I G G R O U P H O L D I N G S P L C
ANNUAL REPORT 2017
CONTENTS
AT A GLANCE
FOUR-YEAR COMPOUND ANNUAL GROWTH RATES
COMPANY OVERVIEW
At a glance
Chairman’s statement
Our business
Our clients
Our people
STRATEGIC REPORT
Chief Executive Officer’s review
Strategy and objectives
Business model and risk profile
Main trends and factors likely to affect the future
development, performance and position of the
Company’s business
Operating and Financial Review
Key Performance Indicators (KPIs)
Risk management and viability statement
Business conduct and sustainability
CORPORATE GOVERNANCE REPORT
Chairman’s introduction to Corporate Governance
Corporate Governance Statement
The Board
Board governance
Nomination Committee
Directors’ Remuneration Report and Policy
Audit Committee
Board Risk Committee
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditors’ Report
2
4
6
10
12
16
20
24
28
30
34
35
43
48
49
50
52
60
62
82
90
92
95
96
FINANCIAL STATEMENTS
SHAREHOLDER AND
COMPANY INFORMATION
101
145
This report is fully accessible
online at:
iggroup.com/ar2017
‘It was an interesting and challenging
year in terms of global news flow,
especially in the political and
regulatory sphere, but the year turned
out to be one of the least volatile in
financial markets for decades. Against
this backdrop I am pleased that IG
once again delivered record revenue
and profits.’
7.9%
2.7%
4.5%
REVENUE(1)
PROFIT BEFORE TAX
NET OWN FUNDS GENERATED
FROM OPERATIONS
4.3%
8.6%
DILUTED EARNINGS
PER SHARE
TOTAL DIVIDEND
PER SHARE
Peter Hetherington
Chief Executive Officer
18 July 2017
ANNUAL FINANCIAL METRICS
REVENUE(1)
PROFIT BEFORE TAX
F
Y
1
7
F
Y
1
6
F
Y
1
5
F
Y
1
4
F
Y
1
3
£400.2m(2)
£370.4m
£361.9m
£491.1m
7.6%
£456.3m
F
Y
1
7
F
Y
1
6
F
Y
1
5
F
Y
1
4
F
Y
1
3
£193.2m(2)
£194.9m
£192.2m
£213.7m
2.8%
£207.9m
NET OWN FUNDS GENERATED
FROM OPERATIONS(3)
DILUTED EARNINGS PER SHARE
F
Y
1
7
F
Y
1
6
F
Y
1
5
F
Y
1
4
F
Y
1
3
£159.2m(2)
£160.6m
£154.3m
£183.9m
(6.8)%
£197.3m
F
Y
1
7
F
Y
1
6
F
Y
1
5
F
Y
1
4
F
Y
1
3
41.07p(2)
40.22p
38.80p
TOTAL DIVIDEND PER SHARE
45.9p
2.9%
44.58p
32.3p
2.9%
31.4p
F
Y
1
7
F
Y
1
6
F
Y
1
5
F
Y
1
4
F
Y
1
3
28.15p(2)
28.15p
23.25p
(1) Throughout this report Revenue refers to net trading revenue (ie excluding interest on
segregated client funds and after deducting introducing partner commissions).
(2) FY15 numbers are shown on an underlying basis.
(3) Further details on Net Own Funds generated from operations is available in note C of
the Other Information section in the Financial Statements.
C
o
m
p
a
n
y
o
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
CHAIRMAN’S STATEMENT
In my third year as Chairman of IG, I am pleased to report that the Company delivered
another year of strong growth, leading to record revenue and profits, in a relatively quiet
period for financial markets.
The business made good strategic progress, commencing the
rollout of an entirely new trading platform, establishing its limited
risk trading account globally, further developing its international
offices and launching an exciting new low-cost passive investment
product in the UK.
Of course, the changing face of regulation is dominating the
backdrop for IG’s core product at the moment. The regulatory
situation is in a state of flux, and it could take some time for clarity
to be available in all markets. I am, however, pleased that the
management and the entire IG team have continued to concentrate
on developing the business, while engaging constructively with
regulators and innovating to further improve client outcomes.
The recent increase in regulatory concerns around retail leveraged
trading is perhaps no surprise. Like any growing profitable industry,
competition has increased in recent years. Unfortunately a number
of these competitors have been taking a very short-term approach
to this market and have been targeting inappropriate clients.
It is clear to me and the Board that IG is not the main target of
the regulators’ concerns. IG has always sought to operate to the
highest standards, and we are determined to assist regulators to
remove poor providers from our market and to improve consumer
outcomes. I also do not believe that the product itself is at the heart
of regulators’ concerns – this is primarily about the mis-selling of the
product by certain providers, either through unrealistic claims or by
targeting consumers for whom the product is inappropriate.
We have a clear vision at IG: to be a global leader in retail trading
and investments. As a Board, we are concentrating on developing
a culture that drives behaviour focused on fair client outcomes,
and on the creation of a growing, sustainable business. Therefore,
we recently refreshed the values of the Group, to ensure all of our
people understand what binds the Company together and what has
been at the heart of our success over many years. IG’s growth has
always been based on putting the customer first. We express our
values as:
• Champion the client
• Lead the way
• Love what we do
By staying true to these values, I believe the Company will emerge
from the current uncertainty in an even stronger position within
its core industry and as a credible insurgent within the broader
investments space.
Board
As previously communicated, Paul Mainwaring joined as CFO
designate on 11 July 2016 and was appointed to the Board on
20 July 2016. In September, Sam Tymms was appointed as Chairman
of the Board Risk Committee, replacing Stephen Hill, who remains a
member of the Committee.
The intention again this year is to put every Board Director up for
re-election at the AGM, in compliance with paragraph B.7.1 of the UK
Corporate Governance Code.
Remuneration
We seek to maintain a remuneration structure which creates a
balance between rewarding performance against annual objectives
and the delivery of long-term stakeholder value. Last year we
carried out a series of adjustments across the organisation to
ensure we can continue to motivate, recruit and retain high-quality
people at all levels to deliver against our short-term and long-term
priorities. This year we reviewed the Directors’ Remuneration
Policy and concluded that it continues to meet the needs of
the Company. The sharp share price fall on 6 December 2016,
following the publication of the FCA’s industry consultation,
impacted the Total Shareholder Return element of the Executive
Directors’ remuneration; this fall reflected shareholder concerns
about the future prospects of the business. We will keep the Policy
under review as we receive increased clarity around the external
environment in which the Company is operating.
Dividend
In line with the 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 22.88 pence per share,
taking the full-year dividend to 32.3 pence per share, 2.9% ahead of
the prior year.
IG’s people
The regulatory uncertainty during this year has created a difficult
backdrop for our people. During this time, we have also further
developed our global resourcing model and now have substantial
operations in Krakow and Bangalore. The Board is clear that our
people remain our greatest asset, and that it is their dedication and
pride in our Company that have delivered another record year for this
business. On behalf of the Board, I want to thank them sincerely for
their ongoing efforts.
Looking forward
The industry is in a period of relative uncertainty. IG has a great track
record of innovating to lead the industry in operating standards and
developing our business to reflect a changing regulatory landscape.
Our excellence in technology and our people’s unswerving
commitment to fair client outcomes will serve us well as the
uncertainty clears, and I believe that IG will come out of this period
as an even stronger player.
Andy Green
Chairman
18 July 2017
4
4
| IG Group Holdings plc • Annual Report 2017
5
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 | OUR BUSINESS
INTRODUCING IG
IG exists to empower informed, decisive, adventurous people to access opportunities in financial markets. As a global leader in online
trading and an established member of the FTSE 250, we have a 43-year heritage.
We’re the No.1 provider of CFDs and spread betting worldwide(1), with offices located in 15 countries and operations in a further two.
Operating globally under the IG brand, and in the US as Nadex, we’re the trusted platform provider for over 185,000 clients.
OUR GLOBAL OPERATIONS
We have sales offices across Europe, the Middle East, Africa, Australia, Asia and the US, and our expertise in online marketing, search
engine optimisation and multi-language client service has enabled us to extend our reach into countries where we have no physical
presence. Using a centralised marketing strategy, we connect with clients in 156 countries – efficiently and cost-effectively.
Our UK headquarters in the City of London is supported by two major operational hubs in Krakow, Poland, and Bangalore, India. These are
positioned to take advantage of local pools of talent in a variety of disciplines.
Our suite of products provides efficient, flexible access to more
than 15,000 financial markets for a broad spectrum of financially
sophisticated consumers, ranging from active traders to retail
investors. Using our cutting-edge platforms and apps, our clients
place almost 8 million transactions a month with us.(2)
A HISTORY OF
CREATING SOLUTIONS
Innovation has been at the heart of our business since we began life
in 1974. As the UK’s original financial spread betting provider, we
introduced a completely new, accessible way for people to trade on
gold – by defining it as an index.
Over subsequent years, we went on to expand the product set and
create increasingly advanced technology to support our clients’
trading needs. Our innovations have included the first online
dealing platform for financial spread betting in 1998 and the
first trading app for Apple Watch in 2015. This year we delivered
a completely new trading platform that is beginning to greatly
enhance the trading experience for our clients. An intuitive,
customisable interface offers straightforward functionality for
the less-experienced trader, while those with more demanding
requirements have access to a range of advanced functions.
Technology has also enabled us to continually refine our marketing
techniques. As we discuss in more detail later, we’re now able to
produce highly targeted advertising campaigns that introduce our
products to the people they are most likely to suit. A sophisticated
application and onboarding process then ensures that only
appropriate clients proceed – gaining access to the products and
educational materials that fit their objectives, knowledge and
capital resources.
Over the years, we’ve evolved and broadened our product
offering to meet the changing needs of traders and investors,
and it’s now supported by an extensive range of tools and
resources to help our clients. From teaching essential trading and
risk-management techniques to providing market insight and alerts
about upcoming economic events, our educational and news
services draw on four decades of experience to help people trade
and invest more effectively.
Our operating model and risk management strategy have been
thoroughly tested over time, and have proved highly resilient in
a wide range of real-life scenarios. Our business has continuously
adapted to a changing economic backdrop, and we remain agile
and innovative in the face of an uncertain regulatory landscape, as
we look to the next phase of our growth.
KEY DATES
2017 – All-new online trading platform introduced.
IG Smart Portfolios launched in partnership with
BlackRock, the world’s leading asset manager.
2016 – IG expands its share dealing offering into ISAs and
SIPPs. Share trading launched in Australia. Limited
risk accounts rolled out across the globe.
2015 – Sunday trading launched. IG designs the first
trading app for Apple Watch. New office opens
in Dubai.
2014 – Execution-only stockbroking introduced as part
of our comprehensive share dealing package.
New office opens in Switzerland.
2013 – Spread betting and CFD offerings brought together
under IG.com. Introduction of forex trading via
Meta Trader 4 platform.
2012 – Launch of our insight, news and analysis centre.
New office opens in Dublin.
2010 – Acquisition of the Ideal CFDs business in
South Africa. CFD iPhone app launches.
2009 – Nadex.com launches in the US. IG Markets
introduces PureDMA. Offices open in Sweden
and Luxembourg.
2008 – New office opens in Italy. UK’s first dedicated
spread betting iPhone app launches.
2007 – Launch of browser-based trading platform.
New offices open in the US, Spain and France.
2006 – New offices open in Germany and Singapore.
2003 – Product range expanded as binary betting
is introduced.
2002 – IG Markets Australia becomes the country’s first
CFD provider.
1998 – First company to launch an online dealing platform
for financial spread betting.
1995 – First UK company to allow spread betting on
individual shares.
1982 – First company in the UK to offer spread betting on
the FT30.
(1) Based on number of active UK financial spread betting accounts (Investment Trends UK
Leveraged Trading Report October 2016); for CFDs, based on revenue excluding FX
(published Financial Statements, October 2016).
1974 – IG Index founded, becoming the UK’s first spread
betting company.
(2) Average for FY17.
6
Stockholm
Düsseldorf
Dublin
Krakow
London
Geneva
Tokyo
Shanghai
Chicago
Milan
Dubai
Bangalore
Madrid
Paris
Johannesburg
Singapore
Sales offices
HQ
Operational hubs
Melbourne
-
1,546
Total employees
UK
EUROPE, MIDDLE EAST
AND AFRICA
ASIA PACIFIC
USA
• 1,149 employees
• 167 employees
• 161 employees
• 69 employees
•
Introduced the first financial
spread betting product
in 1974
• Head offices located in the
City of London
• Operational hubs
established to service
the Group in Krakow
and Bangalore
• Annual revenue of
£225 million in the 2017
financial year, with over
77,000 active clients trading
• Entered the market in
Germany in 2006, with rapid
expansion across Europe
from 2007
• Expanded into South Africa
in 2010 and Dubai in 2015
• Received banking licence
and opened office in
Switzerland in 2014
• Offices located in Dubai,
France, Germany, Ireland,
Italy, Spain, South Africa,
Sweden and Switzerland
• Annual revenue of
£137.7 million in the 2017
financial year, with almost
47,000 active clients trading
• Entered the market in 2002
in Australia
• Offices located in
Melbourne, Singapore
and Tokyo
• Annual revenue of
£114.3 million in the 2017
financial year, with almost
40,000 active clients trading
• North American Derivatives
Exchange (Nadex) based
in Chicago
• Operational headquarters
for DailyFX
• Annual revenue of
£14.1 million in the 2017
financial year, with over
22,000 active exchange
members trading
7
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 | OUR BUSINESS continued
OUR PRODUCT SUITE
Our range of products is designed to provide solutions across the
spectrum of our clients’ trading and investment needs.
Our original offering – still core to our business – is leveraged
trading: contracts for difference (CFDs) and spread betting (in the
UK and Ireland), which generates the majority of our revenue. This
is now complemented by a growing suite of non-leveraged share
dealing and wealth-management products, suiting a broad range of
risk appetites and trading and investment objectives throughout a
client’s lifetime.
While our original products are designed for active traders, our
newer offering extends our reach both to self-directed investors and
those preferring a low-cost managed-portfolio approach. Attracting
clients who seek longer-term investments, this broader product
range is now fully live in the UK, and we‘ve introduced share trading
to Australia.
We believe that IG is well placed to disrupt the long-term
investment market and further engage our clients – enabling
us, over the longer term, to build a new revenue stream for our
business. We’ve been able to develop our offering extremely
cost-effectively, by building on our existing technology, teams and
infrastructure, and by leveraging the established strength of our
brand and marketing capabilities.
IG clients are able to access over 15,000 global financial markets –
including shares, forex, indices, commodities and other instruments
– via market-leading platforms and apps that provide efficient,
secure execution.
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.
Clients can take a position in a financial instrument, buying or
selling, while only putting down a small percentage of the value
of their trade as security – known as trading on margin. This is an
extremely efficient way of trading financial markets over the short
term. We also offer clients access to a range of risk-mitigation
measures, including stops and limits and a limited risk account.
• We are the world’s No.1 CFD provider(1)
We explain how a CFD works in the IG Services section on IG.com.
Spread Betting
Financial spread betting mirrors many aspects of a CFD – enabling
clients to take advantage of changes in an asset’s price without
owning the asset itself, and to use the same range of risk-mitigation
measures. Available only in the UK and Ireland, it’s a tax-free(2)
alternative to trading, allowing clients to bet on the price movement
of an asset. The size of a client’s win or loss depends on the
magnitude and direction of the price movement.
• We are the UK’s largest and longest-running spread
betting provider(3)
• We hold 45% of the UK financial spread betting market(4)
We explain how spread betting works in the IG Services section
on IG.com.
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
offering. It enables self-directed clients to buy and sell over 9,000
global shares and exchange traded funds (ETFs), with extremely
competitive and transparent transaction fees. They can also choose
to invest within a tax-efficient ISA or SIPP wrapper, and there’s an
option to use stock portfolios as collateral for leveraged trading.
Launched in the UK in 2014, our share dealing offering has built
on our pedigree in the online leveraged trading sector. As well as
providing our current spread betting and CFD clients with facilities
to place their non-leveraged portfolio with us, we’re now attracting
a completely new audience to IG. Our share dealing service is also
available to clients in Austria, France, Germany, Ireland and the
Netherlands, and in this financial year we introduced it to Australia
as Share Trading.
• The market in the UK for online, execution-only share dealing is
around ten times the size of the market for leveraged products(5)
• Around 80% of clients opening share dealing accounts are new
to IG
(1) Based on revenue excluding FX (published Financial Statements, October 2016).
(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 financial spread betting accounts (Investment Trends UK
Leveraged Trading Report October 2016).
(4) By number of active primary accounts. All market share data presented in this report is
provided by Investment Trends Pty Limited.
(5) Based on numbers of consumers.
Nadex
Nadex is our US derivatives exchange, enabling US
and overseas investors to trade options on global
financial markets in retail-sized contracts.
Our main product is the binary option, which
provides a flexible way for clients to trade with
limited risk. However, our spread product, which is also limited risk,
is growing in popularity.
Nadex is benefitting from renewed consumer interest in retail
trading, and increased client volumes have been driven by ongoing
improvements to our products and platform, supported by
enhanced liquidity from a new market-maker partnership.
• Nadex is the first and largest US-based retail-oriented exchange
• The business has seen a two-year compound growth rate of 63%
Digital 100s
Our digital 100s are a type of financial derivative with limited risk:
clients know exactly how much they can potentially gain or lose at
the outset, and can’t lose more than they have on their account.
A digital 100 is a simplified form of option that offers a yes/no
outcome over a specified time period. If the trader makes the
correct choice, they make a defined profit. If they choose wrongly,
they make no return and lose the amount required to open
the trade.
Timeframes can vary from five minutes to daily, weekly or monthly,
and we offer a wide range of markets. As well as indices, forex and
commodities, clients can trade on special markets such as political
events and economic announcements.
Smart Portfolios
Launched in April 2017 in partnership with BlackRock,
IG Smart Portfolios is a discretionary managed investment
service. By offering low costs and full transparency on total cost
of ownership, we are industry-leading. Clients have a fully online
experience – supported by our customer services team if needed
– with access to an elegant and intuitive platform, where their
investments and all the costs of ownership are clearly visible.
We offer a range of portfolios designed to suit different risk
appetites, each constructed from iShares exchange traded
funds (ETFs) and including a blend of commodities, equities and
fixed-income assets designed to match the degree of caution or
aggression desired by the client.
Our asset allocation strategy is devised in partnership with
BlackRock, the world’s largest asset manager. We manage
and rebalance the client’s portfolio for the entire lifetime of
the investment.
Our research indicates a growing appetite among consumers for
a product that enables them to build sophisticated baskets of
investments online, rather than to choose specific shares.
8
8
| IG Group Holdings plc • Annual Report 2017
9
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |
OUR CLIENTS
Over more than four decades, IG has built its name on innovation, fairness and outstanding
client service. It’s a reputation we’re extremely proud of, and one we believe sets us apart
from all other firms in our industry. In achieving our market-leading status, we’ve constantly
put clients at the heart of our business.
OUR PURPOSE
To empower informed, decisive, adventurous people to access
opportunities in financial markets.
OUR VISION
To be a global leader in retail trading and investments.
A STRATEGY BUILT ON
CLIENT FOCUS
Our strategy puts our clients first in all our planning and decision
making. Supporting our clients is something we invest in heavily,
and we believe it makes good business sense. Our business
model is dependent on trading volumes, so we provide extensive
educational resources to help our clients identify opportunities.
We also deliver news and analysis that traders can use to make
informed investment decisions, and we develop technology to help
clients trade more effectively, equipping them with the tools they
need to seize opportunities rapidly.
Clients are our lifeblood, and our top priority is giving them the
best possible service. To discover exactly what clients want, we
ask them. That means conducting surveys and focus groups, as
well as studying data to identify trends or to find common areas of
frustration that could be solved through technology improvements
or adjustments to the way we conduct business.
The result is a constant process of improvement and evolution,
always driven by the feedback from our clients and our
understanding of their changing needs. It has led to enhancements
ranging from the introduction of limited risk accounts last summer
to the unveiling of our new web trading platform at the start of
2017, and from our continued investment in client education to the
launch of our new investment products.
OUR VALUES
This client-centric approach is central for our people, too, and
everyone at IG lives by a set of values that guide how we do
business. We believe these three simple statements define IG:
• Champion the client
• Lead the way
• Love what we do
To ensure we live these values, we embed them in every part of our
business and throughout the client journey – from initial marketing
to opening an account and beyond.
Targeted marketing
We recognise that our products must be aimed squarely at the right
people – not every product is right for everyone. As a result we’re
extremely targeted in our marketing approach, carefully selecting
how and where we promote ourselves. The audience we seek to
attract is knowledgeable about the markets, financially astute,
familiar with our products, wealthier than average and risk-aware.
10
Our marketing approach is therefore deliberately aimed towards
people who fit that profile, and we carefully test all our marketing
material to make sure it resonates with appropriate potential clients.
Across the globe we also take measures to ensure our marketing is
balanced, honest, straightforward and fitting for our products and
the audience.
We want to attract new clients. But only the right clients, and in
the right way. Our marketing approach reflects that, providing an
important first introduction to IG and our client-centric approach.
A robust onboarding process
Once prospects have gone beyond the marketing stage and
applied to open an account, we’re again careful to ensure that only
those people for whom our products are appropriate proceed to
become clients.
For all of our products, clients must complete a thorough and
robust application form to ensure their suitability for an account.
This assesses their trading or investing experience and product
knowledge – specific to the account type they want to open –
and requires them to disclose information about their education,
occupational background and financial position. We assess this to
determine whether or not such an account is right for them.
In each of the territories in which we operate, if through the initial
application process, an applicant fails to prove a sufficient level of
knowledge and experience, rather than opening an account we
invite them to follow a learning programme and insist they take and
pass a further test. Only on passing this test will an applicant be
allowed to proceed to trading with IG.
Here IG is well ahead of what is required by regulation, but we
believe it’s the right thing to do, and reflective of our status as
industry leader. This proactive stance sets us apart from other
providers and is a key part of our client-focused approach
to business.
Unlike most providers, we reject clients who we believe lack the
financial means to bear potential losses. Earlier this year we raised
our required wealth bands, and first-time clients must now place
an increased opening balance on their account before they begin
trading. As far as possible, our aim is always to ensure that the
prospects our advertising attracts are right for us, and that our
products are right for them.
Dedicated initial support
When a client first joins us, we understand they may sometimes feel
a little daunted. Even the most experienced trader needs time to
become familiar with a new platform. To ensure clients are properly
supported in those early days, we employ a professional new
business team to introduce them to IG and to explain exactly what
they can do with our platforms.
Naturally inquisitive and helpful, members of our new business team
are tasked with understanding what clients hope to accomplish,
then showing them how our products can help achieve those aims.
During this fledgling stage of our relationship, we actively
encourage clients to use our range of educational materials, and
we build their awareness of the up-to-the-minute trading news and
research we provide via channels such as DailyFX and IGTV.
Importantly, the new business team also provides another layer
of client-appropriateness assessment. Our people are trained
to evaluate, during their conversations, whether the client has a
realistic expectation of IG and our products.
Constant access to expertise
Once clients have become acquainted with IG, we offer them
ongoing support and assistance via our trading services teams.
Available continuously from 8am Sunday to 10pm Friday, as well
as 9am to 5pm on Saturday, members of this team are experts in
our products, and are responsive and solely customer-focused. If
clients have questions about our products, want to know how our
platforms work or have any other type of enquiry, they can get help
from our trading services team around the clock. And with native
speakers from every territory in which we are present – all available
via phone, email or Live Chat – we make it as easy as possible for
clients to get the information they need, quickly and in the way they
want it.
We manage and capture all of our interactions with clients using
sophisticated technology. This ensures we can understand the
whole relationship we have with each client, and have people
available to meet their requirements on demand.
In recognition of our commitment to clients, and to ensure we’re
delivering ‘best practice’ service, last year we became members
of the Institute of Customer Service. This enabled us to have our
service standards independently appraised and verified by the
UK-based organisation.
MARKET-LEADING
TECHNOLOGY
We recognise that our technology is central to the customer
experience, and we seek to get it just right. We invest heavily in IT
development, and are continually looking at ways in which we can
improve the tools clients use to engage, invest and trade with us.
We believe clients should be empowered by the technology we
offer and not restricted by it, so in the last year we introduced
significant advancements to help our clients trade more effectively.
The launch of our New Web Trading Platform (NWTP) was a
headline improvement, delivering a more intuitive, personalised
trading experience than ever before. Fast and customisable, it offers
integrated research, market commentary and news alerts, including
a social media feed. We’re proud that our clients can now access a
platform at the very cutting edge of trading technology.
This year has also seen us improving our mobile capability – in
particular investing in solutions that allow a seamless transition
between desktop, mobile and tablet.
In our customer research, clients repeatedly tell us how much they
value good trading technology, and that they seek solutions to
help them trade in a smarter, faster way that’s tailored to suit them.
For this reason we continue to invest heavily in our technological
capabilities, and will keep doing so going forwards.
EXTENSIVE LEARNING
RESOURCES
For all our clients, we provide access to a myriad of educational
resources, prepared using our long-standing expertise in the key
knowledge areas required for successful trading. This includes
materials to help people learn common trading techniques, as well
as instructional content that demystifies industry jargon or guides
clients through every part of our product suite and platforms.
Our investment in education and training is extensive, and has a
single purpose – to help people become more successful traders.
Through our free IG Academy app, for example, clients can learn
via interactive, step-by-step trading courses aimed at all experience
levels. Likewise, our extensive collection of online how-to videos is
accessible at any time to help clients enhance their knowledge.
Earlier this year we also acquired DailyFX – the world’s leading
portal for forex research, trading news, charts, indicators and
analysis. This bolsters our already extensive news and analysis
offering, and positions us very clearly as a leading provider of
market updates and data in our industry.
To ensure clients have access to this information anywhere, at any
time, and in ways that best suit them, we embed it in our platforms,
serve it on our websites and publish it via channels such as YouTube
and Twitter.
It’s our strong belief that by using appropriate educational materials
and having reliable information at their fingertips, our clients can
make better trading decisions.
A CULTURE OF REGULATORY
COMPLIANCE
Compliance is not just a team of people at IG, it’s a concept central
to our culture. We dedicate significant resource to ensuring that we
comply with a huge swathe of regulations worldwide – with a large
team reporting directly to the Chief Executive Officer.
However, awareness and respect for the regulatory framework is
also embedded throughout the organisation, and is taken into
account from the very beginning of a product’s design through the
entire client journey. At every stage of the client experience we
have described, compliance is key – and going beyond regulatory
requirements has become the norm at IG. Our first value sums this
up – champion the client.
For example, we decided some years ago to segregate retail
client money, by default, across the globe – often ahead of what
is required by regulation. Our recent introduction of limited risk
accounts, and our decision to prevent clients trading with IG if
they are deemed inappropriate through the application process,
are indicative of how we place the client at the heart of our
compliance regime.
In order for this to happen effectively, we need the right people –
and we need to provide the framework within which they can excel.
11
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 | OUR PEOPLE
Talented people, supported by a strong organisational culture, are vital to the service we
provide for our clients. Their skill and commitment drive our success in every aspect of our
business – from designing and building innovative products and cutting-edge platforms to
handling client queries efficiently and resolving issues.
1. Global employer of choice
In essence, our guiding principle is that we‘re one IG – a unified
business where energised, engaged people are aligned in their
commitment to a shared purpose – providing the best possible
client experience. A progressive and diverse working environment
supports collaboration, and encourages each of our people to
achieve their full potential.
Our global expansion has highlighted the importance of maintaining
clarity of vision and a sense of unity for all of our people. We
continue to develop our operational presence in locations where we
can pursue our strategic objectives most efficiently and effectively,
and our offices in Krakow and Bangalore together now account
for 25% of our employees. Expanding these operational hubs has
enabled us to access additional high-quality talent, particularly in
technology and support functions. Approximately half our global
headcount remains based in our London headquarters.
We’re committed to ensuring that all our people feel fully
connected and are able to work seamlessly together, regardless
of location.
Collaboration and communication
To improve flexibility and collaboration, during the year we
transitioned 80% of our employees to working on laptops.
Together with enhanced collaboration technology, this gives our
people the mobility and scope to work in different locations and
cross-functional project teams, according to their varying needs.
We also redesigned and updated the interior of our UK
headquarters and acquired a large, contemporary office space
in Bangalore. Both aim to provide a vibrant and flexible working
environment, reflecting our culture and helping us to attract and
retain the best talent.
Alongside the physical space, we continued to develop our intranet,
IG hub. With key internal and industry news updates added daily,
it has become the default source of both static and dynamic
information for our people. We’re seeing a month-by-month rise in
usage and increased engagement, with the site now receiving more
than twice as many daily page views versus September 2016.
We recruit and train people who are skilled in helping clients
understand the technical nuances and potential risks of our products
– a responsibility we take extremely seriously.
By focusing on quality, transparency and fairness in everything we
do, we can build long-term relationships with our clients.
We continually seek ways to further assist and engage with current
or prospective clients.
We recognise that a strong team is pivotal in forging mutually
rewarding, long-term relationships with our clients. By attracting and
developing talented individuals, and by providing an inclusive, fair
and engaging environment in which they can thrive, we’re able to
achieve our strategic objectives.
A DECADE OF RECOGNITION
In 2017, IG was named as one of Britain’s Top Employers for the
tenth successive year.
The Top Employer certification is awarded only to organisations that
meet the highest standards in human resource management, and
we’re 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.
OUR PEOPLE STRATEGY
Our focus over the past year has been on strengthening the
relationship between our people, our strategic purpose, our values
and our clients. As a global employer, our aspiration is for all of our
people, in every location, to feel equally connected to our clients.
In each and every role, whether customer-facing or back-office, we
believe it’s vital for our people to share a passion for improving the
client experience.
• We’re a global employer with people in 17 countries
• We employ 1,546 staff
• 90% of employees feel that there’s a strong sense of teamwork
and cooperation in IG
• We’ve been certified as one of Britain’s Top Employers for ten
consecutive years
There are three key themes within our people strategy:
1. Global employer of choice
2. Performance and reward
3. Talent and growth
12
Employee voice
Through our annual engagement survey, we ensure that our people
have a direct channel of communication to the executive team and
the Board. The feedback we receive provides important insight
that helps us achieve our people strategy, enabling us to track our
progress against three key goals:
• To fill our business with engaged and dedicated people
• To develop strong leaders from grassroots to Board level
• To foster a culture that values employees’ commitment and
celebrates their success
We’re proud of our working culture, and believe it nurtures the
behaviours and decision-making processes that best serve our
clients. In our 2016 engagement survey (2017 financial year),
employees across all locations reported that cooperation,
teamwork, manager effectiveness, respect and ethics are all clear
strengths at IG. On the downside, our people expressed clearly that
they need greater clarity on the vision for IG.
In the 2018 financial year we’ll be focusing on ensuring that all our
people understand our vision and feel able to share in it. To support
this, we’ve developed the more clearly articulated purpose and new
values detailed on page 10. Reflecting the client-centric and global
nature of our business, these values will underpin our performance
management, people development and recognition processes, as
well as providing guidance for decision-making and shaping our
employer brand.
One unified IG
With 1,546 people based in separate locations around the globe,
we’re conscious of the need to actively promote equality, diversity
and inclusiveness. We take great pride in creating an open,
supportive culture, and we believe this is critical to our success,
enabling us to unlock the potential of the workforce in every country
where we operate.
We have extensive human resource policies in place to attract and
support the right people, and to ensure that those who join us can
develop without experiencing discrimination or harassment. We
continuously reinforce the need to treat all employees fairly, creating
an environment free from bullying, where people of all grades or
positions enjoy dignity and respect.
In 2016, our employees led the creation of IG Open, a network to
support those who identify themselves as LGBT+. It aims to provide
a forum for people to exchange experiences and speak comfortably,
in a safe space where they can be open and proud of their identity.
We fully consider applications for employment from disabled
persons with aptitudes and abilities in line with our requirements.
Where existing employees become disabled, temporarily or
permanently, it’s our policy 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
We’re fully committed to the health and wellbeing of our people,
ensuring that all our employees receive appropriate protection
benefits and discounted gym access. In the UK, our people can
access the cycle-to-work initiative through our new flexible benefits
portal, which also provides increased opportunity for individuals to
personalise benefits to their lifestyle requirements.
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 – for example, housing and personal finance.
13
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 | OUR PEOPLE continued
2. Performance and reward
Our reward and recognition system is designed to drive high
performance and global growth for the business, developing
the leaders of the future. It centres on providing our people with
a clearly defined purpose, specific deliverables and expected
behaviours. Our aim is to ensure that each individual is aligned with
our strategy, understands their role in achieving our goals and has
the maximum possible opportunity for advancement.
With this in mind, during the year we introduced a
high-performance model that gives our people greater clarity on
what’s expected of them. A new ‘check-in’ process provides regular,
ongoing opportunities for feedback, goal realignment and career
discussions, and has replaced the traditional annual appraisal
approach. We believe this new framework actively helps to embed
a culture of recognition, better acknowledging and celebrating the
successes of our people.
To attract and retain the right people, we offer a competitive reward
package that recognises performance to date and encourages
our key talent to be part of our future. In 2016 we adjusted some
of our salary ranges to ensure we remain competitive. While we
acknowledge a possible influence from external factors such as
Brexit, we believe that our proactive approach has positively
affected attrition.
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 intrinsically linked to the financial
and operational performance of IG, including client satisfaction. At
the end of each financial year, bonuses are distributed based on
both company and individual performance, as discussed during
check-ins throughout the year.
The remainder of our employees are included in specific
sales-related bonus schemes. We also reward our senior and key
employees through a long-term incentive plan.
Alongside our formal reward structure, recognition also takes the
form of peer- and manager-nominated awards delivered in local
teams. These celebrate achievements in areas such as innovation,
mentoring and being a team player or client champion. In the next
year we’ll continue to strengthen our global recognition strategy by
linking it directly to our values and behaviours.
We also offer our employees in the UK, Australia and the US
the chance to share in our success through our tax-advantaged
share-purchase schemes. An average of 33% of eligible employees
took part in our share plans in the 2017 financial year. We’re
currently reviewing options to extend similar schemes to our other
larger offices – Krakow and Bangalore.
3. Talent and growth
We recognise that a constant flow of emerging talent is vital to
IG’s continued success, and we’re committed to ensuring that our
people are equipped to deliver our strategy and growth in the years
ahead. This means identifying the key roles that we’ll need in the
future and recruiting, training and developing the right individuals
to fulfil them.
During the year we focused on building succession approaches
for our more senior roles. Going forward, we’ll implement similar
principles of identification, assessment and development for other
core roles across the Group.
To bring new talent into the business, we offer a number of
graduate positions and apprenticeships – both in our head
office and in various global locations. These roles are designed
to challenge and develop high-potential people, giving them a
platform to display and grow their skills and so to progress rapidly.
We encourage all of our employees to take responsibility for
their own development while they’re with us. However, we
recognise that resources need to be in place to enable this to
happen. As well as embedding check-ins to encourage better
and more regular performance and development conversations,
we’re also introducing career development workshops, building
specialist and sales development pathways, introducing Board
exposure programmes and continuing to implement coaching and
mentoring programmes.
As an international company, we’re also able to offer overseas
secondments and project-based development opportunities for
selected individuals.
All our leaders and potential leaders worldwide are now able
to access the ‘Manager Success’ series of interactive webinars.
These are available in local time zones and provide best-practice
tips and techniques to help our people handle common
management challenges.
14
IG Group Holdings plc • Annual Report 2017 |
15
15
Company overviewStrategic reportCorporate Governance reportFinancial statements| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 | CHIEF EXECUTIVE OFFICER’S REVIEW
2017 was another interesting and challenging period for IG. The year was dominated by a
series of significant global political events, with some surprising outcomes, and a regulatory
landscape entering a period of uncertainty. Against this backdrop, I am delighted that the
Company again delivered record revenue and profits.
OVERVIEW
Surprisingly, given the significance of the political events in the
period – not least the UK’s EU referendum, the US presidential
election and a number of key European elections – financial markets
remained incredibly quiet by historic standards. This fact makes our
2017 performance even more pleasing.
The political events will ultimately be consigned to history, but 2017
will be remembered in our industry as the year when regulatory
change came to the fore. And I believe, if regulators can really grasp
this opportunity, the change which is coming will be fundamentally
positive for consumers globally and will put the industry on a firmer
and more sustainable footing going forward.
Throughout our history, IG has always sought to differentiate itself
from other providers by adhering to and, in some cases, going
beyond regulatory standards. We seek to do what is right, not what
is possible. We understand that CFDs and spread bets aren’t right
for everyone, and we therefore believe that it is in the best interests
of many consumers to be stopped from accessing them. As such,
we target our advertising to an appropriate audience, we don’t offer
any form of account opening bonus and we refuse to open accounts
for people who don’t understand the product or have insufficient
wealth to be trading financial markets using leverage. I hope
forthcoming changes in regulation will enforce similar behaviours
across the industry, and I look forward to a day when all consumers
are similarly protected.
Given the tough external environment, I’m extremely proud of
the way our people at IG have pulled together over the past
12 months. Teams of employees have been working on our Brexit
planning, others have been heavily engaged in consultation with
our regulators, and more still have been working hard behind the
scenes on initiatives to further differentiate ourselves from our
competitors and to prepare IG to take advantage of regulatory
change – all of this while running the business from day to day. It’s
been a fantastic effort, and I want to thank each and every one of
our employees for their contributions during a difficult time.
To guide our business going forwards, I am especially pleased to
have relaunched our Company purpose, vision and values this year.
Detailed below, I believe these statements articulate why IG exists
and what makes us tick. They underpin all our activity, express the
way we behave and set out our ambitions as we strive to achieve
our future vision for the Company.
To demonstrate our commitment to these statements, I and
members of my senior leadership team introduced them to
everyone in the business during a series of more than 50 global
workshops this summer. We also reminded ourselves where IG came
from – we have a history of true entrepreneurialism and innovation.
The feedback at those events was extremely positive, and I’m
confident that we have the right people to deliver our strategic aims
for 2018 and beyond.
Our purpose
We exist to empower informed, decisive, adventurous people to
access opportunities in financial markets.
Our vision
To be a global leader in retail trading and investments.
Our values
Champion the client
Understand them. Be part of their whole experience.
Think big, think long-term. Make every moment count
and stick with them all the way. Do what matters most.
Lead the way
Be brave. Back yourself. Innovate and adapt to win.
Challenge assumptions, ideas, decisions. Ask why. Stand
up and speak your mind. Achieve. Do the right thing.
Love what we do
Make it personal. Care, be passionate, have fun.
Respect our diversity and learn from each other.
Share your enthusiasm, take pride in each other’s
achievements and work as a team.
GROUP PERFORMANCE REVIEW
The Company once again delivered record revenue in the
twelve-month period, up 8% on the prior year to £491.1 million
(2016: £456.3 million) – a good performance in relatively quiet
financial markets. Profit before tax was ahead by 3% at
£213.7 million (2016: £207.9 million). Operating expenses rose by
14%. Excluding the impact of the acquisition of DailyFX in October
2016, marketing investment, which continued to pay back very
rapidly, accounted for almost half of the absolute rise in expenses.
Profit after tax was £169.2 million, 3% ahead of the prior year
(2016: £164.3 million), assisted slightly by a fall in the Group’s
effective tax rate to 20.8%, from 21.0% in the prior year.
Business performance
In the principal product area, OTC leveraged trading, the Company
experienced good growth across all regions outside the UK. The
strongest relative performance came in EMEA, where revenue was
ahead of the prior year by 17%, with particular year-on-year strength
in Switzerland, Dubai and South Africa. Revenue in APAC was ahead
of the prior year by 9%. Client numbers were up in all regions, with
growth at a Group level averaging 7%. The number of client first
trades was also well ahead of the prior year, up by 15%.
