REG - IG Group Hldgs plc - Results for the financial year ended 31 May 2023
20/07/2023 07:00
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RNS Number : 6404G IG Group Holdings plc 20 July 2023
LEI No: 2138003A5Q1M7ANOUD76
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FOR IMMEDIATE RELEASE
20 JULY 2023
Results for the financial year ended 31 May 2023
"A fourth consecutive year of record revenue as IG continues to build an
expanded and diversified business as the home for active traders worldwide,
while delivering long-term shareholder returns."
Financial highlights (continuing operations 1 )
Continued to deliver strong results in a more difficult market
backdrop.
- Total revenue increased 5% to £1,022.6 million (FY22: £973.1
million). Adjusted 2 total revenue rose 6%.
- Net trading revenue decreased 3% at £941.8 million (FY22: £972.3
million). Adjusted net trading revenue was down 3%.
- Interest income rose significantly to £80.8 million (FY22: £0.8
million) reflecting higher interest rates.
- Profit before tax of £449.9 million (FY22: £477.0 million).
Adjusted profit before tax of £490.5 million down slightly by 1% (FY22:
£494.3 million). Adjusted profit before tax margin was at the top end of our
guidance at 48.0% (FY22: 51.1%).
- Basic EPS of 86.9 pence (FY22: 92.9 pence). Adjusted basic EPS of
94.7 pence (FY22: 96.3 pence), down on prior year driven by a higher effective
tax rate.
- Total capital return of £363.4 million split across dividends paid
and shares re-purchased in the period (FY22: £186.2 million).
- Proposed an increased dividend of 45.2 pence (FY22: 44.2 pence) and
a new, larger share buyback programme of £250 million.
Strategic highlights
Achieved further progress with our strategy to expand and diversify into new
products and geographic markets.
- High Potential Markets pro forma 3 total revenue increased 40% to
£207.0 million (FY22: £148.3 million), with Core Markets+ broadly stable,
decreasing by 1% to £815.6 million (FY22: £827.6 million).
- US total revenue increased 47% to £191.3 million, and 38% on a pro
forma basis, representing strong growth in an important strategic market.
- tastytrade total revenue increased 52% to £170.3 million ($205.0
million) and 41% on a pro forma basis as significant growth in interest income
offset softer net trading revenue.
- Spectrum total revenue increased 68% to £15.7 million (FY22: £9.3
million). Societe Generale and UniCredit were onboarded during the year as
third-party issuers.
- Non-OTC total revenue, which includes associated interest income,
increased to 21% of the Group total revenue (FY22: 16%) representing continued
progress on our diversification strategy.
- Total active clients of 358,300 (FY22: 381,500) moderated slightly
but remained more than double pre-pandemic levels.
Capital allocation
In July 2022, the Group announced its new Capital Allocation Framework,
against which disciplined capital decisions are being made.
1. Regulatory capital requirements: regulatory capital headroom of £498.9
million at 31 May 2023 (31 May 2022: £528.2 million) provides capacity for
further business growth.
2. Organic investment: cost increases reflect investment in technology and
new projects, balanced with an adjusted profit before tax margin of 48.0%.
3. Commitment to citizenship: as part of our ESG strategy, pledged 1% of
profit after tax to charitable causes, equating to £4.0 million, via our
Brighter Future Fund, now totalling over £13.0 million over the past four
years.
4. Regular distributions: proposed final dividend 31.94 pence per share,
representing a full year dividend of 45.2 pence per share, up 1 pence,
reflecting our progressive and sustainable dividend policy and a pay-out of
around 50% of adjusted profit after tax.
5. Inorganic investment: evaluated certain potential acquisitions,
applying rigorous assessment criteria, but did not identify any opportunities
that met all of our requirements.
6. Additional distributions: launching a new, and larger, share buyback
programme of £250 million, to commence following the completion of the
existing programme, and to be substantially completed in FY24.
Financial Summary (continuing operations)
£ million (unless stated) FY23 FY23 (Adjusted) FY22 FY22 (Adjusted) Change % Change (Adjusted) %
Total revenue(1) 1,022.6 1,022.6 973.1 967.3 5% 6%
Net trading revenue 941.8 941.8 972.3 966.5 (3%) (3%)
Total operating costs(2,3) 584.9 541.0 501.9 464.9 17% 16%
Profit before tax(4) 449.9 490.5 477.0 494.3 (6%) (1%)
Profit after tax 363.7 396.5 396.1 410.5 (8%) (3%)
Basic earnings per share (p) 86.9 94.7 92.9 96.3 (6%) (2%)
Total dividend per share (p) 45.2 - 44.2 - 2% -
1 FY22 adjusted total revenue excludes £5.8 million foreign exchange
hedging gain associated with the financing of the tastytrade acquisition.
(2) Operating costs include net credit losses on financial assets.
(3) FY23 adjusted operating costs excludes £39.7 million of costs and
recurring non-cash costs associated with the tastytrade acquisition and
integration (FY22: £33.7 million) and £4.2 million relating to the sale of
Nadex (FY22: £3.3 million).
(4) FY22 adjusted profit before tax cost excludes £1.0 million of one-time
financing expense associated with the debt issuance, £9.3 million FV gain on
revaluation of Zero Hash, £4.1 million of gains on sale of Small Exchange and
disposal of Zero Hash.
Charlie Rozes, Acting Chief Executive Officer, commented:
"We've delivered a fourth consecutive year of record revenue as part of our
strategy to expand and diversify the Group through great technology and
innovative products, combined with outstanding client experiences.
"We've performed well in the much more difficult market conditions that
persisted through most of the past year, maintaining our leadership position
in OTC derivatives while building further momentum in our product and
geographic expansion. Total revenue exceeded £1 billion for the first time in
IG's history, more than double our revenue in FY19 when we launched the
strategy, while consistently achieving strong profit margins. A notable
highlight has been our progress in the US, with the strong growth of
tastytrade driving total revenue of £191.3 million, also an all-time high for
IG.
"This combination of our operating performance and capital strength enabled us
to return £363.4 million to shareholders during FY23 and we're pleased to
announce today an increased cash dividend and a new £250 million share
buyback programme.
"Our clients and our people remain at the heart of our success. IG's
commitment to offering a first-class trading experience has resulted in a
loyal, high quality global client base, demonstrated by active client numbers
remaining significantly above the levels of just a few years ago. Our unique
client base is the foundation of our resilient growth profile.
"Looking ahead, we're well positioned to continue investing for growth given
the strength and consistency of our cash flow and balance sheet. We keep a
close watch on profit margins and in FY24 will continue to look for
opportunities to achieve even greater cost efficiency. We're the home of
active traders worldwide, and we are building a more sustainable, long-term
business that delivers for all stakeholders."
IG Group Investor Relations IG Group Press FTI Consulting
Martin Price / Simon Wright Angela Warburton / Alayna Francis Edward Berry / Katherine Bell
020 7573 0020 / 0099 020 7633 5382 / 5395 07703 330 199 / 079 7687 0961
investors (mailto:investors@iggroup.com) @iggroup.com press@ig.com (mailto:press@ig.com) edward.berry@fticonsulting.com (mailto:edward.berry@fticonsulting.com)
(mailto:investors@iggroup.com)
/ katherine.bell@fticonsulting.com (mailto:katherine.bell@fticonsulting.com)
Further information
Analyst presentation
There will be an analyst and investor presentation at 9:30am (UK Time) on
Thursday 20 July.
The presentation will be accessible live via audio webcast at Webcast | IG
Group
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. If you wish to listen via conference call, please use the following link
Conference call registration | IG Group
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. The audio webcast of the presentation and a transcript will be archived at:
Financial Results | IG Group
(https://www.iggroup.com/investors/financial-results/results-reports-and-presentations/result/year/2023)
.
Alternative performance measures
IG Group management believes that the alternative performance measures
included in this document provide valuable information to the readers of the
financial statements as they enable the reader to identify a more consistent
basis for comparing business performance between financial periods and provide
more detail concerning the elements of performance which the managers of these
businesses are most directly able to influence or are relevant for an
assessment of the Group. They also reflect an important aspect of the way in
which operating targets are defined and performance is monitored by IG Group
management. However, any alternative performance measures in this document are
not a substitute for statutory measures and readers should consider the
statutory measures as well. Refer to the appendices for further information
and calculations of alternative performance measures included throughout this
document, and the most directly comparable statutory measures.
Forward-looking statements
This preliminary statement, prepared by IG Group Holdings plc (the "Company"),
may contain forward-looking statements about the Company and its subsidiaries
(the "Group"). Such forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "projects",
"estimates", "plans", "anticipates", "targets", "aims", "continues",
"expects", "intends", "hopes", "may", "will", "would", "could" or "should" or,
in each case, their negative or other various or comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties,
assumptions and other factors which are beyond the Company's control and are
based on the Company's beliefs and expectations about future events as of the
date the statements are made. If the assumptions on which the Group bases its
forward-looking statements change, actual results may differ from those
expressed in such statements. There are a number of factors that could cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements, including those set out under
"Principal Risks" in the FY22 Group Annual Report for the financial year ended
31 May 2022. The Annual Report can be found on the Company's website
(www.iggroup.com (http://www.iggroup.com) ).
Forward-looking statements speak only as of the date they are made. Except as
required by applicable law and regulation, the Company undertakes no
obligation to update these forward-looking statements.
No offer or solicitation
This announcement is not intended to, and does not constitute, or form part
of, any offer to sell or an invitation to purchase or subscribe for any
securities or a solicitation of any vote or approval in any jurisdiction.
No profit forecasts or estimates
No statement in this announcement is intended as a profit forecast or estimate
for any period.
Some numbers and period on period percentages in this statement have been
rounded or adjusted to ensure consistency with the financial statements. This
may lead to differences between subtotals and the sum of individual numbers as
presented. Acronyms used in this report are as defined in the Group's Annual
Report.
About IG
IG Group (LSEG:IGG)
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is an innovative, global fintech company that delivers dynamic online trading
platforms and a robust educational ecosystem to power the pursuit of
financial freedom for the ambitious. For nearly 50 years, the Company has
evolved its technology, risk management, financial products, and education and
content to meet the needs of its retail and institutional clients. IG Group
continues to innovate its offering for the new generation of tomorrow's
investors through its IG, tastytrade, IG Prime, Spectrum, and DailyFX brands.
Established in 1974, IG Group is a London-headquartered FTSE 250 company
offering its clients access to ~19,000 financial markets through its offices
spread across Europe, North America, Africa, Asia-Pacific and the Middle East.
Acting Chief Executive Officer's Statement
I am delighted to report a fourth consecutive year of record total revenue for
IG Group. Total revenue exceeded £1 billion for the first time, more than
double the revenue in FY19, and our cost management ensured that we continue
to deliver a high profit margin.
Our success in balancing core growth with diversification over the last four
years positioned us extremely well for the difficult market backdrop we saw
during FY23, with global inflation, interest rate rises, and macro
uncertainty. A fundamental strength of ours is that the amount of cash that we
generate in the ordinary course of business allowed us to both invest for
further growth and deliver attractive and sustainable distributions for
shareholders.
