IG Group Holdings plc (LON:IGG), a global leader in online trading, today issued an update on trading in the final quarter of its financial year ending 31 May 2020.
Trading
IG is a business with a clear purpose – to empower informed, decisive, adventurous people to access opportunities in the financial markets. Revenue in any period is impacted by the level of financial market volatility and the extent to which clients identify opportunities to trade. Financial market volatility has been sustained at exceptionally high levels since the last week of February 2020, and the Group’s clients have responded to the opportunities such market conditions present, and client trading volumes have been exceptionally high. The Group’s revenue, which is driven by client transaction fees, has therefore also been exceptionally high during this period.
The Board and the Group’s 1,950 employees are conscious of the fact that many businesses and individuals are facing considerable hardship as a result of the COVID-19 virus, and recognise that it is fortunate that IG’s business performs well in periods of financial market volatility. The Group has successfully implemented its comprehensive business continuity plan in response to the virus. The Group’s significant long-term investment in communications and technology infrastructure has enabled all employees to work safely from home, and IG continues to provide the best possible service for its clients when they choose to trade the financial markets. The Group is in regular communication with its staff members to ensure their safety, and that of their families, during this challenging time.
The high levels of volatility have persisted through March and into April, and the Group has continued to see high levels of client trading activity and further increases in the number of active clients. Revenue in the first 36 trading days of the 61 in Q4 FY20 is estimated to be around £173 million. Revenue in Q3 FY20 was £139.8 million, and revenue in H1 FY20 was £249.9 million.
IG’s track record of sustainable revenue growth over the medium and long term has been delivered through growth in the size and quality of its active client base. IG has continued to attract new, high quality, OTC leveraged clients, with record numbers of applications during this period. In the first 36 trading days of Q4 over 22,500 new OTC leveraged clients have traded with the Group for the first time, compared with the 36,000 new OTC leveraged clients in the first three quarters of FY20. Each client cohort that the Group recruits has an enduring value for IG generating revenue for many years.
The Company has previously guided that operating expenses, excluding variable remuneration, are expected to increase by around £30 million in FY20, to £290 million. This is primarily due to additional investment in prospect acquisition to continue to promote the IG brand, to grow the size and quality of the client base, and to establish the new businesses in the EU and the USA.
The Company is today updating that guidance. Operating expenses, excluding variable remuneration, are now expected to increase by around £40 million in FY20, to £300 million. The further increase in costs reflects the impact of the growth in the active client base and the high levels of client activity in Q4 and an increase in the provision for bad and doubtful debts.
A proportion of the remuneration paid to the Group’s employees is variable, and is dependent on the extent to which annual financial and non-financial performance targets are achieved. As a result of the high levels of revenue in Q4 FY20 to date, the Company expects that the charge for variable remuneration in FY20 will be around £42 million, compared with £25 million in FY19, reflecting a higher general bonus pool, in which the vast majority of the Group’s employees participate, and higher sales bonuses to front office staff.
In addition, as detailed below, the Company has committed £5 million from its FY20 profit before tax to the IG Brighter Future Fund to improve the educational opportunities available to the least privileged young people in the communities we operate in across the world, many of whom have been disproportionately impacted by the Coronavirus pandemic.
The recent sustained level of financial market volatility and revenue is unprecedented, and it is not possible to determine how long it will persist or how clients will continue to respond. It therefore remains difficult to predict accurately the level of revenue in the final quarter of this financial year.
The Group’s financial position remains very strong. The Board reiterates that it expects to maintain the 43.2 pence per share annual dividend until the Group’s earnings allow the Company to resume progressive dividends.
The Group’s next scheduled market update is on 4 June 2020 when it expects to provide a pre close trading update for FY20.
IG Brighter Future Fund
The Company has committed £5 million from its FY20 profit before tax to the IG Brighter Future Fund, the main aim of which is to improve the educational opportunities available to the least privileged young people in the communities we operate in across the world, many of whom have been disproportionately impacted by the Coronavirus pandemic.
To achieve these ambitions, £2 million will be used to immediately deepen our existing UK partnership with the education charity Teach First. The remainder will be set aside to work with a range of global partners and their international network members in those communities of which IG is a part.
In addition, IG will maintain and extend its range of local-led employee initiatives across the globe to help fight against the virus. This includes a UK employee matched-giving scheme launched last month to support the National Emergencies Trust Coronavirus Appeal; a scheme that has so far seen IG colleagues raise more than £70,000.
IG Group CEO, June Felix, commented:
“During such a prolonged period of volatility, we’ve seen high volumes of clients choosing to trade markets with IG, reflecting our business resilience, our robust systems and our commitment to delivering the best possible trading experience.
We are encouraged with the resilience and performance of our employees in such challenging times for everyone. The IG Brighter Future Fund builds on our culture of supporting the local communities in which we operate, helping disadvantaged young people gain access to improved educational opportunities. We are thrilled to be able to build on our partnership with Teach First and forge ties with other new international partners to support the long-term education needs of children living through such an unsettling period.”