The share dealing service, launched in the UK in 2014, grew well in
the period. It was launched in Australia in the middle of 2016 and
grew well during the year in both countries. At the end of the year,
the Company had just over 20,000 clients holding positions, up
around 200% on the prior year.
In the US, Nadex continued to grow strongly. Group revenue from
the US was 26% ahead of last year, at £14.1 million. Ongoing
marketing success, the addition of further market makers and
technology improvements around latency and the mobile platform
have all delivered benefits.
Further detail of the regional performance is provided in the
Operating and Financial Review on page 30.
Business development
The Company continued to make good strategic and operational
progress during the year.
The rollout of our new web trading platform began late in 2016 with
a trial for UK spread betting clients and has since progressed well.
This is now the default platform for UK spread bettors, with more
than half of all client desktop trades being placed here. The CFD
rollout will commence later this year in the UK and will be extended
to other countries by the end of 2017.
The Company relaunched its limited risk account in July 2016, which
requires all clients using the account to cap the downside risk of
every trade, which avoids them ever having a negative balance on
their account. IG also only provides this type of account for new
clients with lower levels of appropriateness, experience or wealth.
In the last half of the year, around 28% of all OTC leveraged first
trades were limited risk.
The acquisition of DailyFX from FXCM for $40 million was
completed in October 2016. While the websites are delivering the
expected number of new leads, the rate of conversion into trading
clients has been lower than anticipated. However, the accounts
which are opened have proved to be more valuable than expected.
This asset is likely to prove increasingly valuable in countries where
paid-for-marketing restrictions are put in place.
IG is in a period of rapid product transition. The Company launched
its discretionary managed investments service in the UK towards the
end of this financial year. Together with the share dealing service,
this is expected to be an effective means of engaging and retaining
valuable leveraged trading clients. The number of clients using
multiple products (a leveraged account and a share dealing or
investments account) more than doubled in the period and there is
early evidence that these clients trade more actively, making them
more valuable.
16
16
| IG Group Holdings plc • Annual Report 2017
17
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements CHIEF EXECUTIVE OFFICER’S REVIEW continued
Leading the way
IG takes its leadership position in the industry extremely seriously
and constantly assesses its self-imposed restrictions and controls,
which ensure access to complex financial products is only provided
to clients for whom they are appropriate. Just after the end of
the financial year, the Company carried out a full review of its
onboarding criteria and process. As a result of this, IG altered
various elements, including raising its self-imposed wealth hurdles
and its minimum deposit. IG has also created and rolled out
globally a new appropriateness test, which means that prospective
clients who were previously allowed to proceed at their own risk
can no longer have a leveraged account with IG unless they can
demonstrate that they understand the potential risks and rewards of
such an account. This is a clear example of IG doing the right thing
to ensure fair client outcomes and going beyond what is demanded
by regulation. As a result of these actions, the Company expects to
recruit fewer clients, of greater average value, and so may see a fall
in simple measures of market share.
Regulation
The retail leveraged trading industry is under scrutiny globally,
with particular emphasis currently in the UK and Europe. This new
level of scrutiny is overdue and IG believes that a well thought
through update to regulation should be beneficial for clients – if
it is proportionate, consistent and properly enforced. IG has
differentiated itself within the industry through its adherence to
the highest regulatory standards and its focus on fair outcomes
for clients. However, too many providers have been allowed to
enter this industry in recent years, many of which have behaved
very badly and targeted clients for whom such a product is
entirely inappropriate. This has been exacerbated by an influx
of entirely illegal providers, based in offshore regimes and using
the uncontrollable nature of the internet to take advantage
of unsophisticated or unwary individuals through misleading
advertising. These companies have often provided a single product,
the up/down binary option, using high-pressure sales practices. This
combination of poorly regulated and illegal providers has often left
the impression that the entire industry is at fault and made it very
difficult for compliant providers, such as IG, to make their voices
heard. In order to improve outcomes for clients, the Company
believes it is vital that regulators support and work with companies
like IG to remove or greatly reduce the impact of these illegal and
the poorly supervised providers.
In recent months, IG has been even more active in liaising with
regulators to assist them in their efforts to improve outcomes for
clients across the world. There are a number of reviews either
complete or ongoing in countries where IG has either a presence or
a material degree of business.
In Australia, the Government and regulator are proceeding to
better protect client money – in the way that IG always has – and
to provide additional powers of intervention on financial products
provided to retail. IG welcomes both of these measures. In Dubai
the regulator, the DFSA, has indicated an intention to alter the
current regime surrounding leveraged products. IG has assisted
the considerations of the DFSA and the outcomes are expected to
be announced in the near future. The Company does not believe
its activities are the subject of regulatory concern and so does not
expect the changes to materially impact its operation in Dubai.
In Europe the regulatory situation is complex and in transition. IG
is working with National Competent Authorities (NCAs) in several
countries and has also been in discussion with the European
Securities and Markets Association (ESMA) and shared its concerns
about the divergence of regulation across the EU.
Consultations in France and Germany have been finalised, and the
outcome of a requirement to provide an account which limits the
downside for clients fits with the leadership position IG took last
year and enhances IG’s competitive position in these countries. The
results of the consultations in The Netherlands and Ireland have not
yet been announced.
In December 2016, in the UK, the FCA announced its intention to
enhance conduct of business rules for firms providing contract for
difference products to retail clients, and detailed a very specific set
of proposals. Following an announcement by ESMA in June 2017,
the FCA decided to delay making final rules until ESMA finalises its
discussions. ESMA announced it is in the process of discussing the
possible use of its product intervention powers under Article 40 of
MiFIR, the possible content of any such measures, and how they
could be applied. Measures being discussed include leverage limits,
guaranteed limits on client losses, and restrictions on the marketing
and distribution of these products.
The Company believes a common set of regulations across the EU
provides a greater chance of successfully protecting consumers
against poor behaviour in the industry. Any inconsistency in the
application of regulatory standards in the EU region only creates
arbitrage opportunities for ill-intentioned providers to take
advantage of less sophisticated consumers. IG will continue to
engage actively with NCAs and ESMA to seek to establish a set of
rules which improve consumer outcomes and protect competition.
In its engagement to date, IG has provided consistent advice to
individual NCAs and to ESMA. IG believes the correct response
needs to be broad and properly enforced. IG sees five main areas
where regulators are expressing concern and suggesting the need
for remedies:
• Marketing. Regulators are seeking to ensure the product is
marketed only to the correct audience, with an appropriate
risk warning, including the probability of trading successfully.
This would also outlaw sports sponsorship. IG fully supports
this development
• Bonus offers. There is a movement to ban account-opening
bonus offers. IG does not offer these and fully supports
this development
• Appropriateness. There already exists an obligation to assess
whether a product is appropriate for a prospective client.
However, under current MiFID guidance, firms are allowed to
warn prospective clients that the product is inappropriate but
allow them to proceed to trading. The ESMA Q&A makes it
clear that a prospective client should not be allowed to proceed
where the product is deemed inappropriate. IG does not take on
inappropriate clients and fully supports this development
• No-negative protection. Certain NCAs have mandated only
offering accounts to retail clients where the client cannot lose
more money than they have deposited on their account. ESMA
has indicated this may form part of its future guidance. IG
already offers this option and fully supports this development
• Leverage. There already exists an obligation to act in the best
interests of a client. Given this, it is already impossible to justify
high levels of leverage where the significance of the transaction
fee can skew the client’s probability of success. IG does not offer
any products with this characteristic. However, there is pressure
from certain regulators to explicitly cap leverage levels. With the
In the Company’s experience, when tighter regulation has been
applied appropriately, client outcomes have improved, the industry
has become more sustainable, and more compliant providers have
benefitted over the longer term.
Outlook
IG will continue to lead the way in the industry with respect to
how it markets its services, how it deals with clients, and through
the products and levels of client service it offers. IG believes in
doing the right thing, rather than simply complying with minimum
regulatory requirements. The Company is taking measures to
further differentiate itself within its core OTC leveraged derivatives
trading environment, and will continue to improve the transparency
of its products, and extend its geographic footprint in order to
maintain and extend its competitive advantage. The recent product
extension into share dealing and investments sets IG further apart
from the competition and extends the loyalty of the current
client base.
None of the recently announced regulatory changes have adversely
impacted the business to date, and the current year has started well.
The nature and timing of potential regulatory changes in the UK and
some other key markets for the Group remain uncertain, and it is
therefore difficult to predict what impact, if any, regulatory change
may have on the Group this financial year and beyond. Actions have
been taken to manage costs, to allow for investments to be made
in strategic initiatives without a significant increase in the fixed cost
base. Operating costs excluding variable remuneration in FY18 are
expected to remain at a similar level to FY17.
IG is better placed than most, if not all, providers in the industry to
both influence and respond to regulatory change. The Company will
continue to engage fully with regulators, to seek to achieve the best
possible outcomes for current and future clients of this industry, and
the greatest long-term value for shareholders of the Company.
Peter Hetherington
Chief Executive Officer
18 July 2017
caveat that any mandated leverage caps should aim solely to
resolve the probability issue, IG fully supports this development
Potential regulatory impact and actions
being taken
IG’s UK and EU OTC leveraged revenue last year of £330 million
included £78 million from products and clients for which it is
anticipated any regulatory impact would be minimal – equities
trading, where leverage levels are low, corporate clients and
non-resident clients. Therefore, around half of Group revenue will
be unaffected by the proposals being discussed by regulators
across the EU.
A potentially significant mitigating factor to the impact of any
regulatory restrictions on retail clients, would be qualifying clients
electing to take on a professional status in order to continue to
trade as before. To qualify, a client must pass two of the three tests
defined under MiFID: sufficient trading experience, a substantial
investment portfolio, relevant occupational experience. As
has always been the case, the Company’s revenue is relatively
concentrated towards the most active end of the client base. In
the last year, 80% of the Group’s revenue (excluding the US) was
generated by less than 9% of clients. The vast majority of IG’s top
9% of clients have a recent trading history which would suggest
they should pass the sufficient trading experience test. In addition,
a recent independent survey found that approximately 15% of IG’s
clients have a financial instrument portfolio of a sufficient size to
pass the second test. These statistics underline the journey the
Group has been on for a number of years to focus on serving the
upper end of the OTC leveraged trading market. The Company
cannot be sure of the degree of overlap between these groups of
clients, and it is not possible to determine how many eligible clients
would choose to be classified as professional.
For clients who would not be able to, or who choose not to, take
on professional status, it is not possible to determine how they
would respond to regulatory restrictions on their activities. Overall,
IG clients with open positions are leveraged under ten times. This
calculation compares client cash on accounts with open positions
to the total size of those notional trading positions and makes no
allowance for the very different levels of leverage in the various
asset types.
Many of the Group’s clients, however, currently have excess cash
on their account compared to the trading margin required, and
could choose to continue to trade with less headroom. Some clients
may choose to increase the cash on their account to maintain their
headroom. Other clients may choose to utilise their share portfolio
held with IG as collateral. It is likely that some clients will simply
constrain their trading, or open an account with a less constrained
provider, although an EU-wide harmonised approach to regulation
reduces that risk.
IG has commenced work on developing a multi-lateral trading
facility (MTF) to serve the European market. This on-exchange
offering could provide further protection for IG’s business across
Europe and increase the opportunity for further growth in this
region. There can be no certainty of success here.
The Group is planning for the UK’s exit from the EU, and good
progress is being made in securing regulatory approval for a
subsidiary based in the EU. The Group is also at the early stages of
exploring further opportunities outside the EU.
18
19
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements STRATEGY AND OBJECTIVES
Objective
Progress in 2017
Priorities for 2018
Address the needs of active traders and investors
Our goal is to build lasting, valuable relationships with our
clients. Having previously targeted active traders, who are
valuable because they tend to deal frequently and in large
sizes, we have now widened our product range in our more
mature markets to appeal additionally to sophisticated and
active 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 market leadership
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 innovative
offerings in the share dealing 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
We have a mix of more and less mature countries of
operation, all of which have room for growth. Having initially
executed our international expansion by establishing a local
presence, we are now also seeking to grow our business
across borders, without the need for a physical presence,
utilising the strength of our single, global brand, combined
with our expertise in online marketing techniques.
• Successfully launched a new self-directed wealth
management platform to UK investors, with a full
ISA and SIPP offering
• Launched and rolled out our market-leading
limited risk account, which provides
downside-protection for clients
• Broadened the IG ecosystem through MyIG,
allowing clients a single portal from which to
access all their accounts, education, analysis and
content. Additional functionality will be continually
rolled out through this tool
• Purchased assets of DailyFX – a news, research and
analysis website that helps clients and prospects
improve their trading knowledge. With content
that is suitable for novice traders through to those
with advanced knowledge, it helps people identify
trading opportunities and offers education and
insight, with direct links to IG’s product set
• Achieved significant client growth over
the year – 7% in leveraged and 203% in
non-leveraged trading
• Maintained our revenue per trade
• Delivered strong revenue growth at Nadex –
26% increase year-on-year
•
•
Introduced a brand new, market-leading trading
platform that includes built-in training, analysis
and insight functionality. This platform is now
used by all spread betting clients who joined IG
from January 2017. The transition of other clients
is ongoing
Introduced improvements to our application
process, making it more straightforward for
appropriate applicants to become clients. This
work has included enhancements to our document
upload capabilities and a refocussing of our sales
teams, so applicants are always contacted by a
product expert prior to becoming a client
• Achieved significant growth in our new Switzerland
and Dubai offices, both of which are performing
ahead of our expectations
• Continued roll-out of localised websites to
improve client acquisition across diverse territories
• Over £35 million of revenue generated from
clients based in countries where we do not have
an office
• Continue development of our investments product, including allowing clients to individually configure their portfolios, and consider the
launch of the product in additional countries
• Support this with an extension of the share dealing platform, improving functionality around dividend reinvestment and a regular
savings mechanism
• Take an increasingly analytical approach to client content, providing clients with tailored materials that are delivered at the right time,
on the right platform, in the right format for them
• Provide clients with complete transparency in their trading and investing, through improved analytics
• Extend our leadership position by further improving our application procedure, to ensure only entirely appropriate clients receive
accounts with IG
• Provide an unrivalled customer experience by leveraging our internal expertise, acting on research and analytics data and making best
use of tools such as our customer contact management system
• Extend our availability to clients, moving closer to 24/7/365
• Adapt our offering to enable IG to adjust very quickly to regulatory change
• Continue to expand our share dealing and investments business
• Offer clients an ever-increasing range of products in response to their demand, and market opportunities; for example, increasing our
range of crypto currencies
•
Increase opportunities in non-office locations by providing dedicated ownership of target countries
• Develop best-in-class websites that boast easy navigation, leading-edge web technology and effective search engine optimisation
• Maximise the impact of DailyFX to expand IG’s brand awareness in retail FX
• Assess opportunities to expand into additional countries as regulatory developments allow
20
21
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements STRATEGY AND OBJECTIVES continued
Objective
Progress in 2017
Priorities for 2018
Deliver quality service to our clients
By maintaining absolute integrity, delivering excellent
customer service and fast, 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 valuable relationship.
Sustain our leadership in technology
The market-leading functionality, speed and security
of our platform and its proven resilience are essential
to maintaining client satisfaction and 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.
• Qualified as a member of the Institute of
Customer Service
• Delivered significant customer service
improvements, mainly driven by the
implementation of market-leading customer
relationship management systems. Such
enhancements include a drop in our average
call-waiting times from 59 seconds to 10 seconds
and a reduction in our email response times from
six hours to just one
•
•
Improved training for client-facing staff, all of
whom undergo a 12-week induction programme
that includes classroom and on-the-job training, as
well as a buddying programme
Introduced PayPal as a payment method, acting
on research that told us circa 30% of clients would
welcome it
• Created a specialist payments team, improving
client satisfaction in this area by more than 10%
over the year
•
Increased investment in technology development
aimed at improving and personalising our
service to clients. Examples include increased
customisation options, delivery of appropriately
tailored content, streamlined payment processes
and enhanced consistency across all devices that
clients use to trade
• Commenced the rollout of our new web
trading platform, with enhanced trading and
research functionality
• Launched our investments product in the UK as
IG’s first fully cloud-based offering, allowing us
greater scalability without requiring investment in
our own IT infrastructure
• Through our membership of the Institute of Customer Service, improve our benchmarking results versus last year
• Optimise our location and people strategy to ensure better availability when clients want to interact with us
• Further enhance our payment processes to improve response times and drive down costs for our clients
• Use the data which is becoming available to us from better systems to continually enhance our performance in customer service
• Make our new web trading platform available to all clients
• Offer clients more opportunity to customise their IG experience though the MyIG portal
• Deliver further improvements that keep us at the forefront of the market, through the flexibility that the new platform allows
• Enhance the mobile solution in line with the web platform
• Deliver enhanced functionality and speed in the US to support the growth of Nadex
• Deliver significant back-office improvements to meet the requirements under MiFID II and MiFIR
• Continue to invest in cyber security to keep client accounts protected
22
23
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BUSINESS MODEL AND RISK PROFILE
IG exists to empower informed, decisive, adventurous people to access opportunities in
financial markets.
The business offers its clients opportunities to trade in a wide range
of markets, including equity indices, individual equities, forex,
interest rates and commodities, through online dealing platforms.
The business also offers its clients a share dealing platform, as well
as an innovative portfolio-based product for longer-term investment
purposes in partnership with BlackRock, one of the world’s leading
asset managers.
RISK PROFILE
IG’s business model is based on generating a return from its services
through transaction fees charged to clients. The level of revenue
in any period is predominantly driven by the number of active
clients the business serves in that period and the level of activity
undertaken by each client.
The business does not seek to generate returns from actively taking
market risk, it does not take proprietary trading positions, and its
revenue is not dependent on the direction of market movements.
In accordance with the risk appetite set by the Board, the Group
accepts some exposure to market and credit risk to optimise the
efficiency and effectiveness of its services to clients. The business
manages the market risk it faces in providing its services to clients
by internalising client flow and hedging when the residual exposures
reach defined limits, so that its returns are driven by transaction
fees charged and are not significantly affected by movements in
market prices.
As a result of its business model, the Group also faces liquidity and
capital adequacy risk.
The business faces operational risks, including those arising through
technology, people, process and external events.
The Group faces conduct risk relating to how it deals with its clients
and with the markets.
IG operates in a dynamic competitive environment, and its revenue
is dependent on the number of active customers and the level of
their activity. The business therefore faces risks relating to market
conditions and its competitive position.
The business operates in a number of geographic markets and is
regulated by various different financial services regulators in those
markets. These regulations affect how the business is able to market
and provide its services to clients. The regulations relating to the
products and markets in which the business operates are continually
evolving. IG supports the objectives of the recently proposed and
enacted regulatory changes in many of its markets, but the business
does face risks arising from changes in its regulatory environments
that may adversely impact its activities or its competitive position.
CLIENTS
Our core focus continues to be the active retail trader – a
knowledgeable, demanding and valuable client who expects highly
sophisticated technology and uses it frequently.
We put our clients 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
continued investment in process, training and culture to prevent
unsatisfactory customer experiences and to address root causes
where any practice falls short.
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 and
investors globally.
Central to our commitment to our customers is the quality of
our order execution. We 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.
Clients’ investment requirements and appetite for risk 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 appeal to relatively
sophisticated investors.
Our range of products for retail clients includes share dealing and
investment portfolios, and clients are able to hold their investments
in ISAs and SIPPs. Offering these services allows us to deepen
and lengthen our relationship with our clients by catering for their
evolving needs.
In addition to dealing directly with clients, IG services clients
introduced through third parties 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.
IG also provides services to corporate entities, including asset
managers, hedge funds, broker dealers and competitors who
lack sufficient scale to gain direct access to the major
hedging counterparties.
We carefully assess the risk and potential returns from introducers
and corporate entities 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.
Client acquisition and education
Acquiring a new client begins with a targeted global marketing
effort, with online marketing managed centrally and offline
activity managed by country offices. Our sophisticated online
marketing uses an algorithmic approach, which enables us to
reach larger numbers of the right prospects more efficiently. We
are able to react immediately to world events, creating campaigns
rapidly and rolling them out to relevant regions, with appropriate
local adjustments.
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 to learn about our products and how to trade
effectively and responsibly.
These include the IG Academy app, the IG Live TV channel, a suite
of YouTube videos, and a wide range of seminars and webinars.
During the past financial year the Group purchased the DailyFX
website, a leading global news, information, and education and
discussion portal for retail traders, particularly in FX. This is a
further commitment by the Company to acquiring new clients and
providing valuable resources to educate, engage and develop its
client base. These assets reinforce our commitment to transparency,
ensuring our new and existing clients are well informed about
our services.
Our extensive educational resources also include an introduction
programme that promotes responsible trading. Clients can access
expert tutorials, which cover everything from fundamental trading
concepts to risk management. We continually keep this content
engaging and targeted towards our clients’ needs.
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.
Appropriateness
Our products are not appropriate for everyone, and good conduct
is particularly vital in relation to marketing and client recruitment
to prevent poor consumer outcomes. We seek to ensure that our
advertising is not reaching an inappropriate 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 to assess
whether they have the necessary knowledge and experience to
understand the risks involved. 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, in addition to providing
clear warnings about the appropriateness of the product, we may
decline to open an account, or provide an applicant with a type of
account where risk is limited. We may also close an open account.
Client risk management tools
We take very seriously our responsibility to help clients understand
the risks associated with trading and to provide them with tools
to manage this. Given our business model, it is in IG’s interest
to develop lasting relationships with clients, as those who are
more successful stay with us over the long term and become
more valuable.
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. Our innovative charging system 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) liquidates clients’ positions when their
margin has been significantly eroded and helps protect clients by
closing positions automatically. At 31 May 2017, 99.75% of all client
accounts were subject to the automatic COM procedure.
We also offer a limited risk account. This is the default account for
less-experienced clients or clients towards the lower end of the
wealth scale. Clients who are eligible for our other account types
can request a limited risk account, if they so wish. These limited
risk accounts are ‘double-lock accounts’. The client knows the
maximum potential loss on every trade at the outset, and benefits
from the guarantee that they cannot lose more than they have on
their account. This gives clients certainty on the potential downside,
enabling them to feel more secure and more confident to trade.
REVENUE GENERATION
The Group’s business is conducted through four revenue-generation
models: OTC leveraged derivatives, exchange-traded derivatives,
share dealing and investments.
OTC leveraged derivatives
The vast majority of the Group’s revenue is derived from OTC
leveraged derivatives. Clients enter into derivative instruments:
contracts for difference, financial spread bets and options. These
enable them to take long or short positions, for varied durations,
in a wide range of financial and other markets, gaining exposure to
price movements in those markets without needing to buy or sell
the underlying asset.
The Group’s OTC leveraged derivatives are priced to clients by
reference to prices in the underlying markets. When markets are
open, the prices of the derivative contracts are updated in real time,
reflecting the prices in the underlying markets. For the majority of
the derivatives, the price includes a spread around the underlying
market price. For some derivatives on single equities, clients are
charged a commission instead, and the contract does not include
a spread. Clients are charged funding when long positions are
held overnight, and receive funding when short positions are
held overnight.
IG is the counterparty to the OTC leveraged derivatives that clients
enter into, and as a result the business faces market risk. The Group
accepts this market risk in order to allow instant execution of client
orders. The business manages the market risk it faces through
internalisation – allowing individual client trades to offset against
each other – and by hedging the residual risk in each market at
defined limits by entering into derivative contracts with its hedging
brokers. The Group seeks to hedge its residual market exposures
in an efficient manner by grouping its exposures into asset classes,
and therefore does not hedge its exposures exactly, which gives rise
to basis risk.
24
25
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BUSINESS MODEL AND RISK PROFILE continued
Through the process of internalisation and hedging, the Group
limits the market risk it faces so that its trading revenue from OTC
leveraged derivatives predominantly reflects the charges paid by
clients through spread, commission and funding, less the costs
incurred in hedging. This internalisation is key to the Group’s
business model and profitability, as it reduces the cost of hedging
market risk in the underlying markets.
The majority of the OTC derivatives offered by the Group are
‘leveraged’. Clients trade contracts for difference or financial spread
bets, on ‘margin’. Clients only need to have sufficient funds in their
account to cover the margin required to enter into a derivative
contract, not its full value.
Margin is usually expressed as a percentage of the notional value
of the trade, and allows a client to use leverage to take a position
in a market with a notional value that is significantly in excess of the
funds they are required to deposit. Leveraged derivative contracts
therefore magnify the gains or losses a client can make relative to
the funds deposited.
The Group faces client credit risk, as leveraged contracts can result
in a client making losses in excess of the funds in their account,
and they may be unable to fund those losses. The level of margin
for each contract is set according to the volatility of prices in the
underlying market, and is intended to reduce the client credit risk
faced by the Group.
The Group’s OTC leveraged derivatives activities give rise to
liquidity risk. The business trades its hedging contracts on margin,
and is required to deposit initial margin with its brokers reflecting
the gross amount of open positions with each broker. As the gross
amounts of open positions change, and as market prices move,
the amount of margin the Group has to deposit also alters, and the
Group is required to deposit margin with its brokers on demand.
The business therefore faces liquidity risk through its hedging
activities, and counterparty credit risk through the amounts it holds
on deposit with its brokers.
The Group’s exposure to any one hedging counterparty is restricted
by large exposure rules, and the Group needs to maintain a number
of different hedging relationships to manage the capacity it requires
to hedge.
Exchange-traded derivatives
The Group’s trading revenue in the USA is derived from
exchange-traded derivatives. The Group operates a regulated
derivatives exchange, and clients can trade binary options contracts
on a wide range of underlying markets, with various strike prices
and expirations. Clients become members of the exchange and pay
a trading fee on each side of the trade: once to open, and once
to close. Under this model, clients do not trade on margin, and
therefore these contracts do not involve leverage, and the exchange
does not face either market or client credit risk.
Prices for contracts listed on the exchange are provided by market
makers, who are also members of the exchange and pay fees for
trading. IG operates as one of the market makers to the exchange,
and faces market risk as a result of this activity.
Share dealing
The Group operates a share dealing platform, through which clients
can buy and sell individual equities listed on exchanges around
the world.
The Group charges a transaction fee for each purchase and sale
transaction, and its trading revenue from this service is net of the
execution fees the Group pays in the market.
Clients fund the purchases of equities in full at the time of placing
the order. This activity does not give rise to any market risk or client
credit risk for the Group.
Investments
The Group offers a portfolio-based investment service. Clients are
advised, through undertaking an online questionnaire, which of
five portfolios comprising a basket of ETFs is best suited to their
investment needs, and these portfolios rebalance periodically.
Alternatively, clients can choose their own portfolio of ETFs to
reflect their investment profile.
The Group charges a percentage fee on the value of the assets
under management, and its trading revenue reflects these fees less
the amount paid to the provider of the ETFs.
Clients fund the purchases of the investments in full at the time of
placing the order. This activity does not give rise to any market risk
or client credit risk for the Group.
DIFFERENTIATION – BRAND,
TECHNOLOGY AND SERVICE
Brand
IG is a global leader in online trading and the trusted partner for
185,000 clients. A FTSE 250 company with market capitalisation of
over £2.0 billion, the Group has a long history of profitability and
financial strength.
IG started in 1974 as the UK’s original financial spread betting
provider, introducing a completely new, accessible way for people
to trade on gold, by defining it as an index. Since then, the Group’s
innovative, client-focused approach has enabled the business to
grow, expand internationally, and broaden its product range, and
today IG is the world’s No.1 CFD provider as well as maintaining its
considerable UK market leadership in spread betting. The unified
global IG brand was established in 2013 through the acquisition
of the IG.com domain. This pivotal event gave the Group the
framework to consolidate its 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.
Technology
The Group’s success has been founded on developing technology
that is market-leading and empowering for clients. The business
invests in developing new tools and features for its client-facing
platforms – a continuous process that is directed by detailed
research into clients’ evolving needs.
This year IG has launched its new web trading platform, which
delivers a greatly enhanced trading experience. Its speed,
customisation facilities and integrated news and analysis feeds are
at the cutting edge of trading technology. Designed to provide
an intuitive, personalised experience for traders of all styles and
knowledge levels, the new platform is at the core of the suite of
trading tools and resources offered to clients.
Desktop platforms are complemented by mobile apps, and the
business continues to invest in solutions that enable a seamless
transition between desktop and mobile devices. Clients can also
access extensive educational resources, in an engaging, interactive
format, via our IG Academy app.
For more advanced and institutional clients, the business provides
a range of professional technology, including a direct market access
(DMA) platform, sophisticated technical analysis tools and web
API solutions.
Service
Providing clients with the best service is at the heart of our
corporate culture at IG. Our operating model and our offices
around the world allow us to provide a 24-hour service to clients.
In addition to our global network of offices, we have operations
and development centres in Krakow and Bangalore that allow us to
access the skills we need to support clients.
The business offers a range of free seminars and online tutorials
for clients, and provides dedicated 24-hour support from our
client services team. This team is fully trained to understand our
products and how they are best suited to individual clients. Clients
can contact IG client services through email and telephone, and
personal interaction is IG’s preferred mode of communication. The
business seeks to ensure that correspondence with clients is always
clear and fair, and is never misleading.
To ensure that clients are at the heart of the business, feedback
is encouraged and IG offers clear channels for comments and
complaints. The business closely monitors its service standards
through key performance and risk indicators tracked in real time.
26
27
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements MAIN TRENDS AND FACTORS LIKELY TO AFFECT THE FUTURE DEVELOPMENT,
PERFORMANCE AND POSITION OF THE COMPANY’S BUSINESS
The level of investment in, and success of,
new initiatives
The Group continues to identify opportunities to invest in new
initiatives to further broaden its range of products and services
and its geographic coverage. These investments tend to have a
longer payback period than marketing investment, and the level
of investment depends on the opportunities available. Financial
performance in any one period can therefore be affected by the
extent of such investment, and future performance will be affected
by the success of such initiatives.
The level of volatility in financial markets
IG’s business model is based on generating a return from its services
through transaction fees charged to clients. The level of revenue
in any period is predominantly driven by the number of active
clients the business serves in that period and the level of activity
undertaken by each client.
One factor affecting the ability to attract new clients and the
willingness of clients to trade is the opportunities clients perceive
are available to them in the markets. Higher levels of volatility in
financial markets tends to generate trading opportunities, which
support the Group’s efforts to attract new clients and the level
of individual client trading activity. Measures of financial market
volatility, such as the VIX index, have been at historically low levels
over the last three years. It is expected that an increase in the
general level of financial market volatility would be beneficial to
the Group’s revenue, which is therefore partly dependent upon
market conditions.
The UK’s exit from the European Union
The Group currently operates its business in the EU through
branches of its UK-domiciled and regulated legal entities, under
the passporting rules. Depending on the terms and nature of the
arrangements under which the UK will leave the EU, the Group
may need to establish one or more subsidiary entities domiciled
and regulated within the EU. The Group has well-developed plans
to deal with this requirement, although the necessity and timing
of the requirement remain uncertain. The success of the Group
in establishing appropriate structures through which to continue
operating its business in the EU, including receiving relevant
regulatory approvals, and the costs involved in establishing and
running additional regulated entities, could have a significant
impact on its future performance.
The impact of the changing
regulatory environment
IG operates in a highly regulated environment, which is continually
evolving. In the last year, there has been a series of significant
regulatory proposals, particularly from the UK and other European
Union country regulators, to impose restrictions on the provision
of leveraged products to retail clients, which were unexpected in
their severity.
Over the last 43 years IG’s strategy has been one of differentiation
within the industry, through its adherence to the highest regulatory
standards and its focus on fair outcomes for clients. IG believes in
robust, proportionate and consistently applied regulatory oversight
of the CFD sector, and as such fully supports the regulatory
objective to improve consumer outcomes across the industry.
The timeline for the determination of the final rules and their
implementation in many of the geographic markets in which the
Group operates remains uncertain. It is too early to determine
precisely how consumers will react to these new rules and what the
long-term outcome for the Company will be. IG has a history of
innovation and flexibility, and a proven track record of deploying
technology and skills to adapt its business in response to regulatory
and market changes. In the Company’s experience, when tighter
regulation has been applied appropriately, client outcomes
have improved; the industry has become more sustainable and
high-quality providers, like IG, have benefitted over the longer term.
More detail on regulatory change is included in the Chief Executive
Officer’s Review on page 16.
The level of marketing spend, the
effectiveness of marketing in attracting new
clients, and the rate of client attrition
IG’s business model is based on generating a return from its services
through transaction fees charged to clients. The level of revenue
in any period is predominantly driven by the number of active
clients the business serves in that period and the level of activity
undertaken by each client.
The Group invests in marketing each year to attract new clients, and
seeks to retain clients through the provision of quality services and
products. The number of unique active clients has been increasing
for the last three years, with the number of new clients trading for
the first time each year, together with the number of clients who
returned to trading, exceeding the number who stopped trading.
This trend has been a key driver of revenue growth.
The Group continues to focus on the effectiveness of its marketing,
and manages the level of marketing spend to maintain an attractive
payback on the investment. The level of marketing spend in any
period varies according to the perceived opportunity to spend
effectively, and changes in the level of marketing spend, in
the effectiveness of that spend, or in the rate of client attrition
and reactivation could have a significant effect on the Group’s
future performance.
28
IG Group Holdings plc • Annual Report 2017 |
29
29
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements OPERATING AND FINANCIAL REVIEW
OPERATING REVIEW
With the increasing geographic and product diversity of IG’s business, and following a management realignment, the make-up of the
segments reported on for the 2017 financial year has been adjusted. This reflects the information format that management reviews for
the purposes of both allocating resources and assessing performance, and includes increased disclosure around the share dealing and
investments business. For further details and a restatement of the prior year’s performance refer to note 3 of the Financial Statements.
Reporting segment
Revenue (£m)
% Change(1)
Clients (‘000s)
% Change Revenue per client(1)
UK
EMEA
APAC
Leverage OTC
US
Share dealing and investments
Multi-product clients
Group
FY17
223.0
137.5
114.1
474.6
14.1
2.4
FY16
222.3
117.3
104.7
444.3
11.2
0.8
0.3%
17%
9%
7%
26%
187%
FY17
64.7
45.9
37.4
148.0
22.3
20.4
(5.0)
FY16
59.9
41.6
36.4
137.9
15.2
6.7
(2.4)
491.1
456.3
8%
185.8
157.5
8%
10%
2.8%
7%
47%
203%
112%
18%
(1) The financial tables above contain numbers which have been rounded, while all year-on-year percentages are calculated off underlying unrounded numbers.
(7%)
6%
6%
(0.5%)
(14%)
(5%)
(9%)
The backdrop this year was dominated by significant political
events, including the UK’s EU referendum in June, the US
presidential election in November and elections in key European
countries in the second half of the year. However, the uncertainty
these events created was not reflected in the financial markets,
which, outside the specific events, displayed low levels of volatility.
Although annual revenue was split almost equally between the two
halves of the year, the quarterly performance was more variable.
A weak first quarter was followed by a record second quarter
(£133.4 million). The second half of the year also started quietly
and recovered in the final quarter, with client trading levels peaking
around the French and German elections.
UK
OTC leveraged revenue in this region grew 0.3% to £223.0 million
(FY16: £222.3 million) and represented 45% of Group revenues.
Active client numbers were up by 8% to 64,725 (FY16: 59,940).
As previously outlined, the UK, due to the large installed client
base that comes with the most mature market, responds more
to volatility, both negatively and positively. In the quiet markets,
this, along with the heavy client acquisition around the UK’s EU
referendum and the US presidential election, meant that average
revenue per client was down by 7% to £3,446 (FY16: £3,710).
An annual study of the UK’s retail leveraged trading industry was
released in July 2017. The survey concluded that, although the retail
leveraged trading market remains niche, the number of traders
grew to 148,000 (2016: 138,000 – restated). The survey showed that
IG’s primary market share of spread bettors fell slightly, from 46%
to 45%, and its primary share of CFD traders fell from 27% to 24%.
The measurement of primary market share is based on an estimate
of the number of primary accounts, excluding partner agreements,
and makes no allowance for client value. Therefore drawing precise
conclusions about the share of total market revenue is difficult.
EMEA
OTC leveraged revenue grew 17% to £137.5 million in the
2017 financial year (FY16: £117.3 million), which equates to 28% of
the Group revenue.
Active client numbers rose 10% to 45,903 (FY16: 41,566) and
revenue per client was up 6% to £2,997 (FY16: £2,821).
This region divides into two broad areas when analysing
performance. Like the UK, the EU-based offices are more mature
and generate a slower rate of growth than the newer, non-EU offices
of Dubai, South Africa and Switzerland. In the non-EU offices, where
the regulatory environment appears more stable, revenue almost
doubled to £30.7 million. Active client numbers were also up in
these countries by 22%, and revenue per client rose by 59%.
APAC
OTC leveraged revenue in the 2017 financial year grew by 9% to
£114.1 million, against a prior year of £104.7 million. This was driven
by a 3% growth in clients to 37,392 (FY16: 36,364) and a 6% rise in
revenue per client to £3,051. Revenue in the second half of the year
was 5% ahead of the first half.
US
Revenue grew 26% over the period to £14.1 million
(FY16: £11.2 million). Active member numbers were up by 47%
and revenue per client was down by 14%.
Share dealing and investments
Share dealing is now active in IG’s two largest markets of the UK and
Australia, and is also offered in Austria, France, Germany, Ireland
and the Netherlands. This is an important strategic product line for
the UK business, which further engages our current client base.
Total client numbers in the year were up around 200% on FY16
at 20,417 (FY16: 6,748). Revenue and first trades were also up by
around 200% to £2.4 million and 18,188 respectively. This is partly
down to ongoing growth in the UK and partly to the launch in
Australia in July 2016.
The IG Smart Portfolio product was launched in the UK in
April 2017, in partnership with BlackRock. This product seeks to
take advantage of the growing market for low-cost passive portfolio
investment products, and is based on BlackRock ETFs.
30
FINANCIAL REVIEW
Summary Group Income Statement
Net trading revenue
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 taxation
Profit before tax margin
Taxation
Profit for the year
Diluted earnings per share
Total dividend per share
Year ended 31 May 2017
Year ended 31 May 2016
£m
491.1
4.0
(7.5)
1.9
489.5
(276.1)
213.4
0.3
213.7
43.5%
(44.5)
169.2
45.9p
32.3p
£m
456.3
3.4
(11.2)
0.6
449.1
(241.5)
207.6
0.3
207.9
45.6%
(43.6)
164.3
44.6p
31.4p
Net operating income
Net operating income increased by 9% to £489.5 million (2016: £449.1 million), reflecting the 8% growth in net trading revenue, and
a reduction in betting duties reflecting lower client losses on spread betting contracts. The long-term average for betting duties as a
percentage of net trading revenue is around 2%. Net interest income on segregated client funds increased by £0.6 million to £4.0 million
(2016: £3.4 million), driven by increases in the amount of client money held.
Operating expenses
Operating expenses increased by 14% to £276.1 million (2016: £241.5 million).
Employee remuneration costs – fixed
Employee remuneration costs – variable
Advertising and marketing
Depreciation and amortisation
Irrecoverable VAT and other sales taxes
Regulatory fees
Other costs
Year ended 31 May 2017
Year ended 31 May 2016
£m
95.5
23.6
64.5
16.4
14.1
2.3
59.7
276.1
£m
83.3
30.2
49.7
12.7
11.2
5.7
48.7
241.5
Employee remuneration costs
Fixed employee remuneration costs increased by 15% to £95.5 million (2016: £83.3 million). This reflects an 8% increase in average
headcount and a 6% increase in average cost per head. The increase in average headcount reflects investment in client-service roles; the
additional headcount associated with DailyFX; and the dual-running of teams during the process of offshoring functions to the Group’s
resource hub in Poland. The increase in the average cost per head reflects the introduction of flexible benefits; the impact of salary
benchmarking and the increase in the GBP equivalent cost of non-UK staff, due to the weakening of GBP compared with most other
currencies relative to the 2016 financial year. Variable employee remuneration costs reduced by 22%, due to lower discretionary bonus
payments for staff in the 2017 financial year compared to those made for the prior year.
