How To Sell An Investment Bank

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1 RESULTS PRESENTATION Half year ended 30 November 2013 IG H1 FY14 RESULTS PRESENTATION P1

2 DISCLAIMER This presentation, prepared by IG Group Holdings plc (the Company ), may contain forward-looking statements about the Company. Forward-looking statements involve uncertainties because they relate to events, and depend on circumstances, that will, or may, occur in the future. If the assumptions on which the Company bases its forward-looking statements change, actual results may differ from those expressed in such statements. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update these forward-looking statements. Nothing in this presentation should be construed as a profit forecast. The financial tables contained herein may contain numbers which have been subject to rounding adjustments, and which therefore differ from the equivalent numbers contained in the Financial Statements. Unless otherwise stated, all numbers exclude the discontinued Sport business. FY14 relates to the financial year ending 31 st May Market share data has been provided by Investment Trends Pty Limited (website: Contact: Pawel Rokicki ( [email protected]). Unless stated, market share data is sourced from the following current reports: Investment Trends August 2013 Australia CFD Report Investment Trends February 2013 Australia FX Report Investment Trends May 2013 France CFD/FX Report Investment Trends May 2013 Germany CFD/FX Report Investment Trends November 2013 Singapore CFD/FX Report Investment Trends December 2013 UK Leveraged Trading Report IG H1 FY14 RESULTS PRESENTATION P2

3 THANK YOU FINANCIAL REVIEW IG H1 FY14 RESULTS PRESENTATION P3

4 PBT ( m) Revenue ( m) H1 FY14 SUMMARY Strong year on year growth against weak comparatives H1 FY14 RESULTS 5 YEAR REVENUE AND PBT 1 Net trading revenue 182.7m, up 8.1% PBT 95.1m, up 17.3% Diluted EPS 19.63p, up 22.4% 79.1m own funds generated from operations Interim dividend per share flat at 5.75p H2 Revenue H1 Revenue FY10 FY11 FY12 FY13 FY H2 PBT H1 PBT FY10 FY11 FY12 FY13 FY14 1. Results pre FY11 include the discontinued Sport operation IG H1 FY14 RESULTS PRESENTATION P4

5 INCOME STATEMENT PBT growth reflects higher revenue and lower costs YEAR ON YEAR COMPARISON H1 FY14 H1 FY13 Yr on Yr FY13 m m m Net trading revenue % Betting duty & FTT (1.3) (1.3) (5.2) Other net operating income Net operating income % Operating costs (84.9) (86.6) (1.9%) (163.8) Depreciation and amortisation (5.1) (5.7) (12.2) Net interest (0.2) PBT % Margin % 48.0% 53.1% Diluted EPS 19.63p 16.04p 22.4% 38.80p Dividend per share 5.75p 5.75p 23.25p Net trading revenue up 8.1% on H1 FY13 Active clients down 4.5% Revenue per client up13.3% Net operating income 7.1% higher Betting duty flat Interest on client funds down 1.9m (40%) reflecting lower rates in Australia and UK Operating costs 1.9% lower ( 1.7m) H2 will be up on H1 1. Net trading revenue excludes interest on client funds and is presented net of introducing partner commissions 2. PBT as a percentage of net trading revenue IG H1 FY14 RESULTS PRESENTATION P5

6 Revenue ( m) REVENUE BRIDGE Revenue continues to reflect the market backdrop REVENUE BRIDGE (12.9) (9.4) (15.3) (12.7) (18.1) Existing clients not trading are clients who traded in the previous half year but not in the current half year. New clients are clients trading for the first time in the current half year. IG H1 FY14 RESULTS PRESENTATION P6

