In accordance
with the rules governing the plan and the Company’s approved
Directors’ Remuneration Policy, as a retiree, he was treated
as a good leaver. Accordingly, the 77,039 and 78,742 shares
under award (155,781 in aggregate) held in the plan account in
respect of performance periods ending 31 May 2014 and 2015
respectively will vest over the next three years. These awards
(together with any dividend shares accruing on these awards up to
the point of vesting) will vest in three equal tranches on an annual
basis over the period 2016-2018 commencing with August 2016,
following the results for the 2015/16 financial year.
The normal treatment under the SPP is not to apply a pro-rata
reduction as awards granted under the plan are based on
performance that has already been achieved.
81
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
PETER HETHERINGTON
CHRISTOPHER HILL
Following Tim’s retirement at the 2015 AGM, Peter was appointed
interim CEO and his salary was increased to £486,400. Following
a thorough search process, the Board was pleased to appoint
Peter as CEO on 4 December 2015. To reflect his appointment,
Peter’s salary was increased to £575,000. The Committee was
satisfied that the salary reflects Peter’s significant experience,
having held the position of Chief Operating Officer and been a
member of the Board since 2002. Furthermore, having undertaken
a significant search process and extensive external benchmarking,
the Committee is satisfied that his salary is in line with market rates
for similar positions in the broader industry.
Peter’s other remuneration arrangements will continue to be in line
with our policy and to reflect his new executive appointment, his
notice period is 12 months.
On 10 August 2015, the Company announced Chris Hill’s intention
to leave his post as Chief Financial Officer at IG Group to join
another company.
Chris served notice of his departure on 10 August 2015 and
as required under his contract gave 6 months’ notice to the
Company. During the period from 10 August to 30 October
2015 he continued in his role. Chris ceased to be a Director on
30 October 2015 and was placed on gardening leave for the
remainder of his notice period. For the period to February 2016,
when his notice period ended, he received his base salary, pension
and fringe benefits, consistent with the terms of his contract.
Chris was not eligible for any incentive award in respect of the
2015/16 year under the SPP. All unvested SPP awards that he
held lapsed on cessation.
Total Single Figure of Remuneration – Non-Executive Directors
Name of Director
A Green(2)
S G Hill
J Newman
S J Tymms
M Le May(3)
J Felix(3)
R P Yates(4)
J R Davie(4)
D M Jackson(4)
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Base salary
£000
247
235
70
70
70
65
55
55
39
–
32
–
38
70
–
73
–
29
Benefits(1)
£000
–
–
13
9
–
–
4
3
–
–
–
–
–
–
–
1
–
1
Total
£000
247
235
83
79
70
65
59
58
39
–
32
–
38
70
–
74
–
30
(1) Certain Non-Executive Directors’ expenses relating to the performance of a Director’s duties such as travel to and from company meetings and related accommodation have been
classified as taxable benefits. In such cases, the Company will ensure that the Director is kept whole by settling the expense and any related tax. The figures shown include the
cost of the taxable benefit plus the related personal tax charge.
(2) A Green joined the Group as Deputy Chairman on 9 June 2014 and succeeded J R Davie as Chairman at the 2014 AGM. Following a review of Chairman’s fees against market
rates in companies of a similar size and to reflect Mr Green’s time commitment, his annual fee was increased to £255,000 from £235,000 on 1 November 2015.
(3) M Le May joined the Board on 10 September 2015. J Felix joined the Board on 4 September 2015.
(4) J R Davie ceased to be Chairman at the 2014 AGM held on 16 October 2014 and D M Jackson ceased to be a Director on 16 October 2014. R P Yates ceased to be a Director on
15 October 2015.
82
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED
SUSTAINED PERFORMANCE PLAN (SPP)
DETERMINATION OF SPP PLAN CONTRIBUTION FOR THE FINANCIAL YEAR ENDING 31 MAY 2016
Performance targets for plan year 3 (financial year ending 31 May 2016) comprised Diluted Earnings per Share (DEPS) targets, Total
Shareholder Return (TSR) and non-financial measures. TSR performance was measured over the three-year period from 1 June 2013 to
31 May 2016 and DEPS and non-financial measures over the financial year ending 31 May 2016.
Performance
measure
DEPS
TSR
Non-financial
Total
Weighting
Potential as a
percentage of
base salary
Threshold (25%
payout for TSR
and 0% for DEPS)
Maximum
(100% payout)
Actual
performance
Plan contribution
as percentage of
base salary
45%
35%
20%
100%
225%
41.00 pence
45.10 pence
44.58 pence
175%
Median ranking
Upper-quartile
ranking
71 of 276
companies
(98.37% vesting)
100%
500%
0%
100%
83.5%
196%
172%
83%
451%
PERFORMANCE MEASURES – HOW THESE ARE SET AND REVIEW OF PERFORMANCE FOR THE YEAR
ENDED 31 MAY 2016
Diluted earnings per share (45% weighting)
At the start of the financial year, the Committee established a DEPS range in order to measure the performance and determine the
pay-outs under the SPP. In doing this, the Committee took into account a number of relevant factors, including internal and external
considerations and an appropriate degree of challenge on the prior year’s performance, excluding the impact of the Swiss franc event.
In setting the DEPS range for the year ending 31 May 2017, the Committee has considered the annual Board approved budget, market
consensus expectations and historical targets and stretched the full pay-out level to reflect significant outperformance.
Total Shareholder Return (35% weighting)
Under the TSR measure, a median ranking against the FTSE 350 (excluding Investment Trusts) would result in 25% of this element being
granted with the full award being granted for upper quartile ranking or better. The award to be granted for performance between
median and upper quartile would be determined on a straight-line basis between these points.
For the award to be granted in respect of plan year 3, TSR was measured over the three-year period from 1 June 2013 to 31 May 2016.
Actual TSR performance for the Group, as measured by New Bridge Street, for the three-year period was 61.00% (2015: 48.20%).
Against the peer group this performance ranked IG at 71 out of 276 companies and resulted in 98.37% (2015: 74.50%) of the potential
pay-out under this measure being awarded.
Non-financial measures (20% weighting)
The Committee approved a series of non-financial measures comprising strategic goals as well as operational and client satisfaction
measures, indicative of the performance during the year ended 31 May 2016. These measures are also used for a portion of the staff
general bonus pool.
An average of the performance under the specific non-financial measures combined with performance under the execution and delivery
measures resulted in an overall assessment of 83.5% (2015: 76%) of the potential pay-out under this element. The below table details
the individual measures considered and their performance assessment for the year ended 31 May 2016.
METRIC
PERFORMANCE
SPECIFIC NON-FINANCIAL MEASURES
System
reliability/uptime
The primary measures used to assess the performance against this metric and the parameters IG strives to
achieve are:
❚ Core dealing availability per month – minimum 99.8%
❚ Maximum percentage downtime in any one day – maximum 4.0%
The largest single day outage during the year was in June 2015. This was caused by a network issue and despite
this, clients already online were able to continue to trade throughout and all clients could deal through the
mobile apps. This period is the lowest maximum single day outage IG has ever achieved. For the remainder of
the year, core uptime was 100%.
The Group achieved an overall yearly uptime percentage of 99.99%, ahead of 99.95% achieved during the
year ending 31 May 2015. This is IG’s best annual performance to date and the Group will continue to target
a consistently high level of platform uptime.
ASSESSMENT
95%
(2015: 65%)
83
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
METRIC
PERFORMANCE
Maintaining
good standing
relationships with
regulators
IG is licensed by ten regulators, as well as being subject to regulatory oversight in all countries where it has a
physical presence. This year, the Group continued to maintain strong relationships with its largest regulators, the
Financial Conduct Authority (FCA) and the Australian Securities and Investments Commission (ASIC). In addition
to this, the Group continued to build successful, open relationships with its newest regulators in Switzerland and
Dubai and has also maintained good relationships with the majority of its other regulators.
ASSESSMENT
60%
(2015: 92.5%)
However, in certain European jurisdictions there is negative sentiment towards leveraged products as seen with the
French marketing and Belgian marketing and product restrictions which has put a strain on these relationships. In
light of these challenges, a 60% outcome was determined for this measure.
Customer
satisfaction
The Remuneration Committee uses a number of indicators to measure performance against this metric including:
❚ Net Promoter Score (NPS) data is tracked by the Investment Trends studies and is a measure of how likely
90%
(2015: 85%)
clients are to recommend IG to others. IG has improved its NPS scores in five out of six markets that Investment
Trends measures. Further details are given in the KPIs section on page 29 of this Annual Report.
❚ During the year, the Group once again commissioned an independent study to conduct a ‘mystery shopping’
programme of IG and a number of competitors in the UK. The study consisted of ten cases being raised with
each provider where they were challenged with the same questions or scenarios. Each case was scored against
desired behaviours expected from the case handler. The result of the study shows that the Group performed
consistently well in most categories and ranked once again first in the overall scoring.
❚ The Group continues to engage directly with its clients through focus groups, as well as performing in-depth
research to assist in prioritising their needs. IG has taken significant steps to implement solutions to issues
raised, including the improvements made with regards to the client onboarding process and the introduction of
a new customer communication system.
❚ During the year, IG has also joined the Institute of Customer Services.
Reputation
and PR
The Remuneration Committee assessed whether there have been any events resulting in negative media coverage
or reputational damage during the year.
95%
(2015: 65%)
The PR surrounding the Swiss franc event in 2015 continued in to this year, with the publication of the
Financial Ombudsman Service outcome, however this was well managed and the negative PR minimised.
In addition, the internal PR team and IG’s advisors have done well to minimise the impact of other reputational
threats arising from the management changes in the year. The departure of the CEO, Tim Howkins and the CFO,
Christopher Hill, in the early part of the year for entirely understandable reasons, were considered to be very well
handled.
While there was less negative PR and risk to IG’s reputation to manage this year, the internal PR team and external
advisors have worked well, and in collaboration with a number of other teams across the business, to minimise any
impact to the IG brand.
Risk
management
During the year, the volatility arising from a number of polictical events and the risks associated with it was well
managed by all teams.
90%
(2015: 0%)
IG’s culture of risk management has delivered robust results throughout the year, despite management changes in
some of the departments. A key focus is now to ensure adequate succession planning.
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 relating to strategic projects provided to the
Remuneration Committee at the start of the year. This details the underlying projects set for delivery in the
short-to-medium term. The Remuneration Committee uses this plan to judge performance and management’s
execution and delivery of the key strategic initiatives.
81.2%
(2015: 90%)
There were a number of key strategic projects delivered during the year. Examples of the projects include:
❚
Share dealing roll-out: full re-launch plan (including pricing, marketing and product suite) developed for the UK
offering and implemented successfully. This is discussed in further details in ‘Our Operational Strategy in Action’
section on page 22.
❚ Client on-boarding process: implemented a number of improvements to IG’s conversion funnels. This is discussed in
further details in ‘Our Operational Strategy in Action’ section on page 26.
❚
Switzerland, Dubai and Nadex: each of these offices has performed ahead of the year’s budgeted performance.
However, whilst we have launched and continue to run a number of non-IG generic top-level domain sites
(including news.markets and reviews.spreadbetting), the expected benefits and marketing efficiencies have not
yet materialised and this investment has been written off.
Accordingly, an outcome of 81.2% was determined for the execution and delivery of key strategic initiatives.
OVERALL SUMMARY
Based on the performance for the financial year ending 31 May 2016, we will grant awards under the SPP to the value of 451% of base
salary (90% of the maximum potential pay-out) as plan contributions to the Executive Director after the announcement of the results.
The actual number of shares that will be deposited within the Director’s plan account will be based on the ten-day average share price
immediately prior to grant.
84
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED AWARDS GRANTED DURING THE YEAR ENDED 31 MAY 2016
The SPP awards granted during the financial year ended 31 May 2016 in respect of performance to 31 May 2015 (plan year 2) are
as follows:
Contribution
% of salary
Value of
options
awarded
Number
of options
awarded(1)
Number of
options in the
plan account
after plan year 2
contribution(2)
Number of
options vested
and exercised
during the year
Number of
options in the
plan account at
the end of the
year
Number of
options lapsed
T A Howkins
206%
974,493
131,236
259,635
(103,854)
–
155,782
C F Hill
206%
682,062
91,854
P G Hetherington
206%
731,182
98,469
181,719
194,804
(72,688)
(109,031)
–
(77,922)
–
116,882
(1) The number of options contributed to the plan account was based on the 10-day average share price immediately post the announcement date of the Group’s results for the year
ended 31 May 2015 of 742.55 pence per share. Awards were granted in the form of nil cost options and are subject to continued employment and subject to the satisfaction of
the underlying financial performance underpin to be tested at the end of plan year 5 as set out in the remuneration policy. In the case of T A Howkins, his outstanding awards
together with any dividends shares accruing on these awards up to the point of vesting) vest in three equal tranches on an annual basis over the period 2016-2018 which began in
August 2016.
(2) In addition to the awards made in respect of plan year 2, this also includes the brought forward number of options in the plan account from plan year 1 with its respective
accrued dividend shares.
Details of the outstanding SPP share awards, using an estimate of the options to be granted in respect of plan year 3 (ie performance to
31 May 2016) are set out below:
OUTSTANDING SPP SHARE AWARDS AS AT THE END OF PLAN YEAR 3
Options
awarded
as dividend
equivalents
accruing on
unvested
options during
the year
Plan
Contribution
in respect
of period
ended 31 May
2016 (estimated
number of
options)(2)
Plan account
following
contribution for
the year
Estimated
number of
options vesting
5,772
4,331
–
161,554
53,797
265,186
386,399
128,671
Plan account
brought
forward
(number of
shares)(1)
155,782
116,882
Estimated
cumulative
number of
unvested
options
remaining in
plan account at
the end of the
year
107,756
257,727
Event
T A Howkins(3)
plan year 3
P G Hetherington
plan year 3
(1) P G Hetherington will be granted awards in respect of plan year 3 following the announcement of results for the year ended 31 May 2016 on 19 July 2016. The share price used
to calculate the number of awards to be granted will be the ten-day average share price immediately following the announcement of results for the year ended 31 May 2016 on
19 July 2016. As the actual average share price is not known at the time of signing of the Annual Report, the above number of awards has been estimated using a share price of
799.50 pence, being the share price on 31 May 2016. Share awards have an exercise price of 0.005 pence and are exercisable until August 2024.
(2) In accordance with the scheme rules 33.3% of the cumulative awards in the plan account (after the contributions in respect of plan year 3) will vest in August 2016 with the vesting
of the remaining options deferred. The August 2016 vesting will include additional dividend shares accrued as follows in respect of plan year 1 and plan year 2 awards held in the
plan account – T A Howkins (5,772) and P G Hetherington (4,331) based on reinvestment at the dividend payment date.
(3) T A Howkins did not receive any awards in respect of plan year 3.
85
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
OTHER SHARE AWARDS OUTSTANDING
Award date
Share price at
award date
Number as at
31 May 2015
Number
awarded
during the
year
Number lapsed
during the year
Number
exercised
during the
year
Number
outstanding at
31 May 2016
P G Hetherington
VSP: Profit award – four year
20 Jul 11
VSP: Total shareholder return
award – four year
SIP: matching shares
SIP: matching shares
20 Jul 11
26 Jul 13
25 Jul 14
Total
C Hill
VSP: Profit award – four year
20 Jul 11
VSP: Total shareholder return
award – four year
SIP: matching shares
SIP: matching shares
SIP: matching shares
20 Jul 11
27 Jul 12
26 Jul 13
25 Jul 14
SIP: matching shares
06 Aug 15
Total
T Howkins
VSP: Profit award – four year
29 Oct 10
VSP: Profit award – four year
20 Jul 11
VSP: Total shareholder return
award – four year
20 Jul 11
Total
450.00p
450.00p
580.00p
605.80p
450.00p
450.00p
419.18p
580.00p
605.80p
739.50p
528.50p
450.00p
450.00p
TABLE OF DIRECTORS’ SHARE INTERESTS
2,589
5,990
258
594
9,431
2,589
5,990
328
259
594
–
9,760
17,057
4,314
9,985
31,356
–
–
–
–
–
–
–
–
–
486
486
–
–
–
–
–
–
–
–
–
–
–
–
(259)
(594)
(486)
(2,589)
(5,990)
–
–
(8,579)
(2,589)
(5,990)
(328)
–
–
–
(1,339)
(8,907)
–
–
–
–
(17,057)
(4,314)
(9,985)
(31,356)
–
–
258
594
852
–
–
–
–
–
–
–
–
–
–
Legally owned(4)
SIP(5)
SPP awards(2)
Total
% of salary
held under
shareholding
Policy(1)
31 May 2015
31 May 2016
Awards held
in plan account
Vested but
unexercised
31 May 2016
% salary
Executive Directors
T Howkins
C Hill
P Hetherington(3)
Non-Executive Directors
J Felix
A Green
S G Hill
M Le May
J A Newman
S J Tymms
R P Yates
1,621,183
43,928
129,899
–
–
–
–
161,556
–
175,094
852
121,214
–
–
80,707
–
–
–
25,000
–
6,881
83,665
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
161,556
–
297,160
–
6,881
83,665
–
–
–
–
0%
0%
282%
0%
22%
956%
0%
0%
0%
0%
(1) Calculated as shares owned on 31 May 2016 at the closing mid-market share price of 799.5p.
(2) This figure excludes awards under the SPP scheme for performance year ending 31 May 2016 which will be granted following the announcement of the Group’s results on 19 July
2016. The awards held in the plan account include those in respect of plan year 1 and 2 as at 31 May 2016.
(3) P Hetherington also held 10,000 preference shares at 31 May 2016 and 31 May 2015.
(4) This figure includes partnership shares that are purchased as part of the Group’s share incentive plan (SIP) which are not subject to vesting conditions.
(5) This figure shows the number of matching shares held at 31 May 2016 as part of the Group’s SIP which will vests after three years from the respective award date, as long as
employees remained employed by the Group.
86
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED
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 2016. The awards to be made under the
Company’s SPP in respect of the performance period ending on 31 May 2016 are set out earlier in this report and are not included in
this table.
CHANGE IN REMUNERATION OF THE CHIEF EXECUTIVE
Base salary(1)
Taxable benefits
Performance based remuneration(2)
% change
(2016/2015)
% change
(2015/2014)
% change
(2014/2013)
% change
(2016/2015)
% change
(2015/2014)
% change
(2014/2013)
% change
(2016/2015)
% change
(2015/2014)
% change
(2014/2013)
Chief Executive
Group employees
25.8%
7.0%
2.8%
6.8%
7.5%
(25.0%)
5.9%
19.4%
0.0%
6.4%
0.0%
112.0%
(32.3%)
136.2%
2.8%
60.0%
(22.9%)
13.1%
(1) For the Chief Executive, the 2016/2015 Base salary change reflects the change in CEO during 2015/16. Remuneration is included in the financial year in which performance is
measured against.
(2) Given the move away from separate annual and long-term plans to a single variable pay plan in the 2014 financial year, the performance based remuneration consists of the SPP
award and legacy VSP plans only. The change is calculated based on the change in the total of the SPP contribution for the plan year and the VSP vesting in that year.
EXECUTIVE DIRECTOR’S OUTSIDE APPOINTMENTS
Peter has no other external appointments.
RELATIVE IMPORTANCE OF SPEND ON PAY
The following table sets out the profit, dividends and overall spend on pay over the past five financial years:
Profit after tax
Dividends
Employee remuneration
costs
Average number of
employees
2016
£m
164.3
114.9
113.5
1,412
2015
£m
131.9
102.7
94.3
1,287
2014
£m
147.2
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
NBS provided advice in respect of a wide range of issues,
including advice on the operation of the sustained performance
plan, TSR performance monitoring, drafting the Remuneration
Report, remuneration benchmarking and share plan
implementation services. NBS’s fee for advice provided to the
Remuneration Committee during the financial year ending 31 May
2016 was £79,839 (excluding VAT).
REMUNERATION COMMITTEE EFFECTIVENESS
During the year, the Committee undertook a questionnaire based
review of its own effectiveness. The evaluation process was
externally facilitated by Lintstock as part of the overall annual
Board effectiveness review. Overall, the review concluded that the
Committee is effective and its performance was rated highly. The
Committee however could further enhance its effectiveness with
more training and support on regulatory changes in the area of
remuneration and the implications for remuneration policy.
ADVICE TO THE COMMITTEE
During the financial year ended 31 May 2016 the Committee
consulted the 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.
The Remuneration Committee was advised during the year
by New Bridge Street (NBS), which was appointed following
a competitive tender process in early 2013. 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.
87
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
STATEMENT OF SHAREHOLDER VOTING AT 2015 AGM
At the October 2015 AGM, a resolution was proposed for shareholders to approve the Directors’ Remuneration Report for the financial
year ended 31 May 2015. The following votes were received:
For(1)
Against
Total
Withheld
2015 Remuneration Report
Total number of votes
% of votes cast
291,724,694
2,921,312
294,646,006
12,832,545
99.01%
0.99%
100%
–
(1) For includes votes at the Chairman’s discretion.