Our strategic progress in FY23
In FY19, we launched our strategy to expand and diversify the Group by both
product and geography, leveraging our well-established strengths in trading
and trading products, technology, and risk management.
Since then, we've made great progress and while total revenue has more than
doubled, the proportion of revenue from non-OTC products increased from 5% to
21%, and the proportion of revenue from the UK market reduced from 42% to 33%,
primarily driven by our organic and inorganic growth in the US market.
Given its position as the world's largest financial market, our growth in
total US revenues this year, up 47% to £191.3 million, is a particular
highlight. The main driver of this revenue growth is tastytrade, where
significantly higher levels of interest income offset some softer net trading
revenue. In the year we laid stronger foundations for future growth, and some
highlights of our progress at tastytrade include:
- Improving client experience by overhauling mobile applications,
creating an open API, and launching an upgraded web-based trading platform,
which is now the newest in the sector. This delivers a scalable, powerful
trading platform to our clients, backed by outstanding customer service.
- Expanding our equity trading capabilities to capture a greater share
of our clients' trading portfolios and attract larger client balances. This
allowed us to capitalise on the rising US interest rate cycle.
- Rebranding the brokerage firm from tastyworks to tastytrade earlier
this year, setting the stage for it to become a household name for trading the
US markets.
- Leveraging Group marketing capabilities, including search engine
optimisation, and building a best-in-class marketing function.
- Launching the first-ever national brand campaign to raise the
profile and awareness of the business.
In Europe, Spectrum - our pan-European trading venue for securitised
derivatives - is a great example of our ability to innovate at scale. Spectrum
marked an important milestone this year by welcoming two top-tier banks,
Societe Generale and UniCredit, as new product issuers. This means that
European clients will have access to thousands of new products, and we are
bringing more issuers and brokers to the exchange this year.
In our OTC business, we retained our leadership position. FY23 provided much
more challenging conditions than we've seen in recent years. Despite this, the
high quality of our OTC client base shone through, and our market-leading
platform, products, and trade execution supported their trading during the
period.
Our client focus
At IG, we're driven by one unrelenting focus: to offer our ambitious clients
the opportunity to create the financial freedom they strive for now and in the
future. This means a first-class trading experience on market-leading
platforms and tools, access to around 19,000 markets, outstanding trade
execution and amazing customer service. This passion to surpass our clients'
expectations and create inspiring experiences has enabled us to deliver
sustainable, resilient growth over decades by building and retaining a strong
and loyal client base.
We are champions of client welfare, and fair client outcomes remain a
foundation of our business. We conducted a thorough review of our internal
processes ahead of the introduction of the FCA's new UK Consumer Duty rules
that confirmed our business was already largely compliant and we have updated
our processes where necessary. This again demonstrates our ability to grow the
business in the ever-changing global regulatory landscape. This approach is
part of our culture. It enables us to earn our clients' long-term loyalty and
trust and brings to life our values to champion the client and do the right
thing.
Understanding clients' needs and shaping our business model to align with
their interests, underpins the long-term, sustainable performance of our
business. An important aspect of our business model is our differentiated
content, which is provided through live programming, blogs, podcasts, online
courses and website content. Across all of our channels, IG content is watched
globally more than 100 million times each year, showing the importance that
content plays in our client focused offering.
Our commitment to communities and our people
We've pledged to contribute annually the equivalent of 1% of post-tax profits
to charitable causes, and we're proud to deliver on this promise. We're
supporting projects around the world with a particular focus on the theme
'empowerment through education'. For example, we work in partnership with
Teach For All and their international network. With a shared purpose to make
educational systems work for every child, these partnerships continue to make
a real difference. As part of this ongoing commitment, by the end of FY26 our
goal is to positively impact the lives of one million people around the world.
Making a positive impact in our communities is important to everyone at IG.
Our people passionately support this commitment, with over a third of our
employees engaging in voluntary and charitable activities this year.
Our people are the driving force behind our operational performance as a
company. Their continued engagement and personal commitment to our goals and
ambitions is of critical importance. To support them through this challenging
period of high inflation rates, we've undertaken a special remuneration review
focused on our most impacted colleagues, providing one-off cost of living
booster payments and pay rises.
Strong financial performance
Total revenue of £1,022.6 million was up 5% on prior year. Our performance
reflected two important factors. First, we broadly maintained our levels of
trading revenue and avoided the sharp decline following the pandemic as seen
by many others in the industry. Second, we capitalised on the interest rate
cycle and drove significant increases in interest income.
As we projected last year, interest income was the principal revenue growth
driver in FY23, generating £80.8 million in FY23, compared to just £0.8
million in FY22. The increase in interest rates has also meant that our net
finance line was positive, as the return from our corporate cash outweighed
the cost of the small level of issued debt and our revolving credit facility,
which remained undrawn as at 31 May 2023.
Disciplined cost management remained a priority, even with the challenges of
translational foreign exchange headwinds and high levels of inflation across
many of our regions. While this impacted some of our supplier costs, the main
impact was on our people, and we took steps to ensure that we are financially
supporting our people globally. Consequently, while this drove higher rates of
fixed remuneration growth, we retained our highly skilled and talented people
and avoided elevated levels of attrition.
We've earned a reputation as an innovative business, and critical, but
careful, decisions were taken throughout the year to decide on capital
allocated to new organic growth initiatives. We operate a formal 'incubator'
process which in recent years produced new ventures such as our OTC business
in the US and our European ETD business. We are disciplined allocators of
capital and we'll always prioritise allocation to foster innovation and
organic growth.
In FY23, we balanced the levels of investment for future growth with
delivering a sustainable profit margin. Our adjusted profit margin for the
year was 48%, down slightly on our prior year margin of 51% but well within
the mid-to-high 40's range that we're managing to. We've grown revenues at a
steady rate over the past 20 years, at consistently high margins. We keep a
close watch on profit margins and in FY24 will continue to look for
opportunities to achieve even greater cost efficiency.
Our effective tax rate was 19.2%, versus 17.0% in FY22, due to some one-off
adjustments in the prior year and the impact of the increased UK corporate tax
rate which rose sharply from 19% to 25% in April 2023.
Earnings per share of 94.7p was down slightly year on year reflecting lower
profit after tax, partially offset by a reduction in the number of shares in
issue as a result of the on-going share buyback programme, which is now being
enlarged for FY24. We expect the share count to continue to reduce, as the
full impact of the buyback programmes are reflected.
Capital and liquidity
Our FY23 results announcement marks the one-year anniversary of the
publication of our Capital Allocation Framework. The framework has been well
received by all our stakeholders, and our Board has been embedding it
internally as we evaluate the most effective uses of capital.
Our first priority is ensuring that we meet our regulatory capital
requirements. In January 2022, the Group transitioned to the Investment Firms
Prudential Regime, and since then has had a static, transitory minimum capital
requirement. At the end of the year our regulatory capital headroom above that
requirement was a very healthy £498.9 million.
Our commitment to charitable causes, with a focus on empowerment through
education, remained strong. In FY22, we pledged to allocate 1% of post-tax
profits to these causes, and we're fulfilling this commitment again with an
additional pledge of £4.0 million.
Our proposed final dividend of 31.94 pence represents a total dividend for the
year of 45.2 pence, an increase of 1 pence on the prior year, representing
progressive and sustainable increases.
During the year, we considered certain acquisitions to accelerate progress on
our strategy but did not identify anything which met our range of criteria.
We'll maintain a disciplined approach towards capital allocation across the
Group.
Having assessed our regulatory capital headroom and our alternative uses of
capital, we've announced an additional distribution to shareholders, in the
form of a £250 million share buyback. We expect this to be substantially
completed within FY24. The announcement of a new share buyback programme
demonstrates our ability to invest for growth while also providing attractive
returns to shareholders.
Liquidity management was another strong point of our financial performance.
The peak broker margin requirement during the year was £757.5 million (FY22
peak margin: £774.7 million). Our robust liquidity position supports client
trading across a variety of market conditions. The broker margin requirement
at the period end was £678.2 million, resulting in an available liquidity
balance of £792.9 million.
Guidance
The medium-term guidance that we set out in July 2021 was that we would
anticipate total revenue growth of 25-30% in our High Potential Markets from
FY21, and total revenue growth of 5-7% in our Core Markets+ portfolio from
FY22. We reiterate this guidance, and we're confident in delivering this.
We anticipate that interest income will continue to be a material stream of
revenue within our total revenue line. In the US, we maintain our guidance
that for every 25 basis points rise in the Fed Funds rate, we would expect an
additional $4 million of revenue on an annual basis. Outside of the US and for
net finance, we expect higher income in FY24 than in FY23 reflecting the
annualisation effect of rate increases last year and projected interest rate
increases in FY24.
We maintain our guidance that we would expect to achieve an adjusted profit
before tax margin of mid-to-high 40s over the medium term. We keep a close
watch on profit margins and in FY24 will continue to look for opportunities to
achieve even greater cost efficiency.
On effective tax rate, the recent increases in the UK corporate tax rate will
cause further upwards pressure in FY24. We now expect the Group's effective
tax rate to be approximately 24% for FY24, slightly below the UK corporate tax
rate of 25%.
In summary, we've achieved another consecutive year of record total revenue,
combined with good cost management and a strong balance sheet, which puts us
in an excellent position to invest in the business, execute our strategy, and
provide attractive returns to our shareholders.
Business Performance Review
Summary Group Income Statement
FY23 FY23 adjusted FY22 FY22 adjusted Change % Adjusted change %
£m
Net trading revenue(1) 941.8 941.8 972.3 966.5 (3%) (3%)
Net interest income 80.8 80.8 0.8 0.8 nm nm
Total revenue 1,022.6 1,022.6 973.1 967.3 5% 6%
Betting duty and other operating income(2) 0.8 (2.5) 6.1 4.6
Net operating income 1,023.4 1,020.1 979.2 971.9 5% 5%
Total operating costs(3,4) (584.9) (541.0) (501.9) (464.9) 17% 16%
Operating profit 438.5 479.1 477.3 507.0 (8%) (5%)
Other net gains/(losses)(5) (2.6) (2.6) 11.1 (2.3)
Net finance income / (cost)(6) 14.0 14.0 (11.4) (10.4)
Profit before tax from continuing operations 449.9 490.5 477.0 494.3 (6%) (1%)
(1) FY22 adjusted excludes £5.8 million foreign exchange hedging gain
associated with the financing of the tastytrade acquisition.
(2) FY23 adjusted betting duty and other operating income excludes £3.3
million income for the reimbursement of costs relating to the sale of Nadex
(FY22: £1.5 million).
(3) Operating costs include net credit losses on financial assets.
(4) FY23 adjusted operating costs excludes £39.7 million of costs and
recurring non-cash costs associated with the tastytrade acquisition and
integration (FY22: £33.7 million) and £4.2 million relating to the sale of
Nadex (FY22: £3.3 million).
