Interim Results

IG Group Holdings plc 22 January 2007 22 January 2007 IG GROUP HOLDINGS PLC Interim Results for the six months ended 30 November 2006 IG Group Holdings plc ('IG' or 'the Group') today announces interim results for the six month period ended 30 November 2006. Highlights • Turnover up 44% at £55.7 million • EBITDA(1) up 42% at £30.4 million • Strong EBITDA margin of 54.5% • Earnings per share up 43% at 6.20p • Interim dividend of 2.0p per share • Period of significant investment - initiatives in place to drive growth • Launch of new client education program, TradeSense Tim Howkins, Chief Executive 'IG continues to deliver strong growth in both revenue and profits. In this period, we have made significant investment in people and infrastructure across the Group in preparation for the next phase of our development.' Financial highlights Unaudited Unaudited six months six months ended ended 30 November 30 November 2006 2005 Growth £000 £000 % Revenue 55,673 38,598 +44% EBITDA (1) 30,350 21,446 +42% Profit before taxation 29,588 20,432 +45% Profit after taxation 20,416 14,175 +44% Basic earnings per share 6.25p 4.33p +44% Diluted earnings per share 6.20p 4.33p +43% Interim dividend per share 2.0p 1.50p +33% (1) EBITDA represents earnings before exceptional administrative costs, depreciation, amortisation charges, taxation, interest payable on debt and interest receivable on corporate cash balances and includes interest receivable on clients' money net of interest payable to clients. Chief Executive's statement For the six months ended 30 November 2006 The six months to 30 November 2006 was another period of strong growth for IG. Revenue of £55.7m was 44% higher than the corresponding period last year. Profit before tax increased by 45% to £29.6m. Profit growth over the period has been impacted by the significant investment we have made for future growth. Most of our cost base does not vary directly with revenue or client numbers, and, as previously indicated, is best thought of as largely fixed. However it is subject to periodic step changes and we have recently been through such a step change, concentrated in two main areas: IT and marketing. IT is at the heart of almost everything we do and our IT platforms are an important element of our service offering to clients. More than 94% of our client transactions are now executed electronically and there is a trend towards clients trading more frequently, although with individual transaction sizes becoming smaller. System load therefore grows even more rapidly than revenues. We have completed equipping two new data centres, which are designed to handle the growth in transaction volumes we aim to achieve over the next few years. At the same time we have increased the number of staff in our IT department. This gives us the resources necessary both to maintain our existing systems as they continue to experience very high growth in load and to develop and enhance our systems so as to continue to provide our clients with the best possible user experience. We have also increased our marketing expenditure. This partially reflects the increase in the number of countries in which we are marketing from two to five. It also reflects some increase in the amount we are spending in our two longest established countries: the UK and Australia. As a result of this increased expenditure, we believe we have enhanced IG's ability to deliver further strong, profitable growth. Financial business Overall our financial businesses achieved revenue growth of 48%, up to £46.6m. Our UK financial spread betting business continues to deliver good growth. Revenue for this business was £30.6m, compared to £21.8m in the corresponding period last year, an increase of 40%. In the six months to 30 November 2006, we opened 5,077 new UK financial spread betting accounts compared to 3,972 in the corresponding period last year. We have just launched a new client education program, TradeSense, for our UK financial spread betting business. Full details can be found on our website: igindex.co.uk. A key component of TradeSense is a six week program available to all new clients during which we will regularly send them training materials. Clients will also be able to place bets that are far smaller than our usual minimum deal sizes, enabling newcomers to build up their stakes gradually as they become more proficient and self-assured. The TradeSense area of our website will provide a repository of training materials, supported by a program of seminars, which we hope will be of benefit to many of our clients, both new and existing. We hope that TradeSense will both increase our rate of client recruitment and also improve our retention rate by equipping our clients with the knowledge to help them trade more successfully. Our approach to hedging means that we welcome successful clients, and we hope that the launch of TradeSense will further extend our market lead within the UK spread betting market. The clients of our Australian business were less active than usual in July and August, as some reduced their trading levels following the volatile market conditions of May and June. This was shown to be only a temporary lull and volumes picked up strongly in September. Revenue growth was therefore much stronger in the second quarter than it was in the first. In late August the Australian Stock Report began to introduce their clients to us. This relationship has since produced a significant