7 Revenue per Client ( ) Revenue ( m) Clients (000s) ACTIVE CLIENTS H1 FY14 revenue growth driven by ongoing revenue per client uplift YEAR ON YEAR REVENUE AND CLIENTS REVENUE AND CLIENT TREND Revenue ( m) H1 FY14 H1 FY13 Yr on Yr % UK % Australia (4.3%) Europe % Rest of World % Total % Revenue Active clients Clients (000s) 1 H1 FY14 H1 FY13 Yr on Yr % UK (9.1%) Australia (2.7%) Europe % Rest of World (3.4%) Total (4.5%) 20 HALF YEARLY AVERAGE REVENUE PER CLIENT UK Australia Europe Total excl. Japan 2, ,000 1,750 1,500 H1 FY12 H2 FY12 H1 FY13 H2 FY13 H1 FY14 1. Unique clients trading in each half year IG H1 FY14 RESULTS PRESENTATION P7

8 Revenue ( m) REVENUE COMPOSITION Broad product offering provides greater stability REVENUE BY PRODUCT H1 FY14 REVENUE COMPOSITION Equity indices Commodities 6% (6%) Binaries 6% (6%) Shares 19% (17%) Forex Shares Commodities Binaries Forex 23% (24%) Equity indices 46% (47%) 1. H1 FY13 in brackets IG H1 FY14 RESULTS PRESENTATION P8

9 Revenue ( m) Coefficient Count of Days DAILY REVENUE TREND IG s hedging model aligns revenue to trading volumes DAILY REVENUE VOLATILITY TREND H1 FY14 REVENUE DISTRIBUTION Daily revenue (60 day rolling average) Revenue volatility (60 day rolling coefficient of variability) m 1.0m 2.0m 3.0m Daily mean 1.40m (FY13 H1 1.27m) Revenue ( m) 0 IG H1 FY14 RESULTS PRESENTATION P9

10 Operating costs ( m) OPERATING COST BRIDGE Like for like cost increase H1 FY13 H1 FY14 OPERATING COSTS BRIDGE 90 Operating costs 1.9% lower ( 1.7m) 88 (4.6) 3.5% like for like cost increase (0.6) (1.1) Excluding 4.6m one-offs in H1 FY13 Points to note: Year on year increase in variable remuneration Marketing spend weighted to H2 IG H1 FY14 RESULTS PRESENTATION P10

11 OPERATING COST DETAIL Costs remain tightly controlled but higher FY spend forecast YEAR ON YEAR COMPARISON H1 FY14 H1 FY13 H2 FY13 FY13 m m m m Salaries 1 (31.2) (33.0) (31.6) (64.6) Advertising and Marketing 1 (15.4) (17.5) (15.1) (32.6) IT, Market Data and Communications (6.5) (6.0) (6.2) (12.2) Premises related costs (4.9) (5.0) (5.2) (10.2) Regulatory fees (4.2) (3.9) (2.5) (6.4) Legal and Professional fees 1 (2.1) (4.4) (0.4) (4.8) Doubtful debts (charge) / credit (1.2) Sales taxes (3.9) (4.3) (4.4) (8.7) Other overheads (2.2) (2.2) (0.8) (3.0) Excl variable remuneration (71.6) (76.2) (65.9) (142.1) Bonus (9.5) (8.0) (9.3) (17.3) Share schemes (3.8) (2.4) (2.0) (4.4) Total Operating costs (84.9) (86.6) (77.2) (163.8) Investment to increase in H2 New roles Switzerland Marketing phasing 1. H1 FY13 include one-offs identified in the operating cost bridge on slide 10 IG H1 FY14 RESULTS PRESENTATION P11