(5) FY22 excludes £9.3 million fair value (FV) gain on revaluation of Zero
Hash, £4.1 million of gains on sale of Small Exchange and disposal of Zero
Hash.
(6) FY22 adjusted net finance cost excludes £1.0 million of one-time
financing expense associated with the debt issuance.
Statutory results
On a statutory basis, net trading revenue from continuing operations was
£941.8 million, down 3% on FY22, reflecting a reduction in client activity.
The Group's total revenue of £1,022.6 million, increased by 5%, driven by
significantly higher levels of interest income. Net operating income increased
by 5% to £1,023.4 million (FY22: £979.2 million).
Statutory operating costs, including net credit loss on financial assets, were
£584.9 million, 17% higher than FY22. The Group's statutory profit before tax
for FY23 was £449.9 million, down 6% on FY22.
The results are presented on a continuing operations basis which excludes
items related to the sale of Nadex operations which completed in FY22 and
classified as a discontinued operation. In FY23, the Group subsequently
disposed of assets related to Nadex.
Adjusted results
The following analysis reflects a continuing operations and adjusted basis,
which excludes certain one-off items and recurring non-cash items in order to
present a more accurate view of underlying performance. A reconciliation of
non-GAAP measures used in this report is contained in appendix 1.
Adjusted total revenue by product
Adjusted total revenue (£m)
FY23 FY22 Change %
OTC derivatives 806.3 810.2 -
Exchange traded derivatives 186.5 123.1 51%
Stock trading and investments 29.8 34.0 (12%)
Group 1,022.6 967.3 6%
Adjusted total revenue consists of adjusted net trading revenue and net
interest income. Adjusted total revenue was £1,022.6 million in FY23, up 6%
on FY22. OTC derivatives total revenue was £806.3 million, slightly below
that of the FY22 record year for OTC. Exchange traded derivatives total
revenue was £186.5 million, up 51% on the prior period. Within exchange
traded derivatives, tastytrade total revenue was £170.3 million (£120.9
million trading revenue and £49.4 million interest income), up 52% on FY22
and 41% on a pro forma basis which includes a full 12 months of tastytrade
revenue in the comparative period, benefitting from both increasing Fed Funds
rates and favourable translational foreign exchange, offset by a reduction in
net trading revenues. Stock trading and investments total revenue was £29.8
million, down 12% due to a reduction in client trading activity.
Non-OTC revenue made up 21% of total revenue in FY23, considerably up from 16%
in FY22 reflecting the continued diversification of our revenue.
Adjusted net trading revenue
Adjusted net trading revenue was £941.8 million, 3% lower than FY22 as the
challenging macroeconomic environment impacted trading activity.
Net trading revenue performance by product
Adjusted net trading revenue (£m)
FY23 FY22 Change %
OTC derivatives 782.0 811.5 (4%)
Exchange traded derivatives 137.1 121.2 13%
Stock trading and investments 22.7 33.8 (33%)
Net trading revenue 941.8 966.5 (3%)
Net interest income 80.8 0.8 nm
Group total revenue 1,022.6 967.3 6%
Active clients (000) Net trading revenue per client (£)
FY23 FY22 Change % FY23 FY22 Change %
OTC derivatives 189.5 199.8 (5%) 4,126 4,063 2%
Exchange traded derivatives(1) 91.6 104.5 (12%) 1,490 1,142 31%
Stock trading and investments 90.8 93.2 (3%) 250 363 (31%)
Group(2) 358.3 381.5 (6%)
(1) Exchange traded derivatives revenue per client calculation excludes
revenue generated from the Group's US market maker.
(2) Total Group active clients have been adjusted to remove the clients who
are active in more than one product category (multi-product clients) to give a
unique client count. In FY23 there were 13,700 multi-product clients, compared
with 16,000 in FY22.
OTC derivatives
OTC derivatives net trading revenue of £782.0 million, was down 4%,
reflecting a 5% reduction in active clients (FY23: 189,500) as client activity
moderated against a more difficult macroeconomic backdrop year over year,
particularly in Q3. Net trading revenue per client increased 2% on the FY22
average, reflecting the high quality of our client base.
UK and EU OTC derivatives revenue was £397.9 million, down 8%, with almost
all of the year-on-year difference driven by a difficult comparison to an
exceptionally strong Q3 in FY22. Q4 revenue however increased 16% on Q3, as
client trading activity increased. Active clients in the year declined 6%,
with a 2% lower average net trading revenue per client.
Japan OTC derivatives revenue was £99.3 million, up 1% on the record FY22
performance, with active clients increasing 10%, and average net trading
revenue per client decreasing by 8%. We continue to see exciting opportunities
to grow this business further through the launch of new products and effective
marketing programs.
Australia OTC derivatives revenue of £95.2 million increased 8%, with average
revenue per client up 29%, more than offsetting a 16% decline in the active
client base.
Institutional OTC derivatives revenue was up 35% at £13.3 million with a
significantly higher net trading revenue per client and active client numbers
remaining level.
US OTC derivatives revenue increased 17% as net trading revenue per client
increased 31% year on year benefitting from the increasing quality of the
client base and some translational foreign exchange benefit.
Exchange traded derivatives
Net trading revenue from exchange traded derivatives was £137.1 million, up
13%, and 6% higher than FY22 on a pro forma basis, which includes a full 12
months of tastytrade revenue in the comparative period.
tastytrade's net trading revenue in the period increased 10% to £120.9
million, and 2% on a pro forma basis. Active clients reduced by 16% on a pro
forma basis, reflecting normalisation against the higher levels of activity in
FY22 and lower levels of new client acquisition in the period. The decline in
active clients was more than offset by increased revenue per client, up 22%,
due to improvements in the client mix and favourable translational foreign
exchange rates.
Spectrum's revenue was £15.7 million, up 68%, as revenue per client increased
significantly to £2,286, up 67%, as the exchange onboarded Societe Generale
and UniCredit as new issuers.
Stock trading and investments
Net trading revenue from stock trading and investments was £22.7 million,
down 33%, reflecting a 31% reduction in average net trading revenue per client
as trade frequency per client reduced. The number of active clients reduced
slightly and assets under management at the end of the period remained in line
with FY22 at £3.3 billion.
Net interest income
Net interest income on client balances was £80.8 million increasing
significantly from £0.8 million reported in FY22. Interest on client balances
made up 8% of total revenue in FY23, increasing from 5% in H1 to 11% in H2.
This increase reflected the rising interest rate cycle and the significant
client money balances held throughout the year.
In our US businesses, client balances at the end of the year were $1.9 billion
(31 May 2022: $2.0 billion). This contributed £50.4 million of interest (FY22
£1.9 million).
Outside of the US, client balances of £2.7 billion were down 12% (31 May
2022: £3.1 billion). This included £420.4 million of client funds on the
balance sheet (31 May 2022: £519.4 million) for which the interest is
recognised within the net finance income line. Interest income recognised on
the remaining segregated client money balance was £30.4 million compared with
a net interest cost of £1.1 million in FY22.
Operating Costs
Total adjusted operating costs for FY23 were £541.0 million, 16% higher than
FY22. The increase reflected approximately £16.2 million of translational
foreign exchange headwinds, inflationary increases, the £4.0 million pledge
to charitable causes, and higher technology related costs as we continue to
invest in innovation and resiliency.
Adjusted operating costs from continuing operations
£m FY23 FY22 Change %
Fixed remuneration 188.5 150.1 26%
Advertising and marketing 93.5 87.1 7%
Revenue related costs 47.9 45.3 6%
IT, structural market data and comms 42.5 35.0 21%
Depreciation and amortisation 29.6 28.5 4%
Legal and professional 25.9 16.8 54%
Other costs 63.1 44.2 42%
Variable remuneration 50.0 57.9 (14%)
Total operating costs 541.0 464.9 16%
Headcount - average 2,616 2,408 9%
FY23 fixed remuneration was £188.5 million, up 26%, reflecting increased
headcount, translational foreign exchange on non-GBP salaries, salary
increases driven partly by inflation, and a one-off cost of living payment to
more than 60% of our people. Headcount growth was primarily in technology
areas and reflected continued investments in new development projects and the
running of our global trading platforms and infrastructure.
Advertising and marketing spend increased by 7% to £93.5 million. This
reflected marketing investments in Germany and tastytrade to support our
strategic goal of growing our exchange traded derivatives business and
diversifying the Group's revenue base.
Revenue related costs include market data charges, client payment charges,
provisions for client and counterparty credit losses and brokerage trading
fees. Although net trading revenue was lower in FY23, revenue related costs
increased by 6% to £47.9 million reflecting a change in revenue mix, in
particular higher brokerage trading fees due to a larger volume of US index
options traded by clients.
IT maintenance, structural market data charges, and communications costs were
£42.5 million, an increase of 21% reflecting increased investments in
technology to expand infrastructure capacity to support future growth and
periodic spikes in client trading.
Depreciation and amortisation costs increased 4% to £29.6 million. Legal and
professional fees were £25.9 million, an increase of 54%, reflecting higher
costs in relation to strategic and operational projects.
Other costs, which include staff related costs (such as travel and
entertainment), regulatory fees and irrecoverable VAT, increased by 42%. Also
included was the £4.0 million pledge to charitable causes, representing 1% of
FY22 adjusted profit after tax, which was approved by the Board in September
2022. Additionally, other costs increased due to higher travel and
entertainment as staff returned to the office and travel frequency increased.
Within variable remuneration was the general bonus accrual, share schemes and
sales bonuses. The charge for the general bonus pool was £27.6 million, down
15%, reflecting a lower level of outperformance to internal targets relative
to the comparative period, offset by increases due to headcount growth and
salary inflation. Share schemes costs relating to the long-term incentive
plans for senior management reduced by 6% to £16.8 million (FY22: £17.8
million) reflecting the lower share price, and lower levels of performance
against internal targets in comparison to prior year. Sales bonuses decreased
by 25% to £5.6 million reflecting lower commission payments to sales staff.
Net finance income
Net finance income in the period was £14.0 million, up from a £10.4 million
adjusted cost in FY22. Within this, finance income was £30.2 million (FY22:
£3.4 million), offset by finance costs of £16.2 million (FY22: £13.8
million). Group finance costs are fixed, however the finance income, which
reflected the interest earned on corporate balances including client funds on
balance sheet, benefitted from the rising interest rate cycle.
Earnings Per Share
£m (unless stated) FY23 FY23 adjusted FY22 FY22 adjusted Change % Adjusted change %
Profit before tax from continuing operations 449.9 490.5 477.0 494.3 (6%) (1%)
Tax (86.2) (94.0) (80.9) (83.8)
Profit after tax from continuing operations 363.7 396.5 396.1 410.5 (8%) (3%)
Weighted average number of shares for the 418.7 418.7 426.3 426.3 (2%) (2%)
calculation of EPS (millions)
Basic earnings per share (pence per share) 86.9 94.7 92.9 96.3 (6%) (2%)
Profit before tax was £449.9 million in FY23, and £490.5 million on an
adjusted basis, 1% lower than FY22.