A majority (over 50%) of the votes cast was required for the resolutions to be passed, and all 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 index. As IG Group is a member of this
index, the Committee believes it is appropriate to compare the Group’s performance against it.
This graph shows the value, by 31 May 2016, of £100 invested in IG Group on 31 May 2009 compared with the value of £100 invested in
IG Group FTSE 250
FTSE 350 Financial Services
)
d
e
s
a
b
e
R
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
500
450
400
350
300
250
200
150
100
50
0
May 09
May 10
May 11
May 12
May 13
May 14
May 15
May 16
Source: Datastream (Thomson Reuters)
the FTSE 250 Index and the FTSE 350 Financial Services Index.
CHIEF EXECUTIVE EARNINGS HISTORY
The 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)(1)
SPP plan contribution (% maximum)(1)
2010
1,628
100%
48%
–
–
2011
1,141
7%
40%
–
–
2012
2,201
99%
61%
–
–
2013
1,103
47%
–
6%
–
2014(2)
1,970
–
–
3%
54%
2015
1,519
–
–
0%
41%
2016(3)
2,745
–
–
–
90%
(1) The SPP replaced the annual bonus and VSP schemes from the financial year ending 31 May 2014.
(2) The 2011 VSP awards had a performance period ending 31 May 2014. Half the awards vested on 22 July 2014 with the remaining vesting on 21 July 2015. The value of these
awards provided in last year’s remuneration report was based on an estimated share price. We have restated the amounts (now as 2014 prior year comparatives) using the actual
share price on 22 July 2014 (619.5 pence, for half the awards) and the average three-month share price for period ending 31 May 2015 (740.9 pence) for the remaining awards.
(3) Includes the base salaries paid to both T A Howkins and P G Hetherington for their tenure of the CEO position during the year.
88
IG Group Holdings plc Annual Report 2016 DIRECTORS’ REMUNERATION REPORT CONTINUED
IMPLEMENTATION OF REMUNERATION POLICY IN
THE FINANCIAL YEAR ENDING 31 MAY 2017
❚ Chairman of Board Risk Committee additional fee: £15,000
❚ Chairman of the Remuneration Committee additional
The Committee decided not to apply an increase to Peter’s salary
in the financial year 2017.
Chairman and Non-Executive Directors’ fees
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 NBS 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:
❚ Chairman: £255,000. The fee was increased from £235,000 by
the Committee in November 2015 after taking into account the
Chairman fee levels in the market and time commitment
❚ Non-Executive Director base fee: £65,000 (increased from
£55,000 during the financial year ending 31 May 2016)
❚ Chairman of the Audit Committee additional fee: £15,000
fee: £15,000
❚ Senior Independent Director fee: £10,000 (new fee introduced
from 1 June 2016)
❚ The Chairman of the Nomination Committee will not receive an
additional fee
Benefits and pension
A flexible benefits programme will apply, which includes a
company pension to a maximum of 15% of base salary, cash of
equivalent value or a mixture of both.
Sustained performance plan
For the awards to be granted in respect of plan year 4, which will
end on 31 May 2017, maximum opportunity of 500% of annual
rate of base salary will apply for Executive Directors.
The performance targets for these awards are shown below.
MEASURE
FURTHER DETAIL
MEASUREMENT
PERIOD (PLAN YEARS)
WEIGHTING
Diluted earnings
per share
Relative Total
Shareholder Return
The Committee has determined a sliding scale
of targets that will apply for the financial year
ending 31 May 2017.
Financial year ending
31 May 2017
The three financial years
ending 31 May 2017
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 Policy Report.
45%
35%
Non-financial measures
The measures will include:
❚ System reliability
❚ Maintaining good standing with regulators
❚ Customer satisfaction
❚ Reputation and PR
❚ Risk management
❚ Execution and delivery of key
strategic initiatives
Financial year ending
31 May 2017
20%
The Committee will ensure the DEPS and non-financial targets are suitably stretching. We deem the DEPS 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.
APPROVAL
This report was approved by the Board of Directors on 19 July 2016 and signed on its behalf by:
Malcolm Le May
Chair, Remuneration Committee
89
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT AUDIT COMMITTEE
Jim Newman, Chairman of the Audit Committee, gives his review of the Committee’s
activities during the financial year.
CHAIRMAN’S OVERVIEW
The Audit Committee’s principal role and responsibility is to
ensure the Group operates in a strong control environment and
to build a greater sense of personal accountability throughout
the organisation.
During the year, the Committee has continued to focus on the
monitoring of the integrity of financial reporting, primarily focused
on the review and challenge of the key accounting judgements
underpinning the Group’s financial statements. Refer to the ‘Main
activities during the financial year’ section on page 91 for details.
The Committee has supported the Board in carrying out its
responsibilities in relation to the Group’s financial reporting
requirements. The ultimate responsibility for reviewing and
approving the Annual Report and other externally reported
financial information remains with the Board.
The Committee considered the appropriateness of the design
and effectiveness of the Group’s system of internal controls,
in conjunction with reviewing Internal Audit’s work, providing
assurance to the Board on the effectiveness of the Group’s internal
controls and risk management systems.
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 (refer to the ‘External
audit’ section on page 93). To ensure independence and
objectivity of the external auditor, as required by the Code,
mandatory rotation of the Group’s audit partner is required every
five years. Accordingly, a new audit partner was appointed during
the year following an effective transition from the previous audit
partner who stepped down at the end of the financial year ended
31 May 2015.
ROLE OF THE AUDIT COMMITTEE
The principal roles and responsibilities of the Committee include:
❚ Monitoring and reviewing the effectiveness of the Group’s
internal audit function in the overall context of the Group’s
internal controls and risk management
❚ Reviewing the financial statements and announcements relating
to the financial performance and governance of the Group
❚ Reviewing an assessment of the control environment including
via internal audit reports and the progress on implementation
of audit recommendations
❚ Recommending the appointment of external auditors and
reviewing their effectiveness, fees, terms of reference and
auditor independence and objectivity
The Audit Committee’s full terms of reference and responsibilities,
are revised on an annual basis and can be found on the corporate
website iggroup.com.
Jim Newman
Chairman of the Audit Committee
90
IG Group Holdings plc Annual Report 2016 MEMBERSHIP AND ATTENDANCE
All Audit Committee members are independent Non-Executive
Directors who can draw on considerable and broad business
and financial services experience. During the year, Roger Yates
stepped down from the Committee following his retirement as a
Non-Executive Director of the Company. Malcolm Le May became
a member of the Committee following his appointment as a
Director of the Company. The Code requires the inclusion in the
Committee of at least one member determined by the Board as
having recent and relevant financial experience. The Committee
Chairman, Jim Newman, fulfils this requirement.
The Chief Financial Officer, Chief Risk Officer, Head of Finance,
Head of Internal Audit, Company Secretary and the external
auditors normally attend the Committee meetings. Other directors
and representatives from the finance function and other areas
of the business attend the Committee meetings by invitation
as necessary.
The Committee has four scheduled meetings a year and will
also meet if and when required. The below details the meetings
scheduled and attended during the year. The Chairman, Andy
Green, was invited to, and attended, all meetings.
SCHEDULED
MEETINGS ELIGIBLE
TO ATTEND
SCHEDULED
MEETINGS
ATTENDED
2
4
4
3
0
3
4
2
Roger Yates(1)
Sam Tymms(2)
Jim Newman
Malcolm Le May(3)
(1) Roger Yates stepped down from the Committee on 15 October 2015.
(2) Sam Tymms did not attend one meeting due to illness.
MAIN ACTIVITIES DURING THE
FINANCIAL YEAR
The Committee focused on a number of key areas during the year
as set out below:
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 focusing 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 judgements
have been applied or there has been discussion with the
external auditors
❚ Reviewing all formal financial announcements and financial
statements prior to issuance, including preliminary and
half-year announcements and recommending these to the
Board for approval
❚ Before recommending and approving the viability statement to
the Board, reviewing the processes to support the assessment
and determination of the Group’s principal risks that may have
an impact on the Group’s longer-term solvency and liquidity
❚ Evaluating on behalf of the Board 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 Group’s performance, business
model and strategy
(3) Malcolm Le May joined the Committee on 25 September 2015. He was unable
❚ Reviewing the inherent risks in the financial reporting process
to attend one meeting due to prior commitments.
and systems
❚ Reviewing and agreeing the Group’s whistleblowing policy
To aid this review process, the Committee has considered reports
from the Chief Financial Officer and his team, and both internal
and external auditors.
The Committee considered and discussed with management and
the external auditors the following primary areas of judgement
and disclosure in relation to the Financial Statements for the year
ended 31 May 2016:
For each of the meetings that were not attended by a Committee
member, that person received copies of presentations in advance
and provided input directly to the Audit Committee Chairman.
The agenda is drafted to ensure that each of the items under the
committee’s terms of reference and responsibilities is covered at
least once in the financial year, and more frequently if required.
After each Committee meeting, a formal report is made to
the Board in which the Chairman of the Audit Committee
describes the proceedings of the Committee meeting and makes
recommendations to the Board as appropriate.
Members of the Committee also meet separately 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.
91
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
REPORTING ISSUE
ROLE OF THE COMMITTEE
CONCLUSION/
ACTION TAKEN
PRINCIPAL RISKS AND VIABILITY
For the 2016 financial reporting year onwards, the
Directors are required to make a statement in the Annual
Report as to the longer-term viability of the Group.
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 the significant proportion
of the Group’s goodwill relates to the UK CGU. The
goodwill related to this CGU was considered not
impaired as it is highly profitable and its recoverable
amount exceeds its carrying value.
OTHER INTANGIBLE FIXED ASSETS
The Group is required to make judgements 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 and to consolidate the online
presence around the IG.com website. It has also
assessed the generic top-level domains acquired in
2014. While management considers there to be a
long-term economic opportunity, it has impaired the
asset by £2.7m to reduce the carrying values which are
currently unsupportable.
CORPORATION TAX
Calculating the Group’s current corporation tax charge
involves a degree of estimation and judgement, as
the tax treatment of certain items cannot be finally
determined until resolution has been reached with
the relevant tax authority. The Group has paid tax 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
already paid, and could therefore improve the Group’s
overall profitability and cash flows in future periods.
INFORMATION SYSTEMS
At the request of the Board, the Committee evaluated
various reports from management that set out the view of
the Group’s principal risks and longer-term viability. These
reports detailed the impact of outcomes of stress tests after
applying principal and business model risk scenarios to the
Group’s financial forecasts based on a three-year strategic
plan.
The Committee also received presentations from the
external auditors on best practice reporting in this area.
Taking into account the
assessment by the Board
Risk Committee of stress
testing results and risk
appetite, the Committee
agreed to recommend the
viability statement to the
Board for approval.
The Committee reviewed a paper from management setting
out the key assumptions used in the impairment review and
an associated sensitivity analysis.
It noted the continued improved performance of the US
business, which has reduced the impairment risk.
In addition, the Group’s auditor provided commentary on
the matter to the Committee.
Based on the assessment
performed, the Committee
concluded that there
should be no change to the
recorded goodwill value.
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.
Based on the assessment
performed, the Committee
concluded that an
impairment charge of £2.7
million recorded during the
year was reasonable.
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.
The Committee concluded
that the corporation tax
charge and provisions
recorded by the Group were
appropriate and complete.
The Committee has considered the risk associated with
information technology relating to super-user access
to certain legacy areas of the Group’s trading system
including the risk of fraud.
The Committee reviewed reports from management and
internal audit on the design, operation and on-going
monitoring of a number of key controls designed to mitigate
the risks associated with the super-user access.
The Committee assessed whether the external audit process
addressed these matters effectively through the reporting
received from the auditor during the audit cycle.
Additionally, the Committee received confirmation from
management, the internal auditors and external auditors
that they were not aware of any instances of fraud.
FAIR, BALANCED AND UNDERSTANDABLE REPORTING
The Group is required to ensure that its external
reporting is fair, balanced and understandable.
At the request of the Board, the Committee assessed, via
discussion with and challenge of management, whether
disclosures in the Group’s published financial statements
were fair, balanced and understandable, taking into account
comments received from investors and others.
The Committee reviewed papers from management and the
external auditors on legislative changes in financial reporting
to ensure compliance with requirements.
It sought and obtained confirmation from the Chief Financial
Officer and his team that they considered the disclosures to
be fair, balanced and understandable.
It established via reports from management that there were
no indications of fraud relating to financial reporting matters.
Assessed disclosure controls and procedures.
The Committee
considered the risk in
this area to have been
appropriately managed.
The Committee’s focus
is to ensure that the
Group continues to move
away from these legacy
systems, including the
delivery of a finance
transformation programme.
Having assessed all of the
available information and
the assurances provided
by management, the
Committee concluded
that the processes
underlying the preparation
of the Group’s published
financial statements were
appropriate in ensuring
that those statements
were fair, balanced
and understandable.
92
AUDIT COMMITTEE CONTINUEDIG Group Holdings plc Annual Report 2016 EXTERNAL AUDIT
As noted above under the ‘Role of the Audit Committee’ section on page 90, 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 Group’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:
REPORTING ISSUE
ROLE OF THE COMMITTEE
OVERSIGHT OF EXTERNAL AUDIT
The Committee is required to oversee the work and
performance of PwC, including the maintenance of audit
quality during the period.
The Committee met with the key members of the PwC audit
team to discuss the 2016 audit plan and agree areas of
focus.
It assessed regular reports from PwC on the progress of the
2016 audit and any material issues identified.
It debated the draft audit opinion ahead of 2016 year-end.
The Committee was also briefed by PwC on critical
accounting estimates, where significant judgement
is needed.
During the year, the Committee reviewed and approved a
recommendation from management on the Company’s audit
and audit-related fees.
The Committee reviewed and approved all contracts for
non-audit fees that were above £0.1 million. Below this level,
the Chairman of the Audit Committee was notified of new
instructions for the delivery of non-audit services.
The Committee ensured that firms other than the auditors
have been considered, following a competitive tender
process for the provision of a wide range of services,
including tax advisory services, changes to regulation, tax
compliance services, risk and regulatory advice.
The Committee also requested and received an explanation
from PwC of its own in-house independence process.
The Committee ensured there were no exceptions to fee
limits and approval process per the policy during the year.
AUDIT AND AUDIT-RELATED FEES
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.
NON-AUDIT SERVICES AND 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. The policy is reviewed on an annual basis
and this year the Committee reviewed the Group’s policy
governing non-audit work against, among other things,
new regulations on the statutory audit of public interest
entities effective from June 2016.
The policy also sets out 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. Details of the policy are provided on the
corporate website.
The Group is currently updating its internal process
on engagement of auditors and review of non-audit
services to ensure that its policy will be in line with
the new regulation which will impact the Group. Since
appointing PwC as auditors, the Group has established
and developed relationships with a number of
independent advisory and assurance firms which provide
alternatives to engaging PwC. During the year, PwC has
performed non-audit services in accordance with the
non-audit policy.
CONCLUSION/
ACTION TAKENEN
The Committee approved
the audit plan and the main
areas of focus, including
goodwill impairment,
valuation of intangible assets
and IT systems and controls.
Read more about the
Committee’s role in
assessing the performance,
effectiveness and
independence of the
external auditor and the
quality of the external audit
on page 94.
While there has been an
increase in the audit fees,
this is driven by change in
scope with new offices such
as Dubai and the Committee
considers the 2016 audit
fees to be competitive.
During the year, non-audit
fees of £0.6 million were
paid to PwC as discussed
in note 6 to the Financial
Statements. These
principally related to tax
compliance, tax advice,
and regulatory work.
The Committee continues
to follow the statutory
guidance to seek to reduce
the reliance on the auditors
for non-audit work.
The Committee has
proposed and implemented
a process to ensure, going
forward, the non-audit
services and fees are
reviewed and policies
are updated in line with
the expected changes
in regulation.
93
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT Effectiveness of the external auditors
In assessing the effectiveness and independence of the external
auditors, the Committee considered relevant professional and
regulatory requirements and the relationship with the auditors
as a whole. The Committee monitored the auditors’ compliance
with relevant regulatory, ethical and professional guidance on the
rotation of partners, and assessed their qualifications, expertise,
resources as well as the effectiveness of the audit process,
including a report from the external auditor on its own internal
quality procedures.
As part of the assessment, a questionnaire, based on criteria
recommended by professional and governance bodies,
was completed by the key stakeholders in the Group. The
questionnaire addressed matters including the auditors’ integrity,
objectivity, skills and technical knowledge, the quality of planning
and execution of the audit, the level of challenge applied and the
CONTROL ENVIRONMENT
auditors’ understanding of the Group’s business. The results were
analysed and a report was presented to the Committee.
Having reviewed PwC’s performance during 2016, the Committee
concluded that PwC were independent and that it was in the
Group’s and shareholders’ interests not to tender the audit in 2016
and recommends their re-appointment.
Audit tendering and rotation
The Committee remains satisfied with the external audit
process and is currently not planning to undertake a formal
retender process until it is required to under legislation for the
year ending 31 May 2021. The Group is required to change audit
partner every five years, with this year being the first year for the
current partner.
Other matters addressed by the Committee focused on the effectiveness of the Group’s control environment and performance of the
Group’s IT systems, and the internal audit function, including the objectivity and independence of internal audit personnel.
REPORTING ISSUE
ROLE OF THE COMMITTEE
INTERNAL AUDIT
The Committee is required to oversee
the performance, resourcing and
effectiveness of the Internal Audit function.
The Committee monitored and reviewed the effectiveness of the
Group’s Internal Audit function in the overall context of the Group’s
internal controls and risk management systems.
It considered and approved the remit of the Internal Audit function
and ensure it has adequate resources to perform its function
effectively.
It reviewed and assessed the risk-based Internal Audit plan.
It reviewed and monitored management’s responsiveness to the
findings and recommendations of the Internal Audit function.
The Committee received a summary report on the results of the
work of the Internal Audit function on a periodic basis.
CONCLUSION/ACTION
TAKEN
The Committee reviewed the
resourcing and effectiveness of
the Internal Audit function and
approved the risk-based audit
plan.
The Internal Audit function
remains effective and has the
sufficient resources to deliver the
proposed plan.
INFORMATION TECHNOLOGY CONTROLS
The Group’s operations are heavily
dependent on information technology (IT).
There is a risk of loss of financial information
if finance and other IT systems fail.
The Committee reviewed Internal Audit reports on IT controls and
assessments of external penetration tests and cyber risk.
From review of the Internal
Audit assessment reports, the
Committee concluded that this risk
is appropriately managed.
COMMITTEE EFFECTIVENESS
During the year, the Committee undertook a questionnaire-based
review of its own effectiveness. The evaluation process was
externally facilitated by Lintstock Limited as part of the overall
annual Board effectiveness review. The review concluded that the
Committee was effective and its performance was highly rated. No
areas with significant improvement needed were identified.
COMMITTEE ALLOCATION OF TIME
The following chart highlights how the Committee spent its time
during the year ended 31 May 2016.
STATUTORY REPORTING
INTERNAL AUDIT
MATTERS
RISKS AND CONTROLS
EXTERNAL AUDIT
MATTERS
OTHER
94
Jim Newman
Chairman, Audit Committee
19 July 2016
AUDIT COMMITTEE CONTINUEDIG Group Holdings plc Annual Report 2016 BOARD RISK COMMITTEE
Stephen Hill, Chairman of the Board Risk Committee, gives his review of the Committee’s
activities during the financial year.
❚ Considering and recommending for approval by the Board, the
Risk Appetite Statement (RAS) and Key Risk Indicators (KRIs)
❚ Monitoring, reviewing and challenging the Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity
Adequacy Assessment (ILAA) and the Recovery Plan
❚ Reviewing and approving the statements to be included in the
Annual Report concerning controls and risk management
❚ Continuing to work closely with other Board Committees where
risk related input is required
The full Terms of Reference for the Committee can be found on
the Company’s website, iggroup.com
MEMBERSHIP AND ATTENDANCE
The Board Risk Committee is composed of independent
Non-Executive Directors and the table below shows the
Committee members during the year and their attendance
at Committee meetings. Roger Yates stepped down from the
Committee following his retirement as a Non-Executive Director
of the Company. June Felix became a member of the Committee
following her appointment as a Non-Executive Director of
the Company.
The Committee is scheduled to meet four times a year
and additionally as and when required. The Committee’s
recommendations are referred to the Board and, where
relevant, other Board Committees (for example, a report to
the Remuneration Committee on remuneration related risks)
and the business of the Committee is reported to the following
Board meeting.
Other than the Company Secretary, who attends all Committee
meetings, Executive Directors, the Chief Risk Officer and the Head
of Internal Audit all attend the Committee meetings by invitation.
Representatives from the finance function and other areas of
the business attend the Committee meetings by invitation as
appropriate to the matter under consideration.
The Chairman, Andy Green, was invited to, and attended,
all meetings.