number of clients. During the period we have increased the level of our marketing expenditure and have reduced our headline commission rate to more competitive levels. All of these initiatives have helped to increase the rate of client recruitment in Australia, which is now running at over twice the rate of a year ago. We have recently started three new operations targeting specific countries. Our Singapore office opened in April, followed by our Italian desk (based in our London office) in September and then our German office in October. These businesses, while at slightly different points in their development, are in their infancy. All three are producing encouraging results, but they are all currently small. Together they accounted for 11% of the new financial accounts that we opened in November and in that month they collectively delivered £175,000 of revenue. Our London based CFD operation handles clients from all round the world, except for those countries serviced by one of our local offices. This business delivered excellent growth, with revenue for the period 80% higher than for the corresponding period a year earlier. A significant driver of this growth is revenue from introduced clients, which has more than doubled over the same period. The revenue which we generate from clients betting or trading on foreign exchange ('FX') has increased from less than 10% of our total revenue four years ago, to over 20% of revenue now. Most of this growth has come from our UK spread betting business. We have just launched igforex.com, a foreign exchange trading site for retail clients utilising a new, FX specific, front-end to our dealing software. We hope that this will enable us to expand our FX client base beyond the UK spread betting community. Our financial business is becoming increasingly diverse. The UK spread betting business deals almost exclusively with directly recruited retail clients from the UK. Our other financial businesses deal with a worldwide client base of market professionals and retail clients, sourced both directly and via an ever increasing network of introducers. We reached an important milestone in September when, for the first time ever, as a result of the significant growth in our other financials businesses, the number of accounts opened by our UK financial spread betting business was overtaken by the number opened by our other financial businesses. Financial binaries Revenue from financial binaries was up 15% to £3.1m. The majority of business on binaries comes from financial spread betting clients who view the binary as a useful addition to the extensive suite of financial products we make available to them. Sport Our Sport business achieved revenue growth of 37%, with revenue of £6m in the period. About half of the growth represents the benefit of the football World Cup, which for our sports spread betting business is the most significant event in the four year sporting calendar. The other main component of the growth was our business of market making into betting exchanges. Revenue for the six months to 30 November 2006 was £650,000. It had been negligible in previous periods. Around 70% of this revenue was generated in the last quarter and this run-rate demonstrates the potential of this business. Dividend An interim dividend of 2p per share (2005: 1.5p), amounting to £6.6m will be paid in February. Current trading and outlook We have continued to see good levels of client activity since the period end. All parts of the business are performing well and we remain confident about the group's prospects for the current year. We continue to evaluate opportunities to broaden our client base and expand the group's international reach. Tim Howkins Chief Executive 22 January 2007 For further information please contact: IG Group 020 7896 0011 Tim Howkins Steve Clutton Financial Dynamics 020 7269 7200 Robert Bailhache Nick Henderson www.iggroup.com Consolidated income statement for the six months ended 30 November 2006 Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 Notes £000 £000 £000 Revenue 55,673 38,598 89,391 Cost of sales (2,912) (1,328) (1,584) Gross Profit 52,761 37,270 87,807 Administrative expenses (27,603) (19,732) (43,737) Operating profit 25,158 17,538 44,070 Finance revenue 8,703 3,898 10,681 Finance costs (4,273) (1,004) (3,611) 29,588 20,432 51,140 Profit before taxation Tax expense (9,172) (6,257) (15,472) Profit for the period 20,416 14,175 35,668 Attributable to: Equity holders of the parent 20,416 14,175 35,668 20,416 14,175 35,668 Earnings per share - basic 4 6.25p 4.33p 10.92p - diluted 4 6.20p 4.33p 10.88p Dividends per share - interim proposed 5 2.00p 1.50p - - interim paid 5 - - 1.50p - final paid 5 - - 4.00p The interim proposed dividend of 2.0p per share was declared after the period end and is not included in the results. The total dividend payment will amount to £6,550,000. All of the group's revenue and profit for the period were derived from continuing operations. Consolidated balance sheet as at 30 November 2006 Unaudited Unaudited Audited 30 November 30 November 31 May 2006 2005 2006 Notes £000 £000 £000 Non current assets Property, plant and equipment 6 9,602 3,508 4,091 Intangible assets 107,517 107,402 107,127 Deferred tax assets 2,927 1,765 2,511 120,046 112,675 113,729 Current assets Trade receivables 7 192,242 71,250 127,111 Prepayments and other receivables 3,675 2,727 2,720 Cash and cash equivalents 8 350,052 168,763 