The effective tax rate (ETR) was 19.2% based on profit before tax from
continuing operations (FY22: 17.0%). The ETR was lower than the average main
rate of UK corporate tax in the period of 20%, where the majority of the
Group's profits were taxed, primarily as a result of standard UK tax
incentives and adjustments to prior year estimates. The ETR for FY24 is
anticipated to be around 24% on an adjusted basis, due to the sharp increase
in UK corporate tax rate from 19% to 25% from 1 April 2023. The ETR is
dependent on several factors including taxable profit by geography, tax rates
levied in those geographies and the availability and use of taxable losses.
The future ETR may also be impacted by changes in our business activities,
client composition and regulatory status, which could affect our exemption
from the UK Bank Corporation Tax surcharge.
Profit after tax was £363.7 million, down 8% on FY22, and 3% lower on an
adjusted basis. Basic EPS was 86.9 pence, down 6% on FY22 and 2% lower on an
adjusted basis due to the reduction in profits, partly offset by a lower share
count reflecting our share buyback programme.
Dividend
The final dividend for FY23 of 31.94 pence per share was proposed by the
Board. This will be paid on 19 October 2023, following approval at the
Company's Annual General Meeting, to those shareholders on the register at the
close of business on 22 September 2023. This represents a total FY23 dividend
paid of 45.2 pence per share (FY22: 44.2 pence per share).
Summary Group Balance Sheet
The balance sheet is presented on a management basis which reflects the
Group's use of alternative performance measures to monitor its financial
position, with particular focus on own funds and liquid assets which are
deployed to meet the Group's liquidity requirements. These alternative
performance measures are reconciled to the corresponding statutory balances in
the appendix.
£m 31 May 2023 31 May 2022 Change %
Goodwill 611.0 604.7 1%
Intangible assets 276.5 292.1 (5%)
Property, plant and equipment(1) 17.6 16.7 5%
Operating lease net liabilities (2.2) (2.0) 10%
Other investments 1.2 - nm
Investments in associates 12.5 14.8 (16%)
Fixed assets 916.6 926.3 (1%)
Own cash 730.2 1,245.9 (41%)
Issued debt (299.3) (299.2) -
Client funds held on balance sheet (420.4) (519.4) (19%)
Turbo warrants(2) (2.7) (1.5) 80%
Net amounts due from brokers 825.3 657.1 26%
Own funds in client money 75.1 64.2 17%
Financial investments 234.1 - nm
Liquid assets threshold requirement 65.0 106.7 (39%)
Own funds 1,207.3 1,253.8 (4%)
Working capital (74.4) (82.5) (10%)
Net current assets held for sale - 0.4 (100%)
Tax receivable/(payable) 2.7 (20.5) (113%)
Net deferred tax liability (37.6) (49.7) (24%)
Net assets 2,014.6 2,027.8 (1%)
(1) Excludes right-of-use assets.
(2) Recognised in client funds held on balance sheet in the prior year.
During FY23, Group's fixed assets decreased by £9.7 million. The decrease in
fixed assets was driven by annual depreciation and amortisation of £61.8
million offset by additions of £26.2 million in intangibles and property,
plant and equipment, £8.7 million on the Small Exchange acquisition, £7.6
million lease payment and a £10.8 million increase from foreign exchange. The
Group's working capital increased by £8.1 million, which was primarily driven
by a lower general bonus accrual compared to prior year.
The Group recognised a £13.2 million decrease in net assets during the period
driven by a £46.5 million decrease in own funds offset by a reduction of
£35.3 million in tax and deferred tax liabilities.
Liquidity
The Group maintained a strong liquidity position, ensuring that it had
sufficient resources under both normal circumstances and stressed conditions
to meet its working capital and other liquidity requirements, which included
broker margin requirements, regulatory and working capital needs of its
subsidiaries, and funding of adequate buffers in client money accounts.
The Group's available liquidity comprised assets available at short notice to
meet additional liquidity requirements, which were typically increases in
broker margin.
£m 31 May 2023 31 May 2022 Change %
Own cash 730.2 1,245.9 (41%)
Net amounts due from brokers 825.3 657.1 26%
Own funds in client money 75.1 64.2 17%
Financial investments 234.1 - -
Liquid assets threshold requirement 65.0 106.7 (39%)
Liquid assets 1,929.7 2,073.9 (7%)
Broker margin requirement (678.2) (629.5) 8%
Cash balances in non-UK subsidiaries (383.5) (342.9) 12%
Own funds in client money (75.1) (64.2) 17%
Available liquidity 792.9 1,037.3 (24%)
of which:
Held to meet regulatory liquidity requirements 65.0 106.7 (39%)
Dividend due 130.6 134.8 (3%)
The composition of the Group's liquid assets changed during the period, with
more liquid assets held as financial investments (UK government securities)
rather than cash. This was a result of changes in regulations that require the
Group to post securities into segregated accounts instead of cash to meet
initial margin requirements at certain brokers. The impact on the Group's
liquid assets was that the UK government securities held by the Group
increased by £210.3 million, with a corresponding reduction in the cash
balance at 31 May 2023. The Group held £372.3 million of UK government
securities to satisfy margin requirements. The Group's cash balance also
reduced as a result of dividends paid during FY23 of £188.1 million, share
buyback of £175.2 million and tax paid of £116.6 million, offset by cash
generated from total operations of £296.2 million.
Net amounts due from brokers increased by £168.2 million. The balance
comprised open derivative positions, cryptocurrency assets, cash and UK
government securities held on account by the Group's hedging and execution
counterparties. The broker margin requirement at 31 May 2023 was £48.7
million higher than the requirement at 31 May 2022. The maximum margin
requirement during the period was £757.5 million in August 2022, lower than
the Group's highest broker margin requirement of £774.7 million which
occurred in H1 FY22.
The Group's available liquidity reduced by £244.4 million during the period,
which was more than the overall fall in liquid assets of £144.2 million. This
was driven by an increase in broker margin requirements and the Group holding
higher cash balances in non-UK subsidiaries to meet local cash requirements at
the end of the year. The Group regularly repatriates cash from its overseas
subsidiaries, and for liquidity management and planning purposes the Group
excludes cash held by non-UK subsidiaries from available liquidity. The amount
of cash held in entities outside the UK was £383.5 million as at 31 May 2023
(31 May 2022: £342.9 million).
The Group's available liquidity is subject to meeting other requirements
including regulatory liquidity requirement within the Investment Firms
Prudential Regime (IFPR). IFPR has a basic liquid assets requirement and a
liquid assets threshold requirement, which can be met with both cash and
certain financial investments. As at 31 May 2023, £65.0 million was held as
liquid asset threshold requirement, 39% lower than 31 May 2022 due to removal
of the transitional IFPR arrangement.
In addition to cash recognised on the balance sheet, as at 31 May 2023, the
Group held £2,303.9 million (31 May 2022: £2,577.9 million) of client money
in segregated bank accounts, which is not recognised on the Group's balance
sheet. These client funds are held separately from the Group's own cash
balances and are excluded from the Group's liquid assets.
Own Funds
The Group measures the strength of its liquidity position using an "own funds"
measure, instead of just cash, as it is a broader and more stable measure than
cash. Own funds include liquid assets, less issued debt, turbo warrants and
client funds on the balance sheet. As at 31 May 2023, the Group had a cash
balance of £730.2 million (31 May 2022: £1,245.9 million) compared with an
own funds balance of £1,207.3 million (31 May 2022: £1,253.8 million).
£m 31 May 2023 31 May 2022 Change %
Liquid assets 1,929.7 2,073.9 (7%)
Client funds on balance sheet (420.4) (519.4) (19%)
Turbo warrants (2.7) (1.5) 80%
Issued debt (299.3) (299.2) 0%
Own funds 1,207.3 1,253.8 (4%)
Client funds on balance sheet are funds on deposit with the Group's Swiss
banking subsidiary, IG Bank SA, and client funds held by other subsidiaries
which are not subject to the same legal or regulatory protections as client
money held off balance sheet, including funds held by the Group under title
transfer arrangements.
The Group has £300 million, 3.125% senior unsecured bonds due in 2028. The
Group also has access to a £350 million revolving credit facility which was
undrawn at 31 May 2023 (31 May 2022: undrawn). The Group has the option to
request an increase in the revolving credit facility size to £400.0 million.
The total available credit facilities have risen from £600 million at 31 May
2022, to £650 million as at 31 May 2023, with the potential to rise to £700
million if the new revolving credit facility is increased in size.
Own Funds Flow
£m FY23 FY22
Own funds generated from operations 467.5 536.5
as % of operating profit 107% 112%
Taxes paid (116.6) (99.2)
Net own funds generated from operations 350.9 437.3
Net interest and fees received 10.2 (13.2)
Capital expenditure and capitalised development costs (26.2) (17.5)
Net own funds movement from acquisitions and disposals of subsidiaries and (2.8) (14.7)
investments in associates
Purchase of own shares held in employee benefit trusts (14.6) (6.7)
Pre-dividend increase in own funds 317.5 385.2
Cash paid for share buyback (175.2) -
Dividends paid (188.1) (186.2)
(Decrease)/Increase in own funds (45.8) 199.0
Own funds at start of the period 1,253.8 1,058.5
(Decrease)/Increase in own funds (45.8) 199.0
Impact of movement in exchange rates (0.7) (3.7)
Own funds at the end of period 1,207.3 1,253.8
Own funds decreased by £45.8 million, excluding the impact of foreign
exchange rates. This was driven by share buybacks completed in FY23 of £175.2
million, dividends paid of £188.1 million, purchase of own shares held in the
Employee Benefit Trust of £14.6 million and capital expenditure of £26.2
million, offset by net own funds generated from operations of £350.9 million.
Regulatory Capital
The Group is supervised on a consolidated basis by the Financial Conduct
Authority in the UK, which requires sufficient regulatory capital at both
Group and individual entity levels to cover risk exposures, valued according
to applicable rules, and any additional regulatory financial obligations
imposed.
The Group's regulatory capital resources, which totalled £996.3 million as at
31 May 2023 (31 May 2022: £1,025.6 million), are an adjusted measure of
shareholders' funds taking into account FY23 profits which are included in the
regulatory capital calculation once signed off by the auditors. Shareholders'
funds comprise share capital, share premium, retained earnings and other
reserves, and as at 31 May 2023 totalled £2,014.6 million (31 May 2022:
£2,027.8 million).
The Group's regulatory capital requirement as at 31 May 2023 was £497.4
million (31 May 2022: £497.4 million). The Group's capital headroom was
£498.9 million (31 May 2022: £528.2 million), demonstrating the solid
capital base.