Year ended 31 May 2017
Year ended 31 May 2016
Average headcount
Year-end headcount
1,522
1,546
1,412
1,408
31
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements OPERATING AND FINANCIAL REVIEW continued
Advertising and marketing costs
Advertising and marketing costs increased by 30% to £64.5 million
(2016: £49.7 million). The Group has continued to manage its
external marketing spend, to drive client recruitment while keeping
acquisition cost per client flat. The cost per first trade in the 2017
financial year (excluding Nadex clients, and including irrecoverable
VAT) was £1,172 (2016: £1,205).
Irrecoverable VAT and other sales taxes
The Group does not recover all of the input VAT and other sales
taxes it incurs on its costs, and the £14.1 million charge in the 2017
financial year reflects the amounts not recovered. The increase
in irrecoverable VAT and sales taxes reflects the increase in costs
in the year on which VAT and other sales taxes are charged –
predominantly marketing and advertising costs.
Depreciation and amortisation
Depreciation and amortisation increased by £3.7 million to
£16.4 million (2016: £12.7 million). The increase includes the
£1.9 million amortisation of the investment in DailyFX, which
delivers market-leading education, research, analysis and news
focused on the FX markets, and which is a key part of our future
marketing strategy. In addition, the charge in the 2017 financial
year includes £1.6 million relating to the write-down of leasehold
improvements and fixtures and fittings, as a result of the office
refurbishment that took place during the year.
Regulatory fees
The Group is charged regulatory fees by the various regulators in
the jurisdictions in which it operates, and in addition is required
to make a contribution to the Financial Services Compensation
Scheme (FSCS) in the UK. The £3.4 million reduction in the cost
of regulatory fees reflects the rebate the Group received during
the 2017 financial year relating to FSCS levies paid in prior years,
and the benefit from the actual FSCS levy for 2016 which was
charged in FY16 being lower than the cost accrued. The charge for
regulatory fees is expected to revert to the normal level in the 2018
financial year.
Other costs
The £11.0 million increase in other costs to £59.7 million reflects changes as follows:
Premises-related costs
Telephone and data
IT Maintenance and support
Market data
Legal and professional costs
Net charge for impaired trade receivables
Payment card charges
Other costs
Year ended 31 May 2017
Year ended 31 May 2016
13.2
2.0
12.2
9.7
8.0
3.0
2.2
9.4
59.7
12.1
1.7
9.7
7.9
6.8
1.6
0.4
8.5
48.7
The higher IT maintenance and support costs reflect investments made in data security and IT infrastructure. The higher market data costs
reflect the growth in client numbers. The higher payment card charges are due to the increased volume of card payments by clients.
Taxation
The effective rate of tax for the year ended 31 May 2017 was 20.8% – slightly lower than the effective rate of 21.0% for the prior year. The
effective rate of tax has continued to benefit from the reduction in the standard rate of UK corporation tax, which reduced from 20% to 19%
on 1 April 2017.
The vast majority of the Group’s taxable profit arises in the UK. An analysis of the tax charge by geographic segment is shown in note F of
the Other Information section of the Financial Statements. The Group’s effective rate of tax remains dependent on the mix of taxable profit
by geography, the availability and use of taxable losses and the tax rates levied in those geographies. The Group’s current estimate of the
effective rate of tax for the year to 31 May 2018 is 20.5%.
The calculation of the Group’s tax charge involves a degree of estimation and judgment, in particular with respect to certain items whose
tax treatment cannot be finally determined until agreement has been reached with the relevant tax authority.
Diluted earnings per share
Diluted earnings per share of 45.9 pence for the year to 31 May 2017 are 3% higher than the 44.6 pence for the year ended 31 May 2016.
Diluted earnings per share is used as a primary measure of profitability and as a financial measure in relation to the Executive Director and
senior management share plans.
Dividend policy
The business continues to be highly cash-generative, and the Board
seeks 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 22.88 pence per share, giving a full-year dividend
of 32.3 pence per share, 3% higher than the 31.4 pence per
share paid for the year to 31 May 2016, reflecting the increase in
post-tax earnings.
Cash generation, investments and dividends
The Group uses own funds, and net own funds, generated from
operations as its key measures of cash generation. The make-up of
own funds is shown on the Balance Sheet in Note A, and the Own
Funds cash flow is shown in note C of the Other Information section
in the Financial Statements.
Cash generation remains strong. Own funds generated from
operations of £229.2 million (2016: £239.8 million), compares with
operating profit of £213.4 million (2016: £207.6 million), with a cash
conversion rate, calculated as own funds generated from operations
divided by operating profit, of 107% (2016: 116%). The reduction in
the conversion rate reflects the reduction in year-end bonus accruals
at 31 May 2017 compared with the prior year-end. The Group
continues to benefit from a net credit balance in working capital.
Capital expenditure in the year of £17.1 million includes
£7.6 million relating to the purchase and development of intangible
assets during the year, including the new web trading platform and
new financial systems to improve the control environment for cash
and client money. It also includes £10.5 million on tangible assets,
including £2.8 million for the office refurbishment in London and
£6.3 million for new and replacement IT hardware.
During the year the Group purchased the assets of DailyFX, a
leading global news and research portal, from FXCM Inc. for
$40.0 million (£32.7 million), with $4.0 million (£3.3 million) of this
amount deferred for a year.
Dividend payments to shareholders during the year to 31 May 2017
of £118.7 million comprise the final dividend for the year to
31 May 2016 of £84.1 million, as well as the interim dividend for the
year to 31 May 2017 of £34.6 million.
The final dividend for the year to 31 May 2017 of £83.9 million will,
if approved, be paid in October 2017.
The Group’s own funds of £614.3 million at the end of the year
are £26.6 million higher than at the end of the prior year. This
reflects the £17.8 million own funds cash flow after investments and
dividends, and £8.8 million of FX translation benefit reflecting the
increased GBP equivalent value of own funds in non-UK businesses.
Liquidity
The Group’s total liquid assets at the end of year were
£731.4 million (2016: £626.7 million). The increase in liquid
assets reflects the increase in own funds, and the increase in
client funds on the balance sheet to £117.1 million at 31 May 2017
from £39.0 million at 31 May 2016. Client funds on the balance
sheet include £60.0 million (2016: £25.5 million) deposited by
clients under title transfer arrangements, and £57.1 million
(2016: £13.5 million) of client deposits with IG Bank SA, the Group’s
subsidiary in Switzerland. The Group does not currently use any of
the Swiss Bank deposits for liquidity purposes.
The Group’s primary requirement for liquidity is for the margin it is
required to deposit with its hedging brokers. The average broker
margin requirement in the 2017 financial year was £286 million,
£73 million higher than in the 2016 financial year, with a peak
broker margin requirement of £367 million during the year.
At 31 May 2017, the actual broker margin requirement was
£356 million (2016: £228 million).
The Group has access to a committed Revolving Credit Facility
(RCF) of £160 million to assist in liquidity risk management. The
Group draws down on its RCF during periods when broker margin
is at elevated levels and in advance of events that could result in
an elevated broker margin requirement, in order to reduce liquidity
risk. During the year, draw downs of the facility were made ahead
of three political events: the EU referendum on 23 June 2016,
the US presidential elections on 8 November 2016 and the Italian
referendum on 4 December 2016. These precautionary drawdowns
were repaid after the event. In June 2017 the Group renewed the
£160 million RCF with a syndicate of four UK banks. Of the
£160 million, £60 million is available for three years, with
£100 million available for 12 months.
Segregated client funds
At 31 May 2017 the Group held £1,215.3 million
(2016: £917.3 million) of client money in segregated trust bank
accounts, and £499.8 million (2016: £177.8 million) of client assets
in third-party custodian accounts. These amounts are segregated
client money and assets, and are therefore excluded from the
balance sheet.
Regulatory capital resources
The calculation of the Group’s consolidated capital resources and
capital ratio is shown in note E of the Other Information section in
the Financial Statements. The Group’s capital ratio – resources as a
percentage of the total requirement was 26.7% as at 31 May 2017,
compared with the minimum ratio for the Group of 18.7%. The
Group continues to have sufficient capital headroom.
Impact of changes in foreign currency
exchange rates
IG offers its clients opportunities to trade in over 15,000 markets.
Our clients have the opportunity to gain exposure to these markets
in the natural currency of that market or, in many cases, their
account currency. The Group hedges its exposure to the underlying
markets and to currencies. The Group’s trading revenue from OTC
leveraged derivatives is the aggregate of the transaction fees on
many millions of individual client trades net of the transaction fees
on hedging the exposures, which are also denominated in a number
of currencies. These transactions are almost all booked in entities
whose functional currency is GBP. It is impractical to isolate the
effect that changes in foreign currency exchange rates have on the
Group’s GBP reported revenue.
Around one third of the Group’s operating expenses are incurred
in currencies other than GBP. Although it is possible to identify the
effect that changes in foreign currency exchange rates have on the
GBP reported costs, as it is not practical to do so on revenue, the
Group accepts that it manages its earnings in GBP, and reports on
and explains its results accordingly.
32
33
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements KEY PERFORMANCE INDICATORS (KPIs)
RISK MANAGEMENT AND VIABILITY STATEMENT
We use nine key financial and non-financial performance metrics to measure our performance
and progress against the short-term and long-term goals of the business.
LEVERAGED OTC CLIENTS
PROFIT BEFORE TAX
FY17
FY16
148,000
7.3%
FY17
£213.7m
2.8%
137,900
FY16
£207.9m
LEVERAGED OTC
REVENUE PER CLIENT
DILUTED EARNINGS PER
SHARE (DEPS)
FY17
FY16
£3,207
(0.5)%
£3,223
FY17
FY16
45.9p
2.9%
44.58p
REVENUE
FY17
FY16
NET OWN FUNDS GENERATED
FROM OPERATIONS
£491.1m
7.6%
£456.3m
FY17
FY16
£183.9m
(6.8)%
£197.3m
NUMBER OF LEVERAGED
OTC FIRST TRADES
TOTAL DIVIDEND
PER SHARE
FY17
45,727
15%
FY16
39,842
FY17
FY16
32.3p
2.9%
31.4p
PLATFORM UPTIME
99.98%
99.99%
FY17
FY16
34
Effective risk management is essential to the achievement of the Group’s strategy and
business objectives, and to preserve its financial strength and resilience. The Board is
responsible for ensuring that the Group maintains an appropriate risk management culture,
supported by a robust Risk Management Framework.
RISK MANAGEMENT
FRAMEWORK
IG has an established Risk Management Framework to identify,
measure, manage and monitor the risks faced by the business,
and to manage the risk that the Group’s conduct may pose to
the achievement of fair outcomes for consumers or to the sound,
stable, resilient and transparent operation of the financial markets.
This framework provides the Board with assurance that IG’s risks,
including the risks relating to the achievement of Group’s strategic
objectives, are understood and managed in accordance with
the appetite and tolerance levels set. It provides the basis for
enabling the Group’s ongoing assessment and monitoring of capital
adequacy and its liquidity risk management. The framework is
established around the following elements:
• Risk culture
• Risk Principles
• Risk Taxonomy
• Risk Appetite Statement
• Risk management governance
• Risk assessment, monitoring, control and reporting
Risk culture
The Board recognises that embedding a sound risk culture
is fundamental to the effective operation of the Group’s Risk
Management Framework, and sets the tone for broader conduct in
all business activities and for promoting a common set of IG values
and expected behaviours.
The Group’s culture is defined by the shared values, attitudes,
competencies and behaviours present throughout the business.
A poor culture will inevitably lead to an increase in certain areas
of risk.
The Group seeks to achieve the implementation of its desired
risk management culture through principles, policies and
practices, including:
• The core Risk Principles set out below that drive risk
management in IG
• The firm’s Risk Appetite Statement that clearly defines the type
and level of risk the Group is willing to accept in pursuit of
its objectives
• The adoption of a comprehensive policy framework
to ensure that all employees are aware of their risk
management responsibilities
• The allocation of responsibility for identification, assessment,
mitigation and reporting of risks to management across
the business (including front office, control functions and
executive management)
• A performance management process that links staff appraisals
and remuneration to risk management and conduct
• Corporate communications that reinforce awareness and
understanding of the Group’s desired risk management culture
and associated policies
Risk Principles
The IG Risk Management Framework is driven by a set of core
principles that set the context for risk management activities across
the Group:
• Risk management should be clearly focused on enhancing
shareholder value and supporting the achievement of the
Group’s strategic objectives
• The approach to risk management should address the
requirements and expectations of the firm’s key stakeholders
(including clients and employees as well as investors
and regulators)
• Risk and control oversight functions should be independent of
business functions and supported by adequate resources
• The Board risk appetite should clearly articulate the types
and amount of risk the Group is willing to accept in pursuit of
its objectives
• Risk management should be fully embedded into all
departments and business processes of the Group and managed
as an integral part of day-to-day management
• Risk management activities should be appropriate for the
level and complexity of the firm’s business activities and
associated risks
• Risk management should be subject to continual review
and enhancement to ensure that the Group’s Risk
Management Framework remains effective and aligned to
stakeholder expectations
Risk Taxonomy
IG has developed a Risk Taxonomy to ensure that the Group
considers the full spectrum of risks faced by the business, and to
create a single language for classifying risks in all risk management
activities. The taxonomy categorises the principal risks faced
by the Group into five areas: the risks inherent in the regulatory
environment, the risks inherent in the commercial environment,
business model risk, operational risk and conduct risk. Each of these
areas of risk is considered below, with an overview of how IG seeks
to manage them.
Risk Appetite Statement
The Group’s Risk Appetite Statement (RAS) defines the level of risk
the IG Board is willing to take in pursuit of its business objectives
and strategic goals. The RAS provides parameters within which the
business can operate and facilitates an articulation of the business
risks to relevant stakeholders.
The statement contains a set of high-level principles and Key Risk
Indicators (KRIs). These are a balance of quantitative and qualitative
measures that provide an indication of increasing or reducing risk
levels, designed to alert the Board and management that risk is
approaching or has exceeded an acceptable level. This enables the
triggering of an appropriate responsive action.
35
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements RISK MANAGEMENT AND VIABILITY STATEMENT
continued
The Group’s risk appetite is set within IG’s overall risk capacity,
at a level which considers the potential impact to IG’s various
stakeholders. It articulates a high-level view of the maximum loss
or exposure the firm is willing to accept with respect to each of its
principal risks.
The RAS provides a benchmark for calibrating the risk limits and
indicators which operationally define the levels of exposure the firm
can take on (eg the market risk exposure limits), as well as the levels
of loss the firm can sustain without needing to escalate and take
action. These indicators are monitored daily and reported weekly to
the Executive Risk Committee and monthly in the Board Report.
RISK MANAGEMENT
GOVERNANCE
The Group’s risk management governance structure is
summarised below.
The Board
The Board has overall responsibility for the management of risk
within the Group. This includes determining the Group’s risk
appetite, which sets out the nature and extent of the principal
risks it is willing to take in achieving its objectives, and defining
the standards and expectations that drive the Group’s risk culture.
It also involves ensuring that the Group maintains an appropriate
and effective Risk Management Framework, and monitoring
performance and risk indicators to ensure that the Group remains
within its risk appetite. The Board delegates certain risk governance
responsibilities to Board Committees.
Board Risk Committee
The Board Risk Committee provides the principal forum for the
ongoing review and evaluation of specific elements of the Risk
Management Framework and for making recommendations to
the Board as appropriate. To exercise these responsibilities,
the Committee:
• Considers the risk appetite and KRIs and recommends for
approval by the Board
• Reviews and challenges the Internal Capital Adequacy
Assessment Process (ICAAP), Individual Liquidity Adequacy
Assessment (ILAA) and Recovery Plan
• Reviews the Group’s major risk exposures, oversees rigorous
stress-testing and scenario-testing of the Group’s business, and
ensures that a sufficient level of risk mitigation is in place
• Considers the adequacy and effectiveness of the technology
infrastructure and supporting documentation in the Risk
Management Framework
• Considers the adequacy and effectiveness of the second line of
defence risk management function
• Provides input to the Remuneration Committee on the alignment
of the remuneration policy to risk performance
Audit and Remuneration Committees
The Audit Committee’s responsibilities include reviewing the
Group’s internal controls and risk management systems in the
performance of its duties, as well as the assessment of the
control environment through the review of internal audit activities
and of the progress on implementing internal and external
audit recommendations. The Audit Committee has a specific
responsibility to assess the accuracy and appropriateness of
financial reporting and narrative disclosures, the Group’s tax risk
management, the control environment for client money and assets,
and legal entity governance.
The Remuneration Committee’s primary responsibility in relation
to risk management is to ensure that remuneration policies are
consistent with effective risk management across the Group, and
to consider the implications of those elements of the policies on
risk and risk management. The Committee reviews the design
and operation of performance-related pay schemes to ensure
their effectiveness and, with the assistance of the Board Risk
Committee, that the risks of the schemes are adequately monitored
and controlled.
Risk management within the business
IG operates a ‘three lines of defence’ risk governance model.
First line of defence
The first line of defence has primary responsibility for risk
management, including day-to-day responsibility for ensuring
that the business operates within risk appetite. Management is
responsible for the identification, assessment and management
of risks facing the business, in compliance with the firm’s risk
management policies.
The Executive Committee, chaired by the Chief Executive Officer,
provides advice and support to management in the monitoring of
the day-to-day management of the Group’s operations.
The Executive Risk Committee supports the risk function and
operational management in the day-to-day operation of risk
management. The Committee meets weekly. The frequency of
Committee meetings reflects the corporate commitment of senior
management to play an active role in day-to-day management and
control of risk. This sets the tone across IG that risk management
is central to corporate culture. The Committee oversees the
day-to-day risk management activity across the Group, receives,
analyses and evaluates risk management information, and addresses
specific risk management issues as they arise.
The Client Money and Assets Committee has specific
responsibilities with respect to risk management activities relating to
the segregation of client money and assets.
Second line of defence
The second line of defence, independent risk oversight, is provided
by the risk, compliance and other control functions. These are
independent from operational management in the first line,
and responsible for overseeing and challenging the business in
managing its risks day-to-day. This includes maintaining the Group’s
risk management and control policies, providing independent
analysis control of the Group’s risks and keeping abreast of industry
and regulatory developments that might require enhancements to
the Group’s Risk Management Framework.
Third line of defence
The third line of defence, independent assurance, is provided
by internal audit. The primary role of internal audit is to help the
Board and executive management to protect the assets, reputation
and sustainability of the organisation by providing independent,
objective assurance reviews designed to add value and improve our
operations. The scope of the annual audit plan includes reviews of
the firm’s Risk Management Framework and the management of the
firm’s principal risks. These will include assessments of the design
and operating effectiveness of the internal governance structures
and processes, the setting of and adherence to risk appetite and the
risk and control culture of the organisation.
Risk assessment, monitoring, control
and reporting
Risk assessment, monitoring and control are the responsibility of
operational management in each area. Risk and control assessments
are undertaken with support from the second and third lines of
defence, and key controls are identified and documented.
Risk reporting is undertaken daily, with several reports covering key
market, credit, liquidity and capital adequacy metrics.
A weekly risk dashboard is presented to the Executive Risk
Committee and provides key metrics and commentary covering
market, credit, liquidity and operational risk exposures, including
stress-testing results. The dashboard also provides a review of
clients with significant exposures and a summary of operational
incidents and associated remedial actions.
The monthly Board risk report sets out a suite of metrics covering
capital adequacy, liquidity and key risk exposures. This includes
summaries of market risk performance, credit provisions and debt
experience, and operational risk metrics. The report also contains
specific metrics on conduct risk, information security and cyber risk.
The metrics each have defined tolerance thresholds linked to the
Group’s risk appetite that require escalation and action where amber
or red thresholds are reached.
The Group undertakes a quarterly review of its regulatory capital
and liquidity position, including a review of Pillar 2 risks and
scenarios used to assess the Group’s projected capital position
under stress scenarios, through the ICAAP and ILAA processes.
Principal risks
IG’s Risk Taxonomy categorises the principal risks faced by the firm
into five areas: the risks inherent in the regulatory environment, the
risks inherent in the commercial environment, business model risk,
operational risk and conduct risk. The major risks identified within
each of these areas are summarised in the table below, and overleaf
we provide an overview of how IG seeks to manage them.
Principal risk areas
Regulatory environment risk
The risk that the regulatory environment in which the Group operates changes in a
way that has an adverse effect on the Group’s business or operations.
Principal risks
Regulatory change
Expansion risk
Tax risk
Commercial risk
The risk that the Group’s performance is affected by failure to adopt or implement
an effective business strategy, through competitors offering more attractive
products/services or prolonged adverse market conditions.
Strategic management risk
Market conditions risk
Competitor risk
Business model risk
The risk faced by the Group arising from the nature of its business and its
business model.
Operational risk
The risk of loss resulting from inadequate or failed internal processes, people
activities, systems or external events.
The risk that the Group is unable to attract and retain the staff it requires to operate
its business successfully.
Conduct risk
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.
Market risk
Credit risk
Liquidity risk
Capital adequacy risk
Technology risk
People risk
Process risk
External risk
Client outcomes
Markets and financial crime
Employee behaviour
36
37
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements RISK MANAGEMENT AND VIABILITY STATEMENT
continued
Regulatory environment risk
IG operates in a highly regulated environment which is continually
evolving. IG defines regulatory environment risk as the risk that
the regulatory environment in any of the jurisdictions in which
the Group currently operates, or may wish to operate in, changes
in a way that has an adverse effect on the Group’s business or
operations, through reduction in revenue, increases in costs or
increases in capital and liquidity requirements.
The Group operates to the highest regulatory standards and leads
the industry in the way in which it deals with its clients. The Group
maintains a strong relationship with its key regulators and an active
dialogue with them to keep abreast of impending regulatory
developments. In the last year, there has been a series of significant
regulatory proposals, particularly from UK and other European
Union country regulators, to impose restrictions on the provision of
leveraged products to retail clients. The proposals have included
a range of measures from leverage restrictions, requirements
for additional risk warnings, restrictions and bans on marketing,
and outright bans on the provision of CFDs and binary options.
The timeframes for the final rules from some of the consultation
processes are uncertain.
The Group has responded to all relevant consultations, with each
of the regulatory proposals analysed in depth. A comprehensive
analysis has been presented to regulators through a series of
detailed response documents and consultation meetings. The
Group has engaged with a broad range of interested parties to
explain its stance on the issues raised. Where applicable, in addition
to the comprehensive analysis in support of the firm’s position
on each issue, IG has put forward alternative rule changes that
it considers would be more likely to achieve the outcomes that
regulators are seeking to achieve.
The Board has been actively involved in overseeing the formation
and execution of IG’s response to these proposals, receiving regular
updates from the Executive Committee advising on the regulatory
and legal position and appropriate response strategy.
Within regulatory environment risk, the Group also includes the
risk of significant adverse changes in the way in which the Group
itself, or the Group’s business, is subject to taxation. Examples of
the tax risk faced by the business include the risk of the imposition
of a financial transactions tax, which could severely impact the
economics of trading, and the risk that the basis under which the
Group is taxed, in any of the jurisdictions in which it operates,
changes adversely.
Commercial risk
The Group defines commercial risk as the risk that the Group’s
performance is affected by a failure to adopt or implement an
effective business strategy, by new or existing competitors offering
more attractive products or services, or by a prolonged period of
adverse market conditions.
The Group seeks to mitigate its strategic management risk through
the Board’s regular, thorough review and challenge of the Group’s
strategy and the performance of the various strategic initiatives
taken. The Board holds an annual strategy day to consider and
agree the strategic priorities for the business. The Board also
considers specific strategic actions and initiatives during its normal
schedule of Board meetings.
The Group’s strategy will be reviewed again in the context
of the outcome of the various regulatory consultation papers
discussed above.
The Group operates in a highly competitive environment, including
from some unregulated and illegal operators. The Group seeks
to mitigate competitor risk by maintaining a clear distinction in
the market in terms of product, service and ethics, and by closely
monitoring the activity and performance of its competitors,
including detailed comparison of the terms of the product offers.
IG regards itself as the leader in its market, and given the Group’s
strong ethical values, unlike some of its competitors, the Group
does not deploy questionable practices that can be commercially
attractive to clients (such as offering excessive leverage). However,
the Group seeks to ensure that its product offering remains
attractive, taking into account the other benefits that the Group
offers its clients, including brand, strength of technology and client
service quality. This allows the business to provide a competitive
offering overall and manage competitor risk without compromising
the Group’s values.
The Group’s trading revenue reflects the transaction fees paid
by clients less the transaction costs incurred in hedging market
exposures. The extent of client trading activity and the number of
active clients in any period are the key determinants of revenue in
that period. The ability to attract new clients and the willingness
of clients to trade depends upon the level of opportunities clients
perceive are available to them in the markets. The Group’s revenue
is therefore partly dependent upon market conditions.
The Group seeks to mitigate market conditions risk through detailed
review of daily revenue analysis, monthly financial information and
other Key Performance Indicators (KPIs), and regular reforecasts
of its expected financial performance reflecting the latest and
expected market conditions. The Group uses these forecasts to
determine actions necessary to manage performance in the context
of market conditions.
The Group updates its investors and market analysts on its revenue
performance on a regular basis, including quarterly updates and
pre-close statements, and engages with investors and market
analysts to manage the risk that the impact of market conditions is
reflected in performance expectations.
Business model risk
IG defines business model risk as the risks faced by the Group
arising from the nature of its business and its business model,
including market risk, credit risk, liquidity risk and capital
adequacy risk.
Market risk (audited)
IG takes market risk for the purpose of facilitating instant
execution of client trades. The business manages this market risk
by internalising client flow (allowing clients’ trades to offset each
other) and hedging when the residual exposures reach defined
limits. The Group’s real-time market position-monitoring system
allows it to monitor its market exposure against its market risk limits
continuously. If exposures exceed pre-determined limits, hedging is
undertaken to bring the exposure back to the limit.
IG has a Market Risk Policy which sets out how the business
manages its market risk exposures. The 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 groups of
markets or assets which the business 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 the Group
will hold without hedging the net client exposure.
The Group sets its market risk limits with the objective of achieving
the optimal trade-off between allowing clients’ trades to be
internalised, the cost of hedging and the variability of daily
revenue. The Group seeks to manage its market risk so that its
trading revenue predominantly reflects client transaction fees net of
hedging costs, and is not driven by market risk gains or losses.
The COM, client-initiated ‘stops’ and limited risk accounts all result
in the transfer of an element of the market risk from the client to
the Group. This market risk arises following the closure of a client
position, as the Group (subject to the market risk limits discussed
above) may hold a corresponding hedging position that will,
assuming sufficient market liquidity, be unwound.
The market risk that arises as a result of offering binary contracts,
options and guaranteed stops for clients is 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 trading
opportunities, the results of which should, to some extent, offset
each other irrespective of the underlying market outcome.
The Group monitors its market risk exposures on a real-time basis as
well as through regular stress-testing and scenario-testing to analyse
the impact of potential stress events, and takes action to reduce its
risk exposures and those of its clients as appropriate.
Credit risk (audited)
IG faces the risk that either a client or a financial counterparty fails
to meet their obligations to IG, resulting in a financial loss.
As a result of offering leveraged trading products, IG accepts that
client credit losses can arise as a cost of its business model. 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 running losses on open trades and margin requirements.
Client credit risk is managed through the application of the firm’s
Client Credit Risk Policy.
The business sets margin requirements that reflect the market price
risk for each instrument, and uses tiered margining so that larger
positions are subject to proportionately higher margin requirements.
The business offers training and education to clients covering all
aspects of trading and risk management, which encourages them
to collateralise their accounts at an appropriate level in excess
of the minimum requirement. In addition to cash, the Group also
accepts collateral in the form of shares from clients with a share
dealing account.
The business further mitigates client credit risk through the real-time
monitoring of client positions via the close-out monitor (COM), and
by giving clients the ability to set a level at which an individual deal
will be closed (the ‘stop’ level or ‘guaranteed stop’ level). We also
require less experienced clients to use limited risk accounts, while
offering the option of a limited risk account to all other clients.
The COM is an automated liquidation process which automatically
identifies accounts that have broken the liquidation threshold.
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.
IG has significant financial exposure to a number of financial
institutions, owing to the placement of financial assets at banks and
the hedging of market risk in the wholesale markets, which requires
the Group to place margin with its hedging brokers.
Financial institution credit risk is managed through the application
of the Group’s Counterparty Credit Management Policy.
Financial institution counterparties are subject to a credit review
when a new relationship is entered into, and this is updated
semi-annually (or more frequently as required, eg upon changes to
the financial institution’s corporate structure). Proposed maximum
exposure limits for these financial institutions, reflecting their credit
rating and systemic position, are reviewed and approved by the
Executive Risk Committee.
The Group 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. As part of its
management of concentration risk, the Group is also committed to
maintaining multiple brokers for each asset class.
The Group is responsible under various regulatory regimes for the
stewardship of client monies. These responsibilities include the
appointment of and periodic review of institutions with which client
money is deposited. The Group’s general policy is that all financial
institution 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 may use a
locally systemically important institution. These criteria also apply
for the Group’s own bank accounts held with financial institutions.
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.
Liquidity risk (audited)
Liquidity risk is the risk that the Group is unable to meet its financial
obligations as they fall due.
The Group’s approach to managing liquidity is to ensure it has
sufficient liquidity to meet its broker margin requirements and other
financial liabilities when due, under both normal circumstances and
stressed conditions. These liquidity requirements must be met from
the Group’s own liquidity resources, as client money cannot be used
for its operations.
Clients placing trades with guaranteed stop levels pay a small
premium in the event that the stop is triggered. With a guaranteed
stop, the maximum loss is known at the point of trade. The Group’s
limited risk account combines this trade-by-trade protection with
the assurance that a client can never lose more than the total
amount of equity they hold in their account.
The Group holds liquid assets to enable the funding of broker
margin requirements, to ensure that appropriate prudent margins
and buffers are held in segregated client money accounts in order
to fully protect clients’ funds and assets to support the growth
of the business and its need for capital, and to maintain a liquid
assets buffer.
38
39
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements RISK MANAGEMENT AND VIABILITY STATEMENT
continued
The Group manages its liquidity centrally, and key liquidity
decisions are discussed at the Executive Committee and Executive
Risk Committee.
The Group carries out an Individual Liquidity Adequacy Assessment
(‘ILAA’) each year, and while this applies specifically to the Group’s
FCA-regulated entities, (as liquidity is centrally managed through
these entities), this process provides the context for determining
the mitigating actions that would be taken in the event of stressed
liquidity conditions for the whole Group.
The Group uses a number of measures for managing day-to-day
liquidity risk, including the level of total liquid assets of same-day
available cash and forecasted cash requirements.
The Group is required to fund margin payments to brokers on
demand. Broker margin requirements are driven by the gross
hedging positions held by the Group. The value of these positions
and the margin requirements are in turn driven by the number
of active clients, the level of client activity, the make-up of the
total client exposure, exchange rates, interest rates and the value
of instruments.
In addition to its liquid assets the Group mitigates its liquidity risk
through maintaining access to committed unsecured bank facilities.
The Group regularly stress-tests its liquidity forecasts to validate the
appropriate level of facilities it holds, and draws down on the facility
at least once during each year to test the process for accessing
that liquidity.
The Group produces detailed short-term liquidity forecasts
and stress-tests, such that appropriate management actions or
liquidity facility draw-down can occur prior to a period of expected
liquidity demands.
Capital adequacy risk
The Group seeks to ensure that it has sufficient capital to operate
its business successfully and to meet regulatory requirements.
The Group manages its capital resources with the objectives of
facilitating business growth, maintaining its dividend policy and
complying 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 undertakes an annual Internal Capital Adequacy
Assessment Process (ICAAP) through which it assesses its capital
requirements, including through a series of stress-testing scenarios.
The ICAAP document is reviewed and challenged by the Executive
Risk Committee and the Board Risk Committee and is then
reviewed, challenged and approved by the Board.
The firm monitors its capital resources and capital requirements
daily, calculating the credit and market risk requirements based on
the exposures at the end of each business day, to assess the total
capital requirement and available headroom. The firm maintains
an additional internal warning indicator threshold with its Board
performance reporting, and breaches, if any, would be escalated to
the Board with a recommendation for appropriate remedial action.
IG operates a regulated business and is required to hold sufficient
regulatory capital at the Group level, as well as in each individual
regulated entity, to cover its risk exposures.
The Group is supervised on a consolidated basis by the UK’s
Financial Conduct Authority (FCA). In addition to its two UK
FCA-regulated entities, the Group’s operations in Australia, Japan,
Singapore, South Africa, United States, Switzerland and Dubai are
regulated on an entity basis. Individual capital requirements in each
regulated entity are taken into account when managing the Group’s
capital resources.
Operational risk
Operational risk is defined as the risk of loss resulting from
inadequate or failed internal processes, people activities, systems or
external events. IG includes, within operational risk, the risk that the
Group is unable to attract and retain the staff it requires to operate
its business successfully.
IG recognises that operational risk arises in the execution of all
activities undertaken by the Group, and identifies and manages
operational risk in four categories: technology risk, people risk,
process risk and risk from external events.
The Group continues to develop its operational risk framework to
ensure visibility of risks and controls, clear accountability for controls
and escalation and reporting mechanisms, through which risk events
are identified and managed and appropriate action is taken to
improve controls.
The Group is rolling out its Risk and Control Self-Assessment
(RCSA) methodology, focused on areas of the business identified
as a priority, and has introduced a new operational risk event
self-reporting process which provides increased visibility over events
and control actions to be taken, which are monitored through a
consolidated Control Action List.
Technology risk
IG is heavily dependent on technology to supply its service to
clients and to run its internal processes. Technology risk is managed
through the Group’s Technology Risk Management Framework,
and is overseen by the Group’s Technology Risk Committee. The
Group seeks to manage system outage risk through processes
for prevention, including capacity assessment and management
of single points of failure, processes for detection of emerging
system or application hotspots using real-time monitoring systems,
and processes for correction with a well-established incident
management process embedded in the Group.
Information security is managed by a dedicated information security
team. The threat of attacks from outside the Group, such as DDoS
and hacking, are managed through several layers of control to
provide in-depth defence, including volumetric scrubbing, multiple
firewalls, an intrusion detection system and anti-virus scanners to
block incoming emails containing malware. The Group undertakes
regular penetration tests to detect vulnerabilities, and receives
intelligence on emerging threats from an external organisation.
Information security risks from inside the Group, such as virus
outbreaks and data loss, are managed through several layers of
controls, including data loss prevention controls to detect leakage
of sensitive data and the application of network policies, end-point
protection and proxy servers.
People risk
IG is dependent upon attracting and retaining the staff it requires
to operate its business successfully, and has an established HR
management framework with processes and controls to manage
that risk.
The Group’s people strategy has four themes: clarity and
measurement, focused on creating clear policies and measurement
to shape and track how people are performing; performance
and reward, to ensure that people are motivated to deliver high
performance; talent and growth, to enable individuals to develop
to their full potential; and working environment, to enable teams
and the Group as a whole to operate in a constructive and
collaborative way.
The Group operates a clear set of controls and a range of
indicators to manage, monitor and mitigate people risk. This
includes an annual employee engagement survey, performance
check-ins, measurement and analysis of employee turnover, talent
identification, succession and development planning and internal
recruitment. New employees are subject to pre-work checks.
External events risk
The Group faces the risk of loss as a result of damage to physical
and non-physical property or assets, or the inability to access
property or operate its business arising from natural or non-natural
external causes.
The protection of property and other assets from external events
is managed through a mix of risk avoidance, risk mitigation,
operational controls and risk transfer mechanisms. The Group has
well-developed security, business continuity and disaster recovery
procedures in place, commensurate with the scale and nature of the
operations it has in particular locations. The Group’s key operational
hubs are supported by appropriate disaster-recovery facilities.
The Group has a global insurance programme in place to cover a
number of insurable risks, and reviews this programme annually.
The Group has undertaken a significant programme of work to
develop and communicate the Group’s vision and values that is
intended to promote a cohesive, positive and progressive culture to
support the delivery of the Group’s business objectives.
Within people risk, the Group also identifies the risk of loss
intentionally or unintentionally caused by an employee, such
as employee error and employee misdeeds, issues relating to
employment, including disputes, and risks relating to employment
law, health and safety and HR practices. If policies are breached,
or employees behave inappropriately, the Group has a disciplinary
framework to address and resolve issues.
Process risk
The Group faces risks related to the design, execution and
maintenance of key processes, including process governance,
clarity of roles, process design and execution. Process risk also
includes record-keeping failures, regulatory compliance failures and
reporting failures.
Management are responsible for implementing an appropriate
control framework and ensuring that all staff are aware of their
responsibilities. It does this through the maintenance of policy and
procedure documents, training, risk and control self-assessments
that identify key controls and highlight areas for improvement, and
the production and review of appropriate management information.
Financial reporting risk is managed by the finance function.
The Audit Committee receives papers and presentations from
both finance management and External Auditors to allow the
Committee to assess the integrity of financial reporting, and
to conclude whether the presentation of financial information
externally, including through the Annual Report, is fair, balanced
and understandable.
Regulatory compliance and record-keeping risk is managed
by the compliance function. Compliance keeps an up-to-date
understanding of regulatory requirements and maintains policies to
ensure that IG continues to comply with its regulatory obligations,
including AML and KYC, account opening and client on-boarding,
PEP and sanctions, gifts and hospitality and conflicts of interest.
The established compliance monitoring programme is designed
to, among other matters, detect any failure of the Group to comply
with its regulatory obligations.
Conduct risk
IG recognises and manages the risk that the Group’s conduct
may pose to the achievement of fair outcomes for consumers, or
to the sound, stable, resilient and transparent operation of the
financial markets. The Group has implemented a conduct risk
strategy that aims to analyse the conduct risks that may arise, and
sets out how those risks are managed and mitigated. It also sets
out specific controls used to manage conduct risk. The Group
seeks to ensure that all employees are aware of the importance of
managing conduct risk through programme conduct risk training
and awareness.
The Group manages and monitors the risk of clients failing to
understand the functionality of our products and suffering poor
outcomes. The Group recognises that some of its products are not
appropriate for some consumers and operates a process to identify
potential new clients for whom the product may not be appropriate.
The Group supports clients with education and training, and
offers account types that limit a customer’s risk. Such accounts are
mandatory for less experienced and less wealthy clients. Client
outcomes are monitored and reported to the Board.
The Group recognises the risk of causing poor market outcomes if
proper controls are not in place, for example, to detect instances
of market abuse which must then be reported on. Clients may also
attempt to use IG to commit fraud or launder money, and the Group
has designed its systems, controls and monitoring programmes to
mitigate and detect such issues.
The Group recognises the risk that the actions of its staff can result
in poor outcomes for clients, or the financial markets. The Group
seeks to ensure that its staff are appropriately trained, managed
and incentivised to ensure that their behaviour and activities do not
inadvertently result in poor outcomes for clients or the markets.
The compliance function operates a compliance monitoring
programme and a series of ‘deep dive’ reviews to assess conduct
risk in specific areas or processes. The Group also reviews
remuneration policies and incentive schemes to ensure that they are
appropriate and conducive to good conduct by staff.
