IG Group Registers Second Consecutive Quarterly Revenue Decline

Shares of the company traded 6 percent lower as the brokerage announced that its quarterly revenues had declined by 4

IG Group (LON:IGG) published its yearly results, which have shown that the firm is registering continued underlying growth in revenues on a yearly basis. Notwithstanding the effects of the Swiss National Bank turmoil which caused the company to mark a reduction to its revenues by £12 million ($18.7 million) and increased bad debt charges by £15 million ($23.3 million), the fourth quarter results of IG Group have marked a trend of declining revenues.

The quarterly figures for the fourth quarter ending on May 31st have been reported at £99.2 million, which despite being 9 percent higher than a year ago is lower by 4 percent when compared to the third quarter and by 11 percent from the second quarter which has been characterized by an unusually sharp rise in foreign exchange volatility.

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Share prices of IG Group (LON:IGG) declined by more than 5 percent in today’s trading, in the aftermath of the full-year results announcement. However, the effect of the company’s CEO Tim Howkins stepping down should not be underestimated. He has proven himself as a leader taking charge of the massive growth of the IG Group (LON:IGG) for the past 16 years.

Looking at the Key Performance Indicators (KPIs), the metrics which IG Group reported have been mixed. The domestic market for the brokerage in the U.K. has been very buoyant throughout the year with revenues per user rising 8 percent and active client growth coming in at 2 percent. However, after the massive growth in the second quarter the figures have subsided.

IG Group Revenues and Client numbers
IG Group Revenues and Client Numbers, Source: IG Group

For the final quarter of the year, revenues from U.K. clients have increased by 2.4 percent year-on-year when compared to 27 percent in the second quarter and 5.8 percent in the third.

The bulk of the growth of the company has come from increasing revenues from Australia and the Rest of the World (RoW) business segments. In the final quarter revenue numbers from Australia increased by 26 percent, while those from the RoW region almost doubled, marking 44 percent growth. These figures contributed to a total year-on-year change for the year of 13 and 11 percent respectively.

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The European business of IG Group (LON:IGG) has stagnated with revenues per client falling by 14 percent for the year and the final quarter of the year. That said, the number of active users from the region increased markedly by 14 percent for the year and by 13 percent in the final quarter. Overall revenues from Europe declined by 1.5 percent for the full-year and by 3.4 percent in the final quarter.

Regional Distribution of Revenues
Regional Distribution of Revenues, Source: Finance Magnates Research

A special factor worth considering when we look at the year-on-year declines in revenues is the value of the euro against sterling. The drop in the EUR/GBP exchange rate is precisely 14 percent year-on-year.

Mr. Howkins elaborated on the declining European revenues issue, explaining, “Overnight funding revenue has fallen as clients have held fewer positions overnight. At the same time although the number of trades per client increased significantly, this was more than offset by a drop in the overall average trade size, reflecting a movement towards smaller size contracts.”

Through the second half, we also saw a widening of spreads in the underlying DAX futures contract, which increased the cost of hedging in what is the most popular traded product across our European business,” he explained.

Nadex

The North American Derivatives Exchange (Nadex) which is a subsidiary of IG Group dedicated to offering on exchange binary options contracts in the U.S. has continued gaining traction throughout the year. Revenues increased by 68 percent, while growth figures were the strongest in the fourth quarter when revenues doubled over last year.

The IG Group explains the success of its North American subsidiary with the introduction of a second market maker on the exchange and improvements related to marketing efficiency and some operational upgrades, such as the relocation of the firm’s IT infrastructure.

According to IG’s CEO Tim Howkins, “In the final months of the year the company increased its U.S. marketing expenditure to take advantage of the improving return on investment that it was yielding.”

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