12 NET OWN CASH AVAILABLE 79.1m own funds generated from operations NET OWN CASH AVAILABLE 1 APPLICATION OF OWN CASH AVAILABLE 1 H1 FY14 H1 FY13 FY13 m m m Own funds generated from operations Movement in working capital (11.3) (24.6) (12.0) Dividend (63.8) (60.8) (81.6) Other (including capex) (3.0) (5.4) (19.1) Increase/(decrease) in own funds 1.0 (32.2) 41.6 Own funds (opening) Exchange gains on own funds (3.8) (1.3) (0.5) Own funds (closing) Broker margin requirement (273.4) (242.9) (245.7) Net own cash available H1 FY14 m Net own cash available Overseas regulatory and working capital (30.0) Funds required for segregation (11.6) Own cash available for liquidity of which: Held as liquid assets buffer 82.8 Dividend due 21.0 Additional sources of liquidity: Title transfer funds 23.5 Committed facility Refer to the Financial Statements for the calculation of Own funds 2. Of which 25 million was drawn down as at 30 November 2013 IG H1 FY14 RESULTS PRESENTATION P12

13 REGULATION No material impact from recent or foreseeable regulatory developments UPDATE European Financial Transactions Tax Enhanced co-operation process between 11 member states showing little sign of real progress French and Italian unilateral taxes have had minimal impact Japan New regulations for binaries in force from 1 December 2013 Creates a knowledge hurdle for new client recruitment New clarity enables broadening of IG offering, while curtailing competition s product range Singapore Continue to anticipate FX leverage reductions - no update on timing Expect majority of clients to be exempted (accredited investor status) Working with regulator to approve online test to lessen the drag of client knowledge assessment IG H1 FY14 RESULTS PRESENTATION P13

14 SUMMARY Encouraging start to the year FINANCIAL REVIEW Positive results in a period of little explicit volatility Revenue, profit, earnings and cash ahead Prior year H2 is a challenging comparative Costs and investment weighted towards second half of this year Solid balance sheet Year to date performance provides foundation for the full year IG H1 FY14 RESULTS PRESENTATION P14

15 THANK YOU BUSINESS UPDATE IG H1 FY14 RESULTS PRESENTATION P15

16 STRATEGY Strategic objectives focused on medium term sustainable growth STRATEGIC OBJECTIVES KEY AREAS OF H1 FY14 FOCUS Address the needs of active retail traders Achieve, maintain or extend our market leadership Strengthen our global presence Deliver quality service Sustain our leadership in technology Product development Stockbroking Sprint markets Further platform development Mobile MetaTrader 4 IG.com International expansion Switzerland Nadex IG H1 FY14 RESULTS PRESENTATION P16

17 % of Clients CLIENT FOCUS Continued focus on active traders NEW CLIENT VALUE BY MONTH ACTIONS TAKEN TO CHANGE CLIENT FOCUS 40% 35% 30% 25% 20% 15% 10% 5% 0% less than greater than 100 Consistent focus on active retail traders Platforms & website Marketing Brand Increased minimum deposits Increased deal sizes Introduced differential pricing Aligning client service to value IG remains accessible to all clients IG H1 FY14 RESULTS PRESENTATION P17

18 IG.COM Creating an effective recruitment channel PROGRESS BENEFITS Scale of migration in countries 9 languages Over 100,000 pages Inevitable short term dip in our search engine rankings IG.com domain authority is being established Key search terms rankings improving Global web traffic is consolidated onto a single domain Market insight pages are now accessible by non-clients Authoritative source of financial information Ranking for individual equity searches Improving Search Engine rankings Driving a flow of potential clients IG H1 FY14 RESULTS PRESENTATION P18

19 Market share (%) FOREX Increasing Forex market share is an objective IG MARKET SHARE 1 KEY INITIATIVES IG is the forex leader in many markets but share lags broader CFD business Forex clients demand: Tight spreads / good execution 16 Platform and charts MetaTrader 4 (MT4) 19 FX CFD SB UK Australia Singapore France Germany MetaTrader 4 Launched in second quarter Usage building steadily Enhancements to follow including equity indices and spread betting Sprint Markets proving popular with FX traders Volume based rebates being trialled Standardised pricing on DMA 1. Share of primary accounts, by number, as stated by Investment Trends reports IG H1 FY14 RESULTS PRESENTATION P19