247,277 545,969 242,740 377,108 Total assets 666,015 355,415 490,837 Current liabilities Trade payables 9 461,592 184,193 285,635 Other payables 12,215 7,480 14,607 Income tax payable 13,999 10,055 20,015 Loan notes - 128 92 487,806 201,856 320,349 Non-current liabilities Other payables - 500 - Redeemable preference shares 40 40 40 40 540 40 Total Liabilities 487,846 202,396 320,389 NET ASSETS 178,169 153,019 170,448 Capital and reserves Equity share capital 16 16 16 Share premium 125,235 125,235 125,235 Treasury shares (503) - - Retained earnings 53,381 27,728 45,157 Shareholders' equity 178,129 152,979 170,408 Minority interests 40 40 40 TOTAL EQUITY 178,169 153,019 170,448 Consolidated statement of changes in equity for the six months ended 30 November 2006 (unaudited) Share Share premium Treasury Retained Shareholder's Minority Total capital account shares earnings equity interests Equity £000 £000 £000 £000 £000 £000 £000 Balance at 1 June 2005 16 125,197 - 12,926 138,139 40 138,179 Profit for the period - - - 14,175 14,175 - 14,175 Employee share-based payments - - - 627 627 - 627 Adjustment to costs of share issue - 38 - - 38 - 38 Balance at 30 November 2005 16 125,235 - 27,728 152,979 40 153,019 Profit for the period - - - 21,273 21,273 - 21,273 Employee share-based payments - - - 1,069 1,069 - 1,069 Equity dividends paid - - - (4,913) (4,913) - (4,913) Balance at 1 June 2006 16 125,235 - 45,157 170,408 40 170,448 Profit for the period - - - 20,416 20,416 - 20,416 Employee share-based payments - - - 908 908 - 908 Purchase of treasury shares - - (503) - (503) - (503) Equity dividends paid - - - (13,100) (13,100) - (13,100) Balance at 30 November 2006 16 125,235 (503) 53,381 178,129 40 178,169 Consolidated cash flow statement for the six months ended 30 November 2006 Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Operating activities 25,158 17,538 44,070 Group operating profit Adjustments to reconcile group operating profit to net cash inflows from operating activities: Depreciation of property, plant and equipment 1,589 1,080 2,205 Amortisation of intangible assets 417 691 1,318 Share-based payments 908 627 1,696 Loss on disposal of property, plant and 98 2 2 equipment (Increase)/decrease in trade and other (66,936) (27,857) (83,627) receivables Increase/(decrease) in trade and other 174,830 54,688 163,264 payables Cash generated from operations 136,064 46,769 128,928 Income taxes paid (15,604) (107) (108) Net cash flow from operating activities 120,460 46,662 128,820 Investing activities Interest received 8,288 3,898 10,597 Purchase of property, plant and equipment (7,196) (971) (2,682) Payments to acquire intangible fixed assets (574) (335) (475) Purchase of subsidiary undertakings (235) - - Purchase of residual interest in subsidiary - - (934) undertaking Net cash flow from/(used in) investing activities 283 2,592 6,506 Financing activities Interest paid (4,273) (1,002) (3,611) Dividends paid to equity holders of the parent (13,100) - (4,913) Purchase of treasury shares (503) - - Repayment of financial liabilities (92) (39) (75) Net cash flow from/(used in) financing activities (17,968) (1,041) (8,599) Net increase/(decrease) in cash and cash 102,775 48,213 126,727 equivalents Cash and cash equivalents at the beginning of the 247,277 120,550 120,550 period Cash and cash equivalents at the end of the period 350,052 168,763 247,277 Notes to the interim financial report At 30 November 2006 (unaudited) 1. General information The interim financial information for the six months ended 30 November 2006 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with the provisions of the Companies Act 1985. The interim information, together with the comparative information contained in this report for the year ended 31 May 2006, does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. However, the information has been reviewed by the company's auditors, Ernst & Young LLP, and their report appears at the end of the interim financial report. The financial statements for the year ended 31 May 2006 have been reported on by the company's auditors, Ernst & Young LLP, and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. Accounting policies Basis of preparation This interim financial report has been prepared in accordance with IFRS accounting policies consistent with those that the management expect to apply in its financial statements for the year ended 31 May 2007, subject to changes in interpretation, new standards and guidance. This interim financial report has been prepared in accordance with IAS34 and the disclosure requirements of the Listing Rules. The interim financial report does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the group's annual financial statements for the year ended 31 May 2006. The interim financial report is presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated. Significant accounting policies The accounting policies adopted in the preparation of the interim financial report are consistent with those followed in the preparation of the group's financial statements for the year ended 31 May 2006. 