40
41
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements RISK MANAGEMENT AND VIABILITY STATEMENT
continued
BUSINESS CONDUCT AND SUSTAINABILITY
VIABILITY STATEMENT (AUDITED)
The UK Corporate Governance Code requires the Directors to
make a statement regarding the viability of the Group, including
explaining how they have assessed the Group’s prospects, the
period of time over which they have made the assessment and why
they consider that period to be appropriate.
The Group has a forecasting and planning cycle consisting of
a strategic plan, an annual budget for the current year and
financial projections for a further three years. The output from
this business-planning process is used in the Group’s capital
and liquidity planning, and the most recent forecasts are for the
four-year period ending May 2021.
The four-year forecasting period is the length of time over which
the Board strategically assesses the business, is the period of time
the Board would typically look to pay back investments, and is the
period over which the Board reviews its regulatory capital resources
and 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, and is also used by the Remuneration Committee
to set targets for the annual incentive scheme. Caution about the
degree of certainty needs to be exercised, however, due to a lack
of clarity about the detail and impact of final rules that may be
implemented by our regulators, and the timing of implementation.
The further three-year period provides less certainty of outcome,
but provides a robust planning tool against which strategic
decisions can be made. These forecasts are also considered
when setting targets for the executive and senior management
share plans.
The Group undertakes stress-testing on these forecasts and through
the ILAA, ICAAP and Recovery Plan, providing 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 impact of major regulatory
changes; the collapse of a major financial services firm; major
currency appreciation; and cyber-attacks. Additionally, the
Group has undertaken reverse stress-testing to understand the
circumstances under which the Group’s business model is no longer
viable. With appropriate management actions, the results of these
stresses showed that the Group was resilient to all severe but
plausible scenarios, and would be able to withstand the impact.
Given the potential changes to the regulatory landscape in which
the Group operates, as well as the uncertain consequences of
Brexit, there is a range of potential outcomes. Four-year forecasts
have therefore been prepared on different scenarios, including
one that assumes all of the proposals from each of the consultation
papers published by our regulators are enacted, and that there are
no cost-reduction actions from management.
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 Group’s profitability and liquidity.
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 four-year period
ending 31 May 2021.
42
After over 40 years in business, we understand that sustainable
long-term returns stem from good conduct – whether that be in the
way we treat our clients and our employees, or the way we interact
with the markets and our regulators. In all our relationships we seek
to act with integrity and transparency, maintaining a reputation
for professionalism and ethical practice along with a constant
determination to do things better.
Central to our commitment to our customers is the quality of
our order execution, and our investment in the technology and
monitoring behind it. We process 100% of active client trades
automatically. We never re-quote 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.
SUSTAINABLE BUSINESS
Our conduct as a business is driven by much more than simply
compliance with risk or regulatory requirements. This is reflected in
the shared values that underpin all our attitudes and behaviours:
• Champion the client
• Lead the way
• Love what we do
Our values provide the foundation for our future growth and
success, and they give us an ongoing focus in our day-to-day work.
We recognise the importance of defining and communicating these
values to all of our people, providing them with a strong framework
and direction. As well as helping our employees to realise our
overall vision, this helps ensure that good conduct remains at the
core of our culture.
We are conscious of the risk that poor conduct presents to our
clients, our business model and the wider financial industry. For this
reason, we have actively developed a risk management strategy
and embedded 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, along with a rolling plan of thematic
conduct risk reviews and formalised conduct consideration before
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
Ensuring fair client outcomes is at the core of our business model
and strategy. To achieve this, it is crucial that we continually strive
to understand our clients’ needs and the way that they view
and interact with our products and services. We regularly seek
and review feedback from our clients, as well as monitoring the
outcomes they receive. This enables us to develop our products and
services to meet the needs of retail traders and investors globally,
and to provide our non-leveraged clients with the right tools and
services to help them create, grow and protect their portfolios.
We have made a number of pioneering changes to our product
offerings, with the best interests of our clients at their heart. These
include the market-leading features of our limited risk accounts,
the expansion of our longer-term investment product offering and,
crucially, the way we onboard clients and assess the appropriateness
of our products for them.
We are committed to investing in process, training and
improvements to our culture, to prevent poor 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.
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.
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 and the leading
standards we have set in the industry.
Protecting our clients’ data, funds and assets
We prioritise the security of our clients’ information and have
achieved the ISO 27001:2005 certificate for information
security management.
We fully segregate client funds for retail individuals, in compliance
with relevant regulations, and we hold segregated client money
and assets entirely separately from our own money across a diverse
range of banks. This ensures that, in the event of our default, client
funds and assets 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.
Appropriateness
Regulators are demonstrating an ever-growing recognition of the
risks to consumers posed by poor practices in the industry. As a
market leader, we have always prided ourselves in setting higher
standards than our peers and those required by regulation, and
we believe the industry would benefit from the elimination of
poor practices.
We recognise that good conduct is particularly vital in relation
to marketing and client recruitment, to encourage fair
consumer outcomes.
43
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BUSINESS CONDUCT AND SUSTAINABILITY continued
Conscious that our products are not right for everyone, we have
a number of procedures that ensure the appropriateness of our
products for clients. We follow strict guidelines to ensure that we
only promote our services 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 a CFD trading or
spread betting account, we carry out comprehensive assessments
to determine whether it is appropriate for them. Over the last year
we have reviewed this assessment process and implemented some
fundamental changes. We actively question applicants about their
knowledge and relevant trading experience, as well as providing
extensive educational tools. If we are not satisfied that prospective
clients are equipped to understand the risks involved, we simply
do not allow them to access our products. This differentiates us
from many of our peers. It demonstrates our commitment to good
consumer outcomes, and is ultimately in the longer-term interests of
our business.
Limiting client losses
We have a number of services designed to help clients limit any
losses they may make. We believe it is important to regularly
monitor the effectiveness of these, taking a nimble approach to
protect our clients in both normal and volatile market conditions.
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. Last year we introduced an innovative new charging system
that facilitates the use of 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 was the first
provider to offer guaranteed stops on this basis. From July 2016,
we also introduced a limited risk account, which has now become
the default account we offer to clients who are less experienced or
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 wish.
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
times when market volatility is expected, such as during elections
or referendums, we devote considerable time to reviewing our
margining practices, ensuring our margins protect both clients and
IG from any volatility. We make amendments where necessary,
actively communicate with our clients, and test our systems to
ensure they can continue to operate effectively under stress. At
31 May 2017, 99.75% of all client accounts were subject to the
automatic COM procedure.
SUPPORTING OUR PEOPLE
Nurturing a team of talented and dedicated people is central to
our strategy, enabling us to deliver the exceptional products and
services that keep us at the forefront of our industry.
By providing an inclusive, fair and engaging environment, we ensure
that our people can thrive and achieve their potential. This in turn
enables them to drive our business forward – thinking creatively,
working collaboratively and building rewarding relationships with
our clients.
Communication and involvement
As a global employer with over 1,500 staff in 17 locations
worldwide, our challenge is to maintain a clear vision and a sense
of unity for all of our people. We are committed to ensuring that all
our employees feel connected and are aligned to a shared purpose.
We take pride in being an open, non-hierarchical organisation,
where all of our people have access to senior management. Our
Chief Executive Officer addresses all employees every six months
to present the Group’s half-year and full-year financial results and
answer any questions. He and other members of the senior team
also maintain a schedule of visits to our global offices, taking this
opportunity to engage in dialogue with local employees.
We aim to provide our people with multiple communication
channels, and we continue to develop our intranet, IG hub. With
usage increasing significantly this year, this is now the default source
of information for our people. It provides a highly effective way
of communicating news about internal developments within the
business, as well as building awareness of the external financial and
economic factors affecting us.
Employee engagement
We are proud to have been certified as one of Britain’s Top
Employers by the Corporate Research Foundation for ten
consecutive years, and are committed to making IG a great
place to work.
To understand our employees’ perceptions of the business and
address their concerns, we carry out an annual engagement survey.
By collecting their feedback in this way, we give our people a direct
channel of communication to the executive team and the Board. We
take into account the insights we receive when making decisions
that are likely to affect employees’ interests.
A diverse and fair workplace
We believe that a diverse workforce brings creative energy to our
business, and we are committed to developing a team of individuals
with the best skills to help us realise our vision and strategy –
regardless of their ethnicity, faith, gender identity, sexual orientation
or physical capacity. Our inclusive culture was evidenced in 2016,
when our employees led the creation of IG Open, a network for
those who identify themselves as LGBT+ and their allies.
We have extensive human resource policies in place to ensure that
we recruit the right people and enable them to develop without
experiencing discrimination or harassment. We continuously
reinforce the need to treat all employees fairly, creating an
environment free from bullying, where people of all grades or
positions enjoy dignity and respect.
We fully consider applications for employment from disabled
persons with aptitudes and abilities in line with our requirements.
Where existing employees become disabled, temporarily or
permanently, it is our policy 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.
Human rights
We conduct our business in an ethical manner, following policies
that embody key human rights principles. More information
can be found in our Slavery and Human Trafficking Statement
on iggroup.com.
44
Health and wellbeing
All our employees receive appropriate protection benefits and
discounted gym access. In the UK, our people can access the
cycle-to-work initiative through our new flexible benefits portal,
which also provides increased opportunity for individuals to
personalise benefits to their lifestyle requirements.
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 – for example, housing and personal finance.
Rewarding high performance
Recognising the link between individual performance and global
growth for the business, this year we introduced a new ‘check-in’
process to replace the traditional annual appraisal approach. The
new system ensures that each of our people has a clearly defined
purpose, with specific deliverables and expected behaviours.
Regular meetings with the line manager then provide opportunities
for feedback, goal realignment and recognition of success.
We offer a competitive reward package and a market-related
salary structure that is regularly benchmarked. We also include the
majority of our employees in a group bonus scheme. Bonus levels
are intrinsically linked to the financial and operational performance
of IG, including client satisfaction. At the end of each financial year,
bonuses are distributed based on both Company and individual
performance, as discussed during check-ins throughout the year.
The remainder of our employees are included in specific
sales-related bonus schemes. We also reward our high-potential
employees through a long-term incentive plan, and we offer our
employees in the UK, Australia and the US the chance to share in
our success through our tax-advantaged share-purchase schemes.
An average of 36% of eligible employees took part in our share
plans in the 2017 financial year. We are currently reviewing options
to extend similar schemes to our other larger offices – Krakow
and Bangalore.
In the next year we will continue to strengthen our global
recognition strategy by linking it directly to our values
and behaviours.
Developing talent
We take the development of our people very seriously, recognising
that a constant flow of talent and skills is key to our ongoing
success. We continually invest in improving the quality of the
learning opportunities our people can access, and we encourage
employees to progress within the business, supporting them in their
personal and professional growth.
All of our employees are able to benefit from a variety of learning
and development resources, ranging from on-the-job coaching
and mentoring to webinars, secondments and Board exposure
programmes. We encourage attendance at relevant external
events and, where appropriate, sponsor our people to undertake
formal, industry-recognised training courses and achieve
professional qualifications.
We have also developed succession plans for our more senior roles,
and will now be implementing a similar approach for other core
roles across the Group.
Community involvement
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.
Our workforce
In terms of gender, our workforce is made up as follows at
31 May 2017:
Board
Female
Male
Senior executive team
Female
Male
Senior leadership team
Female
Male
Employees
Female
Male
Total
Female
Male
Number
2
6
Number
2
5
Number
4
20
Number
456
1,051
Number
464
1,082
%
25
75
%
29
71
%
17
83
%
30
70
%
30
70
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 environment.
Our greatest environmental impact comes from running and
maintaining our IT infrastructure. This technology supports our
award-winning platform and ensures we are consistently able to
maintain our high level of platform uptime. Powering and cooling
our datacentres results in the majority of our energy usage – as well
as our energy costs. As such, we update our hardware and software
as appropriate to save money and energy.
45
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements 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
2015/16
CO2e tonnes
2016/17
CO2e tonnes
Location based
Location based
2015/16
CO2e tonnes
Market based
2016/17
CO2e tonnes
Market based
429.9
54.5
484.4
3914.6
3914.6
4399.0
429.9
130.9
560.8
3247.5
3247.5
3808.3
429.9
54.5
484.4
4000.4
4000.4
4484.8
429.9
130.9
560.8
2402.1
2402.1
2962.9
Greenhouse gas emissions intensity
Total footprint (Scope 1 and Scope 2) CO2e.
Net trading revenue (£)
Intensity ratio, location-based method (tCO2e/£100,000)
Intensity ratio, market-based method (tCO2e/£100,000)
456.3m
9.64
9.83
491.1m
7.75
6.03
+7%
-20%
-39%
Previous year (2015/16)
Current year (2016/17)
Year-on-year variance
BUSINESS CONDUCT AND SUSTAINABILITY continued
Our offices are the second-largest consumer of energy. We apply
a number of energy-saving processes and have a far-reaching
recycling policy. This not only encompasses a proportion of our daily
office waste, but also extends to our IT equipment when we replace
hardware. We try to use any desktop equipment for its maximum
functional life.
Our head office building, where around half of our employees are
based, is also ISO 14001 certified and we have installed sensor
lighting. This year we completed a major refit of the premises, which
will help us to work in a more energy-efficient way and reduce our
environmental impact. By moving to a ‘hot-desk’ working model
and providing all employees with laptops, we have enabled our
people to work from home regularly, reducing the workspace
required in our premises. This means we can now use our office
space more efficiently, cutting costs.
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:
• Our methodology has been based on the principles of
the Greenhouse Gas Protocol, taking account of the 2015
amendment which sets out a ‘dual reporting’ methodology for
the reporting of Scope 2 emissions
• 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
We carried out the refurbishment with sustainability in mind, taking
a number of steps to minimise our impact on the environment:
• 95% of existing glazing was reused to create new partitions
• 80% of existing ceiling tiles were recycled
• Existing light fittings were reused where possible, with new LED
lamps installed to save energy
• Dimmable LED lighting was installed in open-plan areas
• All desk lamps were fitted with time clocks
• The period of our report is 1 June 2016 – 31 May 2017 inclusive
• Conversion factors for UK electricity (location-based
methodology), gas and fugitive emissions are those published
by the Department for Environment, Food and Rural Affairs
for 2015-16
• 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
• All existing carpet tiles were removed and recycled
report on the basis that it is not material to our carbon footprint
• Existing raised-access flooring was modified, avoiding the need
• Our fugitive emissions have only been reported for regions
where the data has been made available
• Our Krakow office has been excluded on the basis that this is
a new site and it is not possible to obtain a full year’s worth of
data. This will be reported in next year’s report
to install new floor tiles
• 50% of existing desks were reused
• Existing mechanical plant was reused, with modifications to
support new layouts
• Unwanted furniture was donated for reuse, where possible
• All waste was removed by the contractor’s registered
recycling provider
We have rolled out laptops and the hot-desk working model
to our global offices wherever practical, as well as installing
environment-friendly, state-of-the-art video conferencing and
collaboration technology – provided by Skype for Business.
This has reduced the need for work-related travel between our
global locations.
We make every effort to source our office services from providers
that are committed to sustainable principles. For example, in the
UK our fruit supplier plants one fruit tree in Malawi, Africa, for every
basket purchased. During the past year, around 6,000 trees were
planted thanks to IG.
Emissions Data
We provide emissions data in respect of the financial year ended
31 May 2017 in the Mandatory Greenhouse Gas Emissions Report
and Greenhouse Gas Emissions Intensity Ratio tables on page 47. 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.
46
47
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements CHAIRMAN’S INTRODUCTION
TO CORPORATE GOVERNANCE
Our results continue to demonstrate strong growth, leading to record revenue, profits and
client numbers. This is against the backdrop of a quiet period for financial markets, together
with unprecedented regulatory activity that has negatively affected the share price. Our
results are underpinned by an enduring governance culture, which continues to put high
ethical standards and fair client outcomes at the heart of all we do. I am grateful for the
support and dedication of the CEO, senior management team, and of all IG’s people.
In this year’s Chief Executive Officer’s review, we reported on
another strong set of results achieved during a period of significant
global political events and an uncertain regulatory landscape which
has led to a significant fall in the Company’s share price. We share
regulators’ concerns that some in our industry are behaving in ways
that are not in clients’ best interests. We are deeply engaged with
regulatory bodies to help them find positive solutions to these
issues, while ensuring that where appropriate clients can continue
to take advantage of trading opportunities in the markets. I remain
confident that, once this period of uncertainty is resolved, the
Group is well placed to continue demonstrating market leadership
and delivering shareholder value. In the meantime, the Board is
focused on delivering results, creating new opportunities for the
future and ensuring we have the right talent to succeed.
Since our home regulator’s consultation on leveraged products
began, the Board and senior management team have been very
active in supporting the development of proportionate regulation
to meet the challenges faced in the industry. I would like to thank
my colleagues for the quality of debate and decision-making
throughout this period, and in particular the exemplary approach
of Peter and his executive team in continuing to promote and
evidence the Group’s industry-leading commitment to fair client
outcomes. All stakeholders, including our shareholders, staff and
clients, can be confident that the Company has left no stone
unturned in our efforts to ensure the best outcomes for you all.
The Board of Directors continues to be 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. Last year I reported that Paul Mainwaring
joined the Group as Chief Financial Officer. Paul has made great
strides in continuing to improve control infrastructures and has
brought fresh perspectives to discussions at Board. Since
October 2016 the Board Risk Committee has been chaired by
Sam Tymms, who brings a wealth of regulatory experience to the
role. I would like to thank Stephen Hill for his wise stewardship as
Chairman of the Board Risk Committee from its inception in 2014
and for guiding it through a period of significant change and growth
for the Group. We are grateful that Stephen has agreed to extend
his role on both the Board and the Board Risk Committee for a
further year. Following completion of my first three years in office, I
am also delighted to report that the Board has agreed to renew my
appointment as Chairman for a further three years to June 2020.
The success of the Board is dependent on a shared vision and
common purpose. The relationship between the Chairman and
Chief Executive Officer is central to this, and Peter and I continue
to work closely together and to develop a strong relationship
which is predicated on transparency and constructive dialogue, as
well as shared culture, values and ethics. With the support of the
Board, IG has introduced an updated set of values centered around
championing our clients, leading the way and loving what we do.
We are actively encouraging our people to innovate, challenge
the status quo and demonstrate an enquiring mindset; and we are
strengthening commitment to our business and our people through
encouraging personal achievement, inclusion and sharing.
The Board is focused on succession planning at IG and we
are continuing to develop our plans particularly at executive
management level. We have continued to focus on our
medium-term and long-term strategy. The quality of debate
at our November strategy day was excellent, and we have
made significant improvements to the way in which we monitor
performance of strategic developments across our leveraged and
unleveraged businesses.
I am pleased to report that we have seen additional improvements
in the timeliness and quality of materials provided to the Board
and its Committees. The Board now receives improved monthly
data and management information to support its decision-making.
Together with improved processes and an increased awareness by
paper producers and presenters of the Board’s expectations, this
has helped improve the quality of debate and facilitated informed
and timely decision-making. We will continue to work to improve
the quality and content of materials.
The way the Group has applied all aspects of the UK
Corporate Governance Code is set out in the following
Corporate Governance Report.
Andy Green
Chairman
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 the provisions of the Code for the year ended 31 May 2017.
Overview of Corporate Governance Framework
IG recognises that its structure is subject to the determination of
its shareholders who agree the Articles of Association, approve
transactions mandated through the listing rules and annually
consider the re-appointment of Auditors and the Directors and
approve the final dividend.
The Board of Directors is responsible for appointing Directors
to the Board and for agreeing and monitoring progress with the
implementation of the Group’s strategy. The Board has overall
responsibility for ensuring the long-term success of the Company,
providing leadership and direction, including in relation to culture,
ethics and values. The Board has adopted a schedule of matters
reserved to it for decision.
Certain governance responsibilities have been delegated by the
Board to Board Committees to ensure independent oversight over
internal controls and risk management and to assist the Board
with carrying out its responsibilities. Further information on the
role of the Board and of the Audit, Remuneration, Board Risk
and Nomination Committees is set out in the following pages. In
addition the Board has a Standing Committee which deals with
Board-reserved matters required to be considered at short notice
and where there are administrative matters requiring approval and
evidencing that do not warrant a full Board.
The Board has appointed a Chief Executive Officer (CEO) who has
delegated authority for the development and execution of strategy,
providing effective leadership and management of risk throughout
the organisation. The Board has also appointed a Chief Financial
Officer (CFO) whose delegated authority extends to the stewardship
of Group assets, the safeguarding of client money and assets,
statutory and regulatory reporting and investor relations.
Below Board level IG operates a number of executive management
Committees. The Executive Committee is IG’s most senior executive
management Committee, comprising the CEO, CFO and executive
management. It oversees and helps direct the implementation
of Group strategy agreed by the Board, and provides advice and
support to executive management in the day-to-day running of the
Group’s operations.
The CEO and CFO are also supported by the Executive Risk
Committee, which provides advice to operational management and
the risk function in the day-to-day operation of risk governance,
which applies the principles of sound corporate governance to the
identification, assessment, management, monitoring and reporting
of risks within the risk appetite agreed by the Board. In addition
the CFO is supported by the Client Money and Assets Committee
relating to oversight arrangements and operations in respect of the
holding and safeguarding of client money and assets.
In support of the proper performance of their duties by members of the Executive Committee, the Group also has the following principal
operational management Committees and forums:
Committees
Responsibilities
ICAAP and ILAA
Assists management in the monitoring of stress-testing and scenario-testing outlined in ICAAP and ILAA
Control Functions
Oversight
Assists the CFO in the execution of his responsibilities for ensuring a sound system of internal controls
Technology Risk
Assists the Chief Information Officer in the proper performance of his duties
Best Execution
Assists the Chief Compliance Officer in helping define the best execution requirements for the Group
Pricing Group
Supports the Chief Analytics Officer in ensuring fair, complete and accurate pricing of IG products
Investment
Supports the Board of IG Markets Limited in overseeing the investment management process and
procedures relating to the IG Investments product
48
49
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
THE BOARD
The Board is responsible for determining the Group’s strategy and for promoting our
long-term success through creating and delivering long-term value for shareholders.
Andy Green
Chairman
Peter Hetherington
Chief Executive Officer
Paul Mainwaring
Chief Financial Officer
Age: 61
Appointed:
9 June 2014 (Deputy Chairman)
16 October 2014 (Chairman)
Age: 48
Appointed:
25 February 2003
(Chief Operating Officer)
Age: 54
Appointed:
20 July 2016
Paul’s in-depth knowledge
of financial services and
experience in several public
companies is helping IG to
make further progress in
building and growing the
operational and strategic
capability of the business.
Paul joined IG from Tullett
Prebon plc where he served
as Finance Director from 2006
to 2016. Prior to this, he was
Group Finance Director of
Mowlem plc and TDG plc.
From 1993-2000, he held
various financial roles at
Caradon plc including three
years as Finance Director of
MK Electric. He qualified as
a chartered accountant with
Price Waterhouse in 1987, and
obtained an MBA from Cranfield
School of Management in 1991.
Paul has no other
current appointments.
Andy has significant board
experience including within
major listed companies. He
is the Senior Independent
Non-Executive Director of
Avanti Communications Group
plc and holds a number of
other roles, including chairing
Digital Catapult. He is President
of UK Space, Co-Chairman
of the Space Leadership
Council, and was recently
appointed as a Commissioner
at the National Infrastructure
Commission. Andy’s other
current roles enable him to
bring to the Board a wide
perspective on technology and
digital development.
Andy has previously served as
Group Chief Executive of Logica
plc, as CEO of Group Strategy
and Operations at BT Group
and as a board member of the
CBI. Until recently, Andy also
served as Senior Independent
Non-Executive Director of ARM
Holdings plc, as Chairman of
DockON AG and as a member
of the Digital Economy Council.
Committee membership:
Nomination Committee (Chair)
and Remuneration Committee.
4 December 2015
(Chief Executive Officer)
Peter has spent his whole career
with IG, having joined as a
graduate trainee in 1994. In
1999 he was appointed Head of
Financial Dealing, and in 2003
he joined the Board following
his appointment as Chief
Operating Officer (COO), where
he was responsible for IT as IG
developed its online offering.
His COO role developed to
encompass the leadership of the
sales and marketing functions.
Peter was appointed Interim
Chief Executive Officer in
October 2015, and following an
extensive search was appointed
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
served as an officer in the
Royal Navy prior to joining IG.
Peter has no other
current appointments.
Malcolm Le May
Senior Independent
Non-Executive Director
Age: 59
Appointed:
10 September 2015
Malcolm has broad experience
and knowledge of the financial
services and investment sectors
along with extensive experience
on the boards of publicly
listed companies.
He 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 Juno Capital LLP and holds
an advisory role at Heidrick
& Struggles.
Malcolm has 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.
Committee membership:
Remuneration Committee
(Chair), Audit Committee and
Nomination Committee.
50
June Felix
Non-Executive Director
Stephen Hill, OBE
Non-Executive Director
Jim Newman
Non-Executive Director
Sam Tymms
Non-Executive Director
Age: 60
Appointed:
4 September 2015
Age: 56
Appointed:
28 April 2011
Age: 52
Appointed:
1 October 2013
Age: 53
Appointed:
22 May 2013
June brings to the Board
significant international
experience and knowledge
of the digital sector as well as
experience in strategy, product
innovation and delivery. She
is the President of Verifone,
Europe and Russia, with
responsibility for the operation
of its business throughout
these territories.
June has held various executive
management positions at a
number of large multi-national
businesses. These include
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. June was also Global
General Manager for Banking
& Financial Markets and
strategy consultant at Booz,
Allen & Hamilton. She began
her career at P&G in brand
management marketing.
Committee membership:
Board Risk Committee and
Nomination Committee.
Stephen brings significant
quoted-company board
experience. Stephen is
currently a Non-Executive
Director of Applerigg
Limited and Chairman of the
Alzheimer’s Society.
Jim has in-depth knowledge
and experience of the
financial services sector,
as well as considerable
experience both as a CFO
and in the implementation of
transformation programmes.
He has previously served as
the CEO of Betfair plc and
has held roles at Pearson plc
where, amongst other positions,
he was CEO of the Financial
Times Group. Stephen was
Chairman of Interactive Data
Corporation in the US and the
Royal National Institute for
Deaf People. He has served
as a Director on the boards of
Royal Sun Alliance Insurance
Group plc, Psion plc, Channel
4, Ofcom, Aztec Limited and
Cambridge University Judge
Business School.
Committee membership:
Board Risk Committee,
Remuneration Committee and
Nomination Committee.
A qualified Chartered
Accountant, Jim was Finance
Director for Resolution plc,
having joined the company
as Group Financial Controller.
He 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.
Jim has no other
current appointments.
Committee membership:
Audit Committee (Chair),
Board Risk Committee,
Remuneration Committee and
Nomination Committee.
Sam has extensive experience in
the regulatory field and detailed
knowledge of compliance
matters from her time with the
London Stock Exchange and
Financial Services Authority.
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.
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.
Committee membership:
Board Risk Committee
(Chair), Audit Committee and
Nomination Committee.
51
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BOARD GOVERNANCE
LEADERSHIP
The role of the Board
The Board provides guidance and entrepreneurial leadership
of the Company by setting the strategic direction of the Group
and overseeing management’s implementation of the strategy.
It provides robust challenge, within a framework of prudent and
effective risk management and controls. The Board is provided with
timely and comprehensive information to enable it to discharge
its responsibilities, to encourage strategic debate and to facilitate
robust, informed and timely decision-making.
The Board is collectively responsible for the long-term success
of the Group through the creation and delivery of sustainable
shareholder value. In exercising this responsibility the Board takes
into account the needs of all relevant stakeholders – including
clients, investors, employees and suppliers – and the effect of the
strategy on 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.
In considering the powers of the Board as set out in the Company’s
Articles of Association, and its developing strategy, the Board
has this year undertaken a comprehensive review of the matters
reserved to it for decision-making. These include agreeing the
Group’s strategy; approval of major transactions, annual budgets,
and changes to the Group’s capital and governance structure. The
matters reserved also require regular reviews of operational and
financial performance; reviews of succession-planning for the Board
and senior management; setting the risk appetite of the Group
and approving any changes to the Group’s risk management and
internal control framework.
Specific matters for approval and recommendation to the Board
have been formally delegated to certain Board Committees. The
Matters Reserved to the Board and Committee Terms of Reference
are available on the Company’s website, iggroup.com.
Board composition
The Board currently comprises a Non-Executive Chairman who was
independent on appointment, two Executive Directors and five
independent Non-Executive Directors, supported by the Company
Secretary and senior management.
The Board operates a clear division of responsibilities between the
Chairman and the Chief Executive Officer.
Chairman
The Chairman, Andy Green, is responsible for leading the Board
and creating the right conditions, including its membership and that
of its Committees, to ensure the Board’s effectiveness in all aspects
of its role.
The Chairman 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 robust and constructive discussion and challenge
on all relevant matters. He is responsible for encouraging and
facilitating active engagement by all Directors, drawing on their
skills, knowledge and experience.
The Chairman is also responsible for promoting effective
communication between the Board, Non-Executive Directors,
shareholders and other major stakeholders.
The Chairman has a close working relationship with the
Chief Executive Officer and the Company Secretary to ensure
that the strategies and actions agreed by the Board are
effectively implemented.
Chief Executive Officer
The Chief Executive Officer (CEO), Peter Hetherington, has specific
responsibility for recommending the Group’s strategy to the
Board and for implementing agreed strategy once approved. In
undertaking such responsibilities, the CEO takes advice from and
is provided with support by his senior management team and all
Board colleagues.
Additional specific authority includes the development of the Risk
Management Framework, regulatory stakeholder management and
supporting the Chairman to ensure the promotion of appropriate
standards of corporate governance and shareholder engagement.
Together with the Chief Financial Officer, the CEO monitors the
Group’s operating and financial results and directs the day-to-day
business of the Group. The CEO is also responsible for recruitment
and development of the Group’s executive management team
below Board level.
Chief Financial Officer
The Chief Financial Officer (CFO), Paul Mainwaring, is responsible
for the financial reporting of the Group, for monitoring the Group’s
operating and financial results and for management of the Group’s
internal risk management and financial control systems. The
CFO also has responsibility for oversight of capital and liquidity
management and the management and safeguarding of client
money and assets. He supports the CEO in implementing the
Group’s strategy and in relation to the financial and operational
performance of the Group.
Non-Executive Directors
The Non-Executive Directors are independent of management and
are considered by the Board to be free from any business or other
relationships that could compromise their independence. Their role
is to effectively advise and constructively challenge management,
along with monitoring management’s success in delivering the
agreed strategy within the risk appetite and control framework
agreed by the Board. They are also responsible for determining
appropriate levels of remuneration for the Executive Directors.
Senior Independent Director
Malcolm Le May is the Senior Independent Non-Executive Director
and in this capacity he acts as a sounding board for the Chairman.
He serves as a trusted intermediary for the other Directors when
necessary. He 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 Chairs in setting agendas for meetings of the Board
and its Committees. He supports the accurate, timely and clear
information flow to and from the Board and the Board Committees,
and between Directors and senior management. In addition, he
supports the Chairman in designing and delivering Directors’
induction programmes and the Board and Committee performance
evaluations. The Company Secretary also advises the Board
on corporate governance issues and Board procedures and is
responsible for administering IG’s Share Dealing Code of Conduct
and the Annual General Meeting.
How the Board operates
The Board meets regularly, at least seven times a year, including an
annual strategy day to review strategic options open to the Group
in the context of the economic and regulatory environment. In
addition the Board has established a Standing Committee whose
responsibility is to consider Board reserved matters at short notice,
or where there are administrative matters requiring evidencing that
does not warrant a full Board. There were seven scheduled Board
meetings this year, including the annual strategy day.
Senior executives below Board level attend meetings as required
to present and discuss matters relating to their business areas
and functions.
The full Board also meets when necessary to discuss important
ad-hoc emerging issues that require consideration between
scheduled Board meetings. There were seven such meetings
held during the year, convened principally to consider the Board’s
preparedness and response to the UK referendum on membership
of the European Union, the launch of IG Investments and responses
to regulatory consultations.
Each Director commits an appropriate amount of time to their
duties during the financial year, and the Non-Executive Directors
met the time commitment reasonably expected of them, including
pursuant to their letters of appointment.
Where Directors are unable to attend meetings, they are
encouraged to give the Chairman their views in advance 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
five such meetings during the year.
During the year, Non-Executive Directors led by the Senior
Independent Director, met without the presence of the Chairman,
including to evaluate the Chairman’s performance.
Attendance at Board meetings
The number of full scheduled Board meetings attended by each
Director during the year, including the Board strategy day, is set
out below:
Scheduled
meetings eligible
to attend
Scheduled
meetings
attended
Board
Chairman
Andy Green
7
Independent Non-Executive Directors
June Felix
Stephen Hill(1)
Malcolm Le May
Jim Newman(2)
Sam Tymms
Executive Directors
Peter Hetherington
Paul Mainwaring(3)
7
7
7
7
7
7
6
7
7
6
7
5
7
7
6
(1) Stephen Hill was unable to attend one meeting due to incapacity.
(2) Jim Newman was unable to attend the November meetings due to short notice
unforeseen events.
(3) Paul Mainwaring was appointed to the Board on 20 July 2016.
Stephen and Jim both received papers for and provided the
Chairman with detailed comments in advance of the meetings they
were unable to attend.
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 pursuant to the schedule of matters reserved to the
Board and an agreed annual forward calendar.
Strategy
• Annual strategy day held in November 2016 to discuss and
agree the forward-looking strategic priorities for the Group
in respect of its leveraged and unleveraged businesses
and to consider the regulatory framework under which the
Group operates
• Conducted a twice annual review of strategic incubator projects
having first developed a comprehensive incubator governance
model, including a review of performance against targets
•
In light of the FCA Consultation Paper relating to the provision
of leveraged products for retail investors, discussed the Group’s
FY18 strategic themes at a pre-Board presentation in May 2017
• Approved the acquisition of DailyFX assets, a global news
and financial portal, from FXCM Inc. and the launch of the IG
Investments product
52
53
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BOARD GOVERNANCE continued
Business, operational highlights and current trading
• Regularly received updates on business progress and the issues
and challenges faced by management through CEO reports and
monthly management information packs
• Received regular updates on corporate governance
developments and approved relevant governance
documentation including in relation to the implementation of the
Market Abuse Regulations
• Received reports on matters of interest such as latency,
limited risk accounts, cyber security and IT development and
location strategy
Quarterly forecast and budget
• Received updates on performance against the prior year, budget
and market analyst consensus
• Received regular updates on the Group’s approach and response
to regulation and several local regulatory consultations
Financial performance
• Reviewed the financial performance of the Group and approved
all financial results announcements and the Annual Report with
the respective Financial Statements and dividends
• Discussed the risks and opportunities for the FY17 budget and
• Reviewed a four-year forecast
approved the FY18 budget
Governance, risk and regulation
• Evaluated the effectiveness of the Group’s risk management and
internal control systems, reviewed and approved the Group’s
Risk Appetite Statement and key regulatory documents including
the Individual Capital Adequacy Assessment Process (ICAAP),
the Individual Liquidity Adequacy Assessment (ILAA) documents
and the Group’s Recovery Plan (RP)
• Received regular reports on key compliance issues identified
during the year including reviews of conduct risk and culture risk
Other
• Received regular reports from Board Committee Chairs
• Discussed the results of the employee engagement survey
• Agreed the renewal of the Group’s revolving credit facility
• Reviewed the Group’s crisis-management response
• Undertook a review of and agreed the forward-looking
market-reporting strategy
• Received an update on the Group’s people strategy, culture,
aims and values
• Undertook an external evaluation of its effectiveness and the
effectiveness of each Board Committee and individual Directors
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
Nomination Committee
Remuneration 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 monitoring
the effectiveness of the
control environment
relating to the management
and safeguarding of client
money and assets
• Reviews the management
and control framework for
the governance, operation
and maintenance of the
Group’s legal entities
54
• Responsible for providing
• Responsible for reviewing
the composition of
the Board and Board
Committees to ensure
that they are appropriately
balanced in terms of
diversity, knowledge, skills
and experience
• Reviews and recommends
to the Board
appointments to the
Board and to other senior
management positions
• Conducted succession
planning reviews at Board
level for recommendation
to the Board
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
• Reviews and recommends
to the Board the adoption
of key risk-related
documents, including the
ILAA, ICAAP and RP
• Commissioned thematic risk
reviews relating to key risks
• 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
Share Incentive Scheme
• Monitors developments
in remuneration and
reward practice to
ensure the Group’s
policies take account of
stakeholder expectations
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. 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.
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
recommendations 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 60 and 61. The Board as a whole
is also involved in overseeing the development of management
resources across the Group.
Board tenure (as at the date of this report)
Tenure
0-3 years
3-6 years
Over 6 years
Executive Directors
Non-Executive Directors
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 currently on the Board includes
experience in a number of key areas such as financial services,
finance and accountancy, strategy, government and regulatory,
marketing, risk management and regulatory liaison, technology
and digital. Certain Non-Executive Directors currently undertake
executive roles outside of IG.
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.
Director independence
The Company is and continues 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 judgment 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 judgment and are free from
any business or other relationships that could materially affect the
exercise of their judgment.
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.
55
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
BOARD GOVERNANCE continued
Induction
Following appointment, each Director receives a comprehensive and formal induction to familiarise them with their duties and the
Company’s business operations, risk and governance arrangements. The induction programme, which is co-ordinated with the help of
the Company Secretary, includes briefings on industry and 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, governance matters and relevant company policies. Newly appointed Directors also meet the Company’s external auditor, brokers
and advisers, 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. Paul Mainwaring’s induction programme on
joining the Board in 2016 covered those aspects set out below.
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
• 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
Risk management, capital
and liquidity
• Market risk, credit risk, operational risk, remuneration risk 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, 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
Ongoing professional development
In order to facilitate greater awareness and understanding of the Group’s business and the environment in which it operates, all Directors
are given regular updates on changes and developments in the business.
Training opportunities are provided through internal meetings, workshops, presentations and briefings by internal advisers and business
heads, as well as external advisers. The Company Secretary updates the Board on any relevant legislative, regulatory and governance
changes on a regular basis.
The Directors meet with global country heads in order to receive further insights into the operations of the business in the jurisdictions
where the Group operates.
During the year, the Directors attended briefing sessions on information security, regulatory developments, Brexit Euro response,
competition law, operational risk and risk appetite.
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 Chairman is responsible for ensuring that the Board receives
accurate, timely and clear information to enable it to make
appropriate challenges, to encourage debate and to ensure its
decisions are fully informed.
The Company Secretary supports the Chairman in ensuring
appropriate and timely information flows to and from the Board and
its Committees.
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 laws 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 and other executive officers, in the periods
between meetings.
Re-election of Directors
The UK Corporate Governance Code recommends 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. Following
this, all Directors will stand for re-election at the AGM.
Board evaluation
Each year, an evaluation of the effectiveness of the Board
is conducted. The evaluation includes an assessment of the
effectiveness of Board Committees and individual Directors. In
2017, an external evaluation was carried out by Lintstock Limited
as the final part of a three-year programme that began in 2015.
Lintstock has no other connection with the Company.
This year the programme was enhanced by including one-to-one
interviews between Board members and Lintstock.
As part of the review, it was agreed to give additional focus to areas
identified following the 2016 review and areas that had emerged
during the 2017 financial year, including:
• Embedding risk management within the
organisational framework
• The effectiveness of the operational control framework as the
Group becomes increasingly geographically diverse
• Managing strategic development in the face of
regulatory headwinds
• Succession planning and organisational development at Board
and senior management level
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 consistent questioning to
facilitate ongoing analysis of performance improvement.