20 % Relating to mobile MOBILE Positioning IG for mobile to become the dominant platform INCREASING IMPORTANCE OF MOBILE MOBILE DEVELOPMENT 40% 35% 30% 25% 20% 15% 10% 5% % of Client initiated transactions Clients increasingly regard mobile apps as their primary interface Native apps provide competitive advantage Ongoing focus on making mobile apps a standalone platform Further app development to address the early stages of client journey 0% The app as a recruitment and conversion tool Rapid growth in the use of mobile across the client value range Over 30% of client initiated deals IG H1 FY14 RESULTS PRESENTATION P20

21 INTERNATIONAL EXPANSION Increasing geographic reach remains a key objective PROGRESS SWITZERLAND Switzerland office at advanced stage Subject to regulatory approval Ongoing discussions with the regulator in another jurisdiction No guarantee of success Evaluating strategies for additional countries where regulations are less clear cut Wealth demographic very supportive Product traded but market immature Currently limited competition Premises located and lease signed Key staff hired Assuming office trading at start of FY15 Facilitating account opening from countries where we do not have an office IG H1 FY14 RESULTS PRESENTATION P21

22 Volume (000s) Members trading NADEX Long-term project making steady progress PERFORMANCE TREND KEY DEVELOPMENTS Volume (contracts traded) Members trading 1,800 1,600 1,400 1,200 1, Nadex Connect out of the box software solution is now complete Discussions ongoing with potential new FCMs (brokers) Planning to add at least one additional market maker to the exchange Tighten spreads and deepen liquidity to build trading volume 0 0 Rolling out full suite of improved mobile apps Volumes and members growing US revenue of 1.4m in H1 FY14 85% growth year on year Regulatory clamp-down on illegal competitors ongoing IG H1 FY14 RESULTS PRESENTATION P22

23 ONLINE STOCKBROKING Broadening the reach of the IG brand MARKET OPPORTUNITY BUILDS ON EXISTING IT INFRASTRUCTURE Significant addressable market in the UK Selective rollout to other countries Extends the reach of the IG brand and marketing penetration Aids client retention, increases lifetime value Target market: Current and former IG SB/CFD clients Competitor SB/CFD clients Active cash equity traders IG offering superior to existing execution-only UK stockbrokers Collateral for leveraged trading Uses much of our existing infrastructure for pricing and execution Real time pricing Smart order routing Market depth Developed custody arrangements, settlement and client accounting Building the broking product into our web and mobile trading platforms Key dates Current, testing infrastructure ongoing H1 FY15 (end), UK launch IG H1 FY14 RESULTS PRESENTATION P23

24 SUMMARY Continued short term delivery underpins investment for the future BUSINESS UPDATE Satisfactory performance given relatively subdued trading conditions Weak prior year comparatives in H1 H2 progressively more challenging Disciplined investment in initiatives to grow future revenue streams Focus remains on active traders Significant near term opportunities in less mature markets IG s market leadership is reinforced by Strong cash generation Brand positioning Successful delivery of new initiatives IG H1 FY14 RESULTS PRESENTATION P24

