IG Group Releases 2015 Annual Report, Growth Strong Despite Black Thursday

Despite an 8% YoY increase in underlying revenue, profits remained flat as the company invested to develop and grow its

Leading online broker, IG Group Holdings plc (LON: IGG), has released its Annual Report for the 2015 financial year, which saw continued growth in underlying net revenue as well as an expanded product and geographical footprint of the company. However, profits remain flat as a result of the company’s expansion activities, not to mention the heavy hit that it took on Black Thursday at the beginning of the year.

Source: IG Group
Source: IG Group

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In line with its preliminary results, which IG Group released in July, revenue continued to grow on an annual basis, with net trading revenue ahead by 4.9% at £388.4 million, compared to £370.4 million in 2014. To be clear, the company highlighted the fact that the figure represents statutory trading revenue after the impact of the extreme fluctuation in the Swiss franc in January. Excluding this incident, on an underlying basis, revenue was even brighter, increasing by 8.0% YoY to £400.2 million.

Indeed, the company emphasised the extent of the impact of the Swiss National Bank’s unprecedented decision to unpeg the franc from the euro on 15 January, which saw the franc appreciate by 30% in a matter of minutes. This led to a resultant negative impact of £27 million for the broker.

Breaking down revenue by geography, IG Group pointed out that it achieved double-digit underlying revenue growth in the UK, Australia and Rest of World, which together comprise 80% of its revenues. This growth was driven by the combination of higher active client numbers and higher average revenue per client in the UK and Australia, and strong client growth in Rest of World. However, this was partially offset by a 1.5% fall in European revenue.

Source: IG Group
Source: IG Group

Looking at the bottom line, profits remained flat due to increasing operating costs as the company sought to develop and grow its business. Indeed, underlying profit before tax was down slightly (0.9%) on the prior year at £193.2 million, while underlying administrative expenses increased by £27.3 million.

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In the Annual Report, the broker alludes to significant investment in its expansion activities and technology. As already highlighted in previous quarterly announcements, the firm’s new execution-only stockbroking offering has gone live in the UK, Ireland the Netherlands, Germany and Austria.

Moreover, IG Group made forays into new geographies, opening new offices in Switzerland and Dubai. Commenting on the expansion, retiring CEO, Tim Howkins, said: “The challenges in obtaining the types of licence which we have been granted in both Switzerland and Dubai are considerable. I am delighted that we have been able to obtain these licences. This is testament to our ongoing investment in people, systems and processes to ensure that we remain fully compliant with the ever increasing regulatory burdens.”

In an interesting post-script, the company also mentioned that it has obtained a license from the China Securities Regulatory Commission to open a representative office in Shanghai, which happened subsequent to the year-end.  The license allows the broker to establish a small office but does not give it any right or ability to transact business in China.

IG shares
Source; IG Group

Underlying diluted earnings per share was up by 2.1% to 41.07 pence, benefiting from a fall in the Group’s effective tax rate. On a statutory basis, profit before tax was down by 13% and earnings per share was down by 10.5% at 35.99 pence (2014: 40.22 pence).

Commenting on the overall performance, Mr Howkins said: “2015 was another year of solid underlying financial performance. We took an important strategic step with the launch of execution-only stockbroking, based upon our leading-edge technology, and also increased our global reach with offices in Switzerland and Dubai.’

 

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