All Board members and the Company Secretary completed
web-based surveys addressing the performance of the Board and
its Committees, the Chairman and individual Directors. Lintstock
subsequently produced a report of its findings, which were
discussed with the Chairman and subsequently with the Board.
Overall, the results indicate that the Board is operating effectively,
with a number of areas rated positively. Progress has been made
with all development areas identified in 2016, including:
•
Improvements to the consistency of papers provided to
the Board
• Succession planning
•
Improvements in the process for strategic reviews
• Developing and embedding the people strategy
• Continuing to manage and enhance our understanding and
management of cyber threats
• Ensuring our risk timetable and risk processes are driven
holistically and reviewed in an efficient and timely manner
The main areas agreed by the Board for development in the coming
year are:
• Continuing to progress succession-planning at Board level and at
senior management level
• Using optional Board training/information sessions to free the
Board’s time for more strategic discussion
• Creating an enhanced programme for Board interaction with
management below Executive Committee level
• Ensuring the Board increases its focus on strategic discussion by
managing the flow of information to the Board
• Revisiting our Incubator Governance Framework to ensure it
remains fit for purpose
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. The
performance of the Chairman was discussed without the Chairman
present, following which the Senior Independent Director and
Chairman met to discuss the review findings.
The evaluation of the performance and contribution of each
Director was conducted with reference to a self-performance review
questionnaire completed by each Director. This was then discussed
at sessions between each Director and the Chairman.
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, while there have been changes to the Chairman’s
external appointments, there has been no overall increase in the
level of significant commitments of the Chairman during the year
which would impact the time he has to fulfil the role.
56
57
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BOARD GOVERNANCE continued
ACCOUNTABILITY
financial and operational controls and compliance with laws
and regulations.
Financial and business reporting
The Strategic Report on pages 16 to 47 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 95 and a statement
regarding the use of the going-concern basis in preparing these
Financial Statements is provided in the Directors’ Report on
page 94.
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
effective management of the firm’s key business risks 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
management and internal controls systems and the effectiveness
with which it manages the principal risks faced by the Group.
The Directors confirm that the Board has carried out a robust
assessment of the principal risks facing the Group, 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 ‘Business
Model and Risk Profile’ section on pages 24 to 27 and in the ‘Risk
Management and Viability Statement’ section on pages 35 to 42.
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 on the overall risk governance
framework and the setting of IG’s risk appetite. It considered the key
risk assessment and monitoring activities across the firm, as well as
the processes and controls in place to manage the firm’s principal
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
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 determining 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 and Policy can
be found on pages 62 to 81.
ENGAGEMENT WITH
SHAREHOLDERS
The Board recognises the importance of maintaining good and
constructive communication with the Company’s shareholders, and
has in place 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 Company Overview and Strategic
Report sections.
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. Our
Investor Relations team coordinates these. These presentations
are available on the Group’s website iggroup.com, 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 regular basis.
The Chairman, the Senior Independent Director, in his capacity
as Chairman of the Remuneration Committee, and the Executive
Directors hold meetings with the Company’s largest institutional
shareholders and market analysts to discuss governance
developments (including in respect of external and internal
remuneration policy), business strategy and financial performance.
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 Chairs of the Board
Committees, are available at the AGM to answer questions. The
2016 AGM was a successful event attended by all the Directors.
All the proposed resolutions were passed on a poll, with the
percentage of votes in favour of each resolution ranging from
93.18% to 100%.
The 2017 AGM will be held on 21 September 2017. The Notice
of the AGM 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 to
shareholders, or make them available on the Group’s website, at
least 20 working days before the date of the meeting. The Notice
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. After the meeting, we will make available
to shareholders full details of the votes including proxy votes
received on each resolution, and we will publish these on the
Company’s website on the same day.
58
59
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements NOMINATION COMMITTEE
Andy Green, Chairman of the Nomination Committee, gives his review of the Committee’s
activities during the financial year.
Andy Green
Chairman of the Nomination Committee
CHAIRMAN’S OVERVIEW
The Nomination Committee undertakes an important role in
identifying, sourcing and evaluating the combination of skills
needed to lead the Group at and immediately below Board level,
and in supporting the development and delivery of our strategy.
It is responsible for identifying and recommending to the Board,
suitable candidates for appointment to the Board, and ensures the
Board’s composition meets the Company’s needs.
This year, and following an extensive search, the Committee agreed
to recommend to the Board the appointment of Paul Mainwaring as
Chief Financial Officer. Paul was appointed to the Board on
20 July 2016.
The Committee also increased its focus on succession planning
at Board and executive management level. Following initial
discussions, it has been agreed to invest in a senior management
development programme designed to ensure management develop
the right balance of knowledge, skills and experience to become
credible Executive Director candidates in due course.
Committee 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.
On invitation, the Chief Executive Officer also attends, but is not
involved in decisions relating to his own succession. The Head of
Human Resources also attends on invitation.
During the year, the Committee met four times, principally to
consider Board composition and succession planning.
Committee member
Eligible to
attend
Attended
Andy Green
Malcolm Le May
Stephen Hill
Jim Newman
Sam Tymms
June Felix
4
4
4
4
4
4
4
4
4
4
4
4
Following the completion of three years in office, the Committee
also agreed to recommend to the Board – and in turn the Board
agreed – my continued appointment as Chairman of the Board for a
further three years from 9 June 2017.
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 page 57. The performance
of the Committee was positively rated overall, succession planning
was highlighted as a focus for the coming year and the evaluation
concluded that the Committee operates effectively.
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 Supporting Our People section, starting
on page 44.
The Directors recognise the importance of gender diversity on the
Board and understand the significant benefits that come with having
a diverse Board. The Board believes that diversity is a wider issue
than gender and includes variations in experience, skills, personal
attributes and background. The Board currently has a 25% female
representation, and has an aspirational target to increase this to one
third by 2020, as recommended by the Hampton-Alexander Review
on women in leadership positions.
The Board will continue to appoint on merit, based on the skills
and experience required for membership of our Board, while giving
consideration to gender and other forms of diversity when the
Committee reviews the Board’s composition. For appointments
to the Board, IG uses 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 IG insists on having both male and female candidates when
drawing up longlists and shortlists of candidates.
Andy Green
Chairman, Nomination Committee
18 July 2017
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
• Keeping under review the leadership needs of the Group, with
a view to ensuring the continued ability of the organisation to
compete effectively in its marketplace
• Keeping up to date about strategic issues and commercial
changes affecting the Group and the market in which it operates
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 of the Chief Financial Officer, on changes
to the Chairmanship of the Board Risk Committee, on extensions
of Non-Executive Director terms of appointment and on succession
planning at Board and senior management level.
As reported last year the Committee concluded its search for a
new Chief Financial Officer. Spencer Stuart and Russell Reynolds,
executive search firms with no other connections with the Company,
were engaged, following a selection process. Their role was to
assist with the search for a suitable candidate who was able to
demonstrate outstanding finance and leadership credentials in a
high-quality, regulated financial services business.
Paul Mainwaring was appointed as Chief Financial Officer
designate on 11 July 2016, and formally appointed to the Board on
20 July 2016 following receipt of relevant regulatory approvals.
On 27 September 2016 we announced to the market that
Sam Tymms had been appointed as Chairman of the Board Risk
Committee following the decision of Stephen Hill to step down
from the role. Stephen remains a Committee member. Sam brings
a wealth of regulatory experience to the role. Stephen chaired the
Board Risk Committee from its inception in 2014 and through a
period of significant change and growth for the Group.
Following the expiration of six years as a Non-Executive Director,
and following a rigorous review during which the Committee
took account of the need for progressive refreshing of the Board,
Stephen agreed to extend his appointment to the Board for a
further year.
The Committee has also begun a detailed review of succession
planning requirements at Board and senior executive management
levels. It has had open and transparent dialogue with the
Chief Executive Officer on his views, and has sought advice
and support from the Head of Human Resources, the Head of
Organisational Development and external consultants. This has
enabled production of a comprehensive plan designed not only to
identify talent but also to put in place personal development plans,
ensuring that any internal candidates are able to develop the skills
and experience required to meet the requirements of future roles
for which they are identified as candidates.
60
61
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
DIRECTORS’ REMUNERATION REPORT
AND POLICY
The Remuneration Committee’s objective is to ensure remuneration encourages, reinforces
and rewards the delivery of shareholder value.
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 AND SINGLE FIGURE OF REMUNERATION
62
64
72
72
CHAIRMAN’S OVERVIEW
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 May 2017 and the
Directors’ Remuneration Policy.
The overall structure of the executive remuneration package and
the principles that underpin it remained unchanged in the 2017
financial year.
Directors’ Remuneration Policy
Our Directors’ Remuneration Policy, that has been in place since
June 2013, was approved in a binding vote by over 96% of our
shareholders at the AGM in 2014. The policy is due for its triennial
renewal at the 2017 AGM. The Committee has reviewed the policy
in preparation for the vote, and following consultation with major
shareholders has determined that the existing policy continues to
meet the needs of the Company and the reasonable expectations of
its shareholders. Accordingly no material changes are proposed.
However, there are a number of external factors which may
influence the Directors’ Remuneration Policy in the medium term,
including: the strategic implications for IG of the FCA’s review of
regulation in the contracts for difference market and other reviews
being undertaken by other regulators; developments in executive
pay market practice and other stakeholder views and guidelines.
Therefore, although the Committee has proposed a renewal of the
existing policy at the 2017 AGM without material change, we may
need to return to shareholders for a further policy vote during the
next two years, once the full implications of the external factors
referred to above are known.
Annual Report on Remuneration for the year to
31 May 2017
There also will be the usual advisory vote at this year’s AGM with
regards to this annual Committee Chairman’s statement and the
Annual Report on Remuneration, that detail amounts paid in respect
of the year ended 31 May 2017 and the corresponding performance
metrics, targets and outcomes. I hope you agree that the way we
have rewarded our Executives is commensurate with the Group’s
performance and that you will support this year’s resolutions at the
forthcoming AGM.
Chief Financial Officer
Paul Mainwaring was appointed as CFO designate on
11 July 2016 and appointed to the Board on 20 July 2016. His salary
on appointment, which was subject to independent benchmarking,
was £400,000 per annum. Paul is eligible to participate in the
sustained performance plan and receives a pension and benefits
allowance totaling 17% of base salary in accordance with his
contractual terms.
The business context in 2017
As noted within the Operating and Financial Review section of the
Annual Report on pages 30 to 33, the Group delivered another
strong financial performance in 2017. Revenue increased by
7.6% on 2016’s underlying results to £491.1 million, while diluted
earnings per share (DEPS) increased by 2.9% against last year’s
underlying results to 45.9 pence per share.
IG has delivered another strong year of growth, leading to record
revenues, profit and client numbers. Our product offering has also
seen growth and the share dealing platform continues to attract
new customers supporting our overall strategy. We have acquired
certain DailyFX assets and are seeing improving client conversion.
Most recently we have launched our Investments offering. We have
also expanded our operational hubs in Poland and India.
Incentive outcomes for 2017
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. The SPP replaced both the previous annual bonus and
long-term incentive plans.
The year to 31 May 2017 is therefore the fourth year of the
Executive’s variable remuneration being awarded under the SPP.
Similar to the prior years’ SPP, the 2017 award is driven by three
measures: Diluted Earnings Per Share (DEPS), Total Shareholders
Return (TSR) and non-financial measures presented in more detail
in the Directors’ Remuneration Policy beginning on page 64. In
respect of the annual and trailing three-year performance for the
period ended 31 May 2017, the Committee has awarded 27.1% of
the maximum potential award under the SPP compared with 90%
in the prior year. The overall SPP outcome is lower than last year as
a result of the EPS performance against target and due to the zero
vesting of the long-term trailing TSR component.
The Company has set out an extensive explanation of the
judgments it has made in determining the above awards. This
disclosure is set out in the Annual Report on Remuneration on
page 72.
Implementation of policy in 2017/18
The Committee has determined that the base salary of the
Chief Executive Officer, Peter Hetherington and the
Chief Financial Officer, Paul Mainwaring remains unchanged at
the 1 June 2017 review date.
For 2017, the Committee will use the same SPP measures 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 and binding votes on the
remuneration resolutions at the AGM.
62
63
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
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 Directors’ remuneration in
line with the Committee’s objective to ensure that remuneration for
Executive Directors encourages, reinforces and rewards the growth
of shareholders’ value.
• Determines the contractual terms, remuneration and other
benefits for the Executive Directors
• Determines and reviews the 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
The policy was approved by over 96% at the 2014 AGM, and
is submitted for renewal at the triennial vote at the 2017 AGM,
without any material change. 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
• Approves 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
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.
Key elements of remuneration
Purpose and link to strategy
Operation
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 Group’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 remuneration policy
for the Executive Directors, explaining how each element operates
and how each part links to the corporate strategy.
Opportunity
Performance metrics
Recovery or withholding
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 post holder’s experience,
competency and performance within
the Company.
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:
The general policy is to pay around mid-market levels, with annual increases
typically in line with the wider workforce.
No performance metrics
apply to base salary.
No recovery or withholding
applies to base salary.
• 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
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 2018 are:
Chief Executive Officer – £575,000
Chief Financial Officer – £400,000
Pensions and benefits
Competitive, cost-effective flexible
pension benefits allowance to help
recruit and retain Executive Directors.
Executive Directors are eligible to participate in the Company’s flexible pension and benefits
plan, from which the executive can receive a range of benefits, Company pension contribution
or cash allowance.
Relocation and related benefits may be offered where a Director is required to relocate.
The aim is to provide a flexible, market-competitive pension and benefits
allowance, with value for Directors capped 17% of base salary. Flexible
benefits are also provided for the wider workforce who receive a 12%
allowance. The Board recognises certain stakeholder views that advocate
the alignment of pensions benefits throughout the business and, recognising
its commitment to continue to honour existing contractual commitments, it
will keep the policy under review.
No performance metrics
apply to performance
and benefits.
No performance metrics
apply to performance
and benefits.
64
65
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
Key elements of remuneration
Purpose and link to strategy
Operation
Opportunity
Performance metrics
No performance metrics apply to this benefit.
Recovery or
withholding
No recovery or
withholding applies to
this benefit.
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% and 400% of
an annual rate of salary
for the Chief Executive
and Chief Financial
Officer respectively.
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.
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.
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 build a holding of shares to the
value of a minimum of 200% of base salary, and for other Executive Directors a requirement
of 150% of base salary applies.
Only vested shares forming part of the Directors’ share interests and shares purchased by the
Director out of his own funds are included in the guideline, which, unless there are exceptional
circumstances approved by the Committee, must be achieved within five years from the date
of appointment.
The Committee will review progress annually, with an expectation that Executive Directors will
make progress towards achieving the shareholding policy each year.
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 (ie options or
awards are released to participants).
Therefore, a participant’s plan account will comprise the sum of the plan contribution (if any)
being made in relation to the relevant plan year plus the accumulated awards registered in the
plan account from previous plan years.
In the first five plan years, a participant’s plan account vests as follows:
Following
Financial year ending % of cumulative shares in plan account vesting
Plan year 1
31 May 2014
Plan year 2
31 May 2015
Plan year 3
31 May 2016
Plan year 4
31 May 2017
Plan year 5
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.
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.
66
67
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
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.
The Committee sets the requirements for
each plan year. The current benchmark group
comprises the constituents of the FTSE 350
Index (excluding investment trusts).
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 determines appropriate
performance targets each year, taking account
of the annual and longer-term business plans.
DEPS is calculated on such adjusted basis as the
Committee reasonably selects (eg adjusting for
the effects of any share buybacks).
Non-financial performance schemes
Specific non-financial measures
Specific non-financial criteria traditionally
include those relating to areas such as 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.
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 2017.
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.
68
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 (eg rights issues,
corporate restructuring, special dividends and on a change
of control)
Any use of the above discretions would, where relevant, be
explained in the Annual Report on Remuneration. As appropriate,
it might also be the subject of consultation with the Company’s
major shareholders.
Legacy arrangements
For the avoidance of doubt, in approving the Directors’
Remuneration Policy, the Company has authority to honour any
commitments entered into with current or former Directors that
have been disclosed to shareholders previously. This includes
awards made under 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 Company performance. The charts below show how
total pay for the Chief Executive Officer and Chief Financial Officer
vary 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 2017 and the benefits value is the actual value for the
year ended 31 May 2017.
Target: This comprises fixed pay and the target value of SPP
(250% and 200% of salary for the Chief Executive Officer and
Chief Financial Officer respectively).
Maximum: This comprises fixed pay and the maximum value
of SPP (500% and 400% of salary for the Chief Executive Officer and
Chief Financial Officer respectively).
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.
Fixed pay
SPP
s
0
0
0
£
s
0
0
0
£
£4,000
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£-
£4,000
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£-
68%
100%
32%
81%
19%
Minimum
Target
Maximum
P G Hetherington
Fixed pay
SPP
100%
63%
37%
77%
23%
Minimum
Target
Maximum
P Mainwaring
69
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
Executive Directors’ service contracts
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 12 months and, accordingly, Executive Directors’
employment contracts can be terminated on 12 months’ notice by
either party.
In the event that the Company terminates an Executive Director’s
service contract other than in accordance with the terms of his or
her contract, the Committee will act in the best interests of the
Company and ensure there is no reward for failure. All service
contracts are continuous, and contractual termination payments
relate to the unexpired notice period.
On a Director’s departure, the Company may at its sole discretion
pay base salary and the value of any benefits (including pension)
that would have been receivable in lieu of any unexpired period
of notice. In the event of termination for gross misconduct, the
Company may give neither notice nor a payment in lieu of notice.
Where the Company, acting reasonably, believes it may have a right
to terminate employment due to gross misconduct, it may suspend
the executive from employment on full salary for up to 30 days to
investigate the circumstances prevailing.
The Company may place an executive on gardening leave for up
to the duration of the notice period. During this time, the executive
will be entitled to receive base salary and all contractual benefits
(including pension). At the end of the gardening leave period, the
Company may, at its discretion, pay the executive base salary alone,
in lieu of the balance of any period of notice given by the Company
or the executive.
When considering payments in the event of termination,
the Remuneration Committee takes into account individual
circumstances. Relevant factors include the reasons for termination,
contractual obligations and the relevant incentive plan rules. When
determining any loss of office payment for a departing director the
Committee will always seek to minimise the cost to the Company
while complying with the contractual terms and seeking to reflect
the circumstances in place at the time.
The Committee reserves the right to make additional payments
where such payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such
an obligation); or by way of settlement or compromise of any claim
arising in connection with the termination of an Executive Director’s
office or employment.
For new executive appointments, the Committee has discretion to
offer a longer notice period of up to 24 months where it is essential
for the purposes of securing an appointment but reducing to no
more than 12 months on a phased basis over no more than two
years following 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.
Sustained performance plan (SPP) awards
As a general rule, if a participant ceases to hold employment or be
a Director within the Group, or gives notice of leaving, they forfeit
any entitlement to receive further plan contributions. All awards
subsisting in their plan account at such time are forfeited in full.
However, the situation may be different if the participant ceases
to be an employee or a Director within the Group under certain
circumstances. These include injury, disability, retirement,
redundancy, the 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 (ie vested awards held
outside the plan account but unexercised) will remain exercisable
for a limited period. The exception is when dismissal has been for
misconduct, in which case such awards lapse in full.
Change of control
The Executive Directors’ contracts do not provide for any enhanced
payments in the event of a change of control of the Company
nor for liquidated damages. Copies of the Executive Directors’
service contracts are available for inspection at the Company’s
Registered Office.
Remuneration Policy across the Company
We have designed the remuneration policy for the Executive
Directors and senior management with regard to the policy for
employees across the Company as a whole. The Committee is kept
updated through the year on general employment conditions, basic
salary-increase budgets, the level of bonus pools and 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 from page 64 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.
For an internal appointment, any variable pay element granted in
respect of the prior role may be allowed to pay out according to
its terms, adjusted as appropriate to take into account the terms of
the Executive Director appointment. The Committee will carefully
determine the base salary level for a new Executive Director, taking
into account the individual’s background, skills and experience, and
the business criticality and nature of the role being offered. It will
also consider the Company’s circumstances and relevant external
and internal benchmarks. Above all, the Committee must exercise
its own judgment in determining the most appropriate salary for the
new appointment.
In certain circumstances, the Committee will have set a starting base
salary which is positioned below the relevant market rate. It may
then wish to adjust the Executive Director’s base salary, at a level
above the average increase in the Company, as the individual gains
experience and establishes a strong performance track record in the
role. Conversely, the base salary may need to be positioned above
the relevant market rate in order to attract the most appropriate
candidate for the role.
We will provide benefits in accordance with the approved policy.
We may pay relocation expenses or allowances, legal fees and other
costs relating to the recruitment as appropriate.
We will set fees for a new Non-Executive Director or Chairman in
accordance with the approved policy.
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
Operation
Opportunity
Performance
metrics
Recovery or
withholding
No performance
metrics apply.
No recovery or
withholding applies.
To attract and retain
Non-Executive
Directors of
appropriate calibre
and experience.
The Remuneration Committee
determines the fee for
the Chairman (without the
Chairman present).
The Board is responsible
for setting Non-Executive
Directors’ fees. The
Non-Executive Directors are
not involved in any discussions
or decisions by the Board
about their own remuneration.
Fees are within the limits
set by the Articles of
Association and take
account of the commitment
and responsibilities of the
relevant role.
The Chairman receives a single
fee to cover all his or her
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.
Additional fees may be paid for
additional time commitments
in exceptional circumstances.
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.
Non-Executive Directors may receive reimbursement for business expenses incurred in the course of their duties, including tax thereon
if applicable.
70
71
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
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.
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 2017 (including
payment and awards in respect of incentive arrangements), and how we will apply the remuneration policy for the financial year ending
31 May 2018. We also give details of the Remuneration Committee’s operation, the Directors’ share interests and how shareholders voted
at the 2016 AGM.
Implementation of Remuneration Policy in the financial year ending 31 May 2017
Total Single Figure of Remuneration – Executive Directors
Contribution to SPP plan account(3)
Name of Director
Year
Fees/basic
salary
£000
Benefits
in kind(1)
£000
Pension(2)
£000
Vested
element
£000
Deferred
element
£000
P G Hetherington
P Mainwaring
C F Hill
T A Howkins
2017
2016
2017
2016
2017
2016
2017
2016
575
498
356
–
–
249
–
183
1
1
1
–
–
1
–
–
96
75
60
–
–
34
–
27
260
689
144
–
–
–
–
–
519
1,378
289
–
–
–
–
–
Total
£000
779
2,067
433
–
–
–
–
–
Total
£000
1,451
2,641
850
–
–
284
–
210
(1) Benefits can include private medical cover and life assurance cover.
(2) As part of a total flexible benefits package of 17% of basic salary 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.
(3) Figures provided are the values of the SPP contributions in respect of performance for the periods ending 31 May 2017 and 31 May 2016 (ie plan years 4 and 3). 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 76.
Total Single Figure of Remuneration – Non-Executive Directors
Name of Director
A J Green
S G Hill(3)
J A Newman
S J Tymms(3)
M Le May
J Felix
R P Yates(4)
Year
Basic salary(1)
£000
Benefits(2)
£000
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
255
247
70
70
80
70
75
55
90
39
65
32
–
38
–
–
8
13
–
–
5
4
1
–
–
–
–
–
Total
£000
255
247
78
83
80
70
80
59
91
39
65
32
–
38
(1) Other than in respect of the Chairman, basic Non-Executive Director fees are £65,000 per annum with an additional £15,000 paid for chairing a Board Committee and £10,000 for the
Senior Independent Director.
(2) 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.
(3) S J Tymms replaced S G Hill as Chairman of the Board Risk Committee on 27 September 2016.
(4) R P Yates ceased to be a Director of the Company on 15 October 2015.
SUSTAINED PERFORMANCE PLAN (SPP)
Determination of SPP plan contribution for the financial year ending 31 May 2017
Performance targets for plan year 4 (financial year ending 31 May 2017) 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 2014 to 31
May 2017 and DEPS and non-financial measures over the financial year ending 31 May 2017.
Performance
measure
Weighting
Threshold
(25% payout for TSR
and 0% for DEPS)
Maximum
(100% payout)
Actual performance
Percentage of
maximum award
to Directors
DEPS
TSR
Non-financial
Total
45%
35%
20%
100%
44.60 pence
50.40 pence
45.90 pence (22.4% vesting)
Median ranking
Upper-quartile ranking
200 of 278 companies (0% vesting)
0%
100%
85% vesting
10.1%
0%
17%
27.1%
P G Hetherington maximum award at 500% of £575,000.
P Mainwaring maximum award at 400% of £400,000.
Performance measures – how these are set and review of performance for the year ended
31 May 2017
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.
In setting the DEPS range for the year ending 31 May 2017, the Committee considered the annual Board approved budget and market
consensus expectations and historical targets.
72
73
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
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 4, TSR was measured over the three-year period from 1 June 2014 to 31 May 2017.
Actual TSR performance for the Group, as measured by New Bridge Street, for the three-year period was -2.9% (2016: 61%).
Against the peer group this performance ranked IG at 200 out of 278 companies and resulted in 0% (2016: 98.37%) 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 2017. 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
strategic delivery measures resulted in an overall assessment of 85.0% (2016: 83.5%) 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 2017.
Component
Detail
FY17 outcome
System uptime and reliability
The primary measures used to assess the performance against this
metric and the parameters IG strives to achieve are:
95.0%
(FY16: 95.0%)
Maintaining good standings
with regulators
Customer satisfaction
Reputation and PR
• Core dealing availability per month – minimum 99.8%
• Maximum percentage downtime in any one day – maximum 4.0%
IG achieved 99.98% rolling cumulative 12-month uptime and
experienced three outages totalling 113 minutes over the financial year.
This compares to a record 99.99% rolling cumulative 12-month uptime
in the 2016 financial year with a total outage time of 59 minutes.
IG is licensed by ten regulators, as well as being subject to regulatory
oversight in all countries where it has a physical presence. IG continues
to have strong working relationships with its regulators, however the
regulatory landscape in EMEA is clearly challenging. This regulatory
focus is mainly being directed at the industry, rather than specifically at
IG, but given the challenges an outcome of 60% was deemed to reflect
IG’s continuing strong relationships with non-EMEA regulators (such as
ASIC, CFTC and MAS) and IG’s extensive interaction with all regulators.
60.0%
(FY16: 60.0%)
The Remuneration Committee uses a number of indicators to measure
performance against this metric. In FY16 IG scored 90% based on both
improved measures of client satisfaction and the number of changes
introduced for clients. FY17 has seen IG continue to innovate and
improve to ensure it serves clients via a channel of the clients’ choice.
IG has also increased its client facing headcount and improved its
payments process, which has historically been a point of friction for
clients. These measures have resulted in 92% of clients rating IG good
or very good.
95.0%
(FY16: 90.0%)
The Remuneration Committee assessed whether there have been any
events resulting in negative media coverage or reputational damage
during the year. Although the industry received some poor coverage
related to the FCA’s regulatory actions, IG mostly negated adverse
coverage. IG received positive coverage over the UK referendum and
the US presidential election. Due to the positive coverage received,
especially given the nature of the challenges faced, a score of 95% was
determined in line with last year.
95.0%
(FY16: 95.0%)
Component
Detail
Risk management
All teams performed strongly over both the UK referendum and the
US presidential election. IG took sensible precautions in advance
of both events and managed the associated volatility, resulting in
increased profitability. Furthermore, the number of loss-making days
reduced from two in FY16, to none in FY17. The Committee therefore
determined an outcome of 90% in line with last year, given the
similar performance.
FY17 outcome
90.0%
(FY16: 90.0%)
People
This measure is assessed against three metrics: voluntary attrition,
employee engagement and succession planning.
73.3%
(FY16: N/A)
Strategic delivery measures
Voluntary attrition has fallen to 14.9%, under the 17% target set by IG
at the beginning of the period.
Employee engagement is assessed via an anonymous survey
administered by an external provider. Engagement was impacted by
the number of changes IG is currently making to ensure it has a stable
and scalable base for future growth, resulting in a 5% year-on-year
reduction in engagement.
Succession planning has progressed well and a number of measures
have been introduced to help IG develop the next generation
of leaders.
As part of the Board’s strategic 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. There were a number of key strategic projects
delivered during the year. Examples of the projects include: launching
IG Investments; making limited risk accounts available globally and
delivering IG’s European location strategy. IG decided to terminate the
planned launch of a binary option app given the adverse regulatory
environment. The Board believe this was the correct decision and its
prompt action prevented IG incurring additional costs.
85.8%
(2016: 81.2%)
Overall summary
Based on the performance for the financial year ending 31 May 2017, we will grant awards under the SPP at 27.1% of the maximum
potential pay-out to the Executive Directors after the announcement of the results. The actual number of shares that will be deposited
within the Directors’ plan accounts will be based on the ten-day average share price immediately prior to grant.
74
75
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
Awards granted during the year ended 31 May 2017
The SPP awards granted during the financial year ended 31 May 2017 in respect of performance to 31 May 2016 (plan year 3) 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 3 contribution(2)
Number of options
vested and exercised
during the year
Number
of options
lapsed
Number of options in
the plan account at
the end of the year
P G Hetherington
452% £2,061,739
237,438
358,560
(119,520)
–
239,040
(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 2016 of 871.90 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.
(2) In addition to the awards made in respect of plan year 3, this also includes the brought forward number of options in the plan account from plan year 1 and 2 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 4 (ie performance to
31 May 2017) are set out below:
Plan account
brought
forward
(number of
shares)(1)
Options awarded
as dividend
equivalents
accruing on
unvested options
during the year
Event
Plan Contribution
in respect of period
ended 31 May 2017
(estimated number
of options)(2)
Plan account
following
contribution for
the year
Estimated
number
of options
vesting
Estimated cumulative
number of options
remaining in the
plan account at the
end of the year
P G Hetherington Plan year 4
239,040
P Mainwaring
Plan year 4
–
T A Howkins(3)
Plan year 4
107,702
10,660
–
4,803
133,343
74,208
–
383,043
(127,553)
74,208
112,505
(24,711)
(37,464)
255,490
49,497
75,041
(1) P G Hetherington will be granted awards in respect of plan year 4 following the announcement of results for the year ended 31 May 2017 on 18 July 2017. 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 2017 on
18 July 2017. 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
584 pence, being the share price on 31 May 2017. 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 4) will vest in August 2017 with the vesting of
the remaining options deferred. The August 2017 vesting will include additional dividend shares accrued as follows in respect of plan years 1, 2 and 3 held in the plan account – T A
Howkins (4,803) and P G Hetherington (10,660) based on reinvestment at the dividend payment date.
(3) T A Howkins did not receive any awards in respect of plan year 4.
Other share awards outstanding
Award
date
Share price
at award
date
Number as at
31 May 2016
Number awarded
during the year
Number lapsed
during the year
Number
exercised
during the
year
Number outstanding
at 31 May 2017
P G Hetherington
SIP: matching shares
26 Jul 13
580.00p
SIP: matching shares
25 Jul 14
605.80p
SIP: matching shares
2 Aug 16
879.50p
Total
258
594
–
852
–
–
408
408
–
–
–
–
(258)
–
–
(258)
–
594
408
1,002
76
Table of Directors’ share interests
Executive Directors
P G Hetherington(5)
P Mainwaring
Non-Executive Directors
J Felix
A J Green
S G Hill
M Le May
J A Newman
S J Tymms
Legally owned(1)
SIP(2)
SPP awards(3)
Total
% of salary held under
shareholding Policy(4)
31 May
2016
31 May
2017
Awards held in
plan account
Vested but
unexercised
31 May 2017
% salary
175,094
385,612
1,002
249,700
–
–
30,000
–
6,881
6,881
83,665
15,966
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
636,314
30,000
–
6,881
15,966
–
–
–
393%
44%
0%
16%
133%
0%
0%
0%
(1) 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.
(2) This figure shows the number of matching shares held at 31 May 2017 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.
(3) This figure excludes awards under the SPP scheme for performance year ending 31 May 2017 which will be granted following the announcement of the Group’s results on
18 July 2017. The awards held in the plan account include those in respect of plan year 1, 2 and 3 as at 31 May 2017.
(4) Calculated as shares owned on 31 May 2017 at the closing mid-market share price of 584 pence.
(5) P G Hetherington also held a beneficial interest in 10,000 preference shares at 31 May 2017 and 31 May 2016.
A share ownership policy was introduced from the financial year ending 31 May 2014. Under this policy, the Chief Executive Officer is
required to hold shares to the value of a minimum of 200% of base salary, and for other Executive Directors a requirement of 150% of base
salary applies. Only shares forming part of the Directors’ share interests are included in the calculation, which must normally be achieved
within five years, from the date of appointment. There have been no changes to any of the Directors’ share interests in the period since
31 May 2017. The awards to be made under the Company’s SPP in respect of the performance period ending on 31 May 2017 are set out
earlier in this report and are not included in this table.
Change in remuneration of the Chief Executive Officer
Base salary(1)
Taxable benefits
Performance based remuneration(2)
% change
(2017/2016)
% change
(2016/2015)
% change
(2015/2014)
% change
(2017/2016)
% change
(2016/2015)
% change
(2015/2014)
% change
(2017/2016)
% change
(2016/2015)
% change
(2015/2014)
Chief Executive Officer
Group employees
(3.2%)
8.8%(3)
25.8%
7.0%
2.8%
6.8%
0%
0%
14.1%
19.4%
0%
6.4%
(63.7%)
(27.6%)
112.0%
60.0%
(32.3%)
(22.9%)
(1) 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. The change is calculated based on the change in the total of the SPP contribution for the plan year.
(3) The increase in the average base salary and taxable benefits for Group employees was driven by salary benchmarking, the increase in the GBP equivalant cost of non-UK staff and the
introduction of flexible benefits.
Executive Directors’ outside appointments
Peter and Paul have 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
2017
£m
169.2
118.5
119.1
1,522
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
77
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
Statement of shareholder voting at 2016 AGM
At the September 2016 AGM, a resolution was proposed for shareholders to approve the Directors’ Remuneration Report for the financial
year ended 31 May 2016. The following votes were received:
2016 Remuneration Report
Total number of votes
Total shareholder return
Source: Datastream (Thomson Reuters)
% of votes cast
For(1)
Against
Total
Withheld
(1) For includes votes at the Chairman’s discretion.
278,197,945
600
8,001,015
286,198,960
500
)
14,898,379
400
d
e
s
s
a
b
e
r
(
300
)
97.2%
2.8%
100%
–
A majority (over 50%) of the votes cast was required for the resolution to be passed, and it was duly approved by shareholders.
(
£
l
e
u
a
V
200
Total Shareholder Return (TSR) chart
The chart below shows the Company’s TSR performance compared with that of the FTSE 350 Index. As IG is a member of this index, the
Committee believes it is appropriate to compare the Group’s performance against it.
100
This graph shows the value, by 31 May 2017, of £100 invested in IG on 31 May 2009 compared with the value of £100 invested in the
FTSE 250 Index and the FTSE 350 Financial Services Index.
0
Total shareholder return
Source: Datastream (Thomson Reuters)
Implementation of Remuneration Policy in the financial year ending 31 May 2018
The Committee decided not to apply an increase to the salary of Executive and Non-Executive Directors for the financial year 2018.
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 New Bridge Street to carry out an external benchmarking exercise to assist the Board with the
fee-review process.
Following the review, a decision was made to keep all fees unchanged as follows:
• Chairman: £255,000
• Non-Executive Director base fee: £65,000
• Committee Chairman fees (other than the Nomination Committee): £15,000
• Senior Independent Director fee: £10,000
Sustained performance plan
For the awards to be granted in respect of plan year 5, which will end on 31 May 2018, a maximum opportunity of 500% and 400% of
annual rate of base salary will apply for the Chief Executive Officer and Chief Financial Officer respectively.
The performance targets for these awards are shown below.
Measure
Further detail
Measurement period
(plan years)
Weighting
600
500
400
300
200
100
0
)
d
e
s
s
a
b
e
r
(
)
£
(
l
e
u
a
V
May-10
May-09
Total shareholder return
Source: Datastream (Thomson Reuters)
May-11 May-12 May-13 May-14 May-15 May-16 May-17
IG
600
FTSE 250 Index
Chief Executive Officer earnings history
The earnings history of the Chief Executive Officer is shown in the table below:
FTSE 350 Financial Services Index
500
400
Financial year
This graph shows the value, by 31 May 2017, of £100 invested in IG Group on 31 May 2009, compared with
the value of £100 invested in the FTSE 250 Index and FTSE 350 Financial Services Index on the same date.
2014
2013
2015
Single figure remuneration (£’000)
300
The other points plotted are the values at intervening financial year-ends.
1,103
1,970
1,519
Annual bonus outcome (% maximum)
200
LTIP vesting outcome (% maximum)
VSP vesting outcome (% maximum)
100
SPP plan contribution (% maximum)(1)
0
47%
–
6%
–
–
–
3%
54%
–
–
0%
41%
(1) The SPP replaced the annual bonus and VSP schemes from the financial year ending 31 May 2014.
)
d
e
s
s
a
b
e
r
(
)
£
(
l
e
u
a
V
May-09
May-10
May-11 May-12 May-13 May-14 May-15 May-16 May-17
Diluted earnings per share
The Committee has determined a sliding scale of targets
that will apply for the financial year ending 31 May 2018.
Financial year ending
31 May 2018.
45%
IG
FTSE 250 Index
FTSE 350 Financial Services Index
Relative Total
Shareholder Return
This graph shows the value, by 31 May 2017, of £100 invested in IG Group on 31 May 2009, compared with
the value of £100 invested in the FTSE 250 Index and FTSE 350 Financial Services Index on the same date.
The other points plotted are the values at intervening financial year-ends.
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.
The three financial years
ending 31 May 2018.
35%
Non-financial measures
The measures will include:
• System reliability
• Maintaining good standing with regulators
• Customer satisfaction
• Reputation and PR
• Risk management
• People
• Strategic delivery measures
Financial year ending
31 May 2018.
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.
2016(2)
2,745
–
–
–
2017
1,451
–
–
–
90%
27.1%
(2) Includes the base salaries paid to both T A Howkins and P G Hetherington for their tenure of the Chief Executive Officer position during the year.
May-10
May-11 May-12 May-13 May-14 May-15 May-16 May-17
May-09
IG
78
FTSE 250 Index
FTSE 350 Financial Services Index
This graph shows the value, by 31 May 2017, of £100 invested in IG Group on 31 May 2009, compared with
the value of £100 invested in the FTSE 250 Index and FTSE 350 Financial Services Index on the same date.
The other points plotted are the values at intervening financial year-ends.
79
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
DIRECTORS’ REMUNERATION REPORT
AND POLICY continued
Membership and attendance of
Remuneration Committee
The Remuneration Committee is composed of three independent
Non Executive Directors and the Chairman who was independent
on appointment. The current Members of the Committee are set
out below, together with their attendance at meetings:
Scheduled
meetings eligible
to attend
Scheduled
meetings
attended
Malcolm Le May
Andy Green
Stephen Hill
Jim Newman
5
5
5
5
5
5
5
5
The Committee is scheduled to meet five times a year and
additionally as and when required.
Other than the Company Secretary, who attends all Committee
meetings, the Chief Executive Officer and Chief Financial Officer
attend the Committee meetings by invitation. The Chairman and
Executive Directors do not attend or take part when matters relating
to their own remuneration is discussed. Representatives from other
areas of the business attend the Committee meetings by invitation
as appropriate to the matter under consideration.
Following each Committee meeting, a formal report is made to
the Board in which the Chairman of the Committee describes
the proceedings of the Committee meeting and makes
recommendations to the Board as appropriate.