£m 31 May 2023 31 May 2022
Shareholders' funds 2,014.6 2,027.8
Less foreseeable / declared dividends (127.6) (134.8)
Less remaining share buyback (22.5) -
Less goodwill and intangible assets (829.9) (833.7)
Less deferred tax assets (23.2) (17.5)
Less significant investment in financial sector entities (13.7) (14.8)
Less value adjustment for prudent valuation (1.4) (1.4)
Regulatory capital resources 996.3 1,025.6
Total requirement 497.4 497.4
Regulatory capital headroom 498.9 528.2
Consolidated Income Statement
for the year ended 31 May 2023
Year ended Year ended
31 May 2023 31 May 2022
Note £m £m
Continuing operations
Trading 949.7 982.0
revenue
Introducing partner commissions (7.9) (9.7)
Net trading revenue 2 941.8 972.3
Betting duty and financial transaction taxes (10.4) (2.5)
Interest income on client funds 81.8 3.5
Interest expense on client funds (1.0) (2.7)
Other operating income 11.2 8.6
Net operating income 1,023.4 979.2
Operating costs (583.8) (499.2)
Net credit losses on financial assets (1.1) (2.7)
Operating profit 438.5 477.3
Finance income 30.2 3.4
Finance costs (16.2) (14.8)
Gain on disposal of associates - 4.1
Share of loss after tax from associates (2.6) (2.3)
Fair value gain on convertible loan note - 9.3
Profit before tax 449.9 477.0
Tax expense 3 (86.2) (80.9)
Profit for the year from continuing operations 363.7 396.1
Profit for the year from discontinued operations 1.3 107.8
Profit for the year attributable to owners of the parent 365.0 503.9
Earnings per ordinary share for profit from continuing operations:
Basic 4 86.9p 92.9p
Diluted 4 86.1p 92.1p
Earnings per ordinary share for profit attributable to owners of the parent:
Basic 4 87.2p 118.2p
Diluted 4 86.4p 117.2p
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2023
Year ended 31 May 2023 Year ended 31 May 2022
£m £m £m £m
Profit for the year 365.0 503.9
Other comprehensive income:
Items that may be subsequently reclassified to the Consolidated Income
Statement:
Changes in the fair value of financial assets held at fair value through other (11.9) (4.0)
comprehensive income, net of tax
Foreign currency translation gain attributable to continuing operations 3.2 67.4
Foreign currency translation loss attributable to discontinued operations - (3.0)
Other comprehensive (loss)/income for the year, net of tax (8.7) 60.4
Total comprehensive income for the year 356.3 564.3
Total comprehensive income attributable to owners of the parent arising from:
Continuing operations 355.0 459.5
Discontinued operations 1.3 104.8
356.3 564.3
Consolidated Statement of Financial Position
as at 31 May 2023
31 May 2023 31 May 2022
Note £m £m
Assets
Non-current assets
Goodwill 6 611.0 604.7
Intangible assets 7 276.5 292.1
Property, plant and equipment 36.1 36.6
Financial investments 8 379.6 134.8
Financial assets pledged as collateral 8 - 25.3
Investment in associates 12.5 14.8
Other investments 1.2 -
Prepayments 0.3 -
Deferred income tax assets 3 23.2 17.5
1,340.4 1,125.8
Current assets
Cash and cash equivalents 9 798.5 1,246.4
Trade receivables 10 570.4 469.5
Financial investments 8 226.8 200.9
Financial assets pledged as collateral 8 - 35.1
Other assets 15.0 14.2
Prepayments 25.3 23.2
Other receivables 10.0 9.8
Income tax receivable 3 8.8 -
1,654.8 1,999.1
Assets classified as held for sale - 1.2
TOTAL ASSETS 2,995,2 3,126.1
Liabilities
Non-current liabilities
Debt securities in issue 11 297.6 297.2
Other payables 1.2 -
Lease liabilities 13.3 13.0
Deferred income tax liabilities 3 60.8 67.2
372.9 377.4
Current liabilities
Trade payables 12 478.0 571.2
Other payables 116.2 119.5
Lease liabilities 7.4 8.9
Income tax payable 3 6.1 20.5
607.7 720.1
Liabilities directly associated with assets classified as held for sale - 0.8
TOTAL LIABILITIES 980.6 1,098.3
Consolidated Statement of Financial Position (continued)
for the year ended 31 May 2023
31 May 2023 31 May 2022
£m £m
Equity
Share capital and share premium 14 125.8 125.8
Translation reserve 120.8 117.6
Merger reserve 590.0 590.0
Other reserves (16.9) 8.4
Retained earnings 1,194.9 1,186.0
TOTAL EQUITY 2,014.6 2,027.8
TOTAL EQUITY AND LIABILITIES 2,995.2 3,126.1
The preliminary announcement was approved by the Board of Directors on 19 July
2023 and signed on its behalf by:
Charles
Rozes
Chief Financial
Officer
Registered Company number: 04677092
Consolidated Statement of Changes in Equity
for the year ended 31 May 2023
Share capital Share premium Translation reserve Merger reserve Other reserves Retained earnings Total
Note £m £m £m £m £m £m £m
At 1 June 2021 - 125.8 53.2 81.0 12.8 860.5 1,133.3
Profit for the year and attributable to owners of the parent - - - - - 503.9 503.9
Other comprehensive income/(loss) for the year - - 64.4 - (4.0) - 60.4
Total comprehensive income/(loss) for the year - - 64.4 - (4.0) 503.9 564.3
Tax recognised directly in equity on share-based payments 3 - - - - - 0.5 0.5
Equity dividends paid 5 - - - - - (186.2) (186.2)
Employee Benefit Trust purchase of own shares - - - - (6.7) - (6.7)
Transfer of vested awards from the share-based payment reserve - - - - (7.3) 7.3 -
Equity-settled employee share-based payments - - - - 13.6 - 13.6
Issue of ordinary share capital for the acquisition of tastytrade - - - 509.0 - - 509.0
At 31 May 2022 - 125.8 117.6 590.0 8.4 1,186.0 2,027.8
At 1 June 2022 - 125.8 117.6 590.0 8.4 1,186.0 2,027.8
Profit for the year and attributable to owners of the parent - - - - - 365.0 365.0
Other comprehensive (loss)/income for the year - - 3.2 - (11.9) - (8.7)
Total comprehensive income/(loss) for the year - - 3.2 - (11.9) 365.0 365.3
Tax recognised directly in equity on share-based payments 3 - - - - - 1.0 1.0
Equity dividends paid 5 - - - - - (188.1) (188.1)
Share buyback - - - - (2.1) (176.6) (178.7)
Employee Benefit Trust purchase of own shares - - - - (14.6) - (14.6)
Transfer of vested awards from the share-based payment reserve - - - - (7.6) 7.6 -
Equity-settled employee share-based payments - - - - 13.3 - 13.3
Share-based payments converted to cash-settled liabilities - - - - (2.4) - (2.4)
At 31 May 2023 - 125.8 120.8 590.0 (16.9) 1,194.9 2,014.6
Consolidated Statement of Cash Flows
for the year ended 31 May 2023
Year ended Year ended
31 May 2023 31 May 2022
Note £m £m
Operating activities
Cash generated from operations(1) 221.4 810.6
Interest received on client funds 75.8 3.5
Interest paid on client funds (1.0) (2.7)
Income taxes paid (116.6) (99.2)
Net cash flows generated from operating activities 179.6 712.2
Investing activities
Interest received 25.6 3.2
Net cash flow to investment in associates - (1.9)
Purchase of property, plant and equipment (11.6) (8.5)
Payments to acquire and develop intangible assets (14.6) (9.0)
Net proceeds from disposal of subsidiaries 1.8 143.3
Net proceeds from disposal of investments in associates 0.2 24.5
Net cash flow from financial investments (225.8) (57.1)
Net cash flow to acquire subsidiaries (4.8) (193.5)
Net cash flows used in investing activities (229.2) (99.0)
Financing activities
Interest paid (12.2) (11.0)
Financing fees paid (3.2) (5.4)
Interest paid on lease liabilities (0.5) (0.6)
Repayment of principal element of lease liabilities (7.1) (7.5)
Drawdown on term loan - 150.0
Repayment of term loans - (250.0)
Net proceeds from issue of debt securities - 299.2
Payments made for share buyback (175.2) -
Equity dividends paid to owners of the parent 5 (188.1) (186.2)
Employee Benefit Trust purchase of own shares (14.6) (6.7)
Net cash flows used in financing activities (400.9) (18.2)
Net (decrease)/increase in cash and cash equivalents (450.5) 595.0
Cash and cash equivalents at the beginning of the year 1,246.4 655.2
Impact of movement in foreign exchange rates (0.7) (3.8)
Cash and cash equivalents at the end of the year 9 795.2 1,246.4
(1) Cash generated from operations includes cash generated from both
continuing and discontinued operations and excludes net interest on client
funds
Notes
for the year ended 31 May 2023
1. Basis of preparation
The financial information in this announcement is derived from IG Group
Holdings plc's Group Financial Statements but does not, within the meaning of
Section 435 of the Companies Act 2006, constitute statutory accounts for the
years ended 31 May 2023 or 31 May 2022.
Although the financial information has been prepared in accordance with the
recognition and measurement criteria of UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 (UK IAS), this
preliminary statement does not itself contain sufficient information to comply
with UK IAS and the applicable legal requirements of the Companies Act 2006.
The Group will publish its Annual Report and Financial Statements for the year
ended 31 May 2023 in August 2023 and these will be delivered to the Registrar
of Companies following the Company's Annual General Meeting on 20 September
2023.
The Group's auditors, PricewaterhouseCoopers LLP, have reported on those
Financial Statements and the report was unqualified, did not emphasise any
matters nor contained any statements under Section 498(2) or (3) of the
Companies Act 2006.
Copies of full Financial Statements will be available via the Group's
corporate website at www.iggroup.com in August 2023. Copies will also be
available for posting to all shareholders upon request from the Group's
Headquarters, Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA.
The Financial Statements are prepared on a going concern basis and are
consistent with the Group's 2022 Annual Report, with the exception of changes
in policy on presentation, and the following accounting policies adopted due
new transactions in the year:
· equity arising from transactions with shareholders
· notional pooling arrangement
There were no new standards, amendments or interpretations issued and made
effective during the current year which have had a material impact on the
Group.
Reclassification of comparatives
To ensure consistency with the current period, comparative figures have been
reclassified where the presentation of the financial information has been
changed. The adjustments are:
(i) Interest received on client funds of £81.8 million (31 May 2022: £3.5
million) and interest paid on client funds of £1.0 million (31 May 2022:
£2.7 million) have been presented as separate line items in the Consolidated
Statement of Cash Flows.
(ii) The ordering of the financial statement line items in the Consolidated
Income Statement has been updated in the current year, to reflect a more
appropriate presentation given changes in the business. As a result of
changing interest rates, finance income (31 May 2023: £30.2 million; 31 May
2022: £3.4 million) and finance costs (31 May 2023: £16.2 million; 31 May
2022: £14.8 million) have increased. Accordingly, these line items are now
presented immediately below the operating profit line.