25 THANK YOU APPENDICES IG H1 FY14 RESULTS PRESENTATION P25

26 Appendix 1: Financial net trading revenue per client HALF YEAR ANALYSIS 1 Revenue ( m) H1 FY10 H2 FY10 H1 FY11 H2 FY11 H1 FY12 H2 FY12 H1 FY13 H2 FY13 H1 FY14 Total UK Australia Europe Japan ROW Total Financial Clients H110 H210 H111 H211 H112 H212 H113 H213 H114 Total UK 46,431 50,949 52,776 54,195 59,182 53,489 50,795 52,079 46,160 Australia 12,474 13,445 14,061 14,590 16,814 14,774 14,829 15,029 14,405 Europe 8,792 11,292 12,428 14,568 17,210 18,035 18,720 19,807 19,744 Japan 12,441 10,978 12,211 12,267 11,246 9,287 7,952 8,462 6,342 ROW 5,668 6,052 6,759 7,601 8,283 8,823 9,906 10,653 10,999 Total Financial 85,806 92,716 98, , , , , ,030 97,650 Revenue per Client ( ) H110 H210 H111 H211 H112 H212 H113 H213 H114 Total UK 1,721 1,622 1,570 1,555 1,726 1,676 1,711 1,911 2,024 Australia 1,780 1,745 1,627 1,695 1,947 1,707 1,900 1,868 1,872 Europe 2,472 2,276 2,149 2,111 2,194 1,910 1,712 1,969 2,039 Japan 879 1, ROW 1,063 1,159 1,391 1,378 1,749 1,576 1,438 1,685 1,444 Total Financial 1,641 1,638 1,557 1,547 1,734 1,641 1,653 1,819 1,871 UK Financial 1,721 1,622 1,570 1,555 1,726 1,676 1,711 1,911 2,024 Total excl. Japan 1,770 1,698 1,649 1,652 1,844 1,716 1,712 1,892 1, Clients trading in a six month period with revenue stated as Net Trading Revenue IG H1 FY14 RESULTS PRESENTATION P26

27 Appendix 2: Client trading activity CLIENT RETENTION RATES TREND Total IG Financial clients excl Japan FY09 FY10 FY11 FY12 FY13 New accounts 61,538 63,757 60,631 60,968 51,769 First trades (in period) 44,291 46,612 44,803 45,292 35,854 Implied conversion rate (%) 72% 73% 74% 74% 69% Total active clients (in period) 88, , , , ,295 Clients trading from prior period 44,045 56,726 72,449 84,714 89,441 Clients trading from prior period (%) 78% 64% 70% 72% 69% IG clients excl Japan FY09 FY10 FY11 FY12 FY13 FY14 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 New accounts 31,916 29,622 31,655 32,102 30,338 30,293 32,213 28,755 25,545 26,224 25,518 First trades (in period) 22,194 22,097 23,064 23,548 22,686 22,117 24,330 20,962 17,961 17,893 15,648 Implied conversion rate (%) 70% 75% 73% 73% 75% 73% 76% 73% 70% 68% 61% Total active clients (in period) 57,517 63,954 73,365 81,738 86,024 90, ,489 95,121 94,250 97,568 91,308 Clients trading from prior period 35,323 41,857 50,301 58,190 63,338 68,837 77,159 74,159 76,289 79,675 75,660 Clients trading from prior period (%) 85% 73% 79% 79% 77% 80% 85% 73% 80% 85% 78% IG H1 FY14 RESULTS PRESENTATION P27

28 Appendix 3: Broker margin requirement trend BROKER REQUIREMENT ( m) FY 11 H2 FY 11 H2 FY 12 H1 FY 12 H2 FY 13 H1 FY 13 H2 FY 14 H1 224m 217m 184m 196m 243m 246m 273m FY13 Peak 298m FY14 H1 Peak 274m IG H1 FY14 RESULTS PRESENTATION P28

29 Appendix 4: Pillar 1 regulatory capital YEAR ON YEAR COMPARISON H1 FY14 H1 FY13 m m Regulatory capital Total Tier 1,2 & 3 capital Intangible assets (119.4) (115.7) Investment in own shares (1.1) (1.5) Total capital resources (a) Capital resources requirement - Pillar 1 (b) Surplus regulatory capital (a-b) Less dividend (21.0) (20.9) Total IG H1 FY14 RESULTS PRESENTATION P29

30 Appendix 5: Market share CFD & SPREADBETTING MARKET SHARE 1 1. Share of primary accounts, by number, as stated by Investment Trends reports IG H1 FY14 RESULTS PRESENTATION P30

31 THANK YOU END IG H1 FY14 RESULTS PRESENTATION P31