SCHEDULED
MEETINGS ELIGIBLE
TO ATTEND
SCHEDULED
MEETINGS
ATTENDED
Stephen Hill(1)
Roger Yates(2)
Sam Tymms
Jim Newman
June Felix(3)
4
1
4
4
4
3
0
4
4
4
(1) Stephen Hill did not attend one meeting due to illness.
(2) Roger Yates stepped down from the Committee on 15 October 2015.
(3) June Felix joined the Committee on 25 September 2015.
To ensure the Committee discharges its responsibilities
appropriately, an annual timetable is set around the Committee’s
Terms of Reference and is approved by the Committee. The
Company Secretary assists the Chairman of the Committee in
drafting the agenda for each Committee meeting.
95
Stephen Hill
Chairman of the Board Risk Committee
CHAIRMAN’S OVERVIEW
During the year, the Board Risk Committee has continued its
focus on providing oversight and advice to the Board in relation
to current and potential future risk exposures of the Group and
future risk strategy. The Committee held two risk review deep-dive
sessions. The first session was dedicated to an in-depth review
and challenge of the key components of the Pillar 2 stress-testing
process, including the methodology employed and the other
session was dedicated to a review of the Group’s recovery
planning process and the contents of the Group’s Recovery Plan.
The Committee conducted an externally facilitated assessment
of its own effectiveness. Its performance was positively rated and
its composition was highlighted as a particular strength. Areas
for further development included the continued development of
the Committees training programme and further improvements
to materials provided. We will focus on these areas in the
coming months.
ROLE OF THE BOARD RISK COMMITTEE
The Committee’s key responsibilities are to help manage current
and future risk exposures and future risk strategy through:
❚ Ensuring risk mitigation consistent with our risk appetite is
in place and reviewing the Group’s major risk exposures,
identifying risk trends, material regulatory changes
concentrations and exposures
❚ Reviewing the scope and nature of the work undertaken by
the control functions specifically in relation to regulatory,
compliance, client money, anti-money-laundering, conduct and
culture risks
❚ Considering the adequacy and effectiveness of the technology
infrastructure and supporting documentation in the Risk
Management Framework
❚ Ensuring rigorous stress-testing and scenario-testing of
the Group’s business and receiving reports that explain the
impact of identified risks and threats
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT
BOARD RISK COMMITTEE CONTINUED
MAIN ACTIVITIES DURING THE FINANCIAL YEAR
KEY AREAS
MATTERS CONSIDERED
REPORTING RISKS AND CONTROLS
Regulatory Risk
❚ Reviewed the current and expect future regulatory environment and potential impact on IG’s business
activities
Operational
Risk Framework
❚ Reviewed the current status of the Group’s operational risk framework and recommended areas
for development
❚ Continued focus on improving the operational risk framework and provided input to the Remuneration
Committee on the risks associated with the Group’s remuneration policy, paying particular attention to
the design and monitoring of sales-incentive schemes
❚ Discussed the operational review of the severe market volatility experienced due to the Swiss
franc event
Conduct Risk
❚ Discussed the Company’s client onboarding process to assess the possible impact of the processes
involved in support of promoting fair outcomes for clients under specific circumstances
Culture Risk
❚ Reviewed reports on culture risks to ensure the Group’s continued focus on positive client outcomes
Money Laundering
Officers’ Report
❚ Reviewed the Money Laundering Officers’ Report and made recommendations to the Board on the
adequacy of the Group’s anti-money-laundering and combating terrorist financing systems and control
in the management of risks relating to money laundering and terrorist financing
Annual Fraud Report
❚ Received an annual fraud report to review the assessment of the levels of fraud experienced over the
past financial year.
Market Risk
❚ Reviewed the contingency plans being established to mitigate the EU referendum event risk
IT and Cyber Security
❚ Received a report on cyber security emphasizing the current and emerging cyber landscape and the
Group’s information strategy for addressing cyber risk
Compliance Reports and
Internal Audit Reports
❚ Reviewed compliance matters relating to the Company’s global operations and summary level
information on the activity of the Internal Audit department including progress against the Internal
Audit Plan
CAPITAL AND LIQUIDITY
ICAAP and ILAA
❚ Regularly reviewed the capital and liquidity position of the Company through the ICAAP and ILAA
documents
❚ Approved the scenarios and assumptions for internal stress testing and recommended the documents
to the Board for approval
Contingency Plan
❚ Considered the Company’s contingency plan and cost mitigation plan
Recovery Plan
❚ Reviewed and recommended to the Board the Group’s first Recovery Plan for approval following
detailed review of the Group’s risk appetite statement
RISK APPETITE
Risk Appetite and
KRI development
ACCOUNTABILITY
❚ Regularly reviewed the Company’s Risk Appetite Statement to consider how the risk appetite could
be clearly articulated and what actions should be taken in the event of Key Risk Indicators breaching
specified thresholds
Remuneration
❚ Considered the key components of the Company’s remuneration framework and the alignment of the
remuneration policy to risk performance and risk appetite
OTHERS
Client Money Report
❚ Reviewed the Client Money Report and made recommendations to the Board on the adequacy of the
Group’s processes, systems and controls in the management of risks relating to client money
Quality Assurance Review
❚ Reviewed the Quality Assurance functions and processes together with an overview of performance and
new initiatives
Review of the Committee
Terms of Reference
❚ Reviewed the Terms of Reference of the Committee to ensure they remain fit for purpose and
recommended them to the Board for approval
Risk Committee Evaluation
❚ Reviewed its own performance and considered steps that may be required to enhance Committee
effectiveness. Appropriate recommendations were made to the Board
96
IG Group Holdings plc Annual Report 2016 COMMITTEE ALLOCATION OF TIME
The following chart highlights how the Committee spent its time
during the year ended 31 May 2016.
REPORTING RISKS AND
CONTROLS
CAPITAL AND LIQUIDITY
RISK APPETITE
ACCOUNTABILITY
OTHERS
Stephen Hill
Chairman, Risk Committee
19 July 2016
97
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT DIRECTORS’ REPORT
The Directors present their report, together with the Group
Financial Statements for the year ended 31 May 2016. The
Directors’ Report comprises pages 98 to 100 of this report,
together with the sections of the Annual Report incorporated by
reference as set out below:
CORPORATE GOVERNANCE STATEMENT
In compliance with the UK Financial Conduct Authority’s 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.
CONTENTS
PAGE
PROFIT AND DIVIDENDS
Corporate Governance Report
Directors’ Responsibility Statement
Financial Instruments
Greenhouse gas emissions
Employee involvement
Policy concerning the employment of
disabled persons
Viability Statement
Directors’ interest in shares
Likely future developments
Risk management and internal control
56 to 105
101
142 to 155
33
18
18
54
86
6 to 54
66
DISCLOSURES REQUIRED PURSUANT TO LISTING
RULE 9.8.4R
In compliance with the UK Financial Conduct Authority’s Listing
Rules, the information in Listing Rule 9.8.4R to be included in the
Annual Report and Accounts where applicable can be found on
the following pages:
DETAIL
Waiver of dividends
PAGE
98
The Group’s statutory profit for the year after taxation amounted
to £164.3 million (2015: £131.9 million), all of which is attributable
to the equity members of the Company (2015: £131.9 million).
The Directors recommend a final ordinary dividend of 22.95 pence
per share, amounting to £84.0 million, making a total of
31.40 pence per share and £114.9 million 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
28 October 2016 to those shareholders on the register at
30 September 2016.
Certain nominee companies representing our employee benefit
trusts hold shares in the Company in connection with the
operation of the Company’s share plans and evergreen dividend
waivers remain in place on shares held by them that have not been
allocated to employees.
OPERATIONS OUTSIDE THE UNITED KINGDOM
The Group operates in the following locations through a
branch structure: Australia, South Africa, France, Germany, Italy,
Luxembourg, the Netherlands, Norway, Ireland, Spain, Sweden
and Poland. It has operating subsidiaries in the US, Singapore,
Japan, Australia, India, Switzerland and Dubai.
In line with the requirements under the Capital Requirements
Directive IV, requiring credit institutions and investment firms to
publish annually certain tax and financial data for each country
where they operate, the Group’s UK regulated subsidiaries will
make available their Country by Country Reporting on the Group’s
website, iggroup.com.
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.
98
IG Group Holdings plc Annual Report 2016 BOARD OF DIRECTORS AND THEIR INTERESTS
Details of the Directors who held office at the end of the year are set out on pages 58 to 59 and are incorporated into this report by
reference. Changes to Directors during the year are set out below:
NAME
ROLE
EFFECTIVE DATE
OF APPOINTMENT/RESIGNATION
June Felix
Non-Executive Director
Appointed 4 September 2015
Malcolm Le May
Senior Independent Non-Executive Director
Appointed 10 September 2015
Roger Yates
Non-Executive Director
Tim Howkins
Executive Director
Chris Hill
Executive Director
Retired on 15 October 2015
Retired on 15 October 2015
Resigned on 30 October 2015
Peter Hetherington succeeded Tim Howkins as the Chief Executive Officer of the Company with effect from 4 December 2015.
APPOINTMENT AND RETIREMENT OF DIRECTORS
SHARE CAPITAL
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 Directors will
stand for election or re-election at the 2016 AGM.
DIRECTORS’ CONFLICT OF INTERESTS
In accordance with the Act, 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 on
page 63.
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 2016. 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.
POLITICAL DONATIONS
The Company made no political donations to political
organisations or independent election candidates and incurred no
political expenditure in the year (2015: £nil).
The Company has three classes of shares: ordinary shares, B
shares and preference shares. As at 31 May 2016, the Company’s
issued shares comprised 366,649,075 ordinary shares of 0.005p
each (representing 99.97% of the total issued share capital),
65,000 B shares of 0.001p each (representing 0.02% of the total
issued share capital) and 40,000 preference shares of £1.00
each (representing 0.01% of the total issued share capital).
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.
VARIATION OF RIGHTS
Subject to the provisions of applicable statutes, the rights attached
to any class of shares may be varied either with the consent in
writing of the holders of at least three-quarters in nominal value
of the issued shares of that class or with the sanction of a Special
Resolution passed at a separate meeting of the holders of the
shares of that class.
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 IG Group 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. The trustees have a dividend waiver in
place in respect of unallocated shares held in the trust.
99
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT CHANGE OF CONTROL
Following any future change of control of the Company, the
Group’s banking facilities, which are currently undrawn (refer to
note 19 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.
ANNUAL GENERAL MEETING
The Company’s AGM will be held on 21 September 2016. Details
of the resolutions to be proposed at the AGM will be sent to all
shareholders in a separate circular.
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 21
September 2016.
GOING CONCERN
The Directors have prepared the Financial Statements on a
going-concern basis, which requires them to have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future.
The Directors have reviewed the Company and the Group’s
processes for managing the financial risks to which they
are exposed, their available liquidity, their regulatory capital
position and their annual budget. As a result of this review,
the Directors are satisfied that the Company and the Group
have 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.
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
Please refer to note 38 of the Financial Statements.
DIRECTORS’ REPORT CONTINUED
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 2015 AGM.
The authority to issue or buy back shares will expire at the 2016
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 36,664,776
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 the sustained
performance plan and value-sharing plan schemes. Details of
the shares held by the Group’s Employee Benefit Trusts and the
amounts paid during the year are disclosed in note 28 to the
Financial Statements.
MAJOR INTEREST 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 2016
NO. OF SHARES
PERCENTAGE
36,584,986
10.00%
Massachusetts
Financial
Services Company
Artemis Investment
Management LLP
BlackRock, Inc.
18,313,343
5.01%
Cantillon Capital
Management LLC
Allianz Global
Investors GmbH
Prudential PLC
Group of Companies
18,309,407
4.99%
18,303,673
4.99%
11,066,471
3.00%
As at 19 July 2016, there were no changes to the shareholdings
shown in the table above.
100
18,806,983
5.15%
DIRECTORS’ STATEMENT AS TO DISCLOSURE OF
INFORMATION TO AUDITORS
IG Group Holdings plc Annual Report 2016
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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.
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 judgements 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 Group and 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 Group
and the Company keeps adequate accounting records. These
records must be sufficient to show and explain the Group and
the Company’s transactions and disclose the financial position
of the Group and the Company 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 Group and the Company, and 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 Group and 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 Group and 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 Group and 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 and the company face
On behalf of the Board:
Peter Hetherington
Chief Executive Officer
19 July 2016
101
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT INDEPENDENT AUDITOR’S REPORT
REPORT ON THE FINANCIAL
STATEMENTS
OUR OPINION
In our opinion:
❚
❚
❚
❚
IG Group Holdings plc’s Group financial statements and
Company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 May 2016 and of the Group’s profit
and the Group’s and the 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 Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
IAS Regulation
WHAT WE HAVE AUDITED
IG Group Holdings plc’s financial statements comprise:
❚
❚
❚
❚
❚
the Group and Company Statements of Financial Position as at
31 May 2016
the Group Income Statement and Group Statement of
Comprehensive Income for the year then ended
the Group and Company Cash Flow Statements for the year
then ended
the Group and Company Statements of Changes in Equity for
the year then ended
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information
Certain required disclosures have been presented elsewhere in the
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and
identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRS as adopted by the
European Union, and applicable law and, as regards the Company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
OUR AUDIT APPROACH
Overview
We present below an overview of our audit approach, the details of which are considered within our audit report:
Materiality
Audit scope
❚ Overall Group materiality: £10 million which represents 5% of profit before tax.
❚ 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. The
accounting records for both the UK and overseas businesses are primarily maintained and
controlled by the Group finance team in London.
❚ We have determined the appropriate work to perform based on the consolidated balances
of the Group. As a result, the audit work was primarily performed by the Group audit team
in London, reflecting the centralised nature of the business.
Areas of
focus
❚ Revenue recognition.
❚ Risk of management override of internal controls, incorporating super-user access to IT
systems relevant to the financial reporting process.
THE SCOPE OF OUR AUDIT AND OUR AREAS OF FOCUS
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order
to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be
read in this context. This is not a complete list of all risks identified by our audit.
102
IG Group Holdings plc Annual Report 2016
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
REVENUE RECOGNITION
The Group provides its clients access to a broad range of
financial markets, predominantly through spreadbetting and
contract-for-difference (“CFD”) activities.
The Group’s trading revenue predominantly comprises net
revenues from these spreadbetting and CFD transactions placed
by clients, and the net gains or losses from the hedging trades
that the Group places with external counterparties to manage
its risk.
All of the client trading transactions and the Group’s related
hedging transactions are recorded in the Universe system, and
the net position at each month end is recorded in the Oracle
general ledger.
RISK OF MANAGEMENT OVERRIDE OF INTERNAL
CONTROLS INCORPORATING SUPER-USER
ACCESS TO UNIVERSE
International Standards on Auditing (UK & Ireland) (ISAs (UK &
Ireland)) require that we consider this to be a significant risk as
management is in a unique position to perpetrate fraud, because
of their ability to manipulate accounting records and prepare
fraudulent financial statements by overriding controls that
otherwise appear to be operating effectively.
Although management is responsible for safeguarding the
assets of the business, we planned our audit so that we had a
reasonable expectation of detecting material misstatements in
the financial statements and accounting records.
Specifically in relation to information technology, the risk relates
to super-user access to Universe, the main client ledger system,
by certain individuals in order to perform their role. Those
individuals have an opportunity to commit and conceal fraud.
We focused firstly on testing the control environment in which
revenue is recorded. In particular we tested controls directly
associated with revenue transaction reporting, and the valuation
of year-end positions held by clients with the Group. We
also tested controls associated with cash reconciliations and
reconciliations with external counterparties through the year.
We agreed all cash accounts to external third party evidence at
year-end through a combination of independent confirmations
and examination of bank statements, and amounts and positions
held with hedging counterparties to external third party evidence.
Finally, to address the risk that improper adjustments or
transactions had been entered into the trading systems, we
reviewed client activity reports and read a sample of customer
complaints, as well as testing a sample of accounts for
authenticity to identify any instances where revenue might have
been improperly recognised.
We identified a number of exceptions in our testing of the control
environment, but have performed sufficient additional procedures
to conclude that they do not have a material impact on revenue.
We understood and tested key controls in place over the
financial reporting process. Specifically, in relation to information
technology, we performed testing of the IT general controls
related to Universe, including access rights. Additionally we
tested the controls mitigating the risks relating to Universe
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
did not identify any material exceptions.
We tested the fraud risk assessment performed by management
and the preventative and detective controls in place in the Group
with no material exceptions noted from our testing. We tested
the appropriateness and authorisation of journal entries that we
identified as unusual and no issues arose from this work.
We examined significant one-off transactions and considered
their accounting treatment with no exceptions arising. We
also incorporated an element of unpredictability into our
testing approach.
HOW WE TAILORED THE AUDIT SCOPE
MATERIALITY
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic
structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group consists of a UK holding company with a number of
subsidiary entities and branches containing the UK and overseas
operating businesses. The accounting records for the UK and
overseas businesses are primarily maintained by the Group
finance team in London. As a result, the audit work was primarily
performed by the Group audit team in London.
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£10 million (2015: £8.5 million).
How we determined it
5% of profit before tax.
Rationale for benchmark applied
Consistent with last year, we applied this benchmark, a generally accepted auditing practice, as
it is the most relevant metric against which the performance of the Group is measured.
103
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT INDEPENDENT AUDITOR’S REPORT CONTINUED
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £508,000
(2015: £420,000) as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
GOING CONCERN
Under the Listing Rules we are required to review the Directors’
Statement, set out on page 100, in relation to going concern. We
have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation
to the directors’ statement about whether they considered it
appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw
attention to.
As noted in the Directors’ Statement, the directors have
concluded that it is appropriate to adopt the going concern basis
in preparing the financial statements. The going concern basis
presumes that the Group and 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 Company’s
ability to continue as a going concern.
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION
Companies Act 2006 opinion
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.
ISAs (UK & IRELAND) REPORTING
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 Company acquired in the course of performing our audit; or
– otherwise misleading.
the statement given by the directors on page 101, in accordance with provision C.1.1 of the UK
Corporate Governance Code (“the Code”), 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 and Company’s performance, business model and strategy is materially
inconsistent with our knowledge of the Group and Company acquired in the course of performing
our audit.
❚
❚
We have no exceptions
to report arising from
this responsibility.
We have no exceptions
to report arising from
this responsibility.
the section of the Annual Report on pages 92 to 93, as required by provision C.3.8 of the Code,
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.
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD
THREATEN THE VIABILITY OF THE GROUP
UNDER ISAS (UK & IRELAND) WE ARE REQUIRED TO REPORT TO YOU IF WE HAVE ANYTHING MATERIAL TO ADD OR TO
DRAW ATTENTION TO IN RELATION TO:
❚
❚
❚
the directors’ confirmation on page 54 of the Annual Report, in accordance with provision C.2.1 of
the Code, that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity.
We have nothing material to
add or to draw attention to.
the disclosures in the Annual Report that describe those risks and explain how they are being
managed or mitigated.
We have nothing material to
add or to draw attention to.
the directors’ explanation on page 54 of the Annual Report, in accordance with provision C.2.2 of
the Code, as to how they have assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We have nothing material to
add or to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially
less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are
consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed
our review.
104
IG Group Holdings plc Annual Report 2016 ADEQUACY OF ACCOUNTING RECORDS AND
INFORMATION AND EXPLANATIONS RECEIVED
WHAT AN AUDIT OF FINANCIAL STATEMENTS
INVOLVES
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
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
❚
the 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.
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of:
❚ whether the accounting policies are appropriate to the Group’s
and the 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.
We primarily focus 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.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
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.
Darren Meek (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
19 July 2016
DIRECTORS’ REMUNERATION
Directors’ remuneration report –
Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. 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 ten further provisions
of the Code. We have nothing to report having performed
our review.
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE
DIRECTORS
As explained more fully in the Statement of Directors’
Responsibilities set out on page 101, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and 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.
105
IG Group Holdings plc Annual Report 2016CORPORATE GOVERNANCE REPORT ’Our information
technology audits
provide assurance
on the Group’s IT
control environment,
further ensuring
data integrity and
reducing financial
reporting risks.’
Amjad Ghalib
IT Internal Audit Manager
106
IG Group Holdings plc Annual Report 2016
FINANCIAL STATEMENTS CONTENTS
PRIMARY STATEMENTS
GROUP INCOME STATEMENT
GROUP STATEMENT OF
COMPREHENSIVE INCOME
108
108
STATEMENTS OF FINANCIAL POSITION 109
STATEMENTS OF CHANGES IN EQUITY
110
CASH FLOW STATEMENTS
112
NOTES TO THE FINANCIAL
STATEMENTS
1.
Presentation, critical accounting estimates
and judgements
2.
Underlying results for the year ended 31 May 2015
3(a). Net trading revenue
3(b). Other operating income
4.
5.
6.
7.
8.
9.
Segment information
Operating expenses
Auditors’ remuneration
Staff costs
Finance income
Finance costs
10.