New accounting policies
Notional pooling arrangement
The Group entered into a notional multi-currency pooling arrangement (the
Pool). There is no legally enforceable right to offset the amounts due to the
Pool against the amounts due from the Pool across different currencies, nor is
there an intention for settlement to take place on a net basis, the Group
shows a gross presentation for these balances on the Consolidated Statement of
Financial Position, and amortises over the expected life of the security. The
overdraft balance of the Pool is included in other payables.
1. Basis of preparation (continued)
Equity arising from transactions with shareholders
Upon entering into a contract with a bank or broker which includes an
obligation for that bank or broker to acquire the Group's own shares, a
financial liability is recognised at the present value of the amount payable
to the bank or broker, taking into consideration the contractual terms with of
the broker agreement, with a corresponding debit to the share buyback reserve,
which is included within other reserves. Following initial recognition, the
financial liability is measured in accordance with the Group's existing
accounting policies for financial liabilities. The amount recognised in the
share buyback reserve is reduced by the consideration paid for the purchase of
own shares and transferred to retained earnings. The amount of the Group's
issued share capital is reduced by the nominal value of the shares repurchased
and transferred to the capital redemption reserve, which forms part of other
reserves.
Where the contract to repurchase shares expires prior to completing the
repurchase, and incomplete delivery of the shares has taken place, the
remaining balance recognised in the share buyback reserve is reversed along
with the remaining financial liability. Any consideration paid to acquire own
shares which exceeds the amount initially recognised is a transaction related
cost and recognised directly in equity.
2. Segmental analysis
The Executive Directors are the Group's Chief Operating Decision Maker (CODM).
Management has determined the reportable segments based on the information
reviewed by the CODM for the purposes of allocating resources and assessing
performance.
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. Additionally, the Group's assets and liabilities
are not allocated to individual segments and not reported as such for decision
making purposes to the CODM. Therefore, the segmental analysis shown below
does not include a measure of profitability, nor a complete segmented balance
sheet, as this would not reflect the information which is received by the CODM
on a regular basis.
The CODM are presented a view of total revenue split by product. Total revenue
is an alternative performance measure which is comprised of net trading
revenue and net interest on client funds. In the prior year, the CODM were
presented with a view of net trading revenue split by product. This change is
due to net interest on client funds being a more significant source of revenue
in the year ended 31 May 2023. The presentation for prior year comparatives
has been updated to reflect this.
Total revenue by reportable segment
Net trading revenue represents trading revenue that the Group generates from
client trading activity after deducting introducing partner commissions. Net
interest on client funds represents interest earned on segregated client money
balances after deducted interest paid in relation to the same balances. These
two balances collectively make up total revenue earned for the Group. The CODM
uses total revenue as the primary measure of performance of the various
segments of the Group. The CODM considers business performance from a product
perspective, split into OTC derivatives, exchange traded derivatives, stock
trading and investments and net interest on client funds. The products shown
in the segmental analysis below are aggregated where these products are
economically similar in nature.
The segmental breakdown of total revenue is as follows:
Year ended Year ended
31 May 2023 31 May 2022
£m £m
OTC derivatives 782.0 817.3
Exchange traded derivatives 137.1 121.2
Stock trading and investments 22.7 33.8
Net trading revenue 941.8 972.3
Net interest on client funds 80.8 0.8
Total revenue from continuing operations(1) 1,022.6 973.1
Total revenue from discontinued operations(1) - 9.4
(1)Please refer Appendix 1 for the reconciliation to the Consolidated Income
Statement
2. Segmental analysis (continued)
The CODM also considers business performance based on geographical location.
This geographical split reflects the location of the office that manages the
underlying client relationship.
Year ended Year ended
31 May 2023 31 May 2022
£m £m
Net trading revenue by geography
UK 322.0 365.3
Japan 99.3 98.5
Australia 99.8 96.2
Singapore 68.8 74.1
EMEA Non-EU 55.3 53.5
Emerging markets 39.5 43.2
UK, APAC & Emerging markets 684.7 730.8
US 140.9 128.6
EU 116.2 112.9
Net trading revenue 941.8 972.3
Net interest on client funds - US 50.4 1.9
Net interest on client funds - Other 30.4 (1.1)
Total revenue from continuing operations 1,022.6 973.1
Total revenue from discontinued operations - 9.4
The Group does not derive more than 10% of revenue from any one single client.
In relation to prior year comparative information, the UK geographic segment,
and the OTC derivatives segment, includes a £5.8 million foreign exchange
gain arising from financing of the tastytrade acquisition in prior year. No
such gains have been recognised in the current year.
The segmental breakdown of non-current assets excluding financial investments,
financial assets pledged as collateral and deferred income tax assets, based
on geographical location is as follows:
31 May 2023 31 May 2022
£m £m
US 770.7 795.1
UK 152.6 133.8
EU 5.7 5.5
EMEA Non-EU 4.7 7.3
Australia 0.4 0.8
Japan 1.9 0.8
Singapore 0.3 -
Emerging markets 0.1 3.4
Total non-current assets 936.4 946.7
3. Taxation
Tax on profit on ordinary activities
Tax charged in the Consolidated Income Statement:
Year ended Year ended
31 May 2023 31 May 2022
£m £m
Current income tax
UK corporation tax 75.1 79.1
Non-UK corporation tax 24.3 39.3
Adjustment in respect of prior years (6.1) (6.1)
Total current income tax 93.3 112.3
Deferred income tax
Origination and reversal of temporary differences (7.4) (1.6)
Adjustment in respect of prior years 0.8 (1.0)
Impact of change in tax rates on deferred tax balances (0.1) 0.3
Total deferred income tax (6.7) (2.3)
Total tax expense 86.6 110.0
Total tax expense attributable to:
Continuing operations 86.2 80.9
Discontinued operations 0.4 29.1
Tax not charged to Consolidated Income Statement
Tax recognised in other comprehensive income (6.2) 0.5
Tax recognised directly in equity (1.0) (0.5)
Reconciliation of the total tax expense
The standard UK corporation tax rate for the year ended 31 May 2023 is 20%(1)
(31 May 2022: 19%). Taxation outside the UK is calculated at the rates
prevailing in the relevant jurisdictions. The tax expense in the Consolidated
Income Statement for the year can be reconciled as set out below:
(¹)(Blended UK corporation tax rate, being 10 months of 19% and 2 months of
25%.)
Year ended Year ended
31 May 2023 31 May 2022
£m £m
Profit before taxation
From continuing operations 449.9 477.0
From discontinued operations 1.7 136.9
Total profit before tax 451.6 613.9
Profit multiplied by the UK standard rate of corporation tax
of 20%(1) (year ended 31 May 2022: 19.0%) 90.3 116.7
Higher taxes on overseas earnings 3.4 7.9
Adjustment in respect of prior years (5.3) (8.2)
Expenses not deductible for tax purposes 1.6 0.8
Patent Box deduction (3.2) (7.0)
Impact of change in tax rates on deferred tax balances (0.1) 0.3
Recognition and utilisation of losses previously not recognised (0.4) (1.2)
Current year losses not recognised as deferred tax assets 0.3 0.7
Total tax expense attributable to: 86.6 110.0
Continuing operations 86.2 80.9
Discontinued operations 0.4 29.1
3. Taxation (continued)
The effective tax rate for the year is 19.2% (31 May 2022: 17.9%).
In the UK, a corporation tax rate of 25% (effective from 1 April 2023) was
substantively enacted on 24 May 2021. This will impact the Group's future tax
charge accordingly. The 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.
Deferred income tax assets
31 May 2023 31 May 2022
£m £m
Tax losses available for offset against future profits 3.8 3.7
Temporary differences arising on share-based payments 4.8 3.7
Temporary differences arising on fixed assets 1.1 2.1
Other temporary differences 13.5 8.0
23.2 17.5
Deferred income tax liabilities
31 May 2023 31 May 2022
£m £m
Temporary differences arising on business combinations (57.6) (62.9)
Temporary differences arising on fixed assets (0.2) (0.2)
Other temporary differences (3.0) (4.1)
(60.8) (67.2)
4. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit for the year
attributable to owners of the parent by the weighted average number of
ordinary shares in issue during the year, excluding shares held as own shares
in the Group's Employee Benefit Trusts and shares repurchased and cancelled
under the share buyback programme. 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 assuming the vesting
of all outstanding share scheme awards.
Year ended Year ended
31 May 2023 31 May 2022
Earnings attributable to owners of the parent (£m) 365.0 503.9
Weighted average number of shares
Basic 418,693,685 426,289,898
Dilutive effect of share-based payments 3,869,357 3,614,236
Diluted 422,563,042 429,904,134
Year ended Year ended
31 May 2023 31 May 2022
Basic earning per ordinary share 87.2p 118.2p
- Attributable to continuing operations 86.9p 92.9p
- Attributable to discontinued operations 0.3p 25.3p
Diluted earning per ordinary share 86.4p 117.2p
- Attributable to continuing operations 86.1p 92.1p
- Attributable to discontinued operations 0.3p 25.1p
5. Dividends paid and proposed
Year ended Year ended
31 May 2023 31 May 2022
£m £m
Final dividend for FY22 at 31.24 pence per share (FY21: 30.24p) 133.2 130.3
Interim dividend for FY23 at 13.26 pence per share (FY22: 12.96p) 54.9 55.9
188.1 186.2
The final dividend for the year ended 31 May 2023 of 31.94 pence per share was
proposed by the Board on 19 July 2023 and has not been included as a liability
at 31 May 2023. This dividend will be paid on 19 October 2023, following
approval at the Company's AGM, to those members on the register at the close
of business on 22 September 2023.
6. Goodwill
The movement in the goodwill balance for the year is as follows
31 May 2023 31 May 2022
£m £m
At the beginning of the year 604.7 107.3
Additions - business acquisition - 462.4
Disposals - (13.4)
Impact of foreign exchange movement 6.3 48.4
At the end of the year 611.0 604.7
Goodwill has been allocated for impairment testing purposes to cash-generating
units (CGU) as follows
31 May 2023 31 May 2022
£m £m
US 509.2 502.8
UK 100.9 100.9
South Africa 0.8 0.9
Australia 0.1 0.1
611.0 604.7
Goodwill arose as follows:
- US - from the acquisition of tastytrade on 28 June 2021
- UK - from the reorganisation of the UK business on 5 September
2003
- South Africa - from the acquisition of Ideal CFDs on 1 September
2010
- Australia - from the acquisition of the non-controlling interest
in IG Australia Pty Limited in the year ended 31 May 2006
Impairment testing
The Group's goodwill balance has been subject to a full impairment assessment
and there has not been any impairment recognised for the above CGUs (31 May
2022: £nil). For the purposes of the Group's impairment testing of goodwill,
the carrying amount of each CGU is compared to the estimated recoverable
amount of the relevant CGU and any deficits are considered impairments
requiring recognition in the year.
The carrying amount of a CGU includes only those assets that can be attributed
directly to it, or allocated on a reasonable and consistent
basis.
The estimated recoverable amount for each CGU was determined using the VIU
method. For all CGUs, the recoverable amount was higher than the carrying
value. The Group's largest goodwill balance is associated with the US CGU.
