Annual Report 2016 Contents at a Glance
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IG GROUP HOLDINGS PLC ANNUAL REPORT 2016 CONTENTS AT A GLANCE COMPANY OVERVIEW ’2016 was another At a Glance 2 record year for IG, CHAIRMAN’S STATEMENT 4 with revenue up 14% STRATEGIC REPORT Chief Executive Officer’s Review 6 to £456.3 million. Our Business 10 Our investments in Our Product Suite 12 Our Clients and Business Model 14 improving online Our People 16 marketing, developing Our Strategic Objectives 20 new offices and Our Operational Strategy in Action 22 Key Performance Indicators (KPIs) 28 extending our product Business Conduct and Sustainability 30 set are beginning to Operating and Financial Review 36 Managing Our Risks 44 pay off.’ CORPORATE GOVERNANCE REPORT Chairman’s Introduction to Corporate Governance 56 Peter Hetherington Corporate Governance Statement 57 Chief Executive Officer The Board 58 19 July 2016 Nomination Committee 68 Directors’ Remuneration Report 70 Audit Committee 90 Board Risk Committee 95 Directors’ Report 98 Statement of Directors’ Responsibilities 101 Independent Auditors’ Report 102 FINANCIAL STATEMENTS Group Income Statement 108 Statements of Financial Position 109 Cash Flow Statements 112 Notes to the Financial Statements 113 INVESTOR RESOURCES Five-Year Summary 166 Examples 168 Glossary 174 Global Offices 177 Shareholder and Company Information 178 This report is fully accessible online at: iggroup.com/ar2016 FOUR-YEAR COMPOUND ANNUAL GROWTH RATES 5.6% 2.9% REVENUE(1) PROFIT BEFORE TAX 4.4% 8.7% 8.9% DILUTED TOTAL OWN FUNDS EARNINGS DIVIDEND GENERATED FROM PER SHARE PER SHARE OPERATIONS REVENUE(1) PROFIT BEFORE TAX OWN FUNDS GENERATED FROM OPERATIONS £456.3m £207.9m £197.9m £193.2m £400.2m £159.2m £366.8m £361.9m £370.4m £388.4m £185.7m £192.2m £194.9m £169.5m £140.7m £154.3m £160.6m £136.8m FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 DILUTED EARNINGS TOTAL DIVIDEND PER SHARE PER SHARE 44.58p 31.40p 41.07p 28.15p (1) Throughout this report Revenue refers to net trading revenue (ie excluding interest on segregated client funds and after taking account of introducing partner commissions). The shaded area indicates the underlying 37.54p 38.80p 40.22p 35.99p 22.50p 23.25p 28.15p 28.15p performance in financial year 2015. Movement based on statutory figures with FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 underlying movement included in narrative. CHAIRMAN’S STATEMENT In my second annual statement to you as Chairman of IG, I am pleased to report on a year of strong growth for the Company in revenue and profit, with both hitting new highs. The good financial results are driven primarily by improving performance from our digital and mobile marketing in our more established markets, supported by reasonably volatile financial markets, and our investments in Switzerland, Dubai and Nadex beginning to produce returns. This year has produced a challenging backdrop against which to execute our strategy. As you know, our previous Chief Executive Officer (CEO) retired and our Chief Financial Officer (CFO) resigned during the first half of this financial year. After a thorough process, the Board appointed Peter Hetherington as CEO in December last year. Earlier this month, we also appointed Paul Mainwaring as CFO, subject to FCA approval. The succession process has gone smoothly, thanks to the skill and dedication of Peter and his Executive team. We remain committed to growing our business within our current global footprint and beyond, as opportunities allow. We set out a vision some time ago to be the default choice for active traders globally. At the half-year results in January, we expanded upon this to include non-leveraged products such as execution-only stockbroking (share dealing) and portfolio-based investing (IG Investments). This will allow us to appeal to sophisticated and active investors across a range of their needs and in different stages of their lives. Our strategic clarity is coupled with a total commitment to operational efficiency. This ranges from the strides we are making in online marketing, through the incremental improvements to our client onboarding process, to the enhancements to execution and risk management practices that are allowing us to extract increasing value from every client trade. Our people are core to our operational success. Recent attrition levels in our London office have been too high, due to competition for the scarce skills we require to prosper. In response, we have increased some salary levels to help retain key staff. At the same time, we are expanding our presence in Krakow and Bangalore to access key skills competitively. We expect our London office to remain at the core of our operations. Shortly after the year-end the UK electorate voted to leave the EU. I continue to be impressed by how the broader team in IG handles such volatile events. Andy Green