Taxation
11. Earnings per ordinary share
12. Dividends
13.
Property, plant and equipment
14.
Intangible assets
15.
Investment in subsidiaries
16. Goodwill
17.
Trade receivables
18(a). Cash and cash equivalents
18(b). Client funds and assets
19.
Liquidity analysis and risk management
20. Cash generated from operations
21.
Financial investments
22.
Trade payables
23. Other payables
24.
Provisions
25. Contingent liabilities
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
107
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 MAY 2016
Trading revenue
Interest income on segregated client funds
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 loss
Operating 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
Earnings per ordinary share
Basic
Diluted
Note
3(a)
3(b)
4
3(a)
5
8
9
10
Note
11
11
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2016
Profit for the year
Other comprehensive (expense)/income:
Items that may be reclassified to profit or loss:
Change in value of available-for-sale financial assets
Foreign currency translation income on overseas subsidiaries
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to owners of the parent
Year ended
31 May 2016
Year ended
31 May 2015
£m
487.9
3.8
491.7
(0.4)
(31.6)
(11.2)
0.6
449.1
456.3
(7.2)
(241.5)
207.6
2.0
(1.7)
207.9
(43.6)
164.3
164.3
2016
44.94p
44.58p
£m
422.1
4.9
427.0
(0.4)
(33.7)
(6.3)
0.6
387.2
388.4
(1.2)
(217.6)
169.6
1.8
(1.9)
169.5
(37.6)
131.9
131.9
2015
36.13p
35.99p
Year ended
31 May 2016
Year ended
31 May 2015
£m
£m
£m
£m
164.3
131.9
(0.1)
4.5
0.3
0.6
4.4
168.7
168.7
0.9
132.8
132.8
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 113 to 165 are an integral part of these Financial Statements.
108
IG Group Holdings plc Annual Report 2016
STATEMENTS OF FINANCIAL POSITION
AT 31 MAY 2016
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
Share capital
Share premium
Other reserves
Retained earnings
Total equity
TOTAL EQUITY AND LIABILITIES
Group
Company
31 May 2016
31 May 2015
31 May 2016
31 May 2015
Note
£m
£m
£m
£m
13
14
15
21
10
17
18
21
22
23
26
27
27
29
13.0
125.1
–
25.0
7.2
170.3
278.5
12.4
218.8
111.0
620.7
791.0
43.4
70.8
13.8
128.0
–
13.3
124.0
–
75.5
7.1
219.9
269.6
12.2
148.8
32.9
463.5
683.4
17.7
61.2
13.1
92.0
–
–
–
–
–
486.8
479.8
–
–
–
–
486.8
479.8
–
131.9
–
–
131.9
618.7
–
35.7
–
35.7
–
–
202.8
–
–
202.8
682.6
–
126.5
–
126.5
–
128.0
92.0
35.7
126.5
–
206.8
102.2
354.0
663.0
791.0
–
206.8
91.8
292.8
591.4
683.4
–
206.8
45.3
330.9
583.0
618.7
–
206.8
39.3
310.0
556.1
682.6
The Financial Statements on pages 108 to 112 were approved by the Board of Directors on 19 July 2016 and signed on its behalf by:
Peter Hetherington
Chief Executive Officer
Registered Company number: 04677092
109
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
Total
£m
565.9
131.9
0.9
132.8
5.3
0.5
(0.3)
£m
273.7
131.9
–
131.9
–
–
–
(112.8)
(112.8)
19.1
292.8
164.3
–
164.3
–
–
–
25.5
591.4
164.3
4.4
168.7
7.0
–
(1.0)
(103.1)
(103.1)
61.2
354.0
71.6
663.0
Non-
controlling
interests
Total
equity
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£m
565.9
131.9
0.9
132.8
5.3
0.5
(0.3)
(112.8)
25.5
591.4
164.3
4.4
168.7
7.0
–
(1.0)
(103.1)
71.6
663.0
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2016
Share
capital
Share
premium
Other
reserves
Retained
earnings
(note 27)
(note 27)
(note 29)
Group
At 1 June 2014
Profit for the year
Other comprehensive income for the year
Profit for the year and total comprehensive income
Equity-settled employee share-based payments
(note 30)
Excess of tax deduction benefit on share-based
payments recognised directly in equity (note 10)
Purchase of own shares
Equity dividends paid (note 12)
Movement in equity
At 31 May 2015
Profit for the year
Other comprehensive income for the year
Profit for the year and total comprehensive income
Equity-settled employee share-based payments
(note 30)
Excess of tax deduction benefit on share-based
payments recognised directly in equity (note 10)
Purchase of own shares
Equity dividends paid (note 12)
Movement in equity
At 31 May 2016
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£m
206.8
–
–
–
–
–
–
–
–
206.8
–
–
–
–
–
–
–
–
206.8
£m
85.4
–
0.9
0.9
5.3
0.5
(0.3)
–
6.4
91.8
–
4.4
4.4
7.0
–
(1.0)
–
10.4
102.2
The notes on pages 113 to 165 are an integral part of these Financial Statements.
110
FINANCIAL STATEMENTS CONTINUEDIG Group Holdings plc Annual Report 2016
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2016
Company
At 1 June 2014
Profit for the year and total comprehensive income
Equity-settled employee share-based payments (note 30)
Purchase of own shares
Equity dividends paid (note 12)
Movement in equity
At 31 May 2015
Profit for the year and total comprehensive income
Equity-settled employee share-based payments (note 30)
Purchase of own shares
Equity dividends paid (note 12)
Movement in equity
At 31 May 2016
Share capital
Share
premium
Other
reserves
Retained
earnings
Total
equity
(note 27)
(note 27)
(note 29)
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
£m
206.8
–
–
–
–
–
206.8
–
–
–
–
–
206.8
£m
34.3
–
5.3
(0.3)
–
5.0
39.3
–
7.0
(1.0)
–
6.0
45.3
£m
360.1
62.7
–
–
(112.8)
(50.1)
310.0
124.0
–
–
£m
601.2
62.7
5.3
(0.3)
(112.8)
(45.1)
556.1
124.0
7.0
(1.0)
(103.1)
(103.1)
20.9
330.9
26.9
583.0
The notes on pages 113 to 165 are an integral part of these Financial Statements.
111
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 MAY 2016
Note
20
12
19(c)
19(c)
Cash generated from operations
Income taxes paid
Interest received on segregated client funds
Interest paid on segregated client funds
Net cash flow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Payments to acquire intangible assets
Proceeds from maturity of financial investments and
coupon receipts
Purchase of financial investments
Net cash flow used in investing activities
Financing activities
Interest paid
Equity dividends paid to owners of the parent
Purchase of own shares held in Employee Benefit Trusts
Proceeds from draw down of committed banking facility
Repayment of committed banking facility
Net cash flow used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange profit on cash and cash equivalents
Cash and cash equivalents at the end of the year
18
Group
Company
Year ended
31 May 2016
Year ended
31 May 2015
Year ended
31 May 2016
Year ended
31 May 2015
£m
223.7
(42.5)
3.8
(0.4)
184.6
1.1
(5.1)
(8.6)
34.5
(32.4)
(10.5)
(1.3)
(103.1)
(1.0)
200.0
(200.0)
(105.4)
68.7
148.8
1.3
218.8
£m
210.4
(42.9)
4.9
(0.4)
172.0
0.8
(6.0)
(6.4)
51.3
(51.1)
(11.4)
(1.9)
(112.8)
–
100.0
(100.0)
(114.7)
45.9
101.5
1.4
148.8
£m
104.8
–
–
–
£m
112.8
–
–
–
104.8
112.8
–
–
–
–
–
–
(0.7)
(103.1)
(1.0)
–
–
–
–
–
–
–
–
–
(112.8)
–
–
–
(104.8)
(112.8)
–
–
–
–
–
–
–
–
The notes on pages 113 to 165 are an integral part of these Financial Statements.
112
FINANCIAL STATEMENTS CONTINUEDIG Group Holdings plc Annual Report 2016
NOTES TO THE FINANCIAL STATEMENTS
1. PRESENTATION, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
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, 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), 10(d) and 10(e)).
The assessment of the useful economic life of the Group’s internally developed and acquired software, licenses, 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 licenses 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 (refer to note 14, note 16, note 40.5 and note 40.6).
The calculation of the Group’s current corporation tax charge involves a degree of estimation and judgment with respect of certain items
whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority. The Group has made
tax payments 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 already paid 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 (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.
113
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 2. UNDERLYING RESULTS FOR THE YEAR ENDED 31 MAY 2015
The Directors regard the adjustment of exceptional items in the Financial Statements, as detailed below, necessary to provide greater
comparability of the results of the Group for the year.
Exceptional items – Swiss franc event impact
In the prior year, the Swiss National Bank announced that it had ceased intervention in the exchange rate between the Swiss franc
and Euro. This caused a sudden extreme appreciation in the value of the franc, accompanied by a lack of market liquidity which lasted
several minutes and resulted in a negative financial impact to the Group of £18.8 million. This impact on profit before tax and diluted
earnings per share for the prior year is shown below. There are no exceptional items to report for the year ended 31 May 2016.
Net operating income
Analysed as:
Net trading revenue
Other net operating (loss)/income(1)
Operating expenses(2)
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Earnings per ordinary share
– basic
– diluted
Note
8
9
10
Underlying
Year ended
31 May 2015
Swiss franc
event impact
Statutory
Year ended
31 May 2015
£m
399.4
400.2
(0.8)
(206.1)
193.3
1.8
(1.9)
193.2
(42.5)
150.7
£m
12.2
11.8
0.4
11.5
23.7
–
–
23.7
(4.9)
18.8
£m
387.2
388.4
(1.2)
(217.6)
169.6
1.8
(1.9)
169.5
(37.6)
131.9
41.27p
41.07p
5.14p
5.08p
36.13p
35.99p
(1) £0.4 million Swiss franc event impact relates to betting duty.
(2) Included in operating expenses was £11.5 million, made up of £15.1 million of Swiss franc related bad debts charge, a decrease in employee bonuses of £3.1 million and £0.5
million related to sustained performance plan (SPP) share schemes.
Segment net trading revenue
Year ended 31 May 2015
Net trading revenue
Underlying net trading revenue
Own funds generated from operations
Year ended 31 May 2015
Own funds generated from operations
UK
£m
206.0
211.9
Europe
Australia Rest of World
Central
£m
76.9
80.9
£m
58.1
59.2
£m
47.4
48.2
£m
–
–
Total
£m
388.4
400.2
Statutory
Swiss franc
event impact
Underlying
£m
136.8
£m
22.4
£m
159.2
114
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
3. TURNOVER
3(a) NET TRADING REVENUE
Net trading revenue represents trading revenue from financial instruments carried at fair value through profit or loss after introducing
partner commission, and commission earned from providing the execution only share dealing service. This is consistent with the
management information received by the Chief Operating Decision Maker (refer to note 4). Net trading revenue is analysed as follows:
Net trading revenue
Contracts for difference
Spread betting
Binaries
Share dealing commission
Total net trading revenue
Interest income on segregated client funds
Year ended
31 May 2016
Year ended
31 May 2015
£m
£m
240.9
166.6
48.0
0.8
456.3
3.8
205.8
146.2
36.2
0.2
388.4
4.9
In addition to the above, finance income is disclosed in note 8. The Group does not derive more than ten percent of external revenue
from any one single client.
3(b) OTHER OPERATING INCOME
Administrative charges to clients
The Group charges inactivity fees for those accounts on which clients have not traded for two years.
Year ended
31 May 2016
Year ended
31 May 2015
£m
0.6
£m
0.6
4. SEGMENT INFORMATION
The segment information is presented as follows:
❚ Segment net trading revenue has been disclosed after taking into account 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, the USA and Dubai
❚ 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), binary options and execution only
stockbroking. The Australian segment derives its revenue from CFDs and binary options. The European segment derives its revenue
from CFDs, binary options and execution only stockbroking. 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.
115
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
4. SEGMENT INFORMATION CONTINUED
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, 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.
Year ended 31 May 2016
Segment net trading revenue
Interest income on segregated client funds
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
Year ended 31 May 2015
Segment net trading revenue
Interest income on segregated client funds
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
UK
£m
231.1
–
231.1
–
–
(10.8)
220.3
174.1
(52.6)
(7.6)
113.9
UK
£m
206.0
–
206.0
–
–
(5.8)
200.2
154.5
(41.6)
(5.6)
107.3
Europe
Australia Rest of World
Central
£m
98.6
–
98.6
–
–
(0.4)
98.2
59.8
(23.5)
(2.2)
34.1
£m
64.0
–
64.0
–
–
–
64.0
54.5
(15.3)
(1.2)
38.0
£m
62.6
–
62.6
–
–
–
62.6
36.1
(12.8)
(1.7)
21.6
£m
–
3.8
3.8
(0.4)
0.6
–
4.0
(104.2)
104.2
–
–
Europe
Australia Rest of World
Central
£m
76.9
–
76.9
–
–
(0.4)
76.5
35.1
(19.0)
(2.2)
13.9
£m
58.1
–
58.1
–
–
(0.1)
58.0
48.3
(12.5)
(1.4)
34.4
£m
47.4
–
47.4
–
–
–
47.4
25.6
(10.1)
(1.5)
14.0
£m
–
4.9
4.9
(0.4)
0.6
–
5.1
(83.2)
83.2
–
–
Total
£m
456.3
3.8
460.1
(0.4)
0.6
(11.2)
449.1
220.3
–
(12.7)
207.6
0.3
207.9
Total
£m
388.4
4.9
393.3
(0.4)
0.6
(6.3)
387.2
180.3
–
(10.7)
169.6
(0.1)
169.5
116
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
5. OPERATING EXPENSES
Group
This is stated after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Advertising and marketing
Net charge for impaired trade receivables(1)
Operating lease rentals for buildings
Foreign exchange gains(2)
Year ended
31 May 2016
Year ended
31 May 2015
£m
£m
5.2
7.5
49.7
1.6
6.1
(0.2)
5.7
5.0
37.8
16.1
5.3
(0.6)
(1) Net charge for impaired trade receivables in 2015 includes £15.1 million in relation to the Swiss franc event (refer to note 36).
(2) All of the above, except foreign exchange differences are included in operating expenses within the Income Statement. Foreign exchange gains and losses are included
in revenue.
6. AUDITORS’ REMUNERATION
Group
Audit fees
Fees 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 the statutory and non-statutory audits of the
accounts of subsidiaries and branches of the Company
Total audit fees
Audit-related fees(1)
Fees payable to the Company’s auditors and its associates for audit-related assurance services:
• Other services supplied pursuant to legislation
• Other audit-related assurance services
Total audit-related fees
Non-audit services and fees
Other services relating to taxation
• Tax compliance services(2)
• Tax advisory services(3)
Services relating to regulatory advice(4)
Services relating to strategic advice(5)
Total non-audit services and fees
Year ended
31 May 2016
Year ended
31 May 2015
£m
0.4
0.3
0.7
0.2
0.1
0.3
0.1
0.5
–
–
0.6
£m
0.4
0.3
0.7
0.1
0.1
0.2
0.2
0.3
0.1
0.3
0.9
(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.
(3) Includes advice relating to the Group’s transfer pricing policies, sales taxes, tax structures and other general tax advice.
(4) Includes services provided in relation to regulatory requirements and other regulatory advice.
(5) Includes strategic advice to the Board.
An overview of the Audit Committee’s review of Auditors’ remuneration, non-audit services and fee policy can be found in the Corporate
Governance Statement.
117
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
7. STAFF COSTS
The staff costs for the year, including Directors, were as follows:
Group
Wages and salaries
Social security costs
Other pension costs (in relation to defined contribution schemes)(1)
(1) The Group does not operate any defined benefit pension schemes.
Year ended
31 May 2016
Year ended
31 May 2015
£m
97.5
11.2
4.8
113.5
£m
79.4
9.2
5.7
94.3
Staff costs, including Directors, include the following amounts in respect of performance-related bonuses, and share-based payments
(inclusive of national insurance) charged to the Income Statement:
Group
Performance-related bonuses
Equity-settled share-based payment schemes
Year ended
31 May 2016
Year ended
31 May 2015
£m
21.9
8.3
30.2
£m
14.0
6.3
20.3
The Directors’ remuneration for the years ended 31 May 2016 and 31 May 2015, can be found in the Directors’ Remuneration Report on
pages 81 and 82.
The average monthly number of employees, including Directors, was made up as follows:
Year ended
31 May 2016
Year ended
31 May 2015
Number
Number
507
94
555
45
211
479
81
488
38
201
1,412
1,287
Year ended
31 May 2016
Year ended
31 May 2015
£m
0.8
0.3
0.9
2.0
£m
0.7
0.4
0.7
1.8
Group
IT development
IT support
Sales, marketing and client support
Dealing
Management and administrative
8. FINANCE INCOME
Group
Bank interest receivable
Interest receivable from brokers
Interest accretion on financial investments
118
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
9. FINANCE COSTS
Group
Liquidity facility arrangement and non-utilisation fees
Interest payable to clients
Interest payable to brokers
Bank interest payable
Other charges
Year ended
31 May 2016
Year ended
31 May 2015
£m
1.1
0.1
0.4
0.1
–
1.7
£m
1.2
0.1
0.1
0.1
0.4
1.9
Interest payable to clients relates to interest paid or accrued to clients in relation to title transfer funds (refer to note 18).
10. TAXATION
10(a) TAX ON PROFIT ON ORDINARY ACTIVITIES
Tax charged in the Income Statement:
Group
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))
Year ended
31 May 2016
Year ended
31 May 2015
£m
£m
41.0
3.5
(0.9)
43.6
(0.2)
0.3
(0.1)
–
43.6
34.3
3.8
(1.0)
37.1
(0.4)
0.9
–
0.5
37.6
10(b) RECONCILIATION OF THE TOTAL TAX CHARGE
The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the effective
corporation tax for the year ended 31 May 2016 is 20%, and that for the year ended 31 May 2015 is calculated at 20.83% 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 as set out below:
Group
Profit before taxation
Profit multiplied by the UK standard rate of corporation tax of 20.00% (2015: 20.83%)
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 21.00% (2015: 22.18%).
Year ended
31 May 2016
Year ended
31 May 2015
£m
207.9
41.6
0.3
0.8
1.4
(0.6)
0.1
43.6
£m
169.5
35.3
0.5
1.2
0.7
(0.1)
–
37.6
119
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
10. TAXATION CONTINUED
10(c) DEFERRED INCOME TAX ASSETS
The deferred income tax assets included in the Statement of Financial Position are as follows:
Group
Tax losses available for offset against future tax
Share-based payments
Other timing differences
Year ended
31 May 2016
Year ended
31 May 2015
£m
1.9
1.7
3.6
7.2
£m
1.8
1.5
3.8
7.1
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 income tax asset is recognised where it is
considered probable that the US consolidated tax group will generate future operating profits which can be offset against the tax losses
carried forward. Where it is not anticipated that future operating profits will be generated against which the losses can be offset, a
deferred income tax asset is not recognised.
Share-based payment awards have been charged to the Income Statement but are not allowable as a tax deduction until the awards
vest. The excess of tax relief in future years over the amount charged to the Income Statement is recognised as a credit directly to
equity. The movement in the deferred income tax assets included in the Statement of Financial Position is as follows:
Group
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
Group
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
The deferred tax credited to equity during the year is as follows:
Share-based payments
Year ended
31 May 2016
Year ended
31 May 2015
£m
7.1
–
–
0.1
7.2
£m
7.1
(0.5)
0.5
–
7.1
Year ended
31 May 2016
Year ended
31 May 2015
£m
(0.2)
–
0.2
–
–
£m
(0.4)
0.1
(0.2)
(0.5)
(0.5)
The Finance Act 2015 passed into legislation in July 2015 and changed the main rate of UK corporation tax for future periods. The rate
will reduce from 20% to 19% effective from 1 April 2017 and will further reduce to 18% with effect from 1 April 2020. The impact of
these changes on deferred tax have been assessed and deferred tax assets and liabilities have been assessed at the tax rates that are
expected to apply when the related asset is realised or liability settled. The deferred tax assets and liabilities for the year ended 31 May
2015 were calculated at the then substantively enacted rate for all future periods which was 20%.
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 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 has made tax payments 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 already paid and could therefore
improve the overall profitability and cash flows of the Group in future periods.
120
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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:
Group
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
Group
Basic earnings per share
Diluted earnings per share
12. DIVIDENDS
Company and Group
Declared and paid during the year:
Final dividend for 2015 at 19.70p per share (2014: 22.40p)
Interim dividend for 2016 at 8.45p per share (2015: 8.45p)
Proposed for approval by shareholders at the AGM:
Final dividend for 2016 at 22.95p per share (2015: 19.70p)
Year ended
31 May 2016
Year ended
31 May 2015
£m
164.3
–
164.3
£m
131.9
–
131.9
365,620,585
365,199,825
2,910,404
1,383,806
368,530,989
366,583,631
Year ended
31 May 2016
Year ended
31 May 2015
pence
44.94
44.58
pence
36.13
35.99
Year ended
31 May 2016
Year ended
31 May 2015
£m
£m
72.2
30.9
103.1
81.9
30.9
112.8
84.0
71.8
The final dividend for 2016 of 22.95p per share amounting to £84.0 million was proposed by the Board on 14 July 2016 and has not
been included as a liability at 31 May 2016. This dividend will be paid on 28 October 2016, following approval at the Company’s AGM,
to those members on the register at the close of business on 30 September 2016.