6. Goodwill (continued)
Key assumptions used in the calculation of the recoverable amount of the US
CGU
The key assumptions for the VIU calculations are those regarding the future
cash flow projections, long-term growth rate, and the discount rate.
Future cash flow projections:
The future cash flow projections cover a period of four years, reflecting the
period over which the Board strategically assess performance. A declining
growth rate of 16.0%-6.0% was used to extrapolate the final year of the
four-year forecast period for a further three years. The terminal value was
calculated based on the seventh year. The growth rate for the years five to
seven was applied as the US business is not expected to reach a steady state
growth rate by the end of year four.
The cash flow projections are based on the most recent four-year plan and take
into account historical performance, together with the Group's views on future
achievable growth relating to growth of market share and increased client
acquisition. Key assumptions are the projected annual growth of net trading
revenue and cost growth, which impacts the EBITDA margin. Net trading revenue
growth is driven by increasing client numbers based on assumptions relating to
acquisition, conversion and retention of clients. EBITDA margin is based on
net trading revenue, interest on client money and cost assumptions. Interest
on client money is based on our expectation of future longer term interest
rates and increases in total client money balances as the underlying client
base increases during the forecasted period. Revenue related costs are
forecasted to increase over the four-year period in line with revenue
projections and cost growth reflects higher marketing expenditure and
continued investment in technology. The cashflow projections also take into
account assumptions relating to working capital requirements and capital
expenditure.
The forecasts do not include revenues arising from tastytrade's planned
expansion outside of the US market.
Long-term growth
The regional long-term growth is used to extrapolate the cash flows to
perpetuity for each CGU. The forecast period of four years is extrapolated for
a further three years using a declining growth rate, reducing the rate down to
a long-term growth rate of 2.0% (31 May 2022: 2.0%) which has been applied to
derive a terminal value based on the cash flows in year seven.
Discount rate
The discount rate used to calculate the recoverable amount of the US CGU is
based on a post-tax weighted average cost of capital (WACC). The discount rate
depends on a number of inputs reflecting the current market assessment of the
time value of money, determined by external market information, and inputs
relating to the risks associated with the cash flows which are subject to
management's judgement.
A pre-tax discount rate is derived from a post-tax WACC. At the date of the
2023 impairment assessment the pre-tax discount rate applied to the seven-year
cash flow period and thereafter, to determine the recoverable amount is 19.6%.
For the 2022 impairment assessment, if the four-year cash flows were
extrapolated for three years in line with the current year methodology, a
discount rate of 19.8% would have been applied. The year on year movement in
the discount rate is as a result of the impact of rising interest rates being
offset by a reduction in entity specific risk premiums included in the
discount rate.
The recoverable amount determined for a seven-year cash flow period for 31 May
2023 and 31 May 2022 would be the same as that determined for a four-year cash
flow period with an adjusted pre-tax discount rate applied.
6. Goodwill (continued)
Sensitivity to changes in key
assumptions
The recoverable amount at 31 May 2023 exceeds the carrying amount of the
cash-generating unit by £27.0 million. The assessment excludes the projected
future cash flows arising from tastytrade's planned expansion outside the US
market. Were the projected cash flows from international expansion included
this would add headroom.
The impact of sensitivities to reasonable changes in a single variable and the
change required to reduce headroom to nil are shown in the following table
Assumption Sensitivity applied Reduction in recoverable amount (£m) Impairment Changes required to reduce headroom to nil
£m
Net trading revenue growth (5.0)% (104.7) (77.7) 1.2% underperformance
EBITDA margin (10.0)% (85.1) (58.1) 3.2% underperformance
Discount rate 0.5% (29.3) (2.3) 0.6% increase
Long-term growth rate (0.5)% (17.9) - 0.8% reduction
Key assumptions used in the calculation of the recoverable amount of the CGUs
excluding the US CGU
Future cash flow
projections
The future cash flow projections cover a period of four years, reflecting the
period over which the Board strategically assess performance. Projected
revenue is based on assumptions relating to client acquisition and trading
activity, and assumptions on interest earned on client funds. Projected costs
are based on assumptions relating to revenue-related costs, including trading
and client transaction fees, and structural costs. Projected profitability
takes into account historical performance and the Group's knowledge of the
current market, together with the Group's views on the future achievable
growth.
Regional long-term
growth
Regional long-term growth is used to extrapolate the cash flows to perpetuity
for each CGU. After a management forecast period of four years, a long-term
growth rate of 2.0% (31 May 2022: 2.0%) has been applied to the cash flows to
derive a terminal value.
Discount rates
The discount rates used to calculate the recoverable amount of each CGU are
based on a post-tax WACC which is specific to each geographical region. The
discount rate depends on a number of inputs reflecting the current market
assessment of the time value of money, determined by external market
information, and inputs relating to the risks associated with the cash flow of
each individual CGU which are subject to management's judgement.
The post-tax WACC is grossed up to a pre-tax discount rate. The pre-tax
discount rate applied to calculate the recoverable amount of each CGU is as
follows:
31 May 2023 31 May 2022
UK 14.0% 12.0%
Australia 16.0% 13.0%
South Africa 21.0% 18.0%
6. Goodwill (continued)
Sensitivity to changes in key assumptions excluding the US CGU
The VIU calculation has been subject to a sensitivity analysis reflecting
reasonable changes in individual key assumptions. For all goodwill balances,
there is sufficient headroom in the recoverable amount of the CGU based on the
assumptions made, and there is no reasonably likely scenario under which
material impairment could be expected to occur based on the testing performed.
7. Intangible assets
Customer relationships Trade names Non-compete agreements Internally developed software Domain names Software and licences Total
£m £m £m £m £m £m £m
Net book value - 31 May 2022 161.9 58.7 25.8 26.7 14.7 4.3 292.1
Net book value - 31 May 2023 147.1 55.2 19.7 34.8 11.0 8.7 276.5
8. Financial investments and financial assets pledged as collateral
31 May 2023 31 May 2022
£m £m
UK Government securities 606.4 351.1
Term deposits - 45.0
606.4 396.1
Split as:
Non-current portion 379.6 160.1
Current portion 226.8 236.0
606.4 396.1
The Group held £372.3 million UK Government securities as at 31 May 2023 (31
May 2022: £289.9 million) to satisfy margin requirements.
Following the introduction of the Uncleared Margin Rules (UMR) which came into
effect in September 2022, the Group is required to pledge collateral, which is
held in segregated custody accounts, to meet the initial margin requirements
of certain brokers. Previously initial margin requirements were met with a
combination of cash and UK Government securities held in unsegregated
accounts. As a result of this change, the UK Government securities held by the
Group has increased. The business model for holding UK Government Securities
is unchanged and so the Group continues to recognise and measure the assets as
fair value through other comprehensive income. Additionally, as at 31 May
2023, the Group holds £35.0 million of financial assets which are not
recognised on balance sheet as collateral from certain brokers to satisfy the
requirements of UMR.
9. Cash and cash equivalents
31 May 2023 31 May 2022
£m £m
Cash at bank 627.4 808.9
Money market funds 171.1 437.5
798.5 1,246.4
The Group's Swiss banking subsidiary, IG Bank S.A., is required to protect
customer deposits under the FINMA Privileged Deposit Scheme. At 31 May 2023,
IG Bank S.A. was required to hold £34.8 million (31 May 2022: £35.1 million)
in satisfaction of this requirement. This amount, which represents restricted
cash, is included in the cash at bank balance above.
9. Cash and cash equivalents (continued)
The amount of segregated client funds held at 31 May 2023 was £2,303.9
million (31 May 2022: £2,577.9 million). Included within these balances is
£232.5 million (31 May 2022: £236.7 million) of segregated client funds for
customers of the Group's Japanese subsidiary, IG Securities Limited. Under
local Japanese law, the Group is liable for any credit losses suffered by
clients on the segregated client money balance. These amounts are held
off-balance sheet due to the Group being unable to use these client funds. The
interest received on segregated client funds is included within net operating
income.
Reconciliation to Consolidated Statement of Cash Flows
31 May 2023 31 May 2022
£m £m
Cash and cash equivalents 798.5 1,246.4
Amounts due to the Pool (3.3) -
Balances as per Consolidated Statement of Cash Flows 795.2 1,246.4
10. Trade receivables
31 May 2023 31 May 2022
£m £m
Amounts due from brokers 486.6 381.0
Own funds in client money 79.4 85.5
Amounts due from clients 4.4 3.0
570.4 469.5
Amounts due from brokers represent balances with brokers and execution
partners where the combination of cash held on account and the valuation of
financial derivative open positions, or unsettled trade receivables, results
in an amount due to Group.
Own funds in client money represent 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 £24.7 million (31 May 2022: £7.6 million) to be
transferred to the Group on the following business day.
Amounts due from clients arise when a client's total funds held with the Group
are insufficient to cover any trading losses incurred by the client or when a
client utilises a trading credit limit. Amounts due from clients are stated
net of an allowance for impairment.
11. Debt securities in issue
In FY22 the Group issued £300.0 million 3.125% senior
unsecured bonds due in 2028. The issued debt has been recognised at fair value
less transaction fees. As at 31 May 2023, £1.7 million unamortised
arrangement fees are recognised on the Statement of Financial Position (31 May
2022: £2.0 million).
The Group also has access to a £350.0 million revolving
credit facility, which has increased as a result of two accordions to the
existing revolving credit facility being signed in FY23. The Group has the
option to request an increase in the revolving credit facility size to £400.0
million. The Group also had the option to request a maturity extension of one
year, which was exercised in FY23. The revolving credit facility will now
mature in October 2025. In addition, the Group has the option to extend the
maturity for a further year, subject to borrower request and lender consent.
Under the terms of the revolving credit facility agreement, the Group is
required to comply with financial covenants covering maximum levels of
leverage and debt to equity. The Group has complied with all covenants
throughout the year.
12. Trade payables
31 May 2023 31 May 2022
£m £m
Client funds
UK 253.9 359.0
US 56.1 34.1
EU 55.4 71.6
EMEA Non-EU 49.0 48.8
Singapore 1.1 1.5
Japan 4.9 4.4
Total client funds 420.4 519.4
Issued turbo warrants 2.7 1.5
Amounts due to brokers 48.6 28.0
Amounts due to clients 6.3 22.3
478.0 571.2
Client funds reflects the Group's liability for client monies which are
recognised on balance sheet in cash and cash equivalents.
Amounts due to brokers represents balances where the value of unsettled
positions, or the value of open derivatives positions held in accounts which
are not covered by an enforceable netting agreement, results in an amount
payable by the Group.
Amounts due to clients represent balances that will be transferred from cash
and cash equivalents into segregated client funds on the following business
day in accordance with the UK's Financial Conduct Authority CASS rules and
similar rules of other regulators in whose jurisdiction the Group operates.