Chairman 4 IG Group Holdings plc Annual Report 2016 CHAIRMAN’S STATEMENT The team prepared meticulously for what turned out to be a Board as Senior Independent Director and Chairman of the night of severe and sudden movements in financial markets. I am Remuneration Committee. very pleased to report that they steered the business through Malcolm brings to the Board deep knowledge of the financial unscathed. They concentrated on the interests of our clients services and investments sectors and a wealth of experience on leading up to and throughout the period, with clear client the boards of publicly listed businesses. I would like to welcome communications and margin-setting policy. The result, however, them both to IG. Following these changes, your Board continues to does throw up new challenges for IG, and will divert some comply with provision B.1.2 of the 2014 UK Corporate Governance resources over the next couple of years, as we decide on the best Code (‘the Code’). course of action to secure the future of our European business. In The intention again this year is to put every Board Director up for doing this, we will also consider any relevant elements of other election or re-election at the AGM, in compliance with paragraph forthcoming legislation in this area. B.7.1 of the Code. Regulatory compliance remains a key tenet of IG’s operating model. We are regulated in 17 jurisdictions across the world. While we REMUNERATION can never guarantee we will not fall foul of a specific regulation, In response to the attrition levels mentioned earlier, this year we our intention is always to comply and we continue to invest in our carried out a targeted salary benchmarking exercise, to ensure capability here, with the aim of maintaining our good track record. our overall remuneration structure enables us to recruit and retain high-quality people. We also introduced a flexible benefits scheme, which allows our employees to choose the mix of benefits which suits their individual circumstances. This will increase our overall ’Our strategic clarity is coupled remuneration costs, but I believe makes us increasingly competitive in a tough labour market. In determining the remuneration of the with a total commitment to CEO and CFO, the Remuneration Committee took into account the growth of the business and the competitiveness of salaries at operational efficiency.’ all levels of the Company, and benchmarked these roles against companies of comparable size and complexity in financial services and the FTSE 250. DIVIDEND IG’S PEOPLE This has been another strong year for cash generation at IG. Once again, I and the rest of the Board want to thank all the In line with the Board’s previously stated intention to pay out, people who work at IG for delivering another record year for the as an ordinary dividend, approximately 70% of the Group’s Company. We were extremely impressed, if not surprised, by the annual earnings, the Board is recommending a final dividend way our people pulled together during the uncertainty caused by of 22.95 pence per share, taking the full-year dividend to 31.40 the CEO and CFO’s departures during the first half of the year, and pence per share, 11.5% ahead of the prior year. by the way they have rallied behind Peter, as new CEO. We are in The Board will maintain a capital structure and cash position no doubt that our people remain our key asset. in the business to enable it to withstand any changes in the LOOKING FORWARD regulatory environment or structural shocks in the financial markets, while providing sufficient headroom to take advantage of any We have been investing heavily over the last few years in investment opportunities. transitioning IG, from a very successful but relatively narrow specialist, to a broader-based business, through product extension, BOARD geographic expansion and platform development. We are The Board structure has changed significantly in the past year. In my now coming towards the end of this particular project investment statement last year I noted the retirement and acknowledged the phase. This year, as well as delivering results from those great contribution of our CEO, Tim Howkins. In October, Chris Hill, investments, we have a number of important initiatives planned, CFO, stepped down from the Board and left IG, to take up a CFO which Peter considers in more detail in his statement, as we role elsewhere. As I said at the time, we were sorry to lose Chris but seek new opportunities to grow and to expand our knowledge understood his decision. and experience across an emerging range of exciting digital In December, following a thorough search process, the Board financial products. appointed Peter Hetherington as the new CEO. Peter was The Board is committed to delivering on the strategy we have previously Chief Operating Officer and has been a member of the agreed, to the benefit of all our stakeholders.