Whilst the Company has the obligation to pay the dividends, the physical payment is made by a subsidiary company.
The dividend paid or declared in relation to the financial year are set out below:
Dividend declared per share:
Interim dividend
Final dividend
Year ended
31 May 2016
Year ended
31 May 2015
pence
pence
8.45
22.95
31.40
8.45
19.70
28.15
121
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
Leasehold
improvements
Office
equipment,
fixtures and
fittings
Computer
and other
equipment
£m
17.9
(0.1)
1.0
–
18.8
0.1
1.0
(0.3)
19.6
8.8
(0.1)
2.0
–
10.7
1.9
(0.3)
12.3
7.3
8.1
9.1
£m
2.4
–
0.3
–
2.7
–
0.5
(0.1)
3.1
1.7
–
0.5
–
2.2
0.3
(0.1)
2.4
0.7
0.5
0.7
£m
15.2
–
4.6
(1.0)
18.8
0.1
3.2
(0.4)
21.7
12.0
(0.1)
3.2
(1.0)
14.1
3.0
(0.4)
16.7
5.0
4.7
3.2
Total
£m
35.5
(0.1)
5.9
(1.0)
40.3
0.2
4.7
(0.8)
44.4
22.5
(0.2)
5.7
(1.0)
27.0
5.2
(0.8)
31.4
13.0
13.3
13.0
13. PROPERTY, PLANT AND EQUIPMENT
Group
Cost:
At 1 June 2014
Foreign currency adjustment
Additions
Written off
At 31 May 2015
Foreign currency adjustment
Additions
Written off
At 31 May 2016
Accumulated depreciation:
At 1 June 2014
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2015
Provided during the year
Written off
At 31 May 2016
Net book value – 31 May 2016
Net book value – 31 May 2015
Net book value – 1 June 2014
122
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
14. INTANGIBLE ASSETS
Group
Cost:
At 1 June 2014
Foreign currency adjustment
Additions
Written off
At 31 May 2015
Foreign currency adjustment
Additions
At 31 May 2016
Accumulated amortisation:
At 1 June 2014
Foreign currency adjustment
Provided during the year
Written off
At 31 May 2015
Foreign currency adjustment
Provided during the year
At 31 May 2016
Net book value – 31 May 2016
Net book value – 31 May 2015
Net book value – 1 June 2014
Client lists
and customer
relationships
Domain
names
Development
costs
Software
and
licences
£m
1.7
(0.1)
–
–
1.6
(0.3)
–
1.3
1.7
(0.1)
–
–
1.6
(0.3)
–
1.3
–
–
–
£m
5.8
–
1.5
–
7.3
0.2
0.6
8.1
0.5
–
0.7
–
1.2
–
3.4
4.6
3.5
6.1
5.3
£m
12.0
–
3.1
–
15.1
–
4.8
19.9
3.6
–
2.4
–
6.0
–
2.5
8.5
11.4
9.1
8.4
£m
16.7
0.1
1.3
(0.3)
17.8
0.1
3.1
21.0
14.4
0.1
1.9
(0.3)
16.1
0.2
1.6
17.9
3.1
1.7
2.3
Goodwill
£m
106.7
0.4
–
–
107.1
–
–
107.1
–
–
–
–
–
–
–
–
107.1
107.1
106.7
Total
£m
142.9
0.4
5.9
(0.3)
148.9
–
8.5
157.4
20.2
–
5.0
(0.3)
24.9
(0.1)
7.5
32.3
125.1
124.0
122.7
Goodwill primarily relates to the purchase of IG Group plc by IG Group Holdings plc – detail is provided in note 16.
Domain names include the cost of acquiring ig.com and a suite of complementary domains to support the Group’s global brand. This
also includes industry specific generic top-level domains (gTLDs). Included with the amount provided during the year is £2.7 million
relating to the impairment of the gTLDs.
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 licenses relate entirely to external purchases of off-the-shelf, commercially available software for internal consumption
within the Group.
The expected useful lives of each class of intangible assets are set out in note 40, Accounting Policies.
123
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
15. INVESTMENT IN SUBSIDIARIES
PARENT COMPANY – INVESTMENT IN SUBSIDIARIES
Company
At cost:
At the beginning of the year
Additions(1)
At the end of the year
31 May 2016
31 May 2015
£m
£m
479.8
7.0
486.8
471.6
8.2
479.8
(1) Additions in the year ended 31 May 2016 comprise the investment relating to equity-settled share-based payments for subsidiary employees of £7.0 million (2015: £5.3 million)
and the purchase of shares in the Company’s immediate subsidiary, IG Group Limited, of £nil (2015: £2.9 million).
124
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
The following companies are all owned directly or indirectly by IG Group Holdings plc:
Name of Company
Subsidiary undertakings held directly:
IG Group Limited
Subsidiary undertakings held indirectly:
IG Index Limited
IG Markets Limited
IG Markets South Africa Limited
IG Australia Pty Limited
IG Share Trading Australia Pty Limited
IG Asia Pte Limited
North American Derivatives Exchange Inc.
IG Securities Limited(1)
IG Bank 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.
IG Finance
IG Finance Two
IG Finance Three
IG Finance Four
IG Finance 5 Limited
IG Forex Limited
IG Spread Betting Limited
IG Finance 8 Limited
IG Finance 9 Limited
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings
IG US Holdings Inc.
Market Data Japan Limited(1)
FXOnline Japan Co., Limited(1)
IG Limited
IG Services Limited
Financial Domaigns Limited
Financial Domaigns Registry Holdings Limited
Financial Domaigns Registrar Limited
Financial Domaigns (Services) Limited
DotSpreadbetting Registry Limited
DotMarkets Registry Limited
DotTrading Registry Limited
DotCFD Registry Limited
DotBroker Registry Limited
DotForex Registry Limited
Nadex Domains Inc.
Tower Three Capital Inc.
Hedgestreet Securities Inc.
Nadex Clearing LLC
Deal City Limited
InvestYourWay Ltd.
(1) The Company has a 31 March year-end due to local Japanese law.
Country of
Incorporation Holding
Voting
Rights
Nature of Business
UK
UK
UK
UK
Australia
Australia
Ordinary shares
100%
Holding company
Ordinary shares
100%
Spread betting
Ordinary shares
100%
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
CFD trading, foreign exchange and
market risk management
CFD trading
Sales and marketing office
Share dealing
Singapore
Ordinary shares
100% CFD trading and foreign exchange
USA
Japan
Ordinary shares
100%
Exchange
Ordinary shares
100% CFD trading and foreign exchange
Switzerland
Ordinary shares
100% CFD trading and foreign exchange
UK
USA
India
UK
UK
UK
USA
UK
UK
UK
UK
UK
UK
UK
UK
UK
Gibraltar
Gibraltar
Gibraltar
USA
Japan
Japan
Dubai
Dubai
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
USA
USA
USA
USA
UK
UK
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Data distribution
Market maker
Software development
Nominee company
Software development
Non-trading
Software development
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Financing
Holding company
Holding company
Holding company
Non-trading
Ordinary Shares
100% CFD trading and foreign exchange
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Intra-Group Corporate Services
Holding Company
Holding Company
Domains registrar
Domains registry
Domains registry
Domains registry
Domains registry
Domains registry
Domains registry
Domains registry
Domains registry
Non-trading
Non-trading
Non-trading
Software development
Non-trading
125
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 15. INVESTMENT IN SUBSIDIARIES CONTINUED
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)
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 Three (05297886), IG Finance 5 Limited (06752558), IG Finance 9 Limited
(07306407), IG Forex Limited (06808361), Financial Domaigns Limited (09233880), Financial Domaigns Registry Holdings Limited
(09235699), Financial Domaigns Registrar Limited (09235694), Financial Domaigns (Services) Limited (09235591), DotMarkets Registry
Limited (09237699), DotTrading Registry Limited (09237708), DotCFD Registry Limited (09237733), DotBroker Registry Limited
(09237714), DotForex Registry Limited (09237740), DotSpreadbetting Registry Limited (09237702) and InvestYourWay Ltd. (07081901).
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 Four (05312015), IG Spread Betting Limited (06806588), IG
Finance 8 Limited (06807656), Extrabet Limited (04560348), and Deal City Limited (09635230).
16. GOODWILL
Goodwill has been allocated for impairment testing purposes to the cash-generating units (CGUs), as follows:
Group
UK
US
Australia
South Africa
31 May 2016
31 May 2015
£m
100.0
5.3
0.9
0.9
£m
100.0
5.0
0.9
1.2
107.1
107.1
UK goodwill arose on the purchase of IG Group plc by IG Group Holdings Limited on 5 September 2003. Goodwill disclosed for
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.
Impairment testing
There was no indication of an ‘impairment trigger’ existing on any of the CGUs (2015: £nil), nor any impairment recognised during the
year ended 31 May 2016. The goodwill associated with each CGU has been subject to an impairment test at 31 May 2016. 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 £1.5 billion (2015: £1.7 billion) is based upon fair value less costs of disposal. This
is £1.4 billion (2015: £1.6 billion) in excess of the carrying amount of the CGU.
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 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.
Sensitivity to changes in assumptions
The UK reported a segment operating profit, after the allocation of central costs, of £113.9 million, for the year ended 31 May 2016
(refer to note 4, segment information). Furthermore the UK CGU represents 51% of the Group’s net trading revenue for the year ended
31 May 2016. The Board approved budget for the financial year ending 31 May 2017 and longer term strategic plans for the group
forecast at least a similar level of performance for this CGU to continue. As a result both the single year operating profit and thus the
recoverable amount of the UK CGU is in excess of the carrying value. Accordingly the outcome of the impairment review for the CGU is
not considered to be sensitive to the assumptions used.
126
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
17. TRADE RECEIVABLES
Group
Amounts due from brokers(1)
Other amounts due to the Group(2)
Amounts due from clients(3)
31 May 2016
31 May 2015
£m
245.5
30.8
2.2
278.5
£m
239.2
28.4
2.0
269.6
(1) Amounts due from brokers represent balances with brokers where the combination of cash held on account and the valuation of financial derivative open positions results in
an amount due to the Group. At 31 May 2016 the actual broker margin requirement was £227.6 million (2015: £204.8 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 as well as excess funds held in segregation
in certain jurisdictions. 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 note 36).
18. CASH AND CASH EQUIVALENTS
18(a) CASH AND CASH EQUIVALENTS
Group
Gross cash and cash equivalents(1)
Less: Segregated client funds(2)
Cash and cash equivalents(3)
31 May 2016
31 May 2015
£m
£m
1,136.1
1,062.4
(917.3)
218.8
(913.6)
148.8
(1) Gross cash and cash equivalents includes each of the Group’s own cash, proceeds from the drawdown of the committed banking facility, as well as all client monies held.
(2) Segregated client funds comprise 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. Such monies are not included in the Group’s Statement of
Financial Position.
(3) Cash and cash equivalents includes both title transfer funds 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, and client monies deposited with the Group’s Swiss banking subsidiary, IG Bank SA.
The Group’s Swiss banking subsidiary, IG Bank SA, is also required to protect customer deposits under the FINMA Privileged Deposit Scheme. At 31 May 2016 IG Bank SA was
required to hold £7.0 million (31 May 2015: £2.8 million) in satisfaction of this requirement.
18(b) CLIENT FUNDS AND ASSETS
Group
Segregated client funds(1)
Segregated client assets(2)
Total segregated client funds and assets
31 May 2016
31 May 2015
£m
917.3
177.8
1,095.1
£m
913.6
77.4
991.0
(1) Segregated client funds comprise 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. Such monies are not included in the Group’s Statement of
Financial Position.
(2) Segregated client assets comprise individual clients’ equity positions held in segregated client assets accounts under the Financial Conduct Authority’s ’CASS’ rules. Such assets
are not included in the Group’s Statement of Financial Position.
127
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
19. LIQUIDITY ANALYSIS AND RISK MANAGEMENT
The following section provides an analysis of the Group’s available liquidity, the liquidity requirements that result from the Group’s
business model, and sets out the key measures used to monitor and manage the level of liquidity available.
The key measures used by the Group are explained below:
Liquid assets: These are the 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
also require working capital balances to both 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 all amounts held in overseas subsidiaries and amounts
due from segregation – each of which are not considered immediately available to for market risk management.
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 liquidity forecast including the appropriate level of committed
unsecured bank facilities held. On 17 July 2015, the Group reduced its liquidity facility from £200.0 million with a syndicate of
three banks to £160.0 million with a syndicate of four banks. The inclusion of a fourth bank in the syndicate offers the Group further
diversification. This facility has £100.0 million available for up to a one year term (with an option to extend for a further year) and £60.0
million for up to three years.
The drawings made under the Group’s facility in the year ended 31 May 2016 are disclosed in note 19(c).
Additionally the Group’s Japanese business, IG Securities Limited has a Yen 300.0 million liquidity facility as at 31 May 2016 (2015:
Yen 300.0 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 and cash equivalents(1)
Amounts due from brokers(2)
Financial investments – held at brokers(3.1)
Financial investments – liquid asset buffer(3.2)
Other amounts due to the Group(4)
Liquid assets
Less:
Drawdown of committed banking facility
Client funds held on balance sheet(5)
Own funds
Note
18
17
21
21
17, 22
22
31 May 2016
31 May 2015
£m
218.8
245.5
53.4
82.6
26.4
626.7
–
(39.0)
587.7
£m
148.8
239.2
25.3
83.1
27.6
524.0
–
(16.9)
507.1
(1) Cash and cash equivalents 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.
(3.1) During the year ended 31 May 2016 the Group purchased an additional UK Government Gilt which is held at brokers as collateral to support the hedging of client market
exposures in accordance with the Group’s market risk management policy (refer to note 21).
(3.2) The 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.
(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.
(5) Client funds held on balance sheet include both Title Transfer funds and client monies deposited with the Group’s Swiss banking subsidiary. These are recognised on the Group’s
Statement of Financial Position with an associated payable to clients.
128
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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 is:
Held as a liquid assets buffer(3)
Drawdown of committed banking facility
Note
19(a)
17, 22
17
21
31 May 2016
31 May 2015
£m
626.7
(26.4)
(64.3)
536.0
(227.6)
308.4
82.6
–
£m
524.0
(27.6)
(58.8)
437.6
(204.8)
232.8
83.1
–
(1) The Group’s regulated subsidiaries in Australia, Japan, Singapore, South Africa, Switzerland, Dubai and the USA 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, Dubai and the USA 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. Both the regulatory working capital amounts and customer deposits are
not available to the Group for the purposes of central market risk management.
(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.
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 whilst 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 individual client funds are required to be placed in segregated
client money accounts in all jurisdictions with the exception of Switzerland where the entity has a banking licence. A result of this 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 movements the Group may 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 may be 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.
129
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
19. LIQUIDITY ANALYSIS AND RISK MANAGEMENT CONTINUED
19(c) LIQUIDITY MANAGEMENT AND LIQUIDITY RISK CONTINUED
During the year ended 31 May 2016, the Group withdrew £50.0 million on four occasions in anticipation of extreme market volatility.
For the year ended 31 May 2015 these facilities were drawn to a maximum of £25.0 million on two occasions and £50.0 million on
one occasion. On all three occasions, the drawdown was in anticipation of extreme market volatility and all amounts were repaid post
the event.
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 draw down can occur prior to a period of expected liquidity requirements.
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 available liquidity (including facilities)(2)
31 May 2016
31 May 2015
£m
626.7
160.0
786.7
£m
524.0
200.0
724.0
(1) Draw down of the committed banking facility is capped at 80% of the actual broker margin requirement on the draw down date. The maximum available draw down was £160.0
million at 31 May 2016 (2015: £163.8 million) based on the broker margin requirements on those dates, of which £nil was drawn down as at 31 May 2016 (31 May 2015: £nil).
(2) Stated inclusive of the liquid assets buffer of £82.6 million (2015: £83.1 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 available 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 2016 should be considered in light of the intra-period high broker margin
requirement of £258.5 million (2015: £293.7 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 as well as the
declared final dividend for the year ending 31 May 2016 all of which draw upon the Group’s liquidity.
130
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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 financial investments have been 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.
Year ended
31 May 2016
Year ended
31 May 2015
Operating activities
Profit before tax
Depreciation, amortisation and impairment (note 5)
Other non-cash adjustments
Income taxes paid
Own funds generated from operations
Movement in working capital
Inflow/(outflow) from investing activities
Interest received
Purchase of property, plant and equipment and intangible assets
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 gains on own funds
Own funds at 31 May
£m
207.9
12.7
19.8
(42.5)
197.9
(0.6)
1.1
(13.7)
(1.3)
(103.1)
(1.0)
(118.0)
79.3
507.1
1.3
587.7
£m
169.5
10.7
(0.5)
(42.9)
136.8
7.9
0.8
(12.4)
(1.9)
(112.8)
–
(126.3)
18.4
487.3
1.4
507.1
131
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
20. CASH GENERATED FROM OPERATIONS
Group
Company
Year ended
31 May 2016
Year ended
31 May 2015
Year ended
31 May 2016
Year ended
31 May 2015
Note
£m
£m
£m
£m
Operating activities
Profit before tax
Adjustments to reconcile profit before tax to net cash flow from
operating activities:
Net interest income on segregated client funds
Depreciation of property, plant and equipment
Net finance (income)/cost
Amortisation and impairment of intangible assets
Dividends received
Non-cash foreign exchange losses/(gains) in operating profit
Share-based payments
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
21. FINANCIAL INVESTMENTS
13
14
Group
UK Government securities:
At 1 June
Purchase of securities
Maturity of securities and coupon receipts
Accrued interest
Net (losses)/gains transferred to equity
At 31 May(1)
Less non-current portion
Current portion
(1) The balance is made up as follows:
Liquid asset buffer(1.1)
Collateral at broker(1.2)
31 May 2016
31 May 2015
£m
82.6
53.4
£m
83.1
25.3
207.9
169.5
124.0
62.7
(3.4)
5.2
(0.3)
7.5
–
3.0
7.0
(29.5)
26.3
223.7
(4.5)
5.7
0.1
5.0
–
(6.2)
5.3
32.8
2.7
210.4
–
–
1.1
–
–
–
1.0
0.2
(130.0)
(70.0)
–
–
200.6
(90.9)
104.8
–
5.3
2.9
110.7
112.8
31 May 2016
31 May 2015
£m
£m
108.4
61.3
(34.5)
0.9
(0.1)
136.0
(25.0)
111.0
82.5
76.4
(51.3)
0.5
0.3
108.4
(75.5)
32.9
(1.1) 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.
(1.2) During the year ended 31 May 2016 the Group purchased UK Government Gilts for £61.3m (carrying value of £60.9 million at 31 May 2016), of which £29.1 million is held at
brokers as collateral to support the hedging of client market exposures in accordance with the Group’s market risk management policy. At 31 May 2016 total UK Government
Gilts held at brokers had a carrying value of £53.4 million.
The effective interest rates of securities held at the year-end range from 0.33% to 1.01% (2015: 0.41% to 1.01%).
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(a)(iii) for a maturity profile.
132
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
22. TRADE PAYABLES
Group
Client funds held on balance sheet(1)
Amounts due to clients(2)
31 May 2016
31 May 2015
£m
39.0
4.4
43.4
£m
16.9
0.8
17.7
(1) Client funds held on balance sheet include both Title Transfer funds and client monies deposited with the Group’s Swiss banking subsidiary. These are recognised on the Group’s
Statement of Financial Position with an associated payable to clients.
(2) Amounts due to clients represent a combination of balances that will be transferred from the Group’s own cash into 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.
23. OTHER PAYABLES
Accruals
Other taxes and social security
Amounts due to Group companies (note 34(b))
Group
Company
31 May 2016
31 May 2015
31 May 2016
31 May 2015
£m
64.0
6.8
–
70.8
£m
55.3
5.9
–
61.2
£m
7.1
–
28.6
35.7
£m
6.9
–
119.6
126.5
Included within accruals are amounts in relation to employee bonuses.
24. PROVISIONS
The Group and Company had no material provisions at 31 May 2016. (31 May 2015: £nil).
25. CONTINGENT LIABILITIES
From time to time the Group may be involved in disputes in the ordinary course of business. Provision is made for all claims where costs
are likely to be incurred and there are currently no contingent liabilities expected to have a material adverse financial impact on the
Group’s consolidated results or net assets.
