British spread-betting and CFD provider IG Group plc yesterday issued an Interim Management Statement to cover the period from 1 December 2010 to 9 March 2011. IG Group which operates IG Markets registered revenue for the quarter amounting to £76m compared to £69m in the corresponding quarter in the prior year, an increase of approximately 10%. This growth was driven by an increase in active client numbers, with only a marginal increase in revenue per client. Volatility through the last quarter was generally low and was particularly subdued in December and for much of February, but increased noticeably towards the end of February.
Chief executive Tim Howkins told analysts at the results presentation that December had been ‘exceptionally weak’ for IG’s normally booming European offices. ‘There was low volatility, it was a holiday period and clients just paused trading,’ Howkins said. ‘It was a very miserable comparison on last year where there was better volatility.’ He noted the VIX – a global measure of market volatility – had a rating of just 17.5 for the three months ended February 28, compared to a rating 21.5 during the same period last year and a rating of 21 in the prior quarter.
However, things over the last few weeks of February have improved markedly. In particular, political turmoil in the Middle East has resulted in more volatile market conditions which has boosted client trading, as clients are encouraged to take speculative positions on oil, stocks and commodities. IG Group noted that the period since the last week of February has been its busiest since last summer, when the euro-zone debt crisis made markets volatile. It also noted that its clients also have record amounts of money deposited in their accounts – around £820 million globally – that CEO Tim Howkins said he believes will be put to work on any upticks in volatility. Since IG Group makes revenue on client trades, it stands to benefit from the higher trading volumes that are sparked by turbulent market conditions. Stock as well as oil and gold commodity markets have been noticeably volatile in the last few weeks as the violent fighting in Libya intensified.
But Howkins explained that the lower levels of market volatility were offset by the consistency of trading during the period. The Group’s UK divisions achieved revenue of £39.9m, compared to £37.2m in the corresponding period in the prior year, which represents an increase of 7%, driven by similar growth in client numbers. The revenue figure of £37.2m for the corresponding period last year included £0.5m in respect of the Group’s South African white label partner, Ideal CFDs. In September 2010 the Group acquired the business of Ideal CFDs and established its own offices in South Africa. As a consequence, revenue from South African clients is included in “rest of world” rather than UK for the current period. On a comparitive basis, excluding Ideal CFDs from the comparative, revenue for IG’s UK divisions experienced growth of 9%.
The Group’s Australian business experienced a 6% increase in the number of active clients, but revenue declined 3% from £10.7m to £10.4m.
IG’s European offices also saw a 33% growth in active clients numbers which translated into an 18% increase of revenue from £12.1m to £14.2m. In Germany, which is the Group’s longest established European division, a marginal increase in revenue per client translated into a 46% revenue growth. In a number of other European markets client activity levels experienced falls in December, but recovered well in January and February. IG Group said it will open its newest European office, in Amsterdam, in early May.
The Group’s Japanese office – the cause of a £143m writedown in the last quarter – contributed revenue of £4.5m, down from £5m, a reduction of 11%. This reduction was consequent to falls in both revenue per client and number of active clients, in both cases blamed to local leverage restrictions introduced in August 2010 and January 2011.
IG’s Singapore office achieved revenue of £3.8m, which compares favourably to the £2.6m the prior year, representing an increase of 46%. This growth was driven by a marked 57% increase in revenue per client, which offset a small reduction in active client numbers. These changes were the fruits of a shift in strategy, focused on recruiting smaller numbers of better quality clients, which has had the effect of increasing average revenue per client to be much closer to the Group average.
Revenue for the rest of the world amounted to £1.1m, up sharply from around £0.3m, however as noted above the comparator figure does not include any revenue for South Africa. Adjusting for this, growth was 38%.
The Group’s Sports business achieved revenue of £2.0m, up from £1.3m in the prior year, a 52% increase.
During the period, as previously announced, the Group suffered an additional unexpected levy from the Financial Services Compensation Scheme amounting to £4m. This levy also applied to all of the Group’s UK competitors and to a wide range of other businesses including financial advisors and fund managers. Apart from this levy, the Group’s costs are in line with management expectations.
Tim Howkins stated that company is planning to roll out an application for mobile phones running the Android operating system in early summer. It already has an iPhone application that lets people make trades through their phones.