To ensure the Committee discharges its responsibilities
appropriately, an annual forward calendar, linked to the Committee’s
Terms of Reference, is approved by the Committee. The Company
Secretary assists the Chairman of the Committee in drafting
the agenda for each Committee meeting ensuring 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.
The full Terms of Reference for the Committee can be found on the
Group’s website, iggroup.com.
Activity during the financial year
During the year, the Committee’s key activities included the
review of:
• The Director’s Remuneration Report published in the
2016 Annual Report and Accounts and the Directors’
Remuneration Policy
• The fee for the Company Chairman and Executive Directors’
remuneration for FY18
• Performance against targets for the vesting of awards under the
SPP and the LTIP and for the determination of the bonus pool
• The remuneration and bonus awards including for
senior management
• Proposed targets for the FY18 SPP and the LTIP
In addition the Committee received regular updates on
developments in remuneration governance including updates on
the Group’s gender pay gap reporting and from the Committee
Chairman on outcomes of meetings with shareholders.
Advice to the Committee
During the financial year ended 31 May 2017 the Committee
consulted the Chief Executive Officer about remuneration matters
relating to individuals other than himself. The Company Secretary
also provided advice and support to the Committee.
External advisers attend Committee meetings at the invitation of
the Committee 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.
NBS provided advice in respect of a wide range of issues, including
advice on the operation of the SPP, TSR performance monitoring,
drafting the Remuneration Report and Policy, remuneration
benchmarking and share plan implementation services. NBS’s fee
for advice provided to the Remuneration Committee during the
financial year ending 31 May 2017 was £0.1 million (excluding VAT).
Other than in respect of the advice described above NBS has no
other relationship with IG that might prejudice its independence.
Committee evaluation
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. Overall, the Committee’s
performance was rated highly as was the management of its
meetings. The Committee had made great strides during the year
in ensuring it was kept up to date with, and in debating, significant
information on market developments relating to executive pay.
The need to continue to focus on improvements in the quality of
materials provided to the Committee was highlighted.
Approval
This report was approved by the Board of Directors on 18 July 2017
and signed on its behalf by:
Malcolm Le May
Chairman, Remuneration Committee
18 July 2017
80
IG Group Holdings plc • Annual Report 2017 |
81
| IG Group Holdings plc • Annual Report 2017Company overviewStrategic reportCorporate Governance reportFinancial statements AUDIT COMMITTEE
Jim Newman, Chairman of the Audit Committee, gives his review of the Committee’s
activities during the financial year.
Jim Newman
Chairman of the Audit Committee
CHAIRMAN’S OVERVIEW
This report sets out the role of the Committee and how it has
discharged its responsibilities during the year. The Committee
has continued to develop ever closer links with the Board Risk
Committee in areas requiring the input of both Committees.
Thanks are due to Malcolm Le May, the Senior Independent
Director, for chairing one Committee meeting where I was unable to
attend in person.
The Committee has expanded its role during the year, in particular
in the way in which it monitors the control environment. It is now
responsible for reviewing and challenging the Group’s Tax Risk
Policy, as well as receiving specific reports on the effectiveness of
the control environment relating to client money and assets. As
the Group expands its geographical reach the Committee has also
requested an annual review of legal entity governance, focusing on
its regulated subsidiaries. The Board has agreed amended Terms of
Reference to reflect these new responsibilities.
The Terms of Reference now include a quick reference guide,
setting out those decisions falling within the responsibility of
the Committee and those requiring the approval of the Board,
to assist paper providers in highlighting the input sought from
the Committee.
Membership and attendance
All Audit Committee members are Independent Non-Executive
Directors who draw on considerable and broad business and
financial services experience. There have been no changes to
membership of the Committee during the year. The UK Corporate
Governance 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 is
considered to fulfil this requirement.
The Chief Financial Officer, Group Financial Controller, Head
of Internal Audit, Company Secretary and representatives from
PricewaterhouseCoopers LLP (PwC) the External Auditors attend
the Committee meetings by standing invitation. Members of
senior management from various areas of the business attend the
Committee meetings by invitation as necessary.
The Committee has four scheduled meetings a year and will
additionally meet if and when required. The following table details
meetings scheduled and attended during the year.
Main activities during the financial year
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 the following, among other matters:
• Assessing the quality and acceptability of accounting policies
and practices
• Ensuring disclosures are clear and compliant with financial
reporting standards and relevant financial and governance
reporting requirements
• Considering material areas in which significant judgments
have been applied or there has been discussion with the
External Auditors
• Reviewing 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
• Reviewing the inherent risks in the financial reporting process
and systems
To aid this review process, the Committee has considered reports
from the Chief Financial Officer and his team, Internal and
External Auditors.
Committee member
Eligible to
Attend
Attended
Jim Newman
Sam Tymms
Malcolm Le May
4
4
4
4
4
4
The Chairman, Andy Green, was invited to and attended all but one
of the meetings.
Role of the Audit Committee
The principal roles and responsibilities of the Committee are as set
out in its Terms of Reference and include:
• Reviewing the Financial Statements and announcements relating
to the financial performance and governance of the Group
• Reviewing the control environment through a number of
means including via Internal Audit reports and the progress on
implementation of audit recommendations
• 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
• Recommending the appointment of External Auditors and
reviewing their effectiveness, fees, Terms of Reference
and independence
The Audit Committee’s full Terms of Reference are revised
on an annual basis and can be found on the corporate
website, iggroup.com.
How the Committee operates
To ensure the Committee discharges its responsibilities
appropriately, an annual forward calendar, linked to the Committee’s
Terms of Reference and covering key events in the financial
reporting cycle, is approved by the Committee.
The Company Secretary, with input from the Chairman of the
Committee, drafts the agenda before each meeting, ensuring 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.
Following 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 their respective
areas of responsibility and to discuss any potential requirements for
support from the Committee to address any issues arising.
82
83
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements AUDIT COMMITTEE continued
The Committee considered and discussed with management and External Auditors the following primary areas of judgment and disclosure
in relation to the Financial Statements for the year ended 31 May 2017:
Reporting issue
Role of the Committee
Conclusion/action taken
Reporting issue
Role of the Committee
Conclusion/action taken
Principal risks and viability
For the 2017 reporting year onwards,
the Directors are required to make a
statement in the Annual Report as to the
longer-term viability of the Group.
The Committee evaluated various reports
from management that set out the view
of the Group’s longer-term viability. These
reports detailed the impact of:
• Brexit, recent and potential regulatory
changes
• Outcomes of stress tests after applying
principal and business model risk
scenarios to the Group’s financial
forecasts, based on a four-year
strategic plan
Taking into account the assessment by
management of stress-testing results and risk
appetite, the Committee agreed to recommend
the Viability Statement to the Board
for approval.
Segmental reporting
The Group has revisited the way it
discloses its segments in the Annual
Report to better reflect the management
and internal reporting structure of
the Group.
The Group now operates with regional
heads for the UK, EMEA, APAC and the
US all reporting into the Chief Operating
Decision Maker. Accordingly the Group
has changed its presentation to reflect
this new structure.
Segmental tax information
The Group reviewed its disclosures
in relation to tax given that its legal
entity structure and transfer pricing
arrangements meant that the majority of
the Group’s profit are taxed in the UK.
The Group has enhanced its disclosures
with respect to the tax charge in each
jurisdiction. We explain why this is the
case on page 142.
The Committee reviewed the Group’s new
reporting segments to ensure that they
were consistent with the way the business
is managed and resources allocated.
Based on the assessment performed, the
Committee concluded that the changes to the
new reporting segments were appropriate.
The Committee reviewed disclosures which
the Group made to assist the users of the
Group’s Financial Statements to better
understand the Group’s business model
and how this impacts the tax charge in the
regions in which the Group operates.
Based on the assessment performed, the
Committee concluded that additional
disclosures would assist the users of the
Financial Statements to better understand the
impact of the Group’s business model and
transfer pricing on taxable profits across the
Group’s reporting segments.
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 judgments
regarding the useful economic life and carrying
value of all its acquired and internally developed
software and licences and domain names.
During the year the Group completed the
purchase of DailyFX assets, for $40.0 million
(£32.7 million) from FXCM. This was classified as
an intangible asset within domain names and will
be amortised over ten years. There is a judgment
as to whether the purchase was of an asset or
a business. This was also subject to an enquiry
from the Financial Reporting Council who
subsequently confirmed the appropriateness of
our treatment.
The Committee reviewed a paper from
management setting out the key assumptions
used in the impairment review and an associated
sensitivity analysis.
In addition, the Group’s External Auditors
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 there
should be no change to the
recorded carrying values of
intangible assets.
The Committee was also
satisfied that the treatment of
the purchase of the DailyFX
assets as an asset purchase was
reasonable in the circumstances
given the nature of the assets
purchased, that the assets
were not considered to be
an integrated set of activities
and assets and given the work
required to successfully integrate
DailyFX into IG’s existing
business. The disclosures in
respect of the purchase have
also been enhanced.
Corporation tax
Calculating the Group’s current corporation
tax charge involves a degree of estimation and
judgment, as the tax treatment of certain items
cannot be finally determined until resolution has
been reached with the relevant tax authority.
The Group holds tax provisions in respect of
the potential tax liability that may arise on these
unresolved items.
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 External
Auditors 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 also reviewed the Group’s
updated tax policy and strategies.
84
85
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements AUDIT COMMITTEE continued
Reporting issue
Role of the Committee
Conclusion/action taken
Information systems
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.
The Committee reviewed reports from
management and Internal Audit on
ongoing monitoring of a number of key
controls designed to mitigate the risks
associated with the super-user access.
The Committee considered the relevant
control risk in this area to have been
appropriately managed.
The Committee’s focus is to ensure that the
Group continues to move away from legacy
systems, including the delivery of a finance
transformation programme.
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.
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.
It sought and obtained confirmation from
the Chief Financial Officer and his team
that they considered the disclosures to
be fair, balanced and understandable and
discussed this evaluation with the External
Auditors who took this into account when
conducting their audit.
It also established via reports from
management that there were no
indications of fraud relating to financial
reporting matters.
86
Control environment
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
Conclusion/action taken
Risk management and internal control
The Committee is required to assist the Board
in the annual review of the effectiveness of the
firm’s Risk Management Framework and internal
control systems.
The Committee received a report from the Board
Risk Committee including an assessment of those
risks that might threaten the Group’s business
model, future performance, solvency or liquidity.
It considered and challenged management on
the overall effectiveness of the Risk Management
Framework and internal control systems
The Committee reviewed the relevant disclosures
within the Accountability section of the Corporate
Governance Report within the Annual Report
The Committee agreed to
recommend to the Board the
Annual Report statements
relating to the effectiveness of
the Risk Management Framework
and internal control systems
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 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 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
sufficient resources to deliver the
proposed plan.
The Committee received all Internal Audit reports
and in addition received summary reports on the
results of the work of the Internal Audit function
on a periodic basis.
It reviewed the performance of the Internal Audit
function against plan and an assessment of the
effectiveness of the Internal Audit function.
Whistleblowing
The Committee considers the adequacy of the
Group’s arrangements by which employees may
in confidence raise concerns about improprieties
in matters of financial reporting or other matters.
The Committee reviewed the Group’s
Whistleblowing Policy and agreed a number of
updates to ensure that it will remain fit for the
needs of the Group.
The Committee concluded that
whistleblowing processes were
operating effectively during the
period under review.
Client money and assets
The Committee oversees the Group’s systems
and controls relating to the holding and
management of client money and assets.
Legal entity governance
The Committee is responsible for the
establishment of a risk-based system for the
governance, operation and maintenance of the
Group’s legal entities.
The Committee monitors the effectiveness of the
control environment relating to client money
and assets including receiving reports from the
Chief Financial Officer on the operation of the
Client Money and Assets Committee.
The Committee reviewed
improvements made to the
control environment and the
steps being taken to further
enhance controls in this area
and considered that these were
appropriate to the circumstances
of the Group.
The Committee’s role is to gain comfort that
decisions are made and evidenced at the
appropriate legal entity level and that appropriate
mechanisms are in place for monitoring, control
and oversight of legal entity decision making at
Group level.
The Committee received
regular updates on the ongoing
development of the legal entity
governance framework, satisfying
itself as to the progress made in
improving the overall framework.
87
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements AUDIT COMMITTEE continued
External Auditors
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 External Auditors (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
Conclusion/action taken
Oversight of external audit
The Committee is required to oversee the work
and performance of PwC as External Auditors,
including the maintenance of audit quality during
the period.
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 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 details
of new regulations on the statutory audit of
public interest entities which were effective from
June 2016.
The Group has updated its internal process on
engagement of auditors and review of non-audit
services to ensure that its policy is in line with
new regulation.
The Committee met with the key members of the
PwC audit team to discuss the 2017 audit plan
and agree areas of focus.
It assessed regular reports from PwC on the
progress of the 2017 audit and any material
issues identified.
It debated the draft audit opinion ahead of the
2017 year-end.
The Committee was also briefed by PwC on
critical accounting estimates, where significant
judgment is needed.
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 89.
During the year, the Committee reviewed and
approved a recommendation from management
on the Company’s audit and audit-related fees.
The Committee considers
the 2017 audit fees to be
competitive.
The Committee reviewed and approved all
arrangements for non-audit fees. Fees in relation
to Permitted Services below £0.05m are deemed
pre-approved by the Committee and are subject
to the approval of the Chief Financial Officer.
Fees above £0.05m must be approved by the
Committee, through the Committee Chairman.
The Committee ensured that firms other than
the External 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.
During the year, non-audit
fees of £0.5 million were paid
to PwC as discussed in note
5 to the Financial Statements.
These principally related to tax
compliance, tax advice and
regulatory work.
Non-audit fees have fallen in
respect of each of the last three
financial years.
The Committee continues to
follow the statutory guidance
to seek to reduce the reliance
on the External Auditors for
non-audit work.
The Committee approved the
rationalisation of non-audit work
among service providers by
the Group. This resulted in the
Group engaging EY for global
tax compliance.
Effectiveness of 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 External
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
Auditors’ understanding of the Group’s business. The results were
analysed and a report was presented to the Committee. Following
the review, of the effectiveness of the External Auditors, the
external audit process and an assessment of the External Auditors’
independence and objectivity, the Committee has recommended
the reappointment of PwC to the Board for recommendation to and
approval by shareholders at the Company’s 2017 Annual General
Meeting. There are no contractual obligations restricting the
Company’s choice of an External Auditor.
Audit tendering and rotation
PricewaterhouseCoopers LLP have been the Group’s External
Auditors since October 2010 following a tender process. 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 rotate the audit partner responsible for the
Group audit every five years, with this year being the second year
for the current audit partner.
Audit 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 Committee performance
was highly rated, as was the management of meetings. Progress
had been made with the standard of papers received and the
commitment of management in this area was acknowledged.
Progress made with the development of finance systems had
been welcomed. Given the scale of regulatory change facing the
business, the Committee had undertaken to increase the time made
available to Internal Audit and on discussing the internal controls
environment, in order to ensure it responded to the continuing
needs and circumstances of the business.
Jim Newman
Chairman, Audit Committee
18 July 2017
88
89
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements BOARD RISK COMMITTEE
Sam Tymms, Chairman of the Board Risk Committee, gives her review of the Committee’s
activities during the financial year. Sam was appointed Chairman of the Committee on
27 September 2016 in place of Stephen Hill, who continues to be a member of the
Committee and served as its Chairman until Sam’s appointment.
reviewed planned updates to the Recovery Plan and discussed
the Recovery Plan indicators in some depth. Finally, the workshop
reviewed the operational risk capital model.
A further training session was held in May 2017 in preparation for
the consideration of the Risk Appetite Statement for approval by
the Board. The training session discussed technical aspects of the
risk appetite indicators including the use of Value at Risk as well as
ensuring the Group strategy reflected IG’s risk appetite.
Role of the Board Risk Committee
The Committee made a number of changes to its Terms of
Reference (ToR) during the year by highlighting its responsibilities
to review and recommend to the Board major risks documents
including the Internal Capital Adequacy Assessment Process
(ICAAP), the Individual Liquidity Adequacy Assessment (ILAA) and
the Recovery Plan (RP).
To assist those with responsibilities for production of papers, a quick
reference guide was added to the ToR setting out the purpose
for which papers were to be provided and the input sought from
the Committee.
Sam Tymms
Chairman of the Board Risk Committee
CHAIRMAN’S OVERVIEW
Thanks are due to Stephen for his leadership in establishing the
Committee and developing it to the extent that he was able to
hand the Chairmanship over with the Committee well positioned to
address future challenges.
The Committee provides oversight and advice to the Board in
relation to current and potential future risk exposures and future
risk strategy of the Group. This includes determination of overall
risk appetite and tolerance, taking into account the current and
prospective macroeconomic and financial environment. Key
responsibilities of the Committee include:
The Committee has continued to 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. In addition, its
focus has developed towards ensuring a holistic approach to risk
management is taken across the Group.
In response to the areas identified for development in last year’s
Committee evaluation, we have continued to enhance the
professional development programme for Committee members
and to further improve forward planning and the quality of materials
provided to the Committee.
The Committee’s programme has been enhanced by the
development of a detailed timetable for consideration of its
principal regulatory documents and by improving the Committee’s
forward calendar. In addition, the Committee’s calendar now
includes scheduled Non-Executive Director risk workshops.
Continuing professional development
The Non-Executive Director risk workshop held in October 2016
considered initial steps relating to the enhancement of the Group’s
Risk Taxonomy. Directors were updated on the development of
the Risk Management Framework, how the framework was being
embedded throughout the organisation and linked to the Group’s
corporate strategy, and its Risk Appetite Statement. The workshop
considered proposed developments to Pillar 2A daily capital
stress tests for market and credit risk and changes to Pillar 2B
forward-looking scenarios and reverse stress-tests. The workshop
• Ensuring risk mitigation consistent with our risk appetite is in
place and reviewing the Group’s major risk exposures, identifying
risk trends, concentrations and exposures and material
regulatory changes
• Reviewing the scope and nature of the work undertaken by the
control functions particularly in relation to business, regulatory,
compliance, 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
• Considering and recommending for approval by the Board, the
Risk Appetite Statement and Key Risk Indicators
• Monitoring, reviewing and challenging the ICAAP, ILAA and
the RP
• Reviewing and approving the statements to be included in the
Annual Report concerning controls and risk management
• Considering the Group’s insurance arrangements
• Continuing to work closely with other Board Committees where
risk-related input is required
The full ToR for the Committee are on the Company’s
website, iggroup.com.
Board Risk Committee – 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. During the year, Sam Tymms was appointed as the
Chairman of the Committee, replacing Stephen Hill who remains a
member of the Committee. The current members of the Committee
are set out below, together with their attendance at meetings:
Committee member
Eligible to
attend
Attended
Sam Tymms(1)
Stephen Hill(2)
Jim Newman
June Felix
4
4
4
4
4
4
4
4
(1) Sam Tymms appointed as Chairman on 27 September 2016.
(2) Stephen Hill stepped down as a Chairman on 27 September 2016.
The Committee is scheduled to meet four times a year and
additionally as and when required. The Committee makes
recommendations to the Board and, where relevant, to 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 Group Chief Risk Officer and the
Head of Internal Audit attend Committee meetings by standing
invitation. Representatives from other areas of the business attend
the Committee meetings by invitation as appropriate to the matter
under consideration.
The Board Chairman, Andy Green, was invited to, and attended,
all meetings.
To ensure the Committee discharges its responsibilities
appropriately, an annual forward calendar, linked to the Committee’s
ToR, is approved by the Committee. The Company Secretary assists
the Chairman of the Committee in drafting the agenda for each
Committee meeting.
Activity during the financial year
During the year, the Committee’s key activities included:
• Reviewing developments to the Risk Appetite framework and
alignment of business and risk management strategy with the
risk appetite
• Discussing and recommending to the Board its support for the
acquisition of certain DailyFX assets based on identified and
mitigated risks
• Conducting a number of specific reviews including (i)
conduct risk review relating to the operation of the Group’s
share dealing business; (ii) technology risk review; (iii) the
operation of the Group’s limited risk accounts; (iv) key risks and
appropriate actions for the Group in navigating the regulatory
change environment
• Developing and agreeing an IG Group Policy
Governance Framework
• Reviewing and challenging the Operational Risk
Development Plan
• Considering a proposal to measure culture at IG by assessing the
Company’s behaviour towards key stakeholder groups through a
combination of quantitative and qualitative reports
• Regularly reviewing the capital and liquidity position of the
Company including through the ICAAP, ILAA and the RP
• Approving the scenarios and assumptions for internal
stress-testing and recommending the documents to the Board
for approval
• Receiving regular Internal Audit Reports
• Reviewing the ToR of the Committee to ensure they remain fit for
the purpose and recommending them to the Board for approval
• Reviewing its own performance and considering steps that may
be required to enhance Committee effectiveness. Appropriate
recommendations were made to the Board.
Committee evaluation and future priorities
The Committee undertook an externally facilitated assessment of its
own effectiveness conducted by Lintstock Limited. Its performance
was highly rated as was the management of its meetings.
Improvements continued to be made to the linking of risk reporting
to the key risks facing the business, and further progress would be
made with the development of the operational risk systems and
responsibilities framework.
Areas for further development included balancing the use of the
Committee’s time between consideration of formal documentation
and discussion of existing and potential risk faced by the business.
Sam Tymms
Chairman, Board Risk Committee
18 July 2017
90
91
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REPORT
The Directors present their report, together with the Group Financial
Statements for the year ended 31 May 2017. The Directors’ Report
comprises pages 92 to 94 of this report, together with the sections of
the Annual Report incorporated by reference as set out below:
Profit and dividends
The Group’s statutory profit for the year after taxation amounted to
£169.2 million (2016: £164.3 million), all of which is attributable to the
equity members of the Company.
Contents
Corporate Governance Report
Directors’ responsibility statement
Financial instruments
Greenhouse gas emissions
Employee involvement
Policy concerning the employment of
disabled persons
Viability statement
Directors’ Remuneration Policy, service contracts
and details of Directors’ interest in shares
Likely future developments
Risk management and internal control
Page
48 to 91
95
124 to 131
47
44
44
42
64 to 79
16 to 47
58
Section 414A of the Companies Act 2006 (the ’Act’) requires the
Directors to present a Strategic Report in the Annual Report and
Financial Statements. The information can be found on pages 16
to 47.
The Company has chosen, in accordance with section 414 C(11)
of the Act and as noted in this Directors’ Report, to include certain
matters in its Strategic Report that would otherwise be disclosed in
this Directors’ Report.
In line with the requirements under Capital Requirements Capital
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.
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
92
Corporate Governance Statement
In compliance with the UK Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules (DTR) 7.2.1, the disclosures
required by the DTR are set out in this Directors’ Report and in the
Corporate Governance Report.
The Directors recommend a final ordinary dividend of 22.88 pence per
share, amounting to £83.9 million, making a total of 32.30 pence per
share and £118.5 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 11, 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 27 October 2017
to those shareholders on the register at 29 September 2017.
Certain nominee companies representing our employee benefit trusts
hold shares in the Company in connection with the operation of the
Company’s share plans. Evergreen dividend waivers remain in place on
shares held by them that have not been allocated to employees.
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. The Articles were
amended by the shareholders by means of a special resolution on
21 September 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 50 to 51 and are incorporated into this report by reference.
Details of Directors’ beneficial and non-beneficial interests in the shares
of the Company are shown on page 77. Changes to Directors during the
year are set out below:
Name
Role
Paul Mainwaring
Executive Director
Effective date of
appointment
Appointed 20 July 2016 –
Chief Financial Officer
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the Articles,
the UK Corporate Governance Code (‘the Code’), the Act 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 re-election at the 2017 AGM.
Directors’ conflicts 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 55.
92
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 Act) were in force during the year ended
31 May 2017. 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 (2016: £nil).
Share capital
The Company has three classes of shares: ordinary shares, deferred
redeemable shares and preference shares. As at 31 May 2017, the
Company’s issued shares comprised 366,981,583 ordinary shares of
0.005p each (representing 99.97% of the total issued share capital),
65,000 deferred redeemable 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 23 and 24 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 E of the Other Information section in 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.
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 2016 AGM. The
authority to issue or buy back shares will expire at the 2017 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 36,664,907 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 Trusts 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. Details
of the shares held by the Group’s Employee Benefit Trusts and
the amounts paid during the year are disclosed in note 25 to the
Financial Statements.
Major interest in shares
Information provided to the Company by major shareholders
pursuant to the Financial Conduct Authority Disclosure Guidance 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
as at 31 May 2017 and as at 14 July 2017. Holders are not required
to notify the Company of any change until the next applicable
threshold is reached or crossed.
31 May 2017
14 July 2017
No. of shares
Percentage
No. of shares
Percentage
BlackRock, Inc.
Massachusetts Financial Services Company
Artemis Investment Management LLP
Allianz Global Investors GmbH
Cantillon Capital Management LLC
Prudential PLC Group of Companies
38,756,458
36,584,986
18,806,983
18,303,673
17,418,383
11,066,471
10.56%
36,114,017
9.97%
5.12%
4.99%
4.75%
3.02%
36,584,986
18,806,983
18,303,673
17,418,383
11,066,471
9.84%
9.97%
5.12%
4.99%
4.75%
3.02%
93
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements DIRECTORS’ REPORT continued
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial Statements
in accordance with applicable law and regulation.
Change of control
Following any future change of control of the Company, the Group’s
banking facilities, which are currently undrawn, 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.
Directors’ statement as to disclosure of
information to Auditors
So far as each person who was a Director at the date of approving this
report is aware, there is no relevant audit information, being information
needed by the Auditors in connection with preparing their report, of
which the Auditors are unaware. Each Director has taken all the steps
that he or she is obliged to take as a Director in order to make himself or
herself aware of any relevant audit information, and to establish that the
Company’s Auditors are aware of that information. This confirmation is
given pursuant to section 418 of the Companies Act 2006 and should be
interpreted in accordance with and subject to these provisions.
Subsequent events
Please refer to note 32 of the Financial Statements.
Annual General Meeting (AGM)
The Company’s AGM will be held on 21 September 2017. Details
of the resolutions to be proposed at the AGM will be provided in a
separate circular sent to all shareholders.
Independent Auditors
Resolutions to reappoint PricewaterhouseCoopers LLP as the
Company’s Auditors and to authorise the Directors to determine
their remuneration will be put to shareholders at the AGM on
21 September 2017.
Going concern
The Directors have prepared the Financial Statements on a
going-concern basis, which requires them to have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
The Directors have reviewed the Group’s processes for 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 Group has
adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the
going-concern basis in preparing the Financial Statements.
94
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law, the Directors have prepared
the Group and 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 profit or loss of the Group and Company for that period. In
preparing these Financial Statements, the Directors are required to:
• Select suitable accounting policies and apply them consistently
• State whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the Financial Statements
• Make judgments and accounting estimates that are reasonable
and prudent
• 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
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions, and to disclose with reasonable accuracy
at any time the financial position of the Group and Company
and enable them to ensure that the Financial Statements and the
Directors’ Remuneration Report comply with the Companies Act
2006 and, as regards the Group Financial Statements, Article 4 of
the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the
Group and Company, and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
C
o
m
p
a
n
y
o
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
a
i
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and 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 Group and Company Financial Statements, which have been
prepared in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and
profit of the Group and profit of the Company
• The Directors’ Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks and
uncertainties that it faces
In the case of each Director in office at the date the Directors’ Report
is approved:
• So far as the Director is aware, there is no relevant audit information of
which the Group and Company’s Auditors are unaware
• They have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s Auditors
are aware of that information.
On behalf of the Board
Peter Hetherington
Chief Executive Officer
18 July 2017
l
s
t
a
t
e
m
e
n
t
s
95
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
INDEPENDENT AUDITORS’ 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 2017 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; and
• the Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation.
What we have audited
IG Group Holdings plc’s Financial Statements comprise:
• the Group and Company Statements of Financial Position as at
31 May 2017;
• 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; and
• 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 applicable law and IFRSs
as adopted by the European Union and, as regards the company
Financial Statements, as applied in accordance with the provisions
of the Companies Act 2006, and applicable law.
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
Areas of
focus
• Overall Group materiality: £10.7 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’s
finance teams 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 performed by the Group audit team in London, reflecting the
centralised nature of the business.
• 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.
96
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.
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 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.
Risk of management override of internal controls
incorporating super user access to the Universe
International Standards on Auditing (UK and Ireland) (ISAs (UK
& Ireland)) require that we consider this as 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
to 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 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
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 performed by the Group audit team in London.
Materiality
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 judgment, we determined materiality for the Financial Statements as a whole as follows:
Overall group materiality
£10.7 million (2016: £10.2 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.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £534,000
(2016: £508,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
97
C
o
m
p
a
n
y
o
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
INDEPENDENT AUDITORS’ REPORT continued
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 94, 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 and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are
prepared is consistent with the Financial Statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group, the company and their environment obtained in the course of the
audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have
nothing to report in this respect.
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.
We have no exceptions
to report arising from
this responsibility.
• the statement given by the directors on page 95, 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 position and 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.
• the section of the Annual Report on pages 84 to 88, 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 42 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.
• the disclosures in the Annual Report that describe those risks and explain how they are being managed
or mitigated.
• the directors’ explanation on page 42 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.
We have nothing
material to add or to
draw attention to.
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.
Adequacy of accounting records and
information and explanations received
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
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.
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 95, 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.
98
99
C
o
m
p
a
n
y
o
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
INDEPENDENT AUDITORS’ REPORT continued
FINANCIAL STATEMENTS CONTENTS
What an audit of financial statements involves
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. With
respect to the Strategic Report and Directors’ Report, we consider
whether those reports include the disclosures required by applicable
legal requirements.
Darren Meek (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
18 July 2017
PRIMARY STATEMENTS
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
102
102
Statements of Changes in Equity
Cash Flow Statements
104
105
Statements of Financial Position
103
NOTES TO THE FINANCIAL STATEMENTS
1.
P resentation, critical accounting estimates
and judgments
2. Net trading revenue
3. Segmental information
4. Operating expenses
5. Auditors’ remuneration
6. Staff costs
7. Finance income
8. Finance costs
9. Taxation
106
19. Financial investments
106
20. Trade payables
106
21. Other payables
108
22. Contingent liabilities and provisions
108
23. Redeemable preference shares
109
24. Share capital and share premium
109
25. Other reserves
109
26. Employee share plans
110
27. Capital commitments
10. Earnings per ordinary share
112
28. Obligations under leases
11. Dividends paid and proposed
112
29. Related parties and transactions with Directors
12. Property, plant and equipment
113
30. Financial instruments
13. Intangible assets
14. Goodwill
113
31. Financial risk management
114
32. Subsequent events
15. Investment in subsidiaries
115
33. Authorisation of Financial Statements and
statement of compliance with IFRS
34. Accounting policies
35. List of investments in subsidiaries
16. Trade receivables
17. Cash and cash equivalents
18. Cash generated from operations
OTHER INFORMATION
(a) Balance sheet
(b) Client funds and assets
(c) Own funds
(d) Liquidity
(e) Regulatory capital
(f) Segmental tax information
(g) Five-year summary
115
115
116
140
140
141
141
142
142
143
116
116
117
117
117
117
118
119
122
123
123
124
127
131
131
131
138
100
IG Group Holdings plc • Annual Report 2017 |
101
| IG Group Holdings plc • Annual Report 2017Company overviewStrategic reportCorporate Governance reportFinancial statements
Year ended
31 May 2017
Year ended
31 May 2016
Statements of Financial Position
At 31 May 2017
FINANCIAL STATEMENTS
Consolidated Income Statement
For the year ended 31 May 2017
Trading revenue
Introducing partner commissions
Net trading revenue
Betting duty and financial transaction taxes
Interest income on segregated client funds
Interest expense on segregated client funds
Other operating income
Net operating income
Operating expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year and attributable to owners of the parent
Earnings per ordinary share
Basic
Diluted
Note
2
4
7
8
9
Note
10
10
The notes on pages 106 to 139 are an integral part of these Financial Statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 May 2017
Profit for the year and attributable to owners of the parent
Other comprehensive income/(expense):
Items that may be reclassified to the Income Statement:
Change in value of available-for-sale financial assets (note 19)
Foreign currency translation income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to owners of the parent
£m
518.7
(27.6)
491.1
(7.5)
4.6
(0.6)
1.9
489.5
(276.1)
213.4
1.7
(1.4)
213.7
(44.5)
169.2
2017
46.2p
45.9p
£m
487.9
(31.6)
456.3
(11.2)
3.8
(0.4)
0.6
449.1
(241.5)
207.6
2.0
(1.7)
207.9
(43.6)
164.3
2016
44.9p
44.6p
Year ended
31 May 2017
Year ended
31 May 2016
£m
£m
169.2
(0.2)
14.7
14.5
183.7
183.7
£m
(0.1)
4.5
£m
164.3
4.4
168.7
168.7
Group
Company
31 May 2017
31 May 2016
31 May 2017
31 May 2016
Note
£m
£m
£m
£m
Assets
Non–current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Financial investments
Deferred income 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
12
13
15
19
9
16
17
19
20
21
23
24
24
25
–
–
–
–
494.5
486.8
–
–
–
–
494.5
486.8
17.4
156.7
–
52.4
9.1
235.6
357.5
12.2
230.9
92.0
692.6
928.2
117.3
62.5
13.1
192.9
–
–
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
–
–
–
133.4
–
–
133.4
627.9
–
158.1
–
158.1
–
–
192.9
128.0
158.1
–
206.8
123.1
405.4
735.3
928.2
–
206.8
102.2
354.0
663.0
791.0
–
206.8
51.0
212.0
469.8
627.9
–
131.9
–
–
131.9
618.7
–
35.7
–
35.7
–
–
35.7
–
206.8
45.3
330.9
583.0
618.7
The notes on pages 106 to 139 are an integral part of these Financial Statements.
These Consolidated Financial Statements on pages 102 to 105 were approved by the Board of Directors on 18 July 2017 and signed on its
behalf by:
All items of other comprehensive income or expense may be subsequently recycled to the Income Statement.
The items of comprehensive income noted above are stated net of related tax effects (31 May 2017 and 31 May 2016: £nil).
The notes on pages 106 to 139 are an integral part of these Financial Statements.
Paul Mainwaring
Chief Financial Officer
Registered Company number: 04677092
102
103
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
Cash Flow Statements
For the year ended 31 May 2017
Operating activities
Cash generated from operations
Income taxes paid
Net cash flow generated from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Payments to acquire and develop intangible assets
Net cashflow from (purchase)/sale 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
Net cash flow used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Impact of movement in foreign exchange rates
Cash and cash equivalents at the end of the year
Group
Company
Year ended
31 May 2017
Year ended
31 May 2016
Year ended
31 May 2017
Year ended
31 May 2016
£m
£m
£m
£m
224.1
(45.3)
178.8
2.0
(10.6)
(36.3)
(8.8)
(53.7)
(1.4)
(118.7)
(1.1)
(121.2)
3.9
218.8
8.2
230.9
227.1
(42.5)
184.6
1.1
(5.1)
(8.6)
2.1
(10.5)
(1.3)
(103.1)
(1.0)
(105.4)
68.7
148.8
1.3
218.8
116.6
–
116.6
4.5
–
–
–
4.5
(1.3)
(118.7)
(1.1)
(121.1)
–
–
–
–
104.8
–
104.8
–
–
–
–
–
(0.7)
(103.1)
(1.0)
(104.8)
–
–
–
–
Note
18
11
17
The notes on pages 106 to 139 are an integral part of these Financial Statements.
Statement of Changes in Equity
For the year ended 31 May 2017
Group
At 1 June 2015
Profit for the year and attributable to owners of the parent
Other comprehensive income for the year
Total comprehensive income
Equity-settled employee share-based payments (note 26)
T ax deduction benefit on share-based payments
recognised directly in equity (note 9)
Purchase of own shares
Equity dividends paid (note 11)
Movement in equity
At 31 May 2016
Profit for the year and attributable to owners of the parent
Other comprehensive income for the year
Total comprehensive income
Equity-settled employee share-based payments (note 26)
T ax deduction benefit on share-based payments
recognised directly in equity (note 9)
Purchase of own shares
Equity dividends paid (note 11)
Dividends paid on own shares held in trust
Movement in equity
At 31 May 2017
There are no non-controlling interests.
Share
capital
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share
premium
Other
reserves
Retained
earnings
Total
equity
£m
206.8
–
–
–
–
–
–
–
–
206.8
–
–
–
–
–
–
–
–
–
£m
91.8
–
4.4
4.4
7.0
–
(1.0)
–
10.4
102.2
–
14.5
14.5
7.7
0.7
(1.1)
–
(0.9)
20.9
206.8
123.1
£m
292.8
164.3
–
164.3
–
–
–
(103.1)
61.2
354.0
169.2
–
169.2
–
–
–
(118.7)
0.9
51.4
405.4
£m
591.4
164.3
4.4
168.7
7.0
–
(1.0)
(103.1)
71.6
663.0
169.2
14.5
183.7
7.7
0.7
(1.1)
(118.7)
–
72.3
735.3
The notes on pages 106 to 139 are an integral part of these Financial Statements.
Company
At 1 June 2015
Total comprehensive income for the year
Equity-settled employee share-based payments (note 26)
Purchase of own shares
Equity dividends paid (note 11)
Movement in equity
At 31 May 2016
Total comprehensive income for the year
Equity-settled employee share-based payments (note 26)
Purchase of own shares
Equity dividends paid (note 11)
Dividends paid on own shares held in trust
Movement in equity
At 31 May 2017
Share
capital
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share
premium
Other
reserves
Retained
earnings
Total
equity
£m
206.8
–
–
–
–
–
206.8
–
–
–
–
–
–
206.8
£m
39.3
–
7.0
(1.0)
–
6.0
45.3
–
7.7
(1.1)
–
(0.9)
5.7
51.0
£m
310.0
124.0
–
–
(103.1)
20.9
330.9
(1.1)
–
–
(118.7)
0.9
(118.9)
212.0
£m
556.1
124.0
7.0
(1.0)
(103.1)
26.9
583.0
(1.1)
7.7
(1.1)
(118.7)
–
(113.2)
469.8
The Company had no items of other comprehensive income.
The notes on pages 106 to 139 are an integral part of these Financial Statements.
104
105
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsFINANCIAL STATEMENTS continued NOTES TO THE FINANCIAL STATEMENTS
1. Presentation, critical accounting
estimates and judgments
Critical accounting estimates and judgments
The preparation of Financial Statements requires the Group to
make estimates and judgments that affect the amounts reported for
assets and liabilities as at the year-end, and the amounts reported
for revenues and expenses during the year. The nature of estimates
means that actual outcomes could differ from those estimates.
In the Directors’ opinion, the accounting estimates or judgments
that have the most significant impact on the presentation and
measurement of items recorded in the Financial Statements are
the following:
(a) Consideration as to whether the Group’s purchase of DailyFX (a
leading global FX related news and research website and selected
associated assets, refer to note 13) was a business combination or
an asset purchase. Determining whether the purchase is a business
combination or an asset is a matter of judgment.
The purchase included the website together with its historical
content and lead list. In order to enable lead capturing and to
re-establish the DailyFX Plus facility, which captures details on
new subscribers, the infrastructure necessary for operating and
integrating the website needed to be rebuilt. A number of the
DailyFX staff were offered and subsequently accepted roles with
IG. Therefore whilst inputs had been acquired, the processes that
IG would ultimately benefit from had to be recreated and rebuilt
or separately acquired. Accordingly, the Group accounted for the
transaction as an asset purchase as not all the requirements for a
business combination were met.
In addition, the assessment of the useful economic life of the assets
acquired is judgmental. In line with the Group’s accounting policy
for domain names and generic top level domains, the principal
intangible asset arising from the purchase of DailyFX assets will be
amortised over ten years.