26. REDEEMABLE PREFERENCE SHARES
Allotted, called up and fully paid:
40,000 preference shares of £1 each
Company and Group
31 May 2016
31 May 2015
£m
–
£m
–
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% (2015: 8%).
133
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
27. SHARE CAPITAL
Allotted and fully paid:
(i) Ordinary shares (0.005p)
At 1 June 2014
Issued during the year
At 31 May 2015
Issued during the year
At 31 May 2016
(ii) B shares (0.001p)
At 31 May 2016
At 31 May 2015
Company and Group
Number of shares
Share capital
Share premium
£m
£m
365,754,631
403,145
366,157,776
491,299
366,649,075
65,000
65,000
–
–
–
–
–
–
–
206.8
–
206.8
–
206.8
–
–
During the year to 31 May 2016 there were 491,299 (2015: 403,145) ordinary shares with an aggregate nominal value of £24.56
(2015: £20.16) issued following the exercise of sustained performance plan and Value Share Plan awards for a consideration of
£24.56 (2015: £20.16).
Except as the ordinary shareholders have agreed or may otherwise agree, on a winding up of the Company, the balance of assets
available for distribution after the payment of all of the Company’s creditors and subject to any special rights attaching to other classes
of shares are distributed among the shareholders according to the amounts paid up on shares by them.
B shares
The B shares carry no entitlement to dividends and no voting rights. To the extent not already received by them the B shareholders shall,
on a winding up of the Company be entitled to receive, from the trustee, a consideration equal to the amount realised by the sale by the
trustee of approximately 122 ordinary shares for every B share held.
134
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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:
970,335 (2015: 1,046,727) ordinary shares of 0.005p each
Purchased during the year:
137,166 (2015: 48,169) ordinary shares of 0.005p each
Exercised/re-allocated during the year:
78,918 (2015: 124,561) ordinary shares of 0.005p each
At the end of the year:
1,028,583 (2015: 970,335) ordinary shares of 0.005p each
Company and Group
31 May 2016
31 May 2015
£m
1.2
1.0
(0.4)
1.8
£m
1.1
0.3
(0.2)
1.2
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 2016, 378,028 ordinary shares (2015: 320,192) were held in the
trust and have reduced shareholders’ equity by £1.7 million (2015: £1.0 million). These include 37,720 ordinary shares (2015: 35,956)
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 £3.0 million (2015: £2.5 million).
The Group has a Jersey resident Employee Benefit Trust which holds shares in the Company. At the 31 May 2016, the trust held 512,075
(2015: 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 (2015: £26). The market value of the shares held
conditionally at the year-end was £4.1 million (2015: £4.0 million).
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 2016, 15,538 ordinary shares (2015: 15,126) were held in the trust and at the year-end have reduced shareholders’ equity
by £0.1 million (2015: £0.1 million). These include 1,299 ordinary shares (2015: nil) which were not allocated to employees and are
available for future SIP awards
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 2016, 504 (2015: 100) B shares were sold by B shareholders to the Trust. The Trust
sold 61,470 (2015: 12,195) ordinary shares in order to realise the funds necessary to purchase these B shares. The Trust unconditionally
held 64,496 (2015: 63,992) B shares at the year-end. The Trust also held 504 (2015: 1,008) B shares and 61,470 (2015: 122,940) ordinary
shares which it may sell in order to satisfy its obligations to B shareholders, all of whom are current or former employees.
135
IG Group Holdings plc Annual Report 2016FINANCIAL 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 2014
Equity-settled employee share-based payments
Excess of tax deduction benefit on share-based
payments recognised directly in equity (note 10)
Foreign currency translation on overseas
subsidiaries
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 2015
Equity-settled employee share-based payments
Foreign currency translation on overseas
subsidiaries
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 2016
Share-based
payments
(note 30)
Foreign
currency
translation
Own shares
held in
Employee
Benefit Trusts
Transactions
with non-
controlling
interests
Available-for-
sale reserve
Total
other
reserves
(note 28)
£m
39.8
5.3
0.5
–
–
(0.2)
–
–
–
45.4
7.0
–
–
(0.4)
–
–
–
£m
48.7
–
–
0.6
–
–
–
–
–
49.3
–
4.5
–
–
–
–
–
52.0
53.8
£m
(1.1)
–
–
–
–
0.2
–
(0.3)
–
(1.2)
–
–
–
0.4
–
(1.0)
–
(1.8)
£m
(2.1)
–
–
–
–
–
–
–
–
(2.1)
–
–
–
–
–
–
–
(2.1)
£m
0.1
–
–
–
–
–
–
–
0.3
0.4
–
–
–
–
–
–
(0.1)
0.3
£m
85.4
5.3
0.5
0.6
–
–
–
(0.3)
0.3
91.8
7.0
4.5
–
–
–
(1.0)
(0.1)
102.2
136
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
Company
At 1 June 2014
Equity-settled employee share-based payments
Exercise of UK share incentive plans
Purchase of own shares
At 31 May 2015
Equity-settled employee share-based payments
Exercise of UK share incentive plans
Purchase of own shares
At 31 May 2016
Share-based payments
Own shares held
in Employee
Benefits Trusts
Total other reserves
(note 30)
(note 28)
£m
35.4
5.3
(0.2)
–
40.5
7.0
(0.4)
–
47.1
£m
(1.1)
–
0.2
(0.3)
(1.2)
–
0.4
(1.0)
(1.8)
£m
34.3
5.3
–
(0.3)
39.3
7.0
–
(1.0)
45.3
30. EMPLOYEE SHARE PLANS
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 expense recognised in the Income Statement in respect of
share-based payments (including associated social security costs) was £8.3 million (2015: £6.3 million).
30(a) CURRENT SCHEMES
Sustained performance plan (SPP)
The SPP award was introduced in the year ended 31 May 2014 to replace the VSP award for the Group’s Executive Directors and other
selected senior employees. The Remuneration Committee approves any awards made under the plan and is responsible for setting the
policy for the operation of the plan, agreeing performance targets and participation.
The legal grant of awards under the SPP occurs 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.
The following table shows the number of options awarded in relation to performance for the year ended 31 May 2016:
Award date
Share price at
award
Expected full
vesting date
At the
start of
the year
Awarded
during the
year
Lapsed
during the
year
Exercised
during the
year
Dividend
equivalent
awarded
during the
year
At the
end of
the year
Number
Number
Number
Number
Number
Number
4 Aug 2014
6 Aug 2015
Total
609.90p
4 Aug 2020
644,049
–
(53,919)
(257,620)
742.55p
4 Aug 2020
–
644,049
531,316
531,316
(55,112)
(128,624)
(109,031)
(386,244)
12,320
12,878
25,198
344,830
360,458
705,288
Of the above SPP exercised during the year ending 31 May 2016, the average share price at exercise was:
Award date
4 Aug 2014
6 Aug 2015
Average share price at exercise
734.5p
734.5p
The weighted average exercise price of all SPP awards is 0.005p.
137
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
30. EMPLOYEE SHARE PLANS CONTINUED
30(a) CURRENT SCHEMES CONTINUED
Sustained performance plan (SPP) continued
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.
The awards for the current year 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 (refer to the Directors’ Remuneration Report for performance conditions).
The table below details the number of option awards expected to be awarded for the year ended 31 May 2016:
Expected award date
Share price at
31 May 2016(1)
Expected full vesting date
6 Aug 2016
Total
(1) Closing share price on 31 May 2016.
Long-term incentive plan (LTIP)
799.5p
6 Aug 2020
Awards expected
during the year ending
31 May 2017
Number
854,353
854,353
The LTIP award has been made available to senior management who are not invited to participate in the SPP.
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 awarded LTIP vests after three years with a predefined number of shares allocated pro-rata based on achieving diluted earnings per
share growth of between pre-defined thresholds.
The maximum number of LTIP awards that can vest under the awards made are:
Award date
Share price at
award
Expected
vesting date
At the start of
the year
Awarded during
the year
Lapsed during
the year
Exercised
during the year
At the end of
the year
Number
Number
Number
Number
Number
28 Nov 2013
5 Aug 2014
6 Aug 2015
Total
584.0p
618.5p
734.5p
28 Nov 2016
5 Aug 2017
6 Aug 2018
406,412
446,262
–
852,674
–
–
469,111
469,111
–
(15,658)
(3,288)
(18,946)
–
–
–
–
406,412
430,604
465,823
1,302,839
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 USA 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 £1,800/A$3,000 (2015: £1,800/A$3,000) of partnership shares,
with the Company typically matching on a two-for-one (2015: two-for-one) basis. All matching shares vest after three years as long
as the employee remains employed with the Group for the term of the award. Shares awarded under the scheme are held in trust in
accordance with local tax authority rules. Employees are entitled to receive dividends on the shares held in trust for as long as they
remain employees.
The USA award invites employees to invest a maximum of 5% of their salary bi-annually to the award. The award runs for a six month
period and at the end of this period, the employees are invited to purchase shares in IG Group Holdings plc at a discount of 15% to the
scheme price, being the lower of the opening share price and the closing share price for the period.
138
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
The maximum number of SIP shares that can vest based on the awards made are:
Country of
award
Award date
Share price at
award
Expected
vesting date
At the start of
the year
Awarded
during the
year
Lapsed during
the year
Exercised
during the
year
At the end of
the year
Number
Number
Number
Number
Number
UK
27 July 2012
456.00p
27 July 2015
Australia
22 August 2012
432.00p 22 August 2015
UK
26 July 2013
580.00p
25 July 2016
Australia
15 July 2013
572.50p
15 July 2016
61,268
3,304
49,703
3,456
UK
25 July 2014
605.80p
25 July 2017
173,266
Australia
15 July 2014
599.70p
15 July 2017
8,366
–
–
–
–
–
–
UK
6 Aug 2015
739.50p
6 Aug 2018
Australia
12 Oct 2015
740.00p
12 Oct 2018
–
–
164,926
8,864
(656)
–
(6,517)
(324)
(18,254)
(1,410)
(12,060)
(129)
(60,612)
(3,304)
(2,324)
(324)
(5,510)
(564)
(2,922)
(386)
–
–
40,862
2,808
149,502
6,392
149,944
8,349
Total
299,363
173,790
(39,350)
(75,946)
357,857
Of the above SIP awards exercised during the year ended 31 May 2016, the average weighted share price at exercise was:
Country of award
UK
Australia
UK
Australia
UK
Australia
UK
Australia
Award date
27 July 2012
22 Aug 2012
26 July 2013
15 July 2013
25 July 2014
15 July 2014
6 Aug 2015
12 Oct 2015
Weighted average
share price
at exercise
729.25p
678.50p
740.68p
764.50p
756.43p
764.50p
767.09p
764.50p
The weighted average exercise price of all SIP awards during the year ended 31 May 2016 is 731.41p.
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 £6.7 million (2015: £8.9 million).
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.
139
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
30. EMPLOYEE SHARE PLANS CONTINUED
30(b) FAIR VALUE OF EQUITY-SETTLED AWARDS CONTINUED
The inputs below were used to determine the fair value of the TSR element of the SPP awards granted on 6 August 2015:
Date of grant
Share price at grant date (pence)
Expected life of awards (years)
Risk-free sterling interest rate (%)(1)
IG expected volatility (%)(2)
Interim dividend estimate(3)
6 August 2015
734.50p
3
–
20.13%
8.45p
(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.
The weighted average fair values per award granted are as follows:
At the
beginning of
the year
Awarded
during the
year
Lapsed during
the year
Exercised
during the
year
At the end of
the year
534.09p
262.45p
570.77p
526.33p
497.83p
242.96p
416.60p
419.82p
583.37p
534.09p
Year ended 31 May 2016
Year ended 31 May 2015
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 year ended 31 May 2014, however, the VSP
awards were 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 £10m
of surplus shareholder value created over the three year period above a hurdle. Half of the shares vest after three years and can be
exercised at that date, with the remaining half being deferred for a further year, conditional upon continued employment at the vesting
date. The 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
Share price at
award
Expected
vesting date
At the start of
the year
Awarded during
the year
Lapsed during
the year
Exercised
during the year
At the end of
the year
29 Oct 2010
20 Jul 2011
20 Jul 2011
Total
528.50p
29 Oct 2014
450.00p
450.00p
31 Jul 2014
31 Jul 2015
Number
Number
Number
Number
Number
24,975
1,313
81,637
107,925
–
–
–
–
–
(163)
(525)
(688)
(24,975)
(1,150)
(78,768)
(104,893)
–
–
2,344
2,344
Of the above VSP exercised during the year ended 31 May 2016, the average share price at exercise was:
Award date
29 Oct 2010
20 Jul 2011
The weighted average exercise price of all VSP awards is 0.005p.
Average share price at exercise
734.50p
734.50p
140
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
Legacy 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 which 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.
The remaining number of LTIP awards that can be exercised is:
Award date
Share price at
award
Expected
vesting date
At the start of
the year
Awarded during
the year
Lapsed during
the year
Exercised
during the year
At the end of
the year
Number
Number
Number
Number
Number
23 Jul 2007
Total
312.25p
23 Jul 2010
15,952
15,952
–
–
–
–
–
–
15,952
15,952
The weighted average exercise price of all LTIP awards is 0.005p.
31. CAPITAL COMMITMENTS
The Group and Company had £0.7 million capital expenditure contracted for at year-end but not yet incurred (2015: £0.4 million).
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
31 May 2016
31 May 2015
£m
6.6
20.6
9.1
36.3
£m
5.3
15.9
12.1
33.3
31 May 2016
31 May 2015
£m
2.3
9.8
8.0
20.1
£m
2.3
9.5
10.5
22.3
The Group’s main lease on its UK headquarters and several of its smaller offices include annual inflationary rent increase clauses.
141
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
33. TRANSACTIONS WITH DIRECTORS
During the year ended 31 May 2016 the Group paid £nil (inclusive of VAT) (2015: £13,200) to Promontory Financial Group (UK) Limited
(Promontory) for financial advisory services. The services provided were made in the ordinary course of business on similar terms as those
prevailing for transactions with other persons unconnected with the Group. S Tymms is a Non-Executive Director for the Group and a
managing director for Promontory. The Group had no other transactions with its Directors other than those disclosed in the Directors’
Remuneration Report.
34. RELATED PARTY TRANSACTIONS
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:
Company
Short-term employee benefits
Post-employment benefits
Share-based payments
34(b) COMPANY
The Company had the following amounts outstanding with subsidiaries at the year-end:
Loans to related parties
Loans from related parties
31 May 2016
31 May 2015
£m
3.2
0.4
2.9
6.5
£m
2.8
0.3
3.2
6.3
31 May 2016
31 May 2015
£m
131.5
28.6
£m
201.8
119.6
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 below sets out the classification of each class of financial assets and liabilities and their fair values (excluding accrued interest).
The Group considers the carrying value of all financial assets and liabilities to be a reasonable approximation of fair value and represents
the Group’s maximum credit exposure without taking account of any collateral held or other credit enhancements.
‘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 (i.e. monies held on behalf of clients) for profits
or losses incurred on a daily basis consistent with the legal right and intention to settle on a net basis.
142
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
The Group’s financial instruments are classified as follows:
Group
As at 31 May 2016
Financial assets
Cash and cash equivalents
Financial investments(1)
Trade receivables – due (to)/from brokers:
Non-exchange traded instruments
Exchange-traded instruments
Total trade receivables – due (to)/from brokers
Trade receivables – due from clients
Trade receivables – other amounts due from clients
Financial liabilities
Trade payables – Client funds held on balance sheet
Trade payables – Amounts due to clients
Redeemable preference shares
FVTPL-
Held for
trading
Loans and
receivables
Other
amortised
cost
Available-
for-sale
Total
carrying
amount
Fair value
Note
£m
£m
£m
£m
£m
£m
18
21
17
17
22
22
26
–
–
(1.0)
(13.5)
(14.5)
–
–
(14.5)
–
–
–
–
218.8
–
226.4
33.6
260.0
2.2
30.8
511.8
–
4.4
–
4.4
–
–
–
–
–
–
–
–
39.0
–
–
39.0
–
136.0
–
–
–
–
–
136.0
–
–
–
–
218.8
136.0
225.4
20.1
245.5
2.2
30.8
633.3
39.0
4.4
–
43.4
218.8
136.0
225.4
20.1
245.5
2.2
30.8
633.3
39.0
4.4
–
43.4
(1) The balance is made up of £82.6 million of 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, and a £53.4 million UK Government Gilt which is held at brokers as collateral to support the hedging of client market exposures in accordance
with the Group’s market risk management policy (refer to note 21).
Group
As at 31 May 2015
Financial assets
Cash and cash equivalents
Financial investments(1)
Trade receivables – due (to)/from brokers:
Non-exchange traded instruments
Exchange-traded instruments
Total trade receivables – due (to)/from brokers
Trade receivables – due from clients
Trade receivables – other amounts due from clients
Financial liabilities
Trade payables – Client funds held on balance sheet
Trade payables – Amounts due to clients
Redeemable preference shares
FVTPL-Held
for trading
Loans and
receivables
Other
amortised
cost
Available-
for-sale
Total
carrying
amount
Fair value
Note
£m
£m
£m
£m
£m
£m
18
21
17
17
22
22
26
–
–
(9.7)
0.8
(8.9)
–
–
(8.9)
–
–
–
–
148.8
–
176.2
71.9
248.1
2.0
28.4
427.3
–
0.8
–
0.8
–
–
–
–
–
–
–
–
16.9
–
–
16.9
–
108.4
–
–
–
–
–
108.4
–
–
–
–
148.8
108.4
166.5
72.7
239.2
2.0
28.4
526.8
16.9
0.8
–
17.7
148.8
108.4
166.5
72.7
239.2
2.0
28.4
526.8
16.9
0.8
–
17.7
(1) £83.1 million of 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 and a £25.3 million UK Government Gilt which is held at brokers as collateral to support the hedging of client market exposures in accordance with the Group’s market risk
management policy (refer to note 21).
143
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
35. FINANCIAL INSTRUMENTS CONTINUED
Financial instrument valuation hierarchy
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
Group
As at 31 May 2016
Financial assets:
Level 1(1)
Level 2(2)
Level 3(3) Total fair value
£m
£m
£m
£m
Trade receivables – due from/(to) brokers
Financial investments
(13.5)
136.0
(1.0)
–
–
–
(14.5)
136.0
(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 (2015:
none). During the year ended 31 May 2016, there were no transfers (2015: none) between Level 1 and Level 2 fair value measurements,
and no transfers into or out of Level 3 fair value measurements (2015: none).
Group
As at 31 May 2015
Financial assets:
Trade receivables – due (to)/from brokers
Financial investments
Group’s valuation processes
Level 1
Level 2
Level 3 Total fair value
£m
£m
£m
£m
0.8
108.4
(9.7)
–
–
–
(8.9)
108.4
The Group’s finance department includes a team that performs the valuations of financial assets required for financial reporting
purposes, including Level 3 fair values (where applicable). This team reports to the chief financial officer (CFO), and material
judgemental valuations are escalated to the Audit Committee (AC). If there is any material valuations, discussions of the valuation
processes and results are held between the CFO, AC and the finance team, in line with the Group’s reporting dates. There were no
material judgemental valuations in the year.
Reconciliation of the movement in Level 3 of the valuation hierarchy
At1 June 2015
Gains or losses
in revenue(1)
Cash settled
positions(2)
Transfers
At 31 May
2016(3)
Group
Financial assets:
Trade receivables – due from clients (note 3(a))
£m
–
£m
£m
48.0
(48.0)
£m
–
£m
–
(1) Disclosed in trading revenue in the Income Statement. This represents client positions that have closed in the year as well those open at the year-end.
(2) Value of client positions that have cash settled in the year.
(3) Value of open, unsettled client positions at the year-end disclosed in trading revenue in the Income Statement.
Group
Financial assets:
Trade receivables – due from clients (note 3(a))
At 1 June
2014
Gains or losses
in revenue
Cash settled
positions
Transfers
At 31 May
2015
£m
–
£m
£m
36.2
(36.2)
£m
–
£m
–
The impact of a reasonably possible alternative valuation assumption on the valuation of trade receivables – due from clients reported within Level
3 of the valuation hierarchy is not significant.
144
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
ACCOUNTING CLASSIFICATIONS AND FAIR VALUES – COMPANY
Company
As at 31 May 2016
Financial assets:
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 2015
Financial assets:
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
Loans and
receivables
Other
amortised
cost
Available-
for-sale
Total
carrying
amount
Fair value
£m
£m
£m
£m
£m
£m
–
–
–
–
–
131.5
131.5
–
–
–
–
–
28.6
–
28.6
–
–
–
–
–
131.5
131.5
28.6
–
28.6
131.5
131.5
28.6
–
28.6
FVTPL –
Held for
trading
Loans and
receivables
Other
amortised
cost
Available-
for-sale
Total
carrying
amount
Fair value
£m
£m
£m
£m
£m
£m
–
–
–
–
–
201.8
201.8
–
–
–
–
–
119.6
–
119.6
–
–
–
–
–
201.8
201.8
119.6
–
119.6
201.8
201.8
119.6
–
119.6
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 £456.3 million (2015: £388.4 million).