13. Contingent liabilities and provisions
In the ordinary course of business, the Group is subject to legal and
regulatory risks in a number of jurisdictions which may result in legal claims
or regulatory action against the Group. Through the Group's ordinary course of
business there are ongoing legal proceedings and engagements with regulatory
authorities. Where possible, an estimate of the potential financial impact of
these legal proceedings is made using management's best estimate, but where
the most likely outcome cannot be determined no provision is recognised.
The Group is subject to a group of related claims that could have a financial
impact of approximately £20.5 million as at 31 May 2023 (31 May 2022: £20.6
million). There have been no significant developments during the year and it
is still not possible to determine whether any amounts will be payable to the
clients. As a result, no provision has been recognised.
The Group has received notice of a class action served against one of its
operating entities during the financial year ended 31 May 2023. There has been
no significant development since the claim was served and it is not possible
to determine amounts that could be payable to the clients. As a result, no
provision has been recognised.
Under the terms of the agreement with the Group's clearing broker for its
operations in the US, Apex Clearing Corporation, the Group guarantees the
performance of its customers in meeting contracted obligations. In conjunction
with the clearing broker, the Group seeks to control the risks associated with
its customer activities by requiring customers to maintain collateral in
compliance with various regulatory and internal guidelines. Compliance with
the various guidelines is monitored daily and, pursuant to such guidelines,
the customers may be required to deposit additional collateral, or reduce
positions where necessary.
The Group does not expect there to be other contingent liabilities that would
have material adverse impact on the Group Financial Statements. The Group had
no material provisions as at 31 May 2023 (31 May 2022: £nil).
14. Share capital and share premium
Number of shares Share capital Share premium account
( )
£m £m
Allotted and fully paid:
(i) Ordinary shares (0.005p)
At 31 May 2021 370,299,455 - 125.8
Issued during the year 61,275,000 - -
At 31 May 2022 431,574,455 - 125.8
Shares bought back and immediately cancelled (22,626,613) - -
At 31 May 2023 408,947,842 - 125.8
In prior year, the Group issued 61,000,000 shares as part of the total
consideration for the acquisition of tastytrade Inc. The shares were issued on
28 June 2021 and upon issue the total value of the shares was £509.4 million,
based on the closing share price on 28 June 2021. The issue of shares was
determined to qualify for merger relief under section 612 of the Companies Act
2006, and the amount in excess of the nominal value of the ordinary shares was
recognised in the merger reserve, along with issue costs of £0.4 million
which were directly attributable to the issue of the shares.
On 21 July 2022, the Group announced a share buyback programme with a maximum
aggregate market value equivalent to £150.0 million, to be completed in two
tranches of £75.0 million each. It was also announced that all shares
repurchased as part of the programme would be cancelled. The first tranche
commenced on 21 July 2022 and completed on 12 October 2022, with the purchase
and cancellation of 9,613,152 shares. The second tranche commenced on 25
October 2022 completed on 20 March 2023, with the purchase and cancellation of
9,635,113 shares.
On 25 January 2023, the Board approved an additional share buyback programme
of up to £50.0 million. This commenced on 1 April 2023 and as at 31 May 2023
has resulted in the purchase and cancellation of 3,571,441 shares.
As at 31 May 2023 the Group has repurchased 22,819,706 shares, with an
aggregate nominal value of £1,140.99, for total consideration of £176.6
million (including related costs of £0.8 million). As at 31 May 2023 the
Group had 193,093 shares repurchased but not cancelled.
During FY22, 275,000 ordinary shares with an aggregate nominal value of
£13.75 were issued to the Employee Benefit Trust to satisfy the exercise of
Sustained Performance Plan and Long-term Incentive Plan awards for
consideration of £13.75. No shares were issued in the current year. Except as
the ordinary shareholders have agreed or may otherwise agree, on 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.
15. Subsequent events
During the period from 1 June 2023 to 17 July 2023, the Group repurchased
3,386,082 ordinary shares with a nominal value of 0.005p for an aggregate
purchase amount of £23.0 million (including related costs of £0.1 million),
bringing the total number of shares repurchased under the share buyback
programme to 26,205,788.
On 19 July, the Board approved an additional share buyback programme of £250
million. It is anticipated that the programme will commence under the existing
shareholder authority granted at the 2022 AGM and will conclude under the
authority proposed for approval at the 2023 AGM, following approval at the
2023 AGM .
There have been no other subsequent events that have a material impact on the
Group's financial information.
Appendices
Appendix 1
Adjusted total revenue
£m FY23 FY22
Net trading revenue (Note 2) 941.8 972.3
Interest income on client funds 81.8 3.5
Interest expense on client funds (1.0) (2.7)
Foreign exchange gain associated with the tastytrade acquisition - (5.8)
Adjusted total revenue 1,022.6 967.3
Adjusted operating costs
£m FY23 FY22
Operating costs 583.8 499.2
- Net credit losses on financial assets 1.1 2.7
Operating costs inc. net credit losses 584.9 501.9
- Operating costs relating to the tastytrade acquisition and (2.7) (2.0)
integration
- Amortisation on tastytrade acquisition intangibles and recurring (37.0) (31.7)
non-cash costs
- Operating costs relating to the Nadex sale (4.2) (3.3)
Adjusted operating costs 541.0 464.9
Adjusted profit before tax and earnings per share
£m (unless stated) FY23 FY22
Earnings per share (p) (Note 4) 86.9 92.9
Weighted average number of shares for the 418.7 426.3
calculation of EPS (millions)
Profit after tax 363.7 396.1
Tax expense 86.2 80.9
Profit before tax 449.9 477.0
- Foreign exchange gain associated with the tastytrade acquisition - (5.8)
- Operating income relating to the Nadex sale (3.3) (1.5)
- Operating costs relating to the Nadex sale 4.2 3.3
- Amortisation on tastytrade acquisition intangibles and recurring 37.0 31.7
non-cash costs
- Operating costs relating to the tastytrade acquisition and 2.7 2.0
integration
- Financing costs relating to the debt issuance - 1.0
- Gains on sale of Small Exchange and disposal of Zero hash - (4.1)
- Movement in the FV of convertible debt associated with Zero Hash - (9.3)
Adjusted profit before tax (A) 490.5 494.3
Adjusted tax expense (94.0) (83.8)
Adjusted profit after tax 396.5 410.5
Adjusted earnings per share (pence per share) 94.7 96.3
Adjusted total revenue (B) 1,022.6 967.3
Adjusted PBT margin (A/B) % 48.0% 51.1%
Total revenue - High Potential Markets and tastytrade
£m FY23 FY22 Pro forma FY22 Change % Pro forma change %
High Potential Markets 207.0 139.7 148.3 48% 40%
Tastytrade 170.3 111.9 120.5 52% 41%
Appendix 2
Operating lease net liabilities
£m 31 May 2023 31 May 2022
Right-of-use assets(1) 18.5 19.9
Lease liabilities (current) (7.4) (8.9)
Lease liabilities (non-current) (13.3) (13.0)
Operating lease net liabilities (2.2) (2.0)
(1)Amounts identified as right-of-use assets from property, plant and
equipment
Own cash
£m 31 May 2023 31 May 2022
Cash and cash equivalents (Note 9) 798.5 1,246.4
Financial investments - termed cash (Note 8) - 45.0
Less: cash held to meet liquid asset threshold requirement (65.0) (45.5)
Less: amounts due to the Pool (3.3) -
Own cash 730.2 1,245.9
Issued debt
£m 31 May 2023 31 May 2022
Debt securities in issue (297.6) (297.2)
Unamortised fees capitalised(1) (Note 11) (1.7) (2.0)
Issued debt (299.3) (299.2)
(1) Unamortised arrangement fees recognised in debt securities in issue
Financial investments
£m 31 May 2023 31 May 2022
Financial investments and financial assets pledged as collateral (Note 8) 606.4 396.1
Less: Financial investments held at broker (Note 8) (372.3) (289.9)
Financial investments 234.1 106.2
Net amounts due from brokers
£m 31 May 2023 31 May 2022
Financial investments - UK Government securities held at brokers (Note 8) 372.3 289.9
Trade receivables - amounts due from broker (Note 10) 486.6 381.0
Trade payables - amounts due to broker (Note 12) (48.6) (28.0)
Other assets 15.0 14.2
Net amounts due from brokers 825.3 657.1
Own funds in client money
£m 31 May 2023 31 May 2022
Trade receivables - own funds in client money (Note 10) 79.4 85.5
Less: trade payables - amounts due to clients(1) (4.3) (21.3)
Own funds in client money 75.1 64.2
(1)Amounts considered as part of own funds
Liquid asset threshold requirement
£m 31 May 2023 31 May 2022
Financial investments - regulatory liquidity requirements - 61.2
Cash held to meet regulatory liquidity requirements 65.0 45.5
Liquid asset threshold requirement 65.0 106.7
Working capital
£m 31 May 2023 31 May 2022
Prepayments (non-current) 0.3 -
Prepayments (current) 25.3 23.2
Amounts due from clients (Note 10) 4.4 3.0
Unamortised fees capitalised (Note 11) 1.7 2.0
Other receivables 10.0 9.8
Other payables - other borrowings (1.2) -
Other payables - accruals (109.4) (112.6)
Other payables - payroll taxes, social security and other taxes (3.5) (6.9)
Trade payables - amounts due to clients(1) (2.0) (1.0)
Working capital (74.4) (82.5)
(1)Amounts considered part of working capital
Net own funds generated from operations
£m FY23 FY22
Cash generated from operations 221.4 810.6
Interest received on client funds 75.8 3.5
Interest paid on client funds (1.0) (2.7)
Cash generated from total operations 296.2 811.4
- Increase in other assets (0.8) (16.1)
- Increase/(decrease) in trade payables 95.3 (209.4)
- Increase/(decrease) in trade receivables 102.5 (37.7)
- Repayment of lease liabilities (7.1) (7.5)
- Interest paid on lease liabilities (0.5) (0.6)
- Fair value movement in gilts (18.1) (3.6)
Own funds generated from operations (A) 467.5 536.5
Profit before tax (B) 449.9 477.0
Conversion rate from profit to cash (A/B) % 104% 112%
Net own funds movement from acquisitions and disposals of investments in
subsidiaries and associates
£m FY23 FY22
Net cash flow to investment in associates - (1.9)
Net proceeds from disposal of subsidiaries 1.8 143.3
Proceeds from disposal of investments in associates, net of cash disposed 0.2 24.5
Net cash flow to acquire subsidiaries (4.8) (193.5)
Net own funds derecognised upon disposal of subsidiary - (2.7)
Net own funds recognised upon acquisition of subsidiary - 15.6
Net own funds movement from acquisitions and disposals of investments in (2.8) (14.7)
subsidiaries and associates
1 Discontinued operations consist of the operations of North American
Derivatives Exchange, Inc ("Nadex").
2 Adjusted metrics exclude revenue and costs relating to non-recurring or
non-cash items. A reconciliation to statutory measures is in Appendix 1.
3 Pro forma basis reflects revenue in the comparative period for the full 12
months, including the period prior to the acquisition of tastytrade.
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