(b) 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, and other factors. 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 13).
(c) The calculation of the Group’s current corporation tax charge
involves a degree of estimation and judgment with respect to
certain items whose tax treatment cannot be finally determined
until resolution has been reached with the relevant tax authority.
Amounts to be paid/received may ultimately be materially different
than the amounts already accounted for and could therefore impact
the overall profitability and cash flows of the Group in future periods
(refer to note 9).
(d) The measurement of the Group’s net trading revenue
predominantly reflects transactions that have settled in cash and
accordingly involves little judgment. However, the calculation of
the segmental net trading revenue involves the use of an allocation
methodology determined by management, as the Group manages
risk and hedges on a group-wide portfolio basis. This allocation
methodology does not impact the overall Group net trading
revenue disclosed.
2. Net trading revenue
Net trading revenue represents trading revenue after deducting introducing partner commissions, and is analysed as follows:
Year ended
31 May 2017
Year ended
31 May 2016
£m
£m
Depreciation and amortisation
OTC leveraged derivatives:
• Indices
• Commodities
• Equities
• Foreign exchange
• Options
Exchange traded derivatives
Share dealing and investments
Total net trading revenue
205.6
66.3
76.4
82.3
44.0
474.6
14.1
2.4
491.1
226.7
36.0
67.4
77.4
36.8
444.3
11.2
0.8
456.3
The Group does not derive more than 10% of net trading revenue from any one single client.
3. Segment information
The Executive Directors are the Group’s chief operating decision-maker (CODM). Management has determined the operating segments
based on the information reviewed by the Executive Directors for the purposes of allocating resources and assessing performance.
During the year, the management structure of the Group has evolved and the CODM now receives information from the business on a
different basis to previous years. Accordingly, the segmental reporting for the comparative year has been restated.
106
Operating profit
Net finance income
Profit before taxation
Year ended 31 May 2016 (restated)
Segment net trading revenue
Betting duty and financial transaction taxes
Interest income on segregated client funds
Interest expense on segregated client funds
Other operating income
Net operating income
Direct costs
Segment contribution
Central costs
Depreciation and amortisation
Operating profit
Net finance income
Profit before taxation
The Executive Directors continue to consider the business performance principally from a geographic perspective, but now as the
United Kingdom (UK), Europe, Middle East and Africa (EMEA), Asia Pacific (APAC) and the United States of America (US):
• The UK segment comprises the Group’s local trading activities in the United Kingdom
• The EMEA segment comprises the Group’s local trading activities in Ireland, France, Germany, Italy, Luxembourg, Spain, Sweden,
Switzerland, United Arab Emirates and South Africa
• The APAC segment comprises the Group’s local trading activities in Australia, Singapore and Japan
• The US segment comprises the Group’s local trading activities in the US
The UK segment derives its net trading revenue from OTC leveraged derivatives, share dealing, and investments. The EMEA and APAC
segments derive their net trading revenue from OTC leveraged derivatives and share dealing. The US segment derives its net trading
revenue from exchange traded derivatives.
Segment net trading revenue is stated after deducting introducing partner commissions as this is consistent with the management
information received by the Executive Directors.
Net trading revenue from OTC leveraged derivatives is reported by segment reflecting the location of the office that manages the
underlying client relationship and represents an allocation of the net trading revenue that the Group generates from clients’ trading activity.
The Executive Directors review segment contribution as the measure of segment profit or loss. Segment contribution is segment net trading
revenue less direct costs, which are reported by segment reflecting the costs that are directly related to activities within that region or
controlled by management in that region.
The Group manages market risk and a number of other activities on a group-wide portfolio basis and accordingly a large proportion of
costs are incurred centrally. These central costs are not allocated to individual segments for decision making purposes for the CODM and
accordingly these costs have not been allocated to segments.
Capital expenditure is predominantly managed centrally and depreciation and amortisation is not allocated to individual segments for
decision making and accordingly has not been allocated to segments.
Year ended 31 May 2017
Segment net trading revenue
Betting duty and financial transaction taxes
Interest income on segregated client funds
Interest expense on segregated client funds
Other operating income
Net operating income
Direct costs
Segment contribution
Central costs
UK
£m
225.0
(6.9)
–
–
–
218.1
(49.8)
168.3
UK
£m
223.1
(10.5)
–
–
–
212.6
(45.9)
166.7
EMEA
APAC
£m
137.7
(0.6)
–
–
–
137.1
(54.2)
82.9
£m
114.3
–
–
–
–
114.3
(28.3)
86.0
EMEA
APAC
£m
117.3
(0.7)
–
–
–
116.6
(47.4)
69.2
£m
104.7
–
–
–
–
104.7
(20.9)
83.8
US
£m
14.1
–
–
–
–
14.1
(15.2)
(1.1)
US
£m
11.2
–
–
–
–
11.2
(10.4)
0.8
Central
£m
–
–
4.6
(0.6)
1.9
5.9
–
5.9
(112.2)
(16.4)
Central
£m
–
–
3.8
(0.4)
0.6
4.0
–
4.0
(104.2)
(12.7)
Total
£m
491.1
(7.5)
4.6
(0.6)
1.9
489.5
(147.5)
342.0
(112.2)
(16.4)
213.4
0.3
213.7
Total
£m
456.3
(11.2)
3.8
(0.4)
0.6
449.1
(124.6)
324.5
(104.2)
(12.7)
207.6
0.3
207.9
107
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements 4. Operating expenses
Employee remuneration costs are as follows:
Wages and salaries and other pension costs (in relation to defined contribution schemes)
Equity-settled share-based payment awards and related social security costs
Performance related bonus and related social security costs
Advertising and marketing
Premises-related costs
Telephone and data
IT Maintenance and support
Market data
Legal and professional costs
Regulatory fees
Net charge for impaired trade receivables
Irrecoverable VAT and other sales taxes
Payment card charges
Other costs
Depreciation and amortisation
Year ended
31 May 2017
Year ended
31 May 2016
£m
£m
95.5
7.5
16.1
119.1
64.5
13.2
2.0
12.2
9.7
8.0
2.3
3.0
14.1
2.2
9.4
16.4
276.1
83.3
8.3
21.9
113.5
49.7
12.1
1.7
9.7
7.9
6.8
5.7
1.6
11.2
0.4
8.5
12.7
241.5
Included in premises-related costs is operating lease rentals for office space of £6.9 million (2016: £6.1 million).
5. Auditors’ remuneration
Group
Audit fees
F ees payable to the Company’s auditors for the audit of the parent Company and consolidated
Financial Statements
F ees 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
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 fees
Other services relating to taxation
• Tax compliance services
• Tax advisory services
Other services
Total non-audit fees
Year ended
31 May 2017
Year ended
31 May 2016
£m
0.4
0.4
0.8
0.3
–
0.3
–
0.3
0.2
0.5
£m
0.4
0.3
0.7
0.2
0.1
0.3
0.1
0.5
–
0.6
Audit related fees includes 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.
Tax compliance services includes corporate and other tax compliance and filing services which are closely related to the audit process.
Tax advisory services includes advice relating to the Group’s transfer pricing policies, sales taxes, tax structures and other general tax advice.
Other services includes services provided in relation to client share dealing statements.
6. Staff costs
The staff costs for the year, including Directors, were as follows:
Group
Wages and salaries, performance-related bonus and equity-settled share-based payment awards
Social security costs
Other pension costs (in relation to defined contribution schemes)
Year ended
31 May 2017
Year ended
31 May 2016
£m
102.0
10.3
6.8
119.1
£m
97.5
11.2
4.8
113.5
The Group does not operate any defined benefit pension schemes.
The Directors’ remuneration for the years ended 31 May 2017 and 31 May 2016 is set out in the Directors’ Remuneration Report on
page 62.
The average monthly number of employees, including Directors, was made up as follows:
Group
Information technology
Sales, marketing and client support
Management, administrative and dealing
7. Finance income
Group
Bank interest receivable
Interest receivable on cash held at brokers
Interest accretion on financial investments (note 19)
8. Finance costs
Group
Liquidity facility arrangement and non-utilisation fees
Other interest
Year ended
31 May 2017
Year ended
31 May 2016
Number
Number
635
627
260
1,522
622
547
243
1,412
Year ended
31 May 2017
Year ended
31 May 2016
£m
0.7
0.4
0.6
1.7
£m
0.8
0.3
0.9
2.0
Year ended
31 May 2017
Year ended
31 May 2016
£m
1.1
0.3
1.4
£m
1.1
0.6
1.7
108
109
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued 9. Taxation
Tax on profit on ordinary activities
Tax charged in the Income Statement:
Group
Current income tax:
UK corporation tax
Non-UK corporation 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
Tax expense in the Income Statement
Tax not credited to Income Statement:
Tax deduction benefit on share-based payments recognised directly in equity
£m
40.5
3.2
2.0
45.7
(0.8)
–
(0.4)
(1.2)
44.5
(0.7)
£m
41.0
3.5
(0.9)
43.6
(0.2)
0.3
(0.1)
–
43.6
–
Reconciliation of the total tax charge
The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. Accordingly, the effective rate of
corporation tax for the year ended 31 May 2017 is 19.83% (year ended 31 May 2016: 20%). Taxation outside the UK is calculated at the
rates prevailing in the relevant jurisdictions. The tax expense in the Income Statement for the year can be reconciled as set out below:
Profit before taxation
Profit multiplied by the UK standard rate of corporation tax of 19.83% (2016: 20.00%)
Expenses not deductible for tax purposes
Timing differences not yet recognised in respect of share schemes
Higher taxes on overseas earnings
Recognition of deferred tax assets
Adjustment in respect of prior years
Impact of change in tax rates on deferred tax
Deferred tax not recognised on current year tax losses
Total tax expense reported in the Income Statement
The effective tax rate is 20.81% (2016: 21.00%).
Reconciliation of the current corporation tax liability
The movement in the current corporation tax liability included in the Statement of Financial Position is as follows:
£m
213.7
42.4
0.4
1.0
0.5
(1.8)
2.0
(0.4)
0.4
44.5
£m
207.9
41.6
0.3
–
1.4
–
(0.6)
0.1
0.8
43.6
Group
At the beginning of the year
• Income Statement charge
• Payments
• Tax credit directly to equity
• Research and development expenditure credit
• Impact of movement in foreign exchange rates
At the end of the year
110
Year ended
31 May 2017
Year ended
31 May 2016
£m
13.8
45.7
(45.3)
(0.3)
(0.4)
(0.4)
13.1
£m
13.1
43.6
(42.5)
–
(0.4)
–
13.8
Deferred income tax assets
The deferred income tax assets included in the Statement of Financial Position are as follows:
Year ended
31 May 2017
Year ended
31 May 2016
Group
Tax losses available for offset against future tax
Share-based payments
Other temporary differences
The Group has unrecognised tax losses of c.$28 million in respect of the US businesses, the recoverability of which is dependent on
sufficient taxable profits in those entities. The deferred income tax asset reflects the extent to which it is considered probable that future
taxable profits can be offset against the tax losses carried forward.
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 credit
• Tax credited directly to equity
• Impact of movement in foreign exchange rates
At the end of the year
Year ended
31 May 2017
Year ended
31 May 2016
Deferred income tax – Income Statement credit
Year ended
31 May 2017
Year ended
31 May 2016
£m
4.4
1.6
3.1
9.1
£m
1.9
1.7
3.6
7.2
Year ended
31 May 2017
Year ended
31 May 2016
£m
7.2
1.2
0.4
0.3
9.1
£m
7.1
–
–
0.1
7.2
Year ended
31 May 2017
Year ended
31 May 2016
£m
(0.4)
0.5
(1.3)
(1.2)
(0.4)
£m
(0.2)
–
0.2
–
–
Group
The deferred income tax (credit)/charge included in the Income Statement is made up as follows:
Decelerated capital allowances
Share-based payments
Other timing differences
Income Statement credit
The deferred tax credited to equity during the year is as follows:
Share-based payments
The Finance Act 2015 passed into legislation in July 2015 and changed the main rate of UK corporation tax, reducing the rate from 20%
to 19% effective from 1 April 2017. The Finance Act 2016 passed into legislation in September 2016 and further reduced the main rate of
UK corporation tax to 17% effective 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 2017 were calculated at rates between 19% and 17% depending on the nature
of each temporary difference.
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 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.
111
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued
10. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares in issue during the year, excluding shares 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
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
11. Dividends paid and proposed
Company and Group
Amounts recognised as distributions to equity holders during the year:
Proposed final dividend for 2017 at 22.88p per share (2016 final paid: 22.95p)
Interim dividend for 2017 at 9.42p per share (2016: 8.45p)
Dividend payout ratio
Year ended
31 May 2017
Year ended
31 May 2016
£m
169.2
£m
164.3
366,441,640
365,620,585
2,442,663
2,910,404
368,884,303
368,530,989
Year ended
31 May 2017
Year ended
31 May 2016
46.2p
45.9p
44.9p
44.6p
Year ended
31 May 2017
Year ended
31 May 2016
£m
£m
83.9
34.6
118.5
70%
84.0
30.9
114.9
70%
The final dividend for 2017 of 22.88p per share amounting to £83.9 million was proposed by the Board on 18 July 2017 and has not been
included as a liability at 31 May 2017. This dividend will be paid on 27 October 2017, following approval at the Company’s AGM, to those
members on the register at the close of business on 29 September 2017.
112
12. Property, plant and equipment
Leasehold
improvements
Office equipment,
fixtures and fittings
Computer and
other equipment
Group
Cost:
At 31 May 2015
Additions
Written off
Impact of movement in foreign exchange rates
At 31 May 2016
Additions
Impact of movement in foreign exchange rates
At 31 May 2017
Accumulated depreciation:
At 31 May 2015
Provided during the year
Written off
At 31 May 2016
Provided during the year
Impact of movement in foreign exchange rates
At 31 May 2017
Net book value - 31 May 2017
Net book value - 31 May 2016
Net book value - 31 May 2015
£m
18.8
1.0
(0.3)
0.1
19.6
3.6
0.4
23.6
10.7
1.9
(0.3)
12.3
3.4
0.2
15.9
7.7
7.3
8.1
£m
2.7
0.5
(0.1)
–
3.1
2.1
0.1
5.3
2.2
0.3
(0.1)
2.4
0.4
–
2.8
2.5
0.7
0.5
£m
18.8
3.2
(0.4)
0.1
21.7
6.3
0.5
28.5
14.1
3.0
(0.4)
16.7
4.1
0.5
21.3
7.2
5.0
4.7
Included within the amounts provided during the year ended 31 May 2017 is £1.0 million relating to the impairment of
leasehold improvements.
13. Intangible assets
Group
Cost:
At 31 May 2015
Additions
Impact of movement in foreign exchange rates
At 31 May 2016
Additions
Impact of movement in foreign exchange rates
At 31 May 2017
Accumulated amortisation:
At 31 May 2015
Provided during the year
Impact of movement in foreign exchange rates
At 31 May 2016
Provided during the year
Impact of movement in foreign exchange rates
At 31 May 2017
Net book value – 31 May 2017
Net book value – 31 May 2016
Net book value – 31 May 2015
Goodwill
£m
107.1
–
–
107.1
–
1.0
108.1
–
–
–
–
–
–
–
108.1
107.1
107.1
Domain
names
Development
costs
Software
and licences
£m
7.3
0.6
0.2
8.1
33.1
(1.3)
39.9
1.2
3.4
–
4.6
2.4
0.4
7.4
32.5
3.5
6.1
£m
15.1
4.8
–
19.9
5.7
–
25.6
6.0
2.5
–
8.5
4.2
–
12.7
12.9
11.4
9.1
£m
17.8
3.1
0.1
21.0
1.9
0.2
23.1
16.1
1.6
0.2
17.9
1.9
0.1
19.9
3.2
3.1
1.7
Total
£m
40.3
4.7
(0.8)
0.2
44.4
12.0
1.0
57.4
27.0
5.2
(0.8)
31.4
7.9
0.7
40.0
17.4
13.0
13.3
Total
£m
147.3
8.5
0.3
156.1
40.7
(0.1)
196.7
23.3
7.5
0.2
31.0
8.5
0.5
40.0
156.7
125.1
124.0
113
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued 13. Intangible assets continued
Goodwill primarily relates to the purchase of IG Group plc by IG Group Holdings Limited – detail is provided in note 14.
Domain names include the cost of acquiring IG.com and a suite of complementary domains to support the Group’s global brand. Included
within the amount provided during the year ended 31 May 2016 is £2.7 million relating to the impairment of industry-specific generic
top-level domains.
On 31 October 2016 the Group completed the purchase of DailyFX, a leading global news and research portal, from FXCM Inc. for a total
consideration of $40.0 million (£32.7 million), with $4.0 million (£3.3 million) of this amount deferred for up to 12 months.
DailyFX, through a series of global websites, delivers market-leading education, research, analysis and news, focused predominantly on the
FX markets. The Group believes this transaction will significantly enhance its ability to acquire new clients and to engage with and improve
the retention rates of its current clients.
In line with the Group’s accounting policy for domain names and generic top-level domains, the intangible asset arising from the purchase
of DailyFX is amortised over ten years.
Development costs relate to internally generated intangible assets.
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 asset are set out in note 34, Accounting Policies.
14. Goodwill
Goodwill has been allocated for impairment testing purposes to cash-generating units (CGUs) as follows:
Group
UK
US
Australia
South Africa
31 May 2017
31 May 2016
£m
100.9
5.9
0.1
1.2
£m
100.0
5.3
0.9
0.9
108.1
107.1
Goodwill arose from the following:
• UK from the purchase of IG Group plc by IG Group Holdings Limited on 5 September 2003
• Australia from the acquisition of the non-controlling interest in IG Australia Pty Limited in the year ended 31 May 2006
• US from the acquisition of Nadex and the associated exchange technology and licence
• South Africa from the acquisition of Ideal CFDs
Impairment testing
The Group’s goodwill balance has been subject to an impairment review and there has not been any impairment recognised for the year
ended 31 May 2017 and 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 is based upon fair value (calculated as a percentage of the Group’s market capitalisation
based on the UK CGU’s net trading revenue versus that of the Group) less costs of disposal. The UK CGU has a fair value in excess of the
carrying amount.
Key assumptions used in fair value less costs of disposal calculations
The fair value less costs of disposal of the UK CGU has been determined by reference to the Company’s quoted market capitalisation and
apportioned to the UK CGU.
Sensitivity to changes in assumptions
The UK represents 45% of the Group on net trading revenue basis (refer to note 3, segment information). There is sufficient headroom
between the UK CGU’s fair value and its net assets. Accordingly the outcome of the impairment review for the CGU is not considered to be
sensitive to non-significant share price movement.
15. Investment in subsidiaries
Parent Company – investment in subsidiaries
Company
At cost:
At the beginning of the year
Additions in the year
31 May 2017
31 May 2016
£m
£m
486.8
7.7
494.5
479.8
7.0
486.8
Additions in the year comprise the investment relating to equity-settled share-based payments for employees of the subsidiaries of
£7.7 million (2016: £7.0 million).
A full list of the Group’s direct and indirectly owned subsidiaries is provided on page 138.
16. Trade receivables
Group
Amounts due from brokers
Own funds in client money
Amounts due from clients
31 May 2017
31 May 2016
£m
313.0
43.4
1.1
357.5
£m
245.5
30.8
2.2
278.5
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. In addition to the £313.0 million (2016: £245.5 million) the Group had
£63.2 million (2016: £53.4 million) of UK Government Securities held as collateral at brokers.
Included within amounts due from brokers is £11.9 million (31 May 2016: £3.2 million) related to amounts held on Bitcoin exchanges and in
third party vaults.
Own funds in client money represents the Group’s own cash held in segregated client funds, in accordance with the UK’s Financial Conduct
Authority (FCA) ‘CASS’ rules and similar rules of other regulators in whose jurisdiction the Group operates and includes £12.7 million
(31 May 2016: £1.5 million) to be transferred to the Group on the following business day.
Amounts due from clients arise when a client’s total funds deposited with the Group are insufficient to cover any trading losses incurred or
when a client utilises a trading credit limit, stated net of an allowance for impairment.
17. Cash and cash equivalents
Group
Cash and cash equivalents
Cash and cash equivalents includes:
31 May 2017
31 May 2016
£m
230.9
£m
218.8
• Title transfer funds held by the Group under a title transfer collateral arrangement (TTCA) under which a client agrees that full ownership
of such monies is unconditionally transferred to the Group of £60.0 million (31 May 2016: £25.5 million)
• Client monies deposited with the Group’s Swiss banking subsidiary, IG Bank SA, of £57.1 million (31 May 2016: £13.5 million)
To ensure effective management of the Group’s cash resources, all of the Company’s cash and cash equivalents are swept to another Group
company each day and accordingly the Company holds no cash at year-end.
114
115
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued 18. Cash generated from operations
21. Other payables
Operating activities
Operating profit
A djustments to reconcile operating profit to cash
generated from operations:
Depreciation
Amortisation
Dividends received
Non-cash foreign exchange losses in operating profit
Share-based payments charge
(Increase) in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Group
Company
Year ended
31 May 2017
Year ended
31 May 2016
Year ended
31 May 2017
Year ended
31 May 2016
Note
£m
£m
213.4
207.6
12
13
7.9
8.5
–
–
7.7
(78.6)
65.2
224.1
5.2
7.5
–
3.0
7.0
(29.5)
26.3
227.1
£m
(4.2)
–
–
–
–
–
(1.5)
122.3
116.6
£m
125.1
–
–
(130.0)
–
–
200.6
(90.9)
104.8
Accruals
Other taxes and social security
Amounts due to Group companies (note 29)
Group
Company
31 May 2017
31 May 2016
31 May 2017
31 May 2016
£m
58.2
4.3
–
62.5
£m
64.0
6.8
–
70.8
£m
7.3
–
150.8
158.1
£m
7.1
–
28.6
35.7
22. Contingent liabilities and provisions
There are currently no contingent liabilities expected to have a material adverse financial impact on the Company and Group’s consolidated
Financial Statements and or net assets. The Group and parent had no material provisions at 31 May 2017 (31 May 2016 £nil).
23. Redeemable preference shares
Company and Group
31 May 2017
31 May 2016
£m
–
£m
–
19. Financial investments
Financial investments are UK government securities as follows:
Allotted, called up and fully paid:
40,000 preference shares of £1 each
Group
Liquid asset buffer
Collateral at brokers
Split as:
• Non-current portion
• Current portion
31 May 2017
31 May 2016
£m
81.2
63.2
144.4
52.4
92.0
144.4
£m
82.6
53.4
136.0
25.0
111.0
136.0
Certain 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.
During the year ended 31 May 2017 the Group purchased UK government gilts for £120.4 million (year ended 31 May 2016: £61.3 million)
and disposed of gilts for £112.4 million (year ended 31 May 2016: £34.5 million).
The effective interest rates of securities held at the year-end range from 0.03% to 0.59% (2016: 0.33% to 1.01%).
Financial investments are shown as current assets when they have a maturity of 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 31 for a maturity profile.
20. Trade payables
Group
Client funds held on balance sheet
Amounts due to clients
31 May 2017
31 May 2016
£m
117.1
0.2
117.3
£m
39.0
4.4
43.4
Client funds held on balance sheet comprise title transfer funds and client monies deposited with the Group’s Swiss banking subsidiary
which are recognised as cash and cash equivalents on the Group’s Statement of Financial Position.
Amounts due to clients represent balances that will be transferred from the Group’s own cash into segregated client funds on the following
business 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.
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% (2016: 8%).
24. Share capital and share premium
Allotted and fully paid:
(i) Ordinary shares (0.005p)
At 1 June 2015
Issued during the year
At 31 May 2016
Issued during the year
At 31 May 2017
(ii) Deferred redeemable shares (0.001p)
At 31 May 2017
At 31 May 2016
(iii) B Shares (0.001p)
At 31 May 2017
At 31 May 2016
Company and Group
Number of shares
Share capital
£m
£m
Share premium
account
£m
366,157,776
491,299
366,649,075
332,508
366,981,583
65,000
–
–
65,000
–
–
–
–
–
–
–
–
–
206.8
–
206.8
–
206.8
–
–
–
–
During the year ended 31 May 2017 there were 332,508 (2016: 491,299) ordinary shares with an aggregate nominal value of £16.63
(2016: £24.56) issued following the exercise of sustained performance plan, long-term incentive plan and value-sharing plan awards for a
consideration of £16.63 (2016: £24.56).
Except as the ordinary shareholders have agreed or may otherwise agree, on a winding up of the Company, the balance of assets available
for distribution after the payment of all of the Company’s creditors and subject to any special rights attaching to other classes of shares are
distributed among the shareholders according to the amounts paid up on shares by them.
Deferred redeemable shares
During the year the remaining B shares held by shareholders were sold to the Jersey Employee Benefit Trust (refer to note 25). At the time
the Trust converted the B Shares to Deferred redeemable shares. These shares carry no entitlement to dividends and no voting rights.
116
117
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued
25. Other reserves
The share-based payment reserve relates to the estimated cost of equity-settled employee share plans net of tax based on a straight-line
basis over the vesting period. 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.
Share-
based
payments
Foreign
currency
translation
Own shares held
in Employee
Benefit Trusts
Transactions with
non-controlling
interests
Available for
sale reserve
Total
other
reserves
Group
At 31 May 2015
E quity-settled employee share-based payments
F oreign currency translation on overseas subsidiaries
Exercise of UK share-incentive plans
Utilisation of own shares
Purchase of own shares
Change in value of available-for-sale financial assets
At 31 May 2016
E quity-settled employee share-based payments
T ax deduction benefit on share-based payments
recognised directly in equity
Foreign currency translation on overseas subsidiaries
Exercise of UK share-incentive plans
Dividends paid on own shares held in trust
Purchase of own shares
Change in value of available-for-sale financial assets
£m
45.4
7.0
–
(0.4)
–
–
–
52.0
7.7
0.7
–
(0.5)
–
–
–
£m
49.3
–
4.5
–
–
–
–
53.8
–
–
14.7
–
–
–
–
At 31 May 2017
59.9
68.5
£m
(1.2)
–
–
0.4
–
(1.0)
–
(1.8)
–
–
–
0.5
(0.9)
(1.1)
–
(3.3)
£m
(2.1)
–
–
–
–
–
–
(2.1)
–
–
–
–
–
–
–
(2.1)
£m
0.4
–
–
–
–
–
(0.1)
0.3
–
–
–
–
–
–
(0.2)
0.1
£m
91.8
7.0
4.5
–
–
(1.0)
(0.1)
102.2
7.7
0.7
14.7
–
(0.9)
(1.1)
(0.2)
123.1
Share-based payments
Own shares held in
Employee Benefit Trusts
Total other reserves
Company
At 31 May 2015
Equity-settled employee share-based payments
Exercise of UK share-incentive plans
Purchase of own shares
At 31 May 2016
Equity-settled employee share-based payments
Exercise of UK share-incentive plans
Dividends paid on own shares held in trust
Purchase of own shares
At 31 May 2017
£m
40.5
7.0
(0.4)
–
47.1
7.7
(0.5)
–
–
54.3
£m
(1.2)
–
0.4
(1.0)
(1.8)
–
0.5
(0.9)
(1.1)
(3.3)
£m
39.3
7.0
–
(1.0)
45.3
7.7
–
(0.9)
(1.1)
51.0
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
Purchased during the year
Exercised and effect of dividends paid on own shares held in trust
At the end of the year
Company and Group
31 May 2017
31 May 2016
Number
Number
1,028,583
136,389
(629,671)
535,301
970,335
137,166
(78,918)
1,028,583
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 2017 392,014 ordinary shares (2016: 378,028) were held in the
trust. The market value of the shares held conditionally at the year-end was £2.3 million (2016: £3.0 million).
118
The Group has a Jersey resident Employee Benefit Trust which holds shares in the Company. At 31 May 2017, the Trust held 86,161
ordinary shares (2016: 512,075) which are available to satisfy awards under the long term share plans and Directors’ deferred bonus award.
The market value of the shares held conditionally at the year-end was £0.5 million (2016: £4.1 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 2017 23,498 ordinary shares (2016: 15,538) were held in the trust.
26. 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 £7.5 million (2016: £8.3 million).
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 in the SPP plan for the year ended 31 May 2017:
Share price
at award
Expected full
vesting date
At the start
of the year
609.90p
742.55p
868.65p
4 Aug 2020
4 Aug 2020
2 Aug 2020
Number
344,830
360,458
–
705,288
Award date
4 Aug 2014
6 Aug 2015
2 Aug 2016
Total
Awarded
during
the year
Number
–
–
784,434
784,434
Lapsed
during the
year
Exercised
during
the year
Dividend
equivalent
awarded during
the year
At the end
of the year
Number
Number
Number
Number
(15,745)
(15,756)
(95,153)
(126,654)
(114,943)
(120,153)
(79,116)
(314,212)
9,550
10,014
27,210
46,774
223,691
234,564
637,375
1,095,630
Of the above SPP exercised during the year ended 31 May 2017, the average share price at exercise was:
Award date
Average share price at exercise
4 Aug 2014, 6 Aug 2015 and 2 Aug 2016
881.50p
The weighted average exercise price of all SPP awards is 0.005p.
As ‘shared understanding’ is established under IFRS2 between the Company and participants that, 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 2017:
Closing share price at
31 May 2017
Expected full
vesting date
Awards expected during the
year ending 31 May 2017
Expected award date
2 Aug 2017
Total
584.00p
2 Aug 2020
Number
457,008
457,008
119
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Long-term incentive plan (LTIP)
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 pre-defined thresholds.
The maximum number of LTIP awards that can vest under the awards made are:
Award date
28 Nov 2013
5 Aug 2014
6 Aug 2015
12 Aug 2016
Total
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
584.00p
618.50p
734.50p
898.45p
28 Nov 2016
5 Aug 2017
6 Aug 2018
12 Aug 2019
Number
406,412
430,604
465,823
–
1,302,839
Number
Number
Number
Number
–
–
–
364,247
364,247
(4,664)
(16,505)
(67,585)
(16,704)
(401,748)
–
–
–
–
414,099
398,238
347,543
(105,458)
(401,748)
1,182,958
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 (2016: £1,800/A$3,000) of partnership shares,
with the Company typically matching on a two-for-one (2016: 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.
The maximum number of SIP shares that can vest based on the awards made are:
Share price
at award
Expected
vesting date
At the start
of the year
Country of award
Award date
UK
Australia
UK
Australia
UK
Australia
UK
Australia
Total
26 Jul 2013
580.00p
15 Jul 2013
572.50p
25 Jul 2016
15 Jul 2016
25 Jul 2014
605.80p
25 Jul 2017
15 Jul 2014
599.70p
15 Jul 2017
6 Aug 2015
739.50p
6 Aug 2018
12 Oct 2015
740.00p
12 Oct 2018
2 Aug 2016
879.50p
2 Aug 2019
15 Jul 2016
930.00p
15 Jul 2019
Number
40,862
2,808
149,502
6,392
149,944
8,349
–
–
357,857
Awarded
during
the year
Number
Lapsed
during the
year
Exercised
during the
year
At the end
of the year
Number
Number
Number
–
–
–
–
–
–
157,658
11,650
169,308
(344)
–
(9,888)
(564)
(11,222)
(879)
(7,997)
(368)
(31,262)
(40,518)
(2,808)
(14,718)
(564)
–
–
124,896
5,264
(10,944)
127,778
(386)
(12,006)
(368)
(82,312)
7,084
137,655
10,914
413,591
Of the above SIP awards exercised during the year ending 31 May 2017, the average weighted share price at exercise was:
Country of award
Award date
Weighted average share price at exercise
UK
Australia
UK
Australia
UK
Australia
UK
Australia
26 Jul 2013
15 Jul 2013
25 Jul 2014
15 Jul 2014
6 Aug 2015
12 Oct 2015
2 Aug 2016
15 Jul 2016
740.68p
764.50p
756.43p
764.50p
767.09p
764.50p
668.25p
548.50p
The weighted average exercise price of all SIP awards during the year ending 31 May 2017 is 722.06p.
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 £9.8 million (2016: £6.7 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.
The inputs below were used to determine the fair value of the TSR element of the SPP awards granted on 2 August 2016:
Date of grant
Share price at grant date (pence)
Expected life of awards (years)
Risk-free sterling interest rate (%)
IG expected volatility (%)
Interim dividend estimate
2 August 2016
898.45p
3
0.08%
21.36%
8.45p
Risk free rate - due to minimal exercise price the risk free rate has no impact on the fair value calculation.
IG’s expected volatility is 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.
The interim dividend estimate is 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
Year ended 31 May 2017
Year ended 31 May 2016
583.37p
534.09p
720.75p
570.77p
654.16p
497.83p
546.81p
416.60p
At the end
of the year
655.75p
583.37p
120
121
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued 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 the VSP was
replaced by the SPP and LTIP schemes. VSP awards were conditional awards made available to Executive Directors and other senior
staff. Participants do not pay to receive awards or to exercise options. The VSP performance period is over three years with a pre-defined
number of shares allocated, for each £10 million of surplus shareholder value created over the three-year period above a hurdle. Half of the
shares vest after three years and can be exercised at that date, with the remaining half being deferred for a further year, conditional upon
continued employment at the vesting date. The VSP is based upon two performance conditions, Total Shareholder Return (TSR) and profit
before taxation.
The maximum number of VSP shares that vested during the year based on the awards made are:
Award date
20 Jul 2011
Total
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
450.00p
31 Jul 2015
2,344
2,344
–
–
–
–
(2,344)
(2,344)
–
–
Of the above VSP exercised during the year ended 31 May 2017, the share price at exercise was:
Award date
20 Jul 2011
Share price at exercise
951.00p
The weighted average exercise price of all VSP awards is 0.005p.
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.
During the year ended 31 May 2017 all LTIP awards were exercised:
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
Award date
23 Jul 2007
Total
312.25p
23 Jul 2010
Number
15,952
15,952
Number
Number
Number
Number
–
–
–
–
(15,952)
(15,952)
–
–
The weighted average exercise price of all LTIP awards is 0.005p.
28. 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 2017
31 May 2016
£m
7.0
17.3
7.5
31.8
£m
6.6
20.6
9.1
36.3
31 May 2017
31 May 2016
£m
2.4
8.2
7.5
18.1
£m
2.3
9.8
8.0
20.1
29. Related parties and transactions with Directors
The Group and Company had no transactions with its Directors other than those disclosed in the Directors’ Remuneration Report.
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 earned during the year and the preceding year by the
Directors. The total compensation for key management personnel together with their connected parties was as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
31 May 2017
31 May 2016
£m
3.9
0.1
3.4
7.4
£m
3.2
0.2
2.9
6.5
31 May 2017
31 May 2016
£m
133.0
(150.8)
£m
131.5
(28.6)
27. Capital commitments
The Group and Company had £nil capital expenditure contracted for at 31 May 2017 but not yet incurred (31 May 2016: £0.7 million).
Company
The Company had the following amounts outstanding with subsidiaries at the year-end:
Loans to related parties
Loans from related parties
All amounts remain outstanding at the year-end and are repayable on demand. Intercompany amounts were subject to offset arrangements
during the year.
122
123
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued 30. 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. 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 as at balance sheet date without taking account of any collateral held.
‘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 positions are reported net in the Group Statement of Financial Position as
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and
settle the liability simultaneously. The legally enforceable right is in the normal course of business.
The Group’s financial instruments are classified as follows:
Group
As at 31 May 2017
Financial assets:
Cash and cash equivalents
Financial investments
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 – own funds in client money
Financial liabilities:
Trade payables – client funds held on balance sheet
Trade payables – amounts due to clients
Redeemable preference shares
Group
As at 31 May 2016
Financial assets:
Cash and cash equivalents
Financial investments
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 – own funds in client money
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
Amortised
cost
Available-
for-sale
Total
carrying
amount Fair value
Note
£m
£m
£m
£m
£m
£m
17
19
16
16
20
20
23
–
–
(17.9)
(0.6)
(18.5)
–
–
(18.5)
–
–
–
–
230.9
–
299.5
32.0
331.5
1.1
43.4
606.9
–
(0.2)
–
(0.2)
–
–
–
–
–
–
–
–
144.4
–
–
–
–
–
–
144.4
230.9
144.4
281.6
31.4
313.0
1.1
43.4
732.8
230.9
144.4
281.6
31.4
313.0
1.1
43.4
732.8
(117.1)
–
–
(117.1)
–
–
–
–
(117.1)
(117.1)
(0.2)
–
(0.2)
–
(117.3)
(117.3)
FVTPL -
held for trading
Loans and
receivables
Amortised
cost
Available-
for-sale
Total
carrying
amount Fair value
Note
£m
£m
£m
£m
£m
£m
17
19
16
16
20
20
23
–
–
(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)
–
218.8
136.0
225.4
20.1
245.5
2.2
30.8
633.3
(39.0)
(4.4)
–
(43.4)
(43.4)
Financial instrument valuation hierarchy
The hierarchy of the Group’s financial instruments carried at fair value is as follows:
Group
As at 31 May 2017
Financial assets:
Trade receivables – due to brokers
Financial investments
Level 1
Level 2
Level 3
Total fair value
£m
£m
£m
£m
(0.6)
144.4
(17.9)
–
–
–
(18.5)
144.4
Level 1 assets are valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes the
Group’s open exchange-traded hedging positions. The quoted market price used for financial assets held by the Group is the period-end
bid price.
Level 2 assets are valued using techniques where a price is derived based significantly on observable market data. For example, where
an active market for an identical financial instrument to the product offered by the Group to its clients or used by the Group to hedge its
market risk does not exist. This category includes the Group’s open non-exchange-traded hedging positions, and these comprise shares,
foreign currency and foreign currency options. The fair values used in the valuation of these products are sometimes brokered values and
may occur after the close of a market but before the measurement date. The effects of discounting are generally insignificant for these Level
2 financial instruments.
Level 3 assets are 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 (year
ended 31 May 2016: none). There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of
Level 3 fair value measurements for years ended 31 May 2017 and 31 May 2016.
Group
As at 31 May 2016
Financial assets:
Trade receivables – due to brokers
Financial investments
Level 1
Level 2
Level 3
Total fair value
£m
£m
£m
£m
(13.5)
136.0
(1.0)
–
–
–
(14.5)
136.0
Group’s valuation processes
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).
Fair value of financial assets and liabilities measured at amortised cost
The fair value of the following financial assets and liabilities approximate their carrying amount:
• Trade and other receivables (excluding the Group’s open financial derivative hedging positions with brokers above)
• Cash and cash equivalent
• Trade and other payables
124
125
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Accounting classifications and fair values – Company
Company
As at 31 May 2017
Financial assets:
Amounts due from Group companies (note 29)
Financial liabilities:
Amounts due to Group companies (note 29)
Company
As at 31 May 2016
Financial assets:
Amounts due from Group companies (note 29)
Financial liabilities:
Amounts due to Group companies (note 29)
FVTPL -
held for trading
Loans and
receivables
Amortised
cost
Available-
for-sale
Total
carrying
amount Fair value
£m
£m
£m
£m
£m
£m
–
–
–
–
133.0
133.0
–
–
–
–
(150.8)
(150.8)
–
–
–
–
133.0
133.0
133.0
133.0
(150.8)
(150.8)
(150.8)
(150.8)
FVTPL -
held for trading
Loans and
receivables
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)
Items of income, expense, gains or losses – Group
All of the Group gains and losses arising from financial assets and liabilities classified as fair value through the profit and loss, held for
trading are included in net trading revenue for the year ended 31 May 2017 and 31 May 2016.
Details of finance income and finance costs are disclosed in notes 7 and 8 respectively.