Finance income (refer to note 8) totalled £2.0 million (2015: £1.8 million). An amount of £2.0 million (2015: £1.8 million) 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 for
financial investments.
Finance costs (refer to note 9) totalled £1.7 million (2015: £1.9 million). An amount of £0.6 million represents interest expense on
financial liabilities not at fair value through profit or loss (2015: £0.7 million). The remainder £1.1 million (2015: £1.2 million) represents
fee expense arising from maintaining the Group’s committed bank facilities.
145
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
35. FINANCIAL INSTRUMENTS CONTINUED
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 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 2016
Financial assets
Financial investments
Trade receivables – due from brokers(1)
Trade receivables – due from clients(2)
Trade receivables – other amounts due to the Group
Financial liabilities
Trade payables – due to brokers(1)
Trade payables - due to clients(3)
Gross amounts
before offsetting
Amounts set off in
the balance sheet
Net amounts
presented in the
balance sheet
Note
£m
£m
£m
21
17
17
17
22
136.0
306.8
274.9
30.8
748.5
61.3
316.1
377.4
–
(61.3)
(272.7)
–
(334.0)
(61.3)
(272.7)
(334.0)
136.0
245.5
2.2
30.8
414.5
–
43.4
43.4
(1) ‘Trade receivables - due from brokers’ and ‘Trade payables – due to 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/from 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.
(2) ‘Trade receivables - due from clients’ represent balances with clients 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 with clients 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 (i.e. monies held on behalf of clients) for profits or losses incurred on a daily basis consistent with the legal right and intention to settle on a net basis. Therefore, as well
as being presented gross of segregated client money discussed 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 2015
Financial assets
Financial investments
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 clients
Gross amounts
before offsetting
Amounts set off in
the balance sheet
Net amounts
presented in the
balance sheet
Note
£m
£m
£m
21
17
17
17
22
108.4
320.9
238.1
28.4
695.8
81.7
253.8
335.5
–
(81.7)
(236.1)
–
(317.8)
(81.7)
(236.1)
(317.8)
108.4
239.2
2.0
28.4
378.0
–
17.7
17.7
146
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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 section of the Annual Report.
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 on-going 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 describes 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.
36(a) MARKET RISK
Market risk is the risk that changes in market prices will affect the Group’s income or the value of its holdings of financial instruments.
This is analysed into market price, currency and interest rate risk components.
The Group’s market risk is managed under the ‘Market Risk Policy’ on a group-wide basis and exposure to market risk at any point in
time depends primarily on short-term market conditions and the levels of client activity. The Group utilises market position limits for
“operational efficiency” and does not take proprietary positions based on an expectation of market movements. As a result not all net
client exposures are hedged and the Group may have a residual net position in any of the financial markets 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 expected 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 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.
36(a)(i) Market price risk
This is the risk that the fair value of a financial instrument fluctuates as a result of changes in market prices other than due to the effect of
currency or interest rate risks.
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.
During the year, following further development of the back-end risk management systems, a detailed analysis of the risk limits
market-by-market was undertaken. This resulted in increasing certain risk limits, as well as making the main regional and global equity
limits dynamic by responding intraday when the market is open and most liquid, when client activity increases or decreases and reducing
the limit approaching market closing. Accordingly the intraday limit will fluctuate but with a maximum limit set at £100.0 million.
At 31 May 2016 the exposure limit was £30 million (2015: £30.0 million) and the Group’s equity exposure was £4.8 million (2015: £2.8
million). The average equity exposure limit during the year was £30.0 million (2015: £26.4 million). 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.
147
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 36. FINANCIAL RISK MANAGEMENT CONTINUED
36(a) MARKET RISK CONTINUED
36(a)(i) Market price risk continued
Other market price risk:
The Group also has market price risk as a 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 fair value of interest rate derivatives and commodities at the year-end are as follows:
Interest rate derivatives
Commodities
31 May 2016
31 May 2015
£m
1.1
(5.3)
£m
11.0
7.4
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.
36(a)(ii) Foreign currency risk
The Group is exposed to two sources of foreign currency risk.
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.
Transactional foreign currency risk
Transactional foreign currency exposures represent financial assets or liabilities denominated in currencies other than the functional
currency of the transacting entity. Transaction exposures arise in the normal course of business and the management of this risk forms
part of the risk policies outlined above. Limits on the exposures which the Group will accept in each currency are set by the 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
31 May 2016
31 May 2015
£m
(2.3)
(5.7)
(10.2)
9.5
(0.9)
£m
(4.9)
(9.1)
(2.3)
(2.7)
(3.9)
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.
148
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
36(a)(iii) 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
Redeemable preference shares
Financial investments
Floating rate
Cash and cash equivalents
Trade receivables – due from brokers
Trade payables – client funds held on
balance sheet
Within 1 year
Between 2 and 5 years
More than 5 years
Total
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
£m
£m
£m
£m
£m
£m
£m
£m
–
111.0
218.8
245.5
(39.0)
–
32.9
148.8
239.2
(16.9)
–
25.0
–
75.5
–
–
–
–
–
–
536.3
404.0
25.0
75.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
136.0
108.4
218.8
245.5
(39.0)
148.8
239.2
(16.9)
561.3
479.5
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% (2015: 0.25%) per annum fall and a 0.5% (2015: 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 £2.3 million (2015: £2.2 million) per annum. The impact of such a rise
in interest rates would increase net interest income on segregated client funds by approximately £4.6 million (2015: £4.5 million) per
annum. Changes in risk variables have no material impact on the Group’s equity as the Group has no financial instruments designated in
hedging relationships.
36(b) CREDIT RISK
Credit risk is the risk that a counterparty fails to perform its obligations, resulting in financial loss. The principal sources of credit risk to
our business are from financial institutions and individual clients.
The Group’s credit risk is managed on a group-wide basis.
36(b)(i) Financial institution credit risk
Financial institution credit risk is managed in accordance with the Group’s ‘Counterparty Credit Management Policy’.
Financial institutional counterparties are subject to a credit review when a new relationship is entered into and this is updated
semi-annually (or more frequently as required e.g. on 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.
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; and
❚ Any change in short- and long-term credit rating.
149
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
36. FINANCIAL RISK MANAGEMENT CONTINUED
36(b) CREDIT RISK CONTINUED
36(b)(i) Financial institution credit risk continued
The Group is responsible under various regulatory regimes for the stewardship of client monies. These responsibilities are defined in
the Group’s Counterparty Credit Management Policy and include the appointment of and periodic review of institutions with which
client money is deposited. The Group’s 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 2016 there were no deposits held on an unbreakable basis
(2015: £nil).
36(b)(ii) 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 i.e. due to high general market
volatility or specific volatility relating to an individual financial instrument in which the client has an open position.
We mitigate, but do not eliminate, client credit risk in a number of ways, including the real-time monitoring of client positions via our
‘close-out monitor’, the ability of clients to set a level in advance at which the deal will be closed (the ‘stop’ level or ‘guaranteed stop’
level) and the use of tiered margining.
Credit risk is also mitigated in part through increased margin requirements on larger positions, 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 ‘close out monitor’ (COM) is an automated liquidation process whereby accounts which have broken the liquidation threshold are
automatically identified. Where client losses are such that their total equity falls below the specified liquidation level positions will be
liquidated, resulting in reduced credit risk exposure for the Group.
Both the ‘close out monitor’ and client initiated ‘stops’ result in the transfer of market risk to the Group. Market risk arises following the
closure of the underlying client position as the Group (subject to the market risk limits, discussed in the ‘Market risk’ section), may hold a
corresponding hedging position that will, assuming sufficient market liquidity, be unwound.
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 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
‘stop-losses’. As at 31 May 2016, 99.91% (2015: 99.85%) of client accounts were subject to the automatic COM procedure or are
‘limited risk’ accounts.
150
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016 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 75% of the value of the notional client position for large client positions but a
reduced margin requirement for smaller client positions.
These tiered margins, in addition to the COM discussed earlier, contribute to the further mitigation of the Group’s client counterparty
credit risk exposure.
Management of client collateral
The Group also accepts collateral from a small number of its stockbroking clients in the form of shares or other securities which mitigate
the Group’s credit risk. Clients retain title to the securities lodged whilst their trading account is operating normally, but are required
to sign a collateral agreement which will allow the Group to take title and sell the securities in the event of the client defaulting on any
margin obligations.
The collateral value assigned to the client account is updated in real-time, and each security is assigned a ‘haircut’ value e.g. a client is
typically allowed to use 95% of a major FTSE 100 current market value.
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.
151
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 36. FINANCIAL RISK MANAGEMENT CONTINUED
36(b) CREDIT RISK CONTINUED
36(b)(ii) Client credit risk continued
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+ & above
AA to AA-
A+ to A-
BBB+ to BBB-
BB+ to B
CCC
Unrated(1)
Total carrying amount
Cash and cash equivalents
Trade receivables –
due from brokers
Trade receivables –
due from clients
31 May 2016
31 May 2015
31 May 2016
31 May 2015
31 May 2016
31 May 2015
£m
£m
(note 18)
£m
£m
(note 17)
£m
£m
(note 17)
–
–
–
–
–
–
12.9
6.1
147.0
52.4
–
–
0.4
218.8
218.8
–
–
–
–
–
–
7.0
6.5
125.7
8.7
0.2
–
0.7
148.8
148.8
–
–
–
–
–
–
–
16.9
149.5
73.9
–
–
5.2
245.5
245.5
–
–
–
–
–
–
–
16.9
219.2
0.2
–
–
2.9
239.2
239.2
18.8
(17.6)
1.2
22.7
(21.7)
1.0
0.4
–
0.4
–
–
–
–
–
–
0.6
0.6
2.2
0.1
0.2
0.3
–
–
–
–
–
–
0.7
0.7
2.0
(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 (2015: 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 and 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
31 May 2016
31 May 2015
£m
21.7
4.0
(2.4)
(6.6)
0.9
17.6
£m
10.6
18.0
(2.8)
(4.1)
–
21.7
In the table above, for 31 May 2016 ‘debts written off’ line includes £4.3 million relating to the Swiss franc event debts which were
provided for in the year ended 31 May 2015. In the May 2015 ‘gross charge for the year’ line is £15.1 million and £2.8 million in the
‘recoveries’ line, in relation to the Swiss franc event (see note 2 for details).
152
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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.
36(c) CONCENTRATION RISK
Concentration risk is defined as all risk exposures with a loss potential which is large enough to threaten the solvency or the financial
position of the Group. In respect of financial risk, such exposures may be caused by credit risk, market risk, liquidity risk or a combination
or interaction of those risks.
The following table analyses the Group’s credit exposures, at their carrying amounts, by geographical region and excludes 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 2016
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 2015
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
£m
150.9
136.0
82.6
1.6
21.9
393.0
UK
£m
71.8
108.4
62.8
1.6
22.2
266.8
Europe
Australia Rest of World
£m
£m
£m
0.5
–
36.7
0.4
–
37.6
62.1
–
–
0.1
1.3
63.5
5.3
–
126.2
0.1
7.6
139.2
Europe
Australia Rest of World
£m
£m
£m
0.5
–
44.9
0.1
–
45.5
5.7
–
29.1
0.2
–
35.0
70.8
–
102.4
0.1
6.2
179.5
Total
£m
218.8
136.0
245.5
2.2
30.8
633.3
Total
£m
148.8
108.4
239.2
2.0
28.4
526.8
The Group’s largest credit exposure to any one individual broker at 31 May 2016 was £52.2 million (BBB+ rated) (2015: £91.2 million, A-
rated). Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at 31 May 2016 was £79.4 million (A rated)
(2015: £54.1 million, 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 2016 and 31 May 2015.
153
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
36. FINANCIAL RISK MANAGEMENT CONTINUED
36(d) LIQUIDITY RISK
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities that are settled
by delivering cash or other financial assets. 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 2016
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 – Client funds held on balance sheet
Trade payables – Amounts due to clients
Derivative
Non-derivative
£m
£m
–
–
(14.5)
–
–
(14.5)
–
–
–
218.8
136.0
260.0
2.2
30.8
647.8
(39.0)
(4.4)
(43.4)
Total
£m
218.8
136.0
245.5
2.2
30.8
633.3
(39.0)
(4.4)
(43.4)
Derivative trade receivables disclosed in the table above represent the Group’s open positions with brokers. Non-derivative trade
receivables and payables disclosed in the table above represent cash margin held at brokers, UK Government securities and client
debtors. Derivative and non-derivative cash flows are presented alongside each other in the table above as they result from the same
underlying trading relationship and as the Group has both the legal right and intention to settle on a net basis.
Trade receivables are disclosed as repayable on demand as when client positions are closed the corresponding positions relating to
the hedged position are closed with brokers. Accordingly the Group releases cash margin, which is repaid by brokers to the Group
on demand.
Amounts payable on demand:
Derivative
Non-derivative
£m
£m
–
–
(8.9)
–
–
(8.9)
–
–
–
148.8
108.4
248.1
2.0
28.4
535.7
(16.9)
(0.8)
17.7
Total
£m
148.8
108.4
239.2
2.0
28.4
526.8
(16.9)
(0.8)
17.7
As at 31 May 2015
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 – Client funds held on balance sheet
Trade payables – Amounts due to clients
154
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
Amounts payable over 5 years:
The Group has non-derivative cash flows payable over 5 years in relation to the redeemable preference shares at 31 May 2016 and 2015,
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 2016 (2015: £nil).
At 31 May 2016 the Company held cash and cash equivalents of £nil (2015: £724) available on demand and redeemable preference
shares of £40,000 (2015: £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, United States, Switzerland and Dubai 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 2015 ICAAP was approved by the Board in December 2015. There have been no capital requirement breaches during the
financial year. The Group also regularly undertakes three-year stress and scenario testing of its main financial and operational risks to
project its future capital and liquidity adequacy requirements.
The 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 the Group’s risk exposures, risk assessment process and hence the capital adequacy of the Group.
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 ‘total equity’:
Return on assets
Capital resources
31 May 2016
31 May 2015
24.8%
22.3%
The Group had maintained a Total Capital Ratio well in excess of the regulatory minimum of 8% throughout the year. An analysis of the
Group’s consolidated capital resources and risk weighted exposure amounts is provided in the Operating and Financial Review.
The following table summarises the Group’s capital adequacy on a consolidated basis.
Total equity per audited financial statements
Less: Foreseeable dividend
Investment in own shares
Common Equity Tier 1 Capital
Less: Intangible assets
Less: Investment in own shares
Less: Deferred tax asset
Total capital resources
Total Risk Exposure Amounts – Pillar 1
Total Capital Ratio
Capital conservation buffer
Countercyclical buffer
Total Capital Ratio including combined buffer
* Prior year capital ratios have been restated to reflect recognition of foreseeable dividends.
31 May 2016
Restated*
31 May 2015
£m
663.0
(84.0)
1.8
580.8
(125.1)
(1.8)
(7.2)
446.7
£m
591.4
(71.8)
1.2
520.8
(124.0)
(1.1)
(7.1)
388.6
(1,568.4)
(1,401.3)
28.5%
(9.8)
–
28.3%
27.7%
–
–
27.7%
155
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS
38. SUBSEQUENT EVENTS
During June 2016 the Group withdrew and fully repaid £160.0 million which was drawn in different tranches in anticipation of extreme
market volatility from the results of the United Kingdom’s European Referendum.
In June 2016, the Group renewed its £160.0 million of revolving credit facility from a syndicate of four UK banks. This facility has £100.0
million available for up to a 1 year term (with an option to extend for a further year) and £60.0 million available for up to 3 years.
A final dividend of 22.95p per share amounting to £84.0 million was proposed by the Board on 14 July 2016.
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(b).
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
2016 were authorised for issue by the Board of Directors on 19 July 2016 and the Statements of Financial Position signed on the Board’s
behalf by Peter Hetherington. 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 Company’s registered address is 25 Dowgate Hill, London,
United Kingdom, EC4R 2YA.
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 2016 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 2016.
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 £124.0 million (2015: £62.7 million). 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 (2015: £nil).
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 Company and the Group have adequate resources to continue in operational existence for the foreseeable future.
156
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016 40.2 BASIS OF CONSOLIDATION
40.2.1 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 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.
40.2.2 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.
157
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 40. ACCOUNTING POLICIES CONTINUED
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
–
over the lease term of up to 15 years
Office equipment, fixtures and fittings
Computer and other equipment
–
–
over 5 years
over 2, 3 or 5 years
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable, and are written down immediately to their recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on derecognition of an asset is determined as the difference between the
sale proceeds and the carrying amount of the asset and is included in the Income Statement in the period of derecognition.
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.
158
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016
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; and
the correlation between development costs and future revenue has been established.
Following initial recognition, the historic cost model is applied, with intangible assets being carried at cost less accumulated amortisation
and accumulated impairment losses.
Intangible assets with a finite life are amortised 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 3 years
straight-line basis over the contract term of up to 5 years
straight-line basis over 2 years
straight-line basis over 3 years
straight-line basis over 10 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.
40.8 INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are stated at cost less accumulated impairment losses.
159
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 40. ACCOUNTING POLICIES CONTINUED
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.
40.9.1(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.
40.9.1(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’.
40.9.1(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 of ‘financial investments’.
160
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016 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 expired.
(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.
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 transfers funds are accordingly held on the Group’s
Statement of Financial Position with a corresponding liability to clients within trade payables.
Cash and cash equivalents also includes client monies deposited with the Group’s Swiss banking subsidiary (refer to note 18).
161
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 40. ACCOUNTING POLICIES CONTINUED
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 is included in finance income using the Effective Interest Rate (EIR) method.
The effective interest rate 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 (for
example, 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 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
40.17.1 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.
40.17.2 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.
40.17.3 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.
162
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016 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
40.19.1 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.
40.19.2 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.
40.19.3 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 Company operated a value-sharing plan, which was 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 operating expenses,
with a corresponding credit to 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.
163
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS 40. ACCOUNTING POLICIES CONTINUED
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 options as well as 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 options
❚ Commission earned from the execution-only share dealing service after deducting contracting and trade settlement fees payable to
third party brokers. Revenue is stated net of sales taxes and is recognised in full on the date of trade being placed
❚ Member fees charged by the Group’s regulated futures and options exchange
The Group acts in a non-advisory capacity to match buyers and sellers under the execution-only share dealing service, does not act as
principal when providing this service and only receives and transmits orders between counterparties.
Trading revenue is reported before Introducing partner commission, along with betting duties and financial transaction taxes paid, is
disclosed as an expense in arriving at net operating income.
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.
Finance income or 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 after taking
account of Introducing 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 operating expenses.
40.22 USE OF NON-GAAP MEASURES
The Group believes that the presentation of underlying results provides additional useful information to shareholders on the underlying
trends and comparable performance of the Group over time. These terms are not defined under IFRS and may therefore not be
comparable with similarly titled profit measures reported by other companies. They are not intended to be a substitute for, or superior
to, GAAP measures. The term ’underlying’ refers to the relevant profit, earnings or taxation being reported excluding exceptional items.
Other non-GAAP measures used in these Financial Statements are return on assets (refer to note 37), capital resources (refer to note 37)
and own funds generated from operations (refer to note 19(d)).
40.23 EXCEPTIONAL ITEMS
Exceptional items are those items of income and expense that the Group considers are material one-off in nature and of such
significance that they merit separate presentation in order to aid the readers’ understanding of the Group’s financial performance. Such
items would include profits or losses on disposal of businesses and costs associated with acquisitions and disposals; major restructuring
programmes; significant goodwill or other asset impairments; other particularly significant or unusual items.
164
NOTES TO THE FINANCIAL STATEMENTSIG Group Holdings plc Annual Report 2016 40.24 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.
40.25 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.
40.26 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.
40.27 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, who for the Group are the Executive Directors (CODM) in
order to assess the performance and to allocate resources to those ‘operating segments’. The Group has therefore determined its
operating segments based on the management information received on a regular basis by the Executive Directors of the IG Group
Holdings plc Board as they are considered to be the CODM. Operating segments that do not meet the quantitative thresholds required
by IFRS 8 are aggregated.
The Group 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.
40.28 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 2015.