3. Segment information The operating businesses are organised and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products and serves different markets. Primary reporting format - business segments The group operates in three principal areas of activity: financial, financial binaries and sports. The types of financial instrument included within each of the above categories are: Financial Spread bets on equities, equity indices, precious and base metals, soft commodities, exchange rates, interest rates and other financial markets; spread bets on options on certain of these products; exchange traded futures and options. Spot and forward contracts for foreign exchange and contracts for differences (CFDs) on shares, indices and other financial markets. Financial binaries Fixed odds betting on equities, equity indices, precious and base metals, soft commodities, exchange rates, interest rates and other financial markets. Sports Spread bets and fixed odds bets on sporting and other events. Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Revenue Financial 46,595 31,519 75,129 Financial binaries 3,098 2,701 5,196 Sports 5,980 4,378 9,066 55,673 38,598 89,391 Profit Financial 33,737 25,743 63,644 Financial binaries 2,223 1,993 3,593 Sports 1,949 1,131 2,517 37,909 28,867 69,754 Unallocated administrative expenses (9,663) (9,189) (20,650) Unallocated finance revenue 1,385 819 2,105 Unallocated finance costs (43) (65) (69) Profit before taxation 29,588 20,432 51,140 Secondary reporting format - geographical segments The group has offices in the United Kingdom, Australia, Singapore and Germany. Clients of the Australian office deal with two of the UK operating subsidiaries, but under customer agreements which are specific to the Australian office. Clients of the Singapore office are serviced by staff in Australia and Singapore. Clients of the German office are serviced by staff in the UK and Germany. The results of the Singapore and German offices are not material and are reported within the results of the Australian and UK offices respectively. Clients of the London office may be situated anywhere else in the world. Accordingly, the group provides a geographical analysis based on the division of clients between the UK and Australian offices. Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Revenue United Kingdom 50,614 34,968 80,466 Australia 5,059 3,630 8,925 55,673 38,598 89,391 4. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The weighted average number of shares excludes treasury shares held in employee benefit trusts. The following reflects the income and share data used in the basic and diluted earnings per share computations: Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Basic earnings attributable to equity 20,416 14,175 35,668 shareholders: Effect of dilution - - - Diluted earnings attributable to equity 20,416 14,175 35,668 shareholders Basic weighted average number of equity shares: 326,392,804 327,500,959 326,506,126 Employee share-based payments 2,995,258 - 1,373,861 Diluted weighted average number of equity shares 329,388,062 327,500,959 327,879,987 Basic earnings per share 6.25p 4.33p 10.92p Diluted earnings per share 6.20p 4.33p 10.88p 5. Dividends paid and proposed Unaudited Unaudited Audited six months six months year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Amounts recognised as distributions to equity - - 4,913 holders in the period: Interim dividend of 1.5p for 2006 Final dividend of 4.0p for 2006 13,100 - - 13,100 - 4,913 6,550 4,913 - Proposed but not recognised as distributions to equity holders in the period: Interim dividend of 2.00p for 2007 (2006 - 1.50p) Final dividend of 4.0p for 2006 - - 13,100 6,550 4,913 13,100 The proposed interim dividend for 2007 of 2.00p per share amounting to £6,550,000 was approved by the board on 19 January 2007 and has not been included as a liability at 30 November 2006. This dividend will be paid on 28 February 2007 to those members on the register at the close of business on 2 February 2007. 6. Property, plant and equipment During the six months ended 30 November 2006 the group acquired assets with a cost of £7,198,080. This comprised leasehold improvements of £3,454,042 and computer and other equipment amounting to £3,744,038. 7. Trade receivables Unaudited Unaudited Audited 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Amounts due from brokers 187,055 68,570 121,857 Amounts due from clients 5,187 2,680 5,254 192,242 71,250 127,111 8. Cash and cash equivalents Unaudited Unaudited Audited 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Cash at bank and in hand 94,464 24,487 47,447 Short-term deposits 842 631 605 Client money held 254,746 143,645 199,225 350,052 168,763 247,277 The group's two FSA regulated subsidiaries, IG Index plc and IG Markets Limited, hold clients' money on trust in client accounts at approved banks in accordance with the rules of the FSA and other regulatory bodies. Clients' money held and the corresponding liability to clients are included in cash and cash equivalents and trade payables in the balance sheet. 9. Trade payables Unaudited Unaudited Audited 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Amounts due to clients 461,592 184,193 285,635 461,592 184,193 285,635 Independent review report to IG Group Holdings plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 November 2006 which comprises the consolidated income statement, consolidated balance sheet, consolidated cash flow statement, consolidated statement of changes in equity, and the related notes 1 to 9. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 November 2006. Ernst & Young LLP London 22 January 2007 This information is provided by RNS The company news service from the London Stock Exchange

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