Offsetting financial assets and liabilities
The following financial assets and liabilities have been offset on the Group’s Statement of Financial Position and are subject to enforceable
master netting agreements.
Group
As at 31 May 2017
Financial assets
Note
Trade receivables – due from brokers
16
Gross amounts of
recognised
financial assets
Gross amounts of
recognised financial
liabilities set off in the
balance sheet
Net amounts of financial
assets presented in the
balance sheet
£m
336.3
336.3
£m
(23.3)
(23.3)
£m
313.0
313.0
In the table above the financial derivative open positions have been presented gross in accordance with whether positions held at brokers
are in a profit or loss position, regardless of whether the Group had excess cash with each broker to meet the margin required.
Group
As at 31 May 2016
Financial assets
Note
Trade receivables – due from brokers
16
Gross amounts of
recognised
financial assets
Gross amounts of
recognised financial
liabilities set off in the
balance sheet
Net amounts of financial
assets presented in the
balance sheet
£m
260.0
260.0
£m
(14.5)
(14.5)
£m
245.5
245.5
31. Financial risk management
Financial risks arising from financial instruments are analysed into market, credit, concentration and liquidity risks. Details of how these risks
are managed are discussed in the risk management section on page 35.
Market risk
Market risk for accounting standards disclosure requirements is analysed into these categories:
• Market price risk – non-trading interest rate and price risk
• Foreign currency risk
Where applicable the quantified maximum exposures for the Group from each risk category are disclosed below:
Non-trading interest rate risk
The Group has interest rate risk relating to financial instruments on its Statement of Financial Position 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 at each year-end was as follows:
Group
Fixed rate:
Financial investments
Floating rate:
Cash and cash equivalents
T rade receivables – due from brokers
T rade payables – client funds held on balance sheet
Within 1 year
Between 2 and 5 years
Total
31 May 2017 31 May 2016 31 May 2017 31 May 2016 31 May 2017 31 May 2016
£m
£m
£m
£m
£m
£m
92.0
111.0
52.4
25.0
144.4
136.0
230.9
313.0
(117.1)
518.8
218.8
245.5
(39.0)
536.3
–
–
–
–
–
–
52.4
25.0
230.9
313.0
(117.1)
571.2
218.8
245.5
(39.0)
561.3
There are no financial assets and liabilities which are held for a period over 5 years.
Interest rate risk sensitivity analysis – non-traded interest (fixed rate)
Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The level of future fixed interest
receivable would be similar to that received in the year and is considered immaterial to the Group’s profit for the year. Refer to note 19.
Interest rate risk sensitivity analysis – non-traded interest (floating rate)
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 sensitivity has been performed on floating rate financial instruments by considering a 0.5% interest rate increase/decrease on
the financial assets and liabilities held the Statement of Financial Position date. The impact of such a movement on the Group’s profit for
the year is below.
Cash and cash equivalents
Trade receivables – due from brokers
Trade payables – client funds held on balance sheet
Impact
+/- 1.2
+/- 1.6
+/- 0.6
Year ended 31 May 2017
Cash and cash equivalents
Trade receivables – due from brokers
Trade payables – client funds held on balance sheet
Impact
+/- 1.1
+/- 1.2
+/- 0.2
The net impact of such a movement in interest rates is considered to be immaterial to the Group’s profit for the year. Refer to note 7 and 8.
Year ended 31 May 2016
126
127
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Price risk
The Group is exposed to investment securities price risk because financial investments held by the Group and classified on the Group’s
Statement of Financial Position as available-for sale are based on closing market prices published by the UK Debt Management Office.
The table below summarises the impact of increases/decreases in value of financial investments on the Group’s post-tax gain or loss on
equity. The analysis is based on the assumption that the value of financial investments have increased/decreased by 1% with all other
variables held constant:
Impact on available for sale reserve (equity)
(1.4)
(1.4)
Year ended 31 May 2017
Year ended 31 May 2016
The financial impact of such a movement in fair value is considered to be immaterial to the Group’s available for sale reserve.
Foreign currency risk
The Group faces foreign currency exposures on financial assets and liabilities denominated in currencies other than its functional currency.
The management of this risk is outlined in the risk management section on page 35. This exposure is hedged in the normal course
of business.
The table below illustrates the sensitivity of net trading revenue with regard to currency movements on financial assets and liabilities
denominated in currencies other than its functional currency (which are not held at fair value through profit and loss) as at the year-end.
Based on a 5% weakening in the following exchange rates, the effect on net trading revenue would be as follows:
Impact
Impact
US dollar
(4.3)
US dollar
(2.4)
Euro
(5.7)
Euro
(5.0)
Year ended 31 May 2017
Yen
(0.4)
South African rand
Swiss franc
(0.3)
(0.6)
Year ended 31 May 2016
Yen
(0.3)
South African rand
Swiss franc
–
(0.3)
Other
(0.3)
Other
(0.1)
Since the impact of foreign exchange rate movements is hedged, the Group would experience an opposite foreign exchange gain for the
losses above as a hedging gain, and vice versa.
Based on this analysis and the Group’s hedging model the net impact of foreign exchange rate movements is considered immaterial to the
Group’s net trading revenue.
The table below illustrates the sensitivity of the Group’s net assets with regard to currency movements on financial assets and liabilities
included in the balance sheets of non GBP functional currency entities which are denominated in the functional currency of that entity (and
which are not held at fair value through profit and loss) as at the year-end.
Based on a 5% weakening in the following exchange rates, the effect on the Group’s net assets would be as follows:
Impact
Impact
US dollar
(3.0)
US dollar
(1.5)
Euro
(1.5)
Euro
(0.3)
Year ended 31 May 2017
Yen
(1.0)
South African rand
Swiss franc
(0.3)
(0.5)
Year ended 31 May 2016
Yen
(0.8)
South African rand
Swiss franc
(0.4)
(0.6)
Other
(0.7)
Other
(2.6)
Since the impact of foreign exchange rate movements is hedged, the Group would experience an opposite foreign exchange gain for the
losses above as a hedging gain, and vice versa.
Based on this analysis and the Group’s hedging model the net impact of foreign exchange rate movements is considered immaterial to the
Group’s net trading revenue.
128
Credit risk
The principal sources of credit risk to our business are from financial institutions and individual clients.
• Financial institution credit risk
• Client credit risk
The analysis of neither past due nor impaired credit exposures in the following table excludes individual client funds held in segregated
client money accounts. Refer to section B, in the Other Information section, on page 140.
Cash and cash equivalents
Trade receivables – due from brokers
Trade receivables – due from clients
31 May 2017
31 May 2016
31 May 2017
31 May 2016
31 May 2017
31 May 2016
Group
£m
£m
£m
£m
Individually impaired
Gross exposure
Allowance for impairment
Past due but not impaired
Ageing profile:
0-3 months
N either past due
nor impaired
Credit rating:
AA+ & above
AA to AA-
A+ to A-
BBB+ to BBB-
BB+ to B
CCC
Unrated
Total carrying amount
–
–
–
–
–
42.4
7.0
156.7
24.0
0.2
–
0.6
230.9
230.9
–
–
–
–
–
12.9
6.1
147.0
52.4
–
–
0.4
218.8
218.8
–
–
–
–
–
–
49.7
178.4
69.0
–
–
15.9
313.0
313.0
–
–
–
–
–
–
16.9
149.5
73.9
–
–
5.2
245.5
245.5
£m
14.1
(13.9)
0.2
0.1
0.1
–
–
–
–
–
–
0.8
0.8
1.1
£m
18.8
(17.6)
1.2
0.4
0.4
–
–
–
–
–
–
0.6
0.6
2.2
Included in the unrated trade receivables – due from brokers is £11.9 million (31 May 2016: £3.2 million) of Bitcoin.
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:
31 May 2017
31 May 2016
Group
Balance at 1 June
Impairment loss for the year:
• Gross charge for the year
• Recoveries
Debts written off
Foreign exchange
Balance at 31 May
£m
17.6
6.2
(4.1)
(8.0)
2.2
13.9
The net impairment loss in the Income Statement during the year includes £0.9 million of debts written off.
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 29.
£m
21.7
4.0
(2.4)
(6.6)
0.9
17.6
129
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Concentration risk
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.
During the year the management structure of the Group was refined and the CODM now receives information from the business on a basis
different from previous years. Accordingly the comparative year has been restated. Refer to note 3.
Analysis of credit exposures at carrying amount by geographical segment are detailed below. These segments are disclosed based on how
the Group’s operations are managed as discussed in note 3:
Group
As at 31 May 2017
Financial assets:
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Own funds in client money
Total financial assets
Group
As at 31 May 2016 (restated)
Financial assets:
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Own funds in client money
Total financial assets
UK
£m
91.0
144.4
200.2
0.5
32.7
468.8
UK
£m
143.6
136.0
145.4
1.6
23.5
450.1
EMEA
£m
94.7
–
73.8
0.4
1.0
169.9
EMEA
£m
40.7
–
59.4
0.4
–
100.5
APAC
£m
9.1
–
39.0
0.2
9.7
58.0
APAC
£m
7.8
–
40.7
0.1
7.3
55.9
US
£m
36.1
–
–
–
–
36.1
US
£m
26.7
–
–
0.1
–
26.8
Total
£m
230.9
144.4
313.0
1.1
43.4
732.8
Total
£m
218.8
136.0
245.5
2.2
30.8
633.3
The Group’s largest credit exposure to any one individual broker at 31 May 2017 was £67.1 million (BBB+ rated) (2016: £52.2 million (BBB+
rated). Included in cash and cash equivalents, the Group’s largest credit exposure to any bank at 31 May 2017 was £69.4 million (A rated)
(2016: £79.4 million, A rated). The Group has no significant exposure to any one particular client or group of connected clients.
Liquidity risk
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 either counterparty can be required to
pay although the remaining contractual maturities may be longer.
Amounts payable on demand:
As at 31 May 2017
Financial assets:
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Trade receivables – own funds in client money
Financial liabilities:
Trade payables – client funds held on balance sheet
Trade payables – amounts due to clients
130
Derivative Non-derivative
£m
£m
–
–
(18.5)
–
–
(18.5)
–
–
–
230.9
144.4
331.5
1.1
43.4
751.3
(117.1)
(0.2)
(117.3)
Total
£m
230.9
144.4
313.0
1.1
43.4
732.8
(117.1)
(0.2)
(117.3)
Amounts payable on demand:
As at 31 May 2016
Financial assets:
Cash and cash equivalents
Financial investments
Trade receivables – due from brokers
Trade receivables – due from clients
Trade receivables – own funds in client money
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)
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 2017 and 2016, as
disclosed in note 23.
Derivative and non-derivative cash flows by remaining contractual maturity – Company
There were no Company derivative cash flows as at 31 May 2017 (2016: £nil).
At 31 May 2017 the Company held cash and cash equivalents of £nil (2016: £nil) available on demand and redeemable preference shares of
£40,000 (2016: £40,000), the terms of which are disclosed in note 23.
32. Subsequent events
In June 2017 the Group renewed its £160.0 million revolving credit facility from a syndicate of four UK banks. This facility has two tranches,
a £100.0 million tranche available for up to a 1 year term (with an option to extend for a further year) and a £60.0 million tranche available
for up to 3 years.
A final dividend of 22.88p per share amounting to £83.9 million was proposed by the Board on 18 July 2017.
33. 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 2017
were authorised for issue by the Board of Directors on 18 July 2017 and the Statements of Financial Position signed on the Board’s behalf
by Paul Mainwaring. IG Group Holdings plc is a public limited company that is listed on the London Stock Exchange and incorporated and
domiciled in England and Wales. The Company’s registered address is 25 Dowgate Hill, London, United Kingdom, EC4R 2YA.
The Group’s Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU) and with the Companies Act 2006 applicable to companies reporting under IFRS. The 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 instruments) at fair value through profit or loss.
The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgment or complexity, or areas where assumptions and estimates are significant to the consolidated Financial Statements are disclosed in
note 1.
34. Accounting policies
Basis of preparation
The accounting policies which follow have been applied in preparing the Financial Statements for the year ended 31 May 2017.
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 loss for the year dealt with in the Financial Statements
of IG Group Holdings plc is £1.1 million (2016: profit for the year of £124.0 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
(2016: £nil).
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 2016.
131
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued New accounting standards and interpretations - standards
and amendments adopted during the year
No new standards, amendments or interpretations, effective for the
first time for the financial year beginning on or after 1 June 2016
have had a material impact on the Group or parent Company.
Standards not yet adopted, but expected to
have significant impact on the Financial Statements
when adopted:
•
•
•
IFRS 9, ‘Financial instruments’ – effective for annual periods
beginning on or after 1 January 2018
IFRS 15, ‘Revenue from contracts with customers’ – effective for
annual periods beginning on or after 1 January 2018
IFRS 16, ‘Leases’ – effective for annual periods beginning on or
after 1 January 2019
The impact of these standards on the Financial Statements is being
assessed by the Group but we do expect an impact on the level
of disclosure.
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.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated Income Statement from the
effective date of acquisition or up to the effective date of disposal,
as appropriate.
Where necessary, adjustments are made to the Financial Statements
of subsidiaries to bring the accounting policies used into line with
those used by other members of the Group.
(b) Non-controlling interests
Where the Group and a non-controlling shareholder enter into a
forward contract 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.
Basis of consolidation
(a) Subsidiaries
The Group Financial Statements consolidate the Financial
Statements of IG Group Holdings plc and the entities it controls (its
subsidiaries) made up to the reporting date as listed on page 138.
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.
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.
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.
Segmental 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 is 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.
Foreign currencies
The functional currency of each Company in the Group is that of
the country of incorporation (as disclosed in note 35) 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.
Use of non-GAAP measures and exceptional items
The Group believes that, where applicable, 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.
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.
Other non-GAAP measures used in these Financial Statements are
capital resources (refer to page 142) and own funds generated from
operations (refer to page 141).
Revenue recognition
Trading revenue includes revenue arising from each of the Group’s
four revenue generation models: OTC Leveraged Derivatives,
Exchange Traded Derivatives, Share Dealing, and Investments.
OTC leveraged derivatives
Revenue from the OTC leveraged derivatives business represents:
(i) Fees paid by clients for spread, commission and funding charges
in respect of the opening, holding and closing of financial spread
bets, contracts for difference or options contracts, together
with gains and losses for the Group arising on client trading
activity; less
(ii) Fees paid by the Group in spread, commissions and funding
charges arising in respect of hedging the risk associated with
the client trading activity and the Group’s currency exposures,
together with gains and losses incurred by the Group arising on
hedging activity
Open client and hedging positions are fair valued on a daily basis
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 are disclosed in note 30,
Financial Instruments.
Exchange-traded derivatives
Revenue from exchange-traded derivatives represents fees paid by
members of the Group’s regulated futures and options exchange,
with members of the exchange charged a fee per transaction
undertaken, together with gains and losses incurred by the Group
arising on its market making activity on the exchange.
Share dealing
Revenue from Share Dealing represents commission earned
from 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.
Investments
Revenue from Investments represents management fees, which are
earned as a percentage of assets under management. These are
recognised over the period in which the service is provided.
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. Revenue is shown net of value
added tax after eliminating sales within the Group.
Trading revenue is reported before introducing partner commission,
along with betting duties and financial transaction taxes paid, which
are disclosed as an expense in arriving at net operating income.
Net trading revenue, disclosed on the face of the Consolidated
Income Statement and in the notes to the Financial Statements,
represents trading revenue after taking account of introducing
partner commission as this is consistent with the management
information received by the Chief Operating Decision Maker.
Income received from clients for market data such as chart fees
and income received from charging clients for funding using debit
and credit cards are netted within operating costs as the amounts
involved are not considered material.
132
133
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Finance income and costs on segregated client funds
Interest income or expense 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 flows on the
carrying amount of the asset/liability. Issue costs are included in the
determination of the effective interest rates.
Interest income and interest expense on segregated client funds are
disclosed within operating profit, as this is consistent with the nature
of the Group’s operations.
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.
Dividends receivable are recognised when the shareholder’s right to
receive the payment is established.
Employee benefits
(a) Pension obligations
The Group operates defined contribution schemes. Contributions
are charged to the Income Statement as and when they become
payable according to the rules of the schemes. Once the
contributions have been paid the Group has no legal or constructive
obligations to pay further contributions.
(b) Bonus schemes
The Group recognises a liability and an expense for bonuses based
on formulae that take into consideration the revenue or earnings
attributable to the Group’s shareholders after certain adjustments
and also based on operational non-financial measures.
(c) Termination benefits
Termination benefits are payable when an employment contract
is terminated by the Group. The Group recognises termination
benefits when the Group can no longer withdraw the offer of
those benefits.
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.
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.
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.
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.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation
and accumulated impairment losses.
Intangible assets acquired separately from a business are carried
initially at cost. An intangible asset acquired as part of a business
combination such as a trade name or customer relationship is
recognised at fair value outside goodwill if the asset is separable
or arises from contractual or other legal rights and its fair value
can be measured reliably. Expenditure on internally developed
intangible assets, excluding development costs, is taken to the
Income Statement in the year in which it is incurred. Development
expenditure is recognised as an intangible asset only after all the
following criteria are met:
• The project’s technical feasibility and commercial viability can
be demonstrated
• The availability of adequate technical and financial resources and
an intention to complete the project have been confirmed
• The correlation between development costs and future revenue
has been established
Following initial recognition, intangible assets are 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
Straight-line basis over 3 years
Software and licences
Straight-line basis over the contract
term of up to 5 years
Trade names
Straight-line basis over 2 years
Client lists and
customer relationships
Domain names and
generic top-level domains
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.
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.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less accumulated
impairment losses.
134
135
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Financial instruments
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 30 to the Financial Statements.
(a) Financial assets and financial liabilities at fair value through profit
or loss
Financial assets and financial liabilities classified as held for trading,
or designated as such on inception, are included in this category
and relate to the financial derivative open positions included in
trade receivables – due from brokers and trade payables – due to
clients as shown in the Statement of Financial Position and related
notes. Financial instruments are classified as held for trading if they
are expected to settle in the short-term. The Group uses derivative
financial instruments, in order to hedge derivative exposures
arising from open client positions, which are also classified as held
for trading.
All financial instruments at fair value through profit or loss are
carried in the Statement of Financial Position at fair value with
gains or losses recognised in revenue in the Consolidated
Income Statement.
Determination of fair value
Financial instruments arising from open client positions and the
Group’s hedging positions are stated at fair value and disclosed
according to the valuation hierarchy required by IFRS 7. Fair values
are predominantly determined by reference to third party market
values (bid prices for long positions and offer prices for short
positions) as detailed below:
Level 1: Valued using unadjusted quoted prices in active markets
for identical financial instruments.
Level 2: Valued using techniques where a price is derived based
significantly on observable market data. For example,
where an active market for an identical financial instrument
to the product offered by the Group to its clients or used
by the Group to hedge its market risk does not exist.
Level 3: Valued using techniques that incorporate information
other than observable market data that is significant to the
overall valuation.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater
than 12 months after the end of the reporting period. These are
classified as non-current assets. The Group’s loans and receivables
comprise ‘trade receivables’, ‘cash and cash equivalents’ and ‘trade
payable - amounts due to title transfer clients’.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any other categories.
They are included in non-current assets unless the investment
matures or management intend to dispose of it within 12 months
of the end of the reporting period. The Group’s available-for-sale
assets comprise of ‘financial investments’.
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.
Trade receivables and trade payables
Offsetting financial instruments
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 offset and the net amount reported in the balance sheet when
there is a legally enforceable right to offset the recognised amounts
and there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable right
must not be contingent on future events and must be enforceable
in the normal course of business and in the event of default,
insolvency or bankruptcy of the Group or the counterparty.
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.
Bitcoins
The Group offers Bitcoin as a product that can be traded on its
platform. The Group normally would hedge its clients’ trading
positions with its brokers. However, as its brokers do not offer
Bitcoin as a hedging product, the Group purchases and sells
Bitcoins to hedge the clients’ positions.
At present there is a lack of guidance in IFRS on how
cryptocurrencies such as Bitcoin should be accounted for and
subsequently disclosed. This product is used in a similar manner
to using broking counterparties for hedging purposes and not
held with a view to making a profit or loss for the Group. Whilst it
does not strictly meet the definition of a financial asset we have
accounted for the Bitcoin as a financial asset and disclosed the
Bitcoin values within ‘amounts due from brokers’ as Bitcoin is used
in a similar manner to the financial assets held with our brokers.
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.
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 the other information section on page 140. 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 17).
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.
Other payables
Non-trading financial liabilities are recognised initially at fair value
and carried at amortised cost using the effective interest rate
method if the time value of money is significant.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable that
an outflow of resources will be required to settle the obligation; and
the amount can be reliably estimated.
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.
Share capital
(a) Classification of shares as debt or equity
When shares are issued, any component that creates a financial
liability of the Group is presented as a liability in the Statement of
Financial Position; measured initially at fair value net of transaction
costs and thereafter at amortised cost until extinguished on
conversion or redemption. The corresponding dividends relating
to the liability component are charged as interest expense in the
Income Statement.
136
137
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs. Equity instruments are classified
according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its liabilities.
(b) Own shares held in Employee Benefit Trusts
Shares held in trust by the Company for the purposes of employee share schemes are classified as a deduction from shareholders’ equity
and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between
the proceeds from the sale and the original cost being taken to reserves. No gain or loss is recognised in the Income Statement on the
purchase, sale, issue or cancellation of equity shares.
(c) Share-based payments
The Company operates three employee share plans: a share-incentive plan, a sustained performance plan and a long-term incentive plan.
Previously the 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.
35. List of investments in subsidiaries
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
Market Data Limited
IG Nominees Limited
IG Knowhow Limited
Extrabet Limited
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
Financial Domaigns Limited
Financial Domaigns Registry Holdings Limited
Financial Domaigns Registrar Limited
Financial Domaigns (Services) Limited
DotSpreadbetting Registry Limited
138
Registered office and
country of incorporation
Holding
Voting
rights Nature of business
Cannon Bridge House,
25 Dowgate Hill, London, EC4R 2YA
United Kingdom
Cannon Bridge House,
25 Dowgate Hill, London, EC4R 2YA
United Kingdom
Ordinary shares
100% Holding Company
Ordinary shares
100% Spread betting
Ordinary shares
100% CFD trading, foreign exchange
and market risk management
Ordinary shares
100% CFD trading
Ordinary shares
100% Data distribution
Ordinary shares
100% Nominee company
Ordinary shares
100% Software development
Ordinary shares
100% Non-trading
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Financing
Ordinary shares
100% Holding company
Ordinary shares
100% Holding company
Ordinary shares
100% Domains registrar
Ordinary shares
100% Domains registry
Ordinary shares
100% Domains registry
Name of Company
DotMarkets Registry Limited
DotTrading Registry Limited
DotCFD Registry Limited
DotBroker Registry Limited
DotForex Registry Limited
Deal City Limited
InvestYourWay Ltd.
IG Australia Pty Limited
IG Share Trading Australia Pty Limited
IG Asia Pte Limited
Kunxin Translation (Shenzhen) Co. Limited
IG Securities Limited
FXOnline Japan Co. Limited
IG Bank S.A.
IG Infotech (India) Private Limited
IG US Holdings Inc.
North American Derivatives Exchange Inc.
Market Risk Management Inc.
Broker Connect Inc.
FX Publications Inc
Nadex Domains Inc.
Tower Three Capital Inc.
Hedgestreet Securities Inc.
Nadex Clearing LLC
Fox Sub Limited
Fox Sub Two Limited
Fox Japan Holdings
IG Limited
IG Services Limited
Morriston Investments Limited
Registered office and
country of incorporation
Holding
Voting
rights Nature of business
Level 15, 55 Collins Street, Melbourne
VIC 3000, Australia
9 Battery Road, #01-02 MYP Centre,
049910, Singapore
Tower 3, Kerry Plaza, No.1 Zhong Xin
Si Road, Futian District, Shenzhen
518048, P.R. China
Shiodome City Centre, 1-5-2
Higashi-Shinbashi, Minato-ku, Tokyo,
105-7110, Japan
42 Rue du Rhone, Geneve, 1204
Switzerland
Infinity, 2nd Floor, Katha No 436,
Survey No 13/1B, 12/2B, Challagatta
Village, Bangalore, 560071, India
2711 Centreville Road, Suite 400,
Wilmington, Delaware, 19808,
United States
Ordinary shares
100% Domains registry
Ordinary shares
100% Domains registry
Ordinary shares
100% Domains registry
Ordinary shares
100% Domains registry
Ordinary shares
100% Domains registry
Ordinary shares
100% Software development
Ordinary shares
100% Non-trading
Ordinary shares
100% Sales and marketing office
Ordinary shares
100% Share dealing
Ordinary shares
100% CFD trading and foreign exchange
Ordinary shares
100% Translation services
Ordinary shares
100% CFD trading and foreign exchange
Ordinary shares
100% Non-trading
Ordinary shares
100% CFD trading and foreign exchange
Ordinary shares
100% Software development
Ordinary shares
100% Holding company
Ordinary shares
100% Exchange
Ordinary shares
100% Market maker
Ordinary shares
100% Software development
Ordinary shares
100% Publications
Ordinary shares
100% Domains registry
Ordinary shares
100% Non-trading
Ordinary shares
100% Non-trading
Ordinary shares
100% Non-trading
57/63 Line Wall Road, Gibraltar
Ordinary shares
100% Financing
Office2 &3, level 27, Currency House-
Tower 2, Dubai International Financial
Centre, P O Box - 506968 Dubai,
United Arab Emirates
Christodoulou Chatzipavlou,
221 Helios Court, 3rd floor
3036, Limassol, Cyprus
Ordinary shares
100% Financing
Ordinary shares
100% Holding Company
Ordinary shares
100% CFD trading and foreign exchange
Ordinary shares
100% Intra-Group corporate services
Ordinary shares
100% Non-trading
The following UK entities, all of which are 100% owned by the Group, are not subject to an audit by virtue of s479A of the Companies Act
2006 relating to subsidiary companies: IG Finance 5 Limited (06752558), IG Finance 9 Limited (07306407), 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), InvestYourWay Limited (07081901) and Deal City Limited (09635230).
The following UK entities, all of which are 100% owned by the Group, are exempt from the requirement to prepare individual accounts by
virtue of s394A of the Companies Act 2006 relating to the individual accounts of dormant subsidiaries: IG Nominees Limited (04371444),
IG Finance (05024562), IG Finance Two (05137194), IG Finance Three (05297886), IG Finance Four (05312015), IG Spread Betting Limited
(06806588), IG Finance 8 Limited (06807656), Extrabet Limited (04560348) and IG Forex Limited (06808361).
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)
139
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statementsNOTES TO THE FINANCIAL STATEMENTS continued OTHER INFORMATION (UNAUDITED)
The following supplemental notes provide additional analysis to aid the readers understanding of the Financial Statements:
(c) Own funds
(a) Balance sheet
Intangible assets arising on acquisition
Other intangible assets
Property plant and equipment
Fixed assets
Liquid assets buffer
Amounts held at/due from brokers
Cash in IG bank accounts
Own funds in client money
Liquid assets
Client funds on balance sheet
Own funds
Working capital
Tax payable
Deferred tax assets
Net assets/shareholders’ funds
31 May 2017
31 May 2016
£m
108.1
48.6
17.4
174.1
81.2
376.1
230.9
43.2
731.4
(117.1)
614.3
(49.1)
(13.1)
9.1
735.3
£m
107.1
18.0
13.0
138.1
82.6
298.9
218.8
26.4
626.7
(39.0)
587.7
(56.2)
(13.8)
7.2
663.0
(b) Client funds and assets
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.
Group
Segregated client funds
Segregated client assets
Total segregated client funds and assets
31 May 2017
31 May 2016
£m
1,215.3
499.8
1,715.1
£m
917.3
177.8
1,095.1
In addition, the Group’s Swiss banking subsidiary, IG Bank SA, is required to protect customer deposits under the FINMA Privileged Deposit
Scheme. At 31 May 2017, IG Bank SA was required to hold £16.5 million (31 May 2016: £7.0 million) in satisfaction of this requirement. This
amount is included in cash and cash equivalents on the Statement of Financial Position.
Own funds flow:
Operating profit
Depreciation and amortisation
Share-based payments
Movement in working capital
Own funds generated from operations
Income tax paid
Net own funds generated from operating activities
Interest received
Interest paid
Purchase of DailyFX
Purchase of other capital expenditure
Purchase of own shares
Net own funds generated before dividends
Dividends
Increase in own funds
Own funds at start of the year
Impact of movement in foreign exchange rates
Own funds at end of the year
(d) Liquidity
Liquid assets
Broker margin requirement
Non-UK liquid assets
Own funds in client money
Total available liquidity at the end of the year
Of which is:
Held as liquid asset buffer
Final dividend due
Additional sources of liquidity
• Undrawn committed RCF
31 May 2017
31 May 2016
£m
£m
213.4
16.4
7.7
(8.3)
229.2
(45.3)
183.9
2.0
(1.4)
(29.8)
(17.1)
(1.1)
136.5
(118.7)
17.8
587.7
8.8
614.3
207.6
12.7
7.0
12.5
239.8
(42.5)
197.3
1.1
(1.3)
-
(13.7)
(1.0)
182.4
(103.1)
79.3
507.1
1.3
587.7
31 May 2017
31 May 2016
£m
731.4
(356.3)
(134.6)
(43.2)
197.3
81.2
83.9
£m
626.7
(227.6)
(64.3)
(26.4)
308.4
82.6
84.1
160.0
160.0
140
141
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements OTHER INFORMATION (UNAUDITED) continued
(e) Regulatory capital
Group consolidated capital resources (audited)
Shareholders’ funds
Less foreseeable declared dividends
Less acquisition intangibles
Less other intangible assets
Less deferred tax assets
Capital resources (audited)
Group consolidated capital requirement (unaudited)
Capital resources
Pillar 1 Risk Exposure Amounts (REA)
Total Pillar 1 REA
Capital ratio
Required capital ratio
Pillar 1 minimum
Individual Capital Guidance (ICG)
ICG requirement
plus combined buffer requirement
Total requirement %
Total requirement - £m
Capital headroom - £m
31 May 2017
31 May 2016
£m
735.3
(83.9)
(108.1)
(48.6)
(9.1)
485.6
£m
663.0
(84.0)
(107.1)
(18.0)
(7.2)
446.7
485.6
446.7
1,817.3
26.7%
1,568.4
28.5%
8.0%
9.4%
17.4%
1.3%
18.7%
339.8
145.7
8.0%
5.0%
13.0%
0.6%
13.6%
213.3
233.4
A
A
B
A/B=C
D
E
D + E = F
G
F+G =H
H x B = I
A - I
The Group is required to hold a minimum amount of regulatory capital in accordance with the Individual Capital Guidance (‘ICG’)
periodically determined by the FCA based on their supervisory review and evaluation process (‘SREP’) of the Group, plus an amount equal
to the higher of the internally calculated Capital Planning Buffer and the combination of the Conservation and Countercyclical buffers. The
FCA determine the ICG following review of the Group’s Internal Capital Adequacy Assessment Process through which the Group calculates
the amount of capital that should be held against specific firm risks, in addition to the Pillar 1 requirements.
The FCA last undertook a SREP of IG Group in the first half of calendar year 2016, and advised the Board of the level of capital the Group
is required to hold in August 2016. The ICG advised in August 2016 replaced the ICG advised to the Board in May 2013. The FCA plan to
carry out their next SREP around August 2019.
The Group’s total capital ratio and its minimum capital requirements are expressed as a percentage, calculated as capital resources divided
by the Pillar 1 Risk Exposure Amounts in accordance with CRD IV rules.
The ICG advised by the FCA in August 2016 requires the Group to hold capital in addition to the Pillar 1 minimum equal to 9.4% of the
Pillar 1 Risk Exposure Amounts. The previous ICG required the Group to hold capital in addition to the Pillar 1 minimum equal to 5.0% of
the Pillar 1 Risk Exposure Amounts. The increase in the ICG primarily reflects an increase in the level of market risk that will be faced by the
Group as a result of the increasing take up of Limited Risk Accounts, and includes a scalar (at 5% of the minimum requirements) to reflect
‘unsighted’ risks the Group may face following the launch of IG Investments.
The required minimum capital ratio at 31 May 2017 was 18.7%, including the effect of the Capital Conservation Buffer, which the
Bank of England raised on 1 January 2017 to 1.25% in line with the transitional provisions laid out by the FCA in IFPRU TP 7.
The Group’s Total Capital Ratio, using the balance sheet of the Group as at 31 May 2017 including the profit for the financial year,
was 26.7%.
(f) Segmental tax information
The segmental analysis in note 3 reflects the information reviewed by the Executive Directors for the purposes of allocating resources and
assessing performance. Net trading revenue from OTC leveraged derivatives is reported by segment reflecting the location of the office
that manages the underlying client relationship and represents an allocation of the net trading revenue that the Group generates from
clients’ trading activity. This does not reflect the statutory revenue or costs recorded in individual legal entities and branches which is the
basis for the determination of taxable profit.
With the exception of South Africa, where the local office hedges the market risk arising from clients’ trading in onshore products, all the
local offices and branches hedge the market risk arising from their clients’ activities in OTC leveraged derivatives with a legal entity in the
UK, on a back to back basis, and as result report nil net trading revenue from OTC leveraged derivatives in their statutory accounts.
Revenue and profit reported in the statutory accounts of legal entities and branches reflect the transfer pricing arrangements in place, which
change from time to time reflecting the commercial and operational circumstances of the individual legal entity or branch, and changes in
tax legislation. These arrangements mean that the majority of the Group’s profit is taxed in the UK, reflecting the fact that majority of the
business value is created through the trading platform developed and maintained in the UK, and through the internalisation of global client
flows in the UK.
The table below sets out the statutory profit before tax, and tax charge, reported by the legal entities and branches in each of the
geographic segments in order to explain the make-up of the Group’s tax charge by region.
Year ended 31 May 2017
Profit before tax
Current tax charge
Deferred tax charge
Tax charge
Effective tax rate
Year ended 31 May 2016
Profit before tax
Current tax charge
Deferred tax charge
Tax charge
Effective tax rate
(g) Five-year summary
Group Income Statement
For the year ended 31 May
Net trading revenue
Other operating (loss)/income
Net operating income
Operating expenses
D epreciation, amortisation and amounts written
off in property, plant and equipment
Operating profit
Finance income
Finance costs
Profit before tax
Tax expense
Profit for the year
Other metrics
UK
£m
197.7
(42.5)
(1.4)
(43.9)
22.2%
UK
£m
197.6
(40.6)
0.5
(40.1)
20.3%
2017
£m
491.1
(1.6)
489.5
(259.7)
(16.4)
213.4
1.7
(1.4)
213.7
(44.5)
169.2
EMEA
APAC
£m
10.6
(1.8)
–
(1.8)
17.0%
£m
6.6
(1.4)
1.2
(0.2)
3.0%
EMEA
APAC
£m
7.1
(1.9)
–
(1.9)
£m
7.0
(1.1)
(0.5)
(1.6)
US
£m
(1.2)
–
1.4
1.4
(116.7)%
US
£m
(3.8)
–
–
–
26.8%
22.9%
0.0%
2016
£m
456.3
(7.2)
449.1
(228.8)
(12.7)
207.6
2.0
(1.7)
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
(37.6)
131.9
2014
£m
370.4
3.8
374.2
(169.1)
(9.7)
195.4
1.5
(2.0)
194.9
(47.7)
147.2
Total
£m
213.7
(45.7)
1.2
(44.5)
20.8%
Total
£m
207.9
(43.6)
–
(43.6)
21%
2013
£m
361.9
6.1
368.0
(163.8)
(12.2)
192.0
2.0
(1.8)
192.2
(50.5)
141.7
Net own funds generated from operations
£183.9m
£197.3m
£136.8m
£160.6m
£154.3m
2017
2016
2015
2014
2013
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
46.2p
45.9p
9.42p
22.88p
32.30p
70.4%
44.9p
44.6p
8.45p
22.95p
31.40p
70.4%
36.1p
36.0p
8.45p
19.70p
28.15p
78.2%
40.4p
40.2p
5.75p
22.40p
28.15p
70.0%
39.0p
38.8p
5.75p
17.50p
23.25p
59.9%
43.51%
45.56%
43.64%
52.61%
53.10%
142
143
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements OTHER INFORMATION (UNAUDITED) continued
SHAREHOLDER AND COMPANY INFORMATION
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 equivalent
Financial investments
Total assets
Liabilities
Current liabilities
Trade payables
Other payables
Income tax payable
Non current liabilities
Redeemable preference shares
Total liabilities
Capital and reserves
Total shareholders' equity
Total equity
Total equity and liabilities
2017
£m
17.4
156.7
52.4
9.1
235.6
357.5
12.2
230.9
92.0
692.6
928.2
117.3
62.5
13.1
192.9
–
–
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
£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
–
–
2013
£m
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
–
–
192.9
128.0
92.0
100.6
97.1
735.3
735.3
928.2
663.0
663.0
791.0
591.4
591.4
683.4
565.9
565.9
666.5
507.0
507.0
604.1
The financial year 2014 has been restated following the adoption of IFRIC 21. Please refer to note 38 in the 2015 Annual Report. The
financial year 2013 has not been restated following the adoption of IFRIC 21 on a materiality basis.
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 under
Company Information to the right. You can also change your
communication method back to post by logging in to your Investor
Centre account and going 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.
Directors
Executive Directors
P G Hetherington (Chief Executive Officer)
P Mainwaring (Chief Financial Officer)
Non-Executive Directors
A J Green (Chairman)
S G Hill
J Felix
J A Newman
M Le May (Senior Independent Director)
S J Tymms
Company Secretary
T Lee
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
7 More London Riverside
London, SE1 2RT
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.
Bankers
Lloyds Banking Group plc
10 Gresham Street
London
EC2V 7AE
HSBC Bank plc
8 Canada Square
London
E14 5HQ
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
Last day to elect for dividend
reinvestment plan
Annual General Meeting
Final dividend payment date
2018 interim dividend
28 September 2017
29 September 2017
6 October 2017
21 September 2017
27 October 2017
February 2018
Annual shareholder calendar(1)
Company reporting
Final results announced
Annual Report published
Annual General Meeting
18 July 2017
11 August 2017
21 September 2017
Interim report
As part of our e-comms programme, we have decided not to
produce a printed copy of our Interim Report. We will instead
publish the report on our website, where it will be available around
mid-January each year.
(1) Please note that these dates are provisional and subject to change.
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
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
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
144
145
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements
SHAREHOLDER AND COMPANY INFORMATION
continued
GLOBAL OFFICES
CAUTIONARY STATEMENT
Certain statements included in our 2017 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 Australia CFD Report,
released in June 2016
Investment Trends France CFD/FX Report,
released in May 2016
Investment Trends Spain CFD/FX Report,
released in May 2017
Investment Trends Germany CFD/FX Report,
released in May 2017
Investment Trends Singapore CFD/FX Report,
released in November 2016
Investment Trends UK Leveraged Trading Report,
released in October 2016
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
MIDDLE EAST
Dubai
IG Limited
Office 2702 &2703, level 27
Currency House- Tower 2
Dubai International Financial Centre
P O Box – 506968
DUBAI, UAE
+971 45 59 2100
helpdesk.ae@ig.com
IG.com/ae
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
Geneva
IG Bank S.A
42 Rue du Rhone
Geneve
1204
SWITZERLAND
+41 22 888 10 02
support.ch@ig.com
IG.com/en-ch
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
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 MYP Centre
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
146
147
| IG Group Holdings plc • Annual Report 2017IG Group Holdings plc • Annual Report 2017 |Company overviewStrategic reportCorporate Governance reportFinancial statements 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
I
G
G
r
o
u
p
H
o
l
d
i
n
g
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
7