40.28.1 New accounting standards and interpretations
(a) Standards and amendments adopted during the year
In the current year, the Group adopted the following standards, amendments and interpretations, which have not had a material impact
on these Financial Statements:
❚ Annual Improvements to IFRSs 2010-2012 and 2011-2013 cycles
❚ Annual Improvements to IFRSs 2012-2014 cycle
❚ Disclosure initiative: Amendments to IAS 1
(b) Standards issued with effective dates, subject to EU endorsement which do not impact these financial statements:
❚
IFRS 9, ’Financial instruments’ - Effective for annual periods beginning on or after 1 January 2018
❚ Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 - Effective for periods beginning on or after 1
January 2016
❚
IFRS 15, ’Revenue from contracts with customers’ - Effective for annual periods begining on or after 1 January 2018
❚ Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 - Effective for periods
beginning on or after 1 January 2016
❚ Equity method in separate financial statements - Amendments to IAS 27 - Effective for periods beginning on or after 1 January 2016
❚ Sale or contribution of assets between an investor and its associate or joint venture - Amendments to IFRS 10 and IAS 28 - Effective
for periods beginning on or after 1 January 2016
❚
Investments entities: Applying the consolidation exception - Amendments to IFRS 10, IFRS 12 and IAS 28 - Effective for periods
beginning on or after 1 January 2016
The impact of these standards on the Financial Statements is being assessed by the Group
165
IG Group Holdings plc Annual Report 2016FINANCIAL STATEMENTS FIVE-YEAR SUMMARY
GROUP INCOME STATEMENT
For the year ended 31 May
Net trading revenue
Other net operating (loss)/income
Net operating income
Operating expenses
Depreciation, amortisation and amounts written off PPE
Operating profit
Finance income
Finance costs
Profit before tax
Profit before taxation from continuing operations
Tax expense
Loss from discontinued operations
Profit/loss for the year
OTHER METRICS
2016
£m
456.3
(7.2)
449.1
(228.8)
(12.7)
207.6
2.0
(1.7)
207.9
207.9
(43.6)
–
164.3
2015
£m
388.4
(1.2)
387.2
(206.9)
(10.7)
169.6
1.8
(1.9)
169.5
169.5
(37.6)
–
131.9
2014(1)
2013(2)
2012(2)
£m
370.4
3.8
374.2
(169.1)
(9.7)
195.4
1.5
(2.0)
194.9
194.9
(47.7)
–
147.2
£m
361.9
6.1
368.0
(163.8)
(12.2)
192.0
2.0
(1.8)
192.2
192.2
(50.5)
–
141.7
£m
366.8
2.4
369.2
(172.9)
(10.8)
185.5
2.5
(2.3)
185.7
185.7
(48.6)
(0.3)
136.8
Own funds generated from operations
£197.9m
£136.8m
£160.6m
£154.3m
£140.7m
2016
2015
2014(1)
2013(2)
2012(2)
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
44.94p
44.58p
8.45p
22.95p
31.40p
70.44%
36.13p
35.99p
8.45p
19.70p
28.15p
78.22%
40.35p
40.22p
5.75p
22.40p
28.15p
69.99%
39.02p
38.80p
5.75p
17.50p
23.25p
59.92%
37.90p
37.54p
5.75p
16.75p
22.50p
59.94%
45.56%
43.64%
52.61%
53.10%
50.60%
166
IG Group Holdings plc Annual Report 2016
CLIENT METRICS
Average revenue per client
Number of active clients
Number of clients opened
Number of clients trading for the first time
2016
£2,990
152,619
100,651
52,986
2015
£2,854
136,111
70,967
40,932
2014(1)
£2,937
126,108
54,957
33,709
2013(2)
£2,659
136,063
55,889
37,914
2012(2)
£2,560
143,304
67,593
48,029
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
Prepayment 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 interest
Total equity
Total equity and liabilities
2016
£m
13.0
125.1
25.0
7.2
170.3
278.5
12.4
218.8
111.0
620.7
791.0
43.4
70.8
–
13.8
128.0
–
–
–
–
2015
£m
13.3
124.0
75.5
7.1
219.9
269.6
12.2
148.8
32.9
463.5
683.4
17.7
61.2
–
13.1
92.0
–
–
–
–
2014(1)
£m
2013(2)
£m
2012(2)
£m
13.0
122.7
32.2
7.1
175.0
327.5
12.2
101.5
50.3
491.5
666.5
21.9
58.4
–
20.3
100.6
–
–
–
–
14.4
120.5
–
9.5
144.4
300.6
10.3
98.3
50.5
459.7
604.1
19.0
53.8
–
24.3
97.1
–
–
–
–
15.6
115.4
–
11.9
142.9
222.3
9.7
228.2
–
460.2
603.1
61.1
64.8
1.4
28.7
156.0
–
–
–
–
128.0
92.0
100.6
97.2
156.0
663.0
–
663.0
791.0
591.4
–
591.4
683.4
565.9
–
565.9
666.5
507.0
–
507.0
604.1
447.0
0.1
447.1
603.1
(1) FY14 has been restated following the adoption of IFRIC 21. Please refer to note 38 of the financial statements in the 2015 Annual Report.
(2) FY12 and FY13 have not been restated following the adoption of IFRIC 21 on a materiality basis.
167
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES
EXAMPLES
In the following pages we have illustrated detailed examples for
contracts for difference, spread betting and share dealing.
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 2
OFFER PRICE
MID
PRICE
BID
PRICE
80.35p
B plc
80.30p
80.25p
Expecting the market will
fall, you sell at the
BID PRICE
GOING SHORT
TRADE
DETAILS
BID PRICE
80.25p
SIZE (SHARES)
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)
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.
STEP 3
Traditionally, clients who held long positions overnight would need to pay a funding
charge, while clients with short positions would receive interest if held overnight. This
charge or interest is calculated as the one-month sterling LIBOR rate +/- a spread.
However, with current market interest rates lower than the spread, clients with short
positions also incur a charge. As at 31 May 2016, 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
(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 31 May 2016.
168
IG Group Holdings plc Annual Report 2016 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.
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
BID
PRICE
78.35p
B plc
78.30p
78.25p
The market has fallen – you
buy at the IG OFFER PRICE
CLOSING POSITION
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.
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
STEP 6 – CALCULATING THE PROFIT OR LOSS
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 margin
requirement, but is only payable if the stop
is triggered. 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 31 May 2016.
(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.
169
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES EXAMPLES CONTINUED
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
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.
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. When you have a guaranteed stop
attached to your trade position, we apply a small fee only if the stop is triggered. 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 completely free, but you may not be closed at this
level, particularly if the market gaps.
(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.
170
IG Group Holdings plc Annual Report 2016 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.
STEP 4 – CLOSING THE POSITION
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
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
148.4p
SIZE (£ PER POINT)
£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
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%).
ITEM
Buying spread (Step 1)
Selling spread (Step 4)
Gross profit (Step 4)
IG hedging gain(1)
CLIENT
(£20.00)
(£20.00)
IG(1)
£20.00
£20.00
£390.00
(£390.00)
N/A
£390.00
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).
Net gain
£350.00
£40.00
171
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES EXAMPLES CONTINUED
SHARE DEALING WITH IG
In this example, you decide to buy A plc (assumed to be a FTSE 100 company) at the offer price on your share dealing account, as
you wish to own shares in the company. You have linked your share dealing account to your CFD account so you have access to IG’s
collateral feature. After a few months, the share price has risen and you decide to close your position by selling A plc at the current
bid price.
Your profit is the difference between the buying and selling prices, plus any dividends and minus any commission or other costs
(discussed in Steps 2 and 5).
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 the value of shares, ETFs and ETCs bought through any stockbroking or stocks and shares ISA account can fall as well as rise, which
could mean getting back less than you originally deposited.
STEP 1 - PRICE DISCOVERY
Most traditional stockbrokers only provide a ‘request for quote’ or ‘at quote’ service that delivers a fixed price, which is only valid for
a short period of time. With us, you can trade ‘at quote’ or ‘on exchange’, allowing you to interact directly with the order book in the
underlying market. Dealing ‘on exchange’ offers you live visibility of prices and full market depth allowing you to make an informed
decision. Choose between ‘at quote’ or ‘on exchange’ to execute your order at the best available price.
If you place an ‘on exchange’ order we use our Smart Order Router (SOR) to seek out the best price and size available. Our SOR
searches for liquidity across multiple venues, starting with ‘dark pools’ that offer mid-point matching – the best possible chance of
getting price improvements. If there is no improvement available on ‘dark’ venues the SOR goes to a market maker, again looking for
size or price improvements. Finally, if neither of the above sources provides price or size improvements, SOR sends orders to ‘lit’ venues,
where they will be visible on an exchange.
At quote
Interact with market makers
A PLC
1,000 shares
On exchange
Interact directly with order book
Get fixed price by RSP
Fixed price: 777p
Place order in the book
Order to buy
SOR looks for the best available price at execution
Potential price improvement
SOR looks for the best available
price - venue 1
SOR looks for the best available
price - venue 2
775p
778p
STEP 2 – EXECUTING YOUR TRADE
Once you have decided whether you would like to deal ‘at quote’ or ‘on exchange’, you can place your trade directly from your
platform. Once the appropriate price has been identified, your trade is executed.
When you buy your shares you are required to have sufficient funds on your account to make the purchase and cover the cost of
commission, as well as currency conversion fees (if the share is priced in a foreign currency). In this example, we assume you have also
been active on your CFD account, which means you automatically qualify for our lowest commission rate(1), which is £5. The available
funds in your account will therefore fall by the value of the shares you have bought plus the commission. In this example, you purchase
100 shares priced at 775GBp (the best available price), which will reduce your cash balance to £220 (i.e. £1000 – £775 – £5). Unlike our
margined products, you own your shares outright, meaning that you do not need to make any additional payments to maintain your
stockbroking position.
TRADITIONAL
STOCKBROKER
OFFER PRICE
IG OFFER
PRICE
IG BID PRICE
TRADITIONAL
STOCKBROKER
BID PRICE
777p
775p
771p
768p
If you expect the market
to rise, you ‘buy’ at the
OFFER PRICE
GOING LONG
TRADE
DETAILS
OFFER PRICE
SIZE (SHARES)
775p
COST
100
£775.00
100 (number of shares) x 775p (the IG offer price)
COMMISSION
£5.00
172
IG Group Holdings plc Annual Report 2016 STEP 3 – USING YOUR SHARES AS COLLATERAL
You can make the most of your shareholdings with IG using our collateral service. The collateral service allows you to use up to 95% of
the value of your shareholdings as initial margin against your spread bets or CFD positions.(2)In this example, we assume that you have
a position on your CFD account in B plc, another FTSE 100 listed company, which has a margin requirement of £300. The fact that you
are holding the physical shares in A plc, and have linked your accounts for collateral means that you can use up to 95%(2) of the value of
this position (that is, £775 x 95% = £736) to cover your margin requirement on B plc. This will free up any additional funds on your CFD
account, which you can then use to open further CFD positions or as a buffer against adverse market movements.
It is important to note that the collateral value is real-time. This means the collateral value of your assets will fluctuate according to
movements in the price of the stock(s) you hold on your stockbroking account.
Your shareholdings remain intact and retain their full value;(3) you simply use a percentage of their value as collateral to fund shorter-term
trades. Importantly, you can only use your shareholdings to cover the initial margin on your spread bets or CFDs. Any running losses will
need to be covered by the available cash in your CFD account. For more details, please see our website, IG.com.
STEP 4 – CORPORATE ACTIONS
In this example we have kept things simple and assumed no corporate actions occur. However, as the owner of the equity we will also
reflect the impact of any other corporate actions on your shares, such as a rights issue, on your positions. For more details, please see
our website, IG.com.
STEP 5 – SELLING YOUR SHARES
As the objectives of your portfolio change, you can divest all or parts of your shareholding using our superior execution technology.
Once your sale is confirmed, your account will be credited with the equivalent cash. As before, we assume that you qualify for our lowest
commission rate as a holder of active stockbroking and margined accounts, so the commission is £6. If the price of your shares in A plc
has risen from 775p to 846p, your account balance will rise to £1,060 (i.e. £219 + £846 - £5).
STEP 6 – TRANSPARENT TRADING
As well as buying new shares you can conveniently keep your shares portfolio in one place, by transferring in your existing shareholdings
to us, free from IG charges. Once your shares are transferred you will have access to the full range of features on IG’s platform including
our collateral service and our superior execution.
You will also have access to our range of over 9,000 international shares, which are offered in their local denomination, regardless of the
currency on your account. This means you’ll know exactly what you’re paying, with our fee of just 0.3% to convert to your base currency.
Obtaining live prices for international stocks from an exchange can incur a monthly fee, but we will refund this charge in full if you
place a minimum number of trades in the previous month. However, unlike some other stockbrokers, this is the only other fee – besides
commission – we will charge you, meaning you are only charged when you trade and not just for holding your portfolio.
TRADITIONAL
STOCKBROKER
OFFER PRICE
IG OFFER
PRICE
IG BID PRICE
TRADITIONAL
STOCKBROKER
BID PRICE
852p
850p
846p
844p
TRADE
DETAILS
BID PRICE
846p
SIZE (SHARES)
100
The market has risen –
you sell at the IG BID PRICE
CLOSING POSITION
COMMISSION
£5.00
PROFIT PER SHARE
71p
Difference between opening offer price and closing bid price
(846p - 775p)
GROSS PROFIT ON TRADE
£71.00
(1) Commissions are variable, but if your share dealing account is accessible under the same login as your active spread betting or CFD account, you automatically qualify for our
lowest commission rate by placing at least one spread bet or CFD trade in the previous calendar month. This was £5 on 31 May 2016.
(2) Generally you can use 75% - 95% of the value of your portfolio as collateral, depending on the liquidity of shareholdings. For more details, please see our website, IG.com.
(3) We do all we can to make sure you have the opportunity to cover any realised spread betting or CFD losses with cash. If you do not deposit additional funds to cover a losing
leveraged trade, we will follow our normal process of closing the trade and informing you that your account is in debit. We will only take control of your shares if your account
remains in debit. For more details, please see our website, IG.com.
173
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES GLOSSARY
TERM
ABI
AGM
Basel III
Binary bet
CFTC
CGU
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
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
The US Commodities Futures Trading Commission
Cash Generating Unit
Close-out monitor
(COM)
Contract for
difference (CFD)
COREP
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)
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 168
Capital and Liquidity Reporting
CSR
DEPS
DFSA
Corporate social responsibility
Diluted Earnings Per Share
Dubai Financial Services Authority
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
EQA
ESMA
ETF
The FCA’s Disclosure and Transparency Rules
European Banking Authority
Earnings per share
External Quality Assessment
European Securities and Markets Authority
Exchange-traded fund
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
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
IOSCO
International Organization of Securities Commissions
ISA
ISS
JFSA
International Standards on Auditing
Institutional Shareholder Services Inc
Japanese Financial Services Agency
174
IG Group Holdings plc Annual Report 2016 TERM
KPIs
KRIs
LCR
LIBOR
LTIP
MAS
MiFID
Multilateral trading
facility (MTF)
NOTES
Key Performance Indicators
Key Risk Indicators
Liquidity Coverage Ratio
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
A non-exchange financial-trading venue providing an alternative to traditional stock exchanges
Nadex
The North American Derivatives Exchange, our US-based retail derivatives exchange business
Net Promoter Score
(NPS)
NSFR
OTC
PRIPs
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)
Net Stable Funding Ratio
‘Over the counter’ refers to non-exchange-traded financial instruments
Packaged Retail Investment Products
Regulatory capital
resources
Rest of World
The total capital available to the Group, as calculated under the EU Capital Requirements Regulation and
the Financial Conduct Authority’s IFPRU 3 rules
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
Tiered margins
Title Transfer
Collateral
Arrangement (TTCA)
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 170
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%
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)
Up/down binary bet
Volatility-based binary
bet
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
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)
A category of binary bet where the achievement of a specific outcome is directly related to the volatility of
the underlying market
VSP
Value-sharing plan
175
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES 176
IG Group Holdings plc Annual Report 2016 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
EUROPE (EXCLUDING UK)
DUBLIN
IG (IG Index Limited and
IG Markets Limited)
World Rugby House
8-10 Pembroke St Lower
Dublin 2
REPUBLIC OF IRELAND
+353 1 526 6061
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
MILAN
IG Markets Limited
Via Paolo da Cannobio, 33
7° Piano
20122 Milano
ITALY
+39 02 0069 5595
italiandesk@ig.com
IG.com/it
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
SWITZERLAND
IG Bank S.A
42 Rue du Rhone
Geneve
1204
SWITZERLAND
+41 22 888 10 02
support.ch@ig.com
IG.com/en-ch
MIDDLE EAST
DUBAI
IG Limited
Office 2 &3, level 27,
Currency House- Tower 2,
Dubai International Financial Centre,
P O Box – 506968
DUBAI, UAE
+971 45 59 2000
helpdesk.ae@ig.com
IG.com/ae
ASIA PACIFIC
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
NORTH AMERICA
CHICAGO
North American
Derivatives Exchange, Inc.
311 South Wacker Drive
Suite 2675
Chicago, IL 60606
US
+1 312 884 0100
customerservice@nadex.com
nadex.com
SOUTH AFRICA
JOHANNESBURG
IG Markets South Africa Limited
The Place
1 Sandton Drive
Sandton, Gauteng
2196 Johannesburg
SOUTH AFRICA
+27 (0)10 344 0051
helpdesk.za@ig.com
IG.com/za
177
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES SHAREHOLDER AND COMPANY INFORMATION
SHAREHOLDER INFORMATION
COMPANY 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 change your
communication method back to post by logging in to your
Investor Centre account and go to “update my details” followed
by “communication options”.
The Registrar can also be contacted by telephone on 0371 495
2032. Calls to this number cost no more than a national rate from
any type of phone or provider. 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) 7500 2030 US +1 (212) 723 5435
DIVIDEND DATES(1)
Ex-dividend date
Record date
29 September 2016
30 September 2016
Last day to elect for dividend reinvestment plan
7 October 2016
Annual General Meeting
21 September 2016
Final dividend payment date
2017 interim dividend
28 October 2016
February 2017
ANNUAL SHAREHOLDER CALENDAR(1)
Company reporting
Final results announced
Annual Report published
Annual General Meeting
19 July 2016
9 August 2016
21 September 2016
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.
DIRECTORS
Executive Directors
P G Hetherington (Chief Executive)
Non-Executive Directors
A J Green (Chairman)
S G Hill
J A Newman
S J Tymms
J Felix
M L May (Senior Independent Director)
COMPANY SECRETARY
T Lee
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
HSBC Bank plc
8 Canada Square
London
E14 5HQ
Royal Bank of Scotland Group plc
280 Bishopsgate
London
EC2M 4RB
SOLICITORS
Linklaters
1 Silk Street
London
EC2Y 8HQ
REGISTRARS
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
BROKERS
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
REGISTERED OFFICE
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2YA
REGISTERED NUMBER
04677092
(1) Please note that these dates are provisional and subject to change.
178
IG Group Holdings plc Annual Report 2016 CAUTIONARY STATEMENT
Certain statements included in our 2016 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.
Forward-looking statements involve known and unknown risks and
uncertainties because they are beyond the Group’s control and
are based on current beliefs and expectations about future events
about the Group and the industry in which the Group operates.
No assurance can be given that such future results will be
achieved; actual events or results may differ materially as a result
of risks and uncertainties facing the Group. 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: Irene
Guiamatsia (email: Irene@investmenttrends.com.au) or Lloyd
Kluegel (email: lloyd@investmenttrends.co.uk). Unless stated,
market share data is sourced from the following current reports:
Investment Trends May 2016 Australia CFD Report,
released in June 2016
Investment Trends June 2015 Australia CFD Report,
released in September 2015
Investment Trends April 2016 France CFD/FX Report,
released in May 2016
Investment Trends February 2016 Spain CFD/FX Report,
released in May 2016
Investment Trends May 2016 Germany CFD/FX Report,
released in June 2016
Investment Trends August 2015 Singapore CFD/FX Report,
released in October 2015
Investment Trends July 2015 UK Leveraged Trading Report,
released in November 2015
179
IG Group Holdings plc Annual Report 2016INVESTOR RESOURCES NOTES
180
IG Group Holdings plc Annual Report 2016 INDEX
Accounting policies
Active clients
Amortisation
Assets and liabilities
Audit Committee
Auditors’ remuneration
Auditors’ report
Binaries
Board of Directors
Broker margin
Capital expenditure
Cash flow statements
Charitable donations
Client money
Contracts for difference (CFDs)
Depreciation
Diluted earnings per share
Dividend
Dividend – key dates
Employees
Financial calendar
Five-year summary
156
11, 14
123
109
90
93, 117
102
13
58
129
122, 123
112
19
32, 41, 45, 127, 128
12, 168
122
29, 40, 121
5, 29, 121
178
16
178
166
Generic top-level domains (gTLDs)
8, 39, 84, 92
Key Performance Indicators
Liquidity
Nadex
Net Promoter Score (NPS)
Nomination Committee
Offices
Operating expenses
Political donations
Regulatory risk
Remuneration
Revenue per client
Risk
Share dealing
Shareholder information
Shareholders – major interests
Spread betting
Strategic objectives
Subsequent events
Total Shareholder Return (TSR)
Trading revenue
Wealth Management
Designed by
www.ab-reporting.com
28
128
12, 37
29
68
177
39
99
46
70
28, 36, 167
44, 147
13, 22, 172
178
100
12, 170
20
100, 156
83, 88
15, 38, 115
13, 22
I
N
V
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S
T
O
R
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S
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U
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C
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IG Group Holdings plc Annual Report 2016
181
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