IG Group Holdings plc (IGG) Earnings Call Transcript & Summary

Good morning. A warm welcome to our half year results presentation for FY '21. Thank you for joining us today. We look forward to answering all of your questions after the presentation. I'm June Felix, CEO; and with me is Charlie Rose, who is our CFO. Today, I will start with my reflections on the first 6 months of our financial year. Charlie will then take you through our key financial performance metrics. After I update you on our strategic progress, Charlie and I will then discuss our landmark transaction to acquire tastytrade. This is incredibly exciting and offers tremendous opportunity. Tastytrade is a fast-growing, high-margin business. They are ranked by Barron's as one of the top online brokers for active traders in the large, growing U.S. retail options and futures market. I'll then close with some final thoughts in our outlook. We have had an outstanding 6 months, delivering record revenue and profit. Today, I believe we're stronger and better positioned than ever before to deliver sustainable value. From my perspective as CEO, I'd like to share the following 5 key messages with you today. First, we're doing what we said we would do. We're delivering on the 3-year growth strategy we set out 18 months ago. In fact, we have delivered excellent results against our medium-term growth targets by achieving stronger growth in our core markets in excess of our target of 3% to 5% annual average growth and making excellent progress across the GBP 100 million target of incremental revenue from our significant opportunities portfolio. We have sustained a step change in the size of our active client base without compromising on quality and in accordance with our robust onboarding procedures. And we have achieved significant advancements in our marketing capability that have enabled us to acquire more clients more efficiently than before. Second, we've continued to demonstrate highly commendable resilience as a business. Our platform, our risk management approach and our people have truly delivered. We have made investments and pivoted resources to ensure our clients can be confident that we will be there when they need us most during periods of exceptional volatility and trading opportunity. Third, our strong performance in the first half has added to the financial strength, size and scale of our business, giving us more opportunities to accelerate our growth ambitions and lengthen our market leadership position. All of this was achieved against the backdrop of COVID-19 at a time of intense uncertainty, and this leads me on to my fourth point. We have sharpened our focus on ESG. Our focus on this has increased, and we have provided some more insight on our activity in this area in the appendix. As a company, we take our duty as a responsible global corporate citizen very seriously, especially at times like these. We established the IG Brighter Future fund last spring. During the first half of FY '21, we distributed GBP 3 million from this fund. GBP 2 million went to the Teach For All global education network and GBP 1 million went to selected charities that assist those most affected by the COVID-19 pandemic. And finally, our proposed acquisition of tastytrade is strategically and financially compelling. This is a transformative deal for us, diversifying our business into new yet adjacent product offerings and providing us a very significant opportunity to materially expand and scale our U.S. footprint. Charlie and I will cover the details of this transaction later in the presentation. Overall, I am incredibly proud of what we have achieved. And the way we have supported our people, our clients and the broader communities in which we operate, and I'm excited to execute on our growth options. Let me now hand you over to Charlie to talk you through the details of our H1 performance.

Thank you, June, and good morning, everyone. I'm delighted to be here today to take you through our first half financial performance in what has been a record period for revenue and profit. This slide summarizes the key financial highlights for the first half of our financial year. Net trading revenue was GBP 416.9 million, 67% higher than in the first half of FY '20. This is a record level of revenue for the group, and 4% higher than the second half of FY '20. This increase in revenue half-over-half reflects the material uplift in the size of the group's active client base, which is shown in the chart on the right. The number of OTC-leveraged active clients increased by 49% on the first half of FY '20. Profit before tax for the half was GBP 231.3 million and basic earnings per share was 50.7p. The interim dividend is 12.96p per share. Moving on to look at the financial performance in some more detail. This slide shows the group's income statement. Revenue was up 67%, while total operating costs increased by 22% demonstrating strong operating leverage in the period. Growth in operating expenses before variable remuneration was GBP 24.3 million, driven by certain revenue-related expenses arising from the significant and sustained increase in client activity through the period. This also included, as I guided at the full year results, some additional investment, which I'll discuss this and other drivers shortly. The 63% increase in variable remuneration is due to the outperformance of the group against its internal targets. Profit before tax of GBP 231.3 million represents a 129% increase on H1 FY '20, an effective tax rate of 19.1% has been applied to the interim profit. The resulting statutory profit of GBP 187.1 million equates to a basic earnings per share of 50.7p. Turning now to further detail on our revenue performance. Revenue increased significantly across all products. OTC leverage revenue of GBP 389.1 million was up 64%, reflecting the significant increase in the client base across the 2 periods with the number of active clients increasing by 49%. This expansion of the client base was driven by the elevated levels of client acquisition that began in the final quarter of FY '20 and have continued through the first half of FY '21. The revenue per client for OTC increased 10% reflecting the market conditions and trading opportunities, offset by the dilution in the average as not all of the significant numbers of new clients onboarded in the period would have had a full 6 months to trade. Our stock trading product performed exceptionally well, with revenue increasing over 250%. This was driven by an 88% increase in the number of clients trading, and an 89% increase in the average revenue per client. Exchange-traded derivatives revenue was GBP 12.3 million, the majority of which came from Nadex but also includes our European MTF, which contributed revenue of GBP 2.1 million, both have shown good growth driven by active clients. Looking now at OTC leverage revenue in more detail as this product generated the majority of the group's revenue, 93% in the first half. This slide shows OTC revenue across the previous 6 quarters with revenue in the top right chart and active clients and average revenue per client in the bottom right chart. There's no doubt that Q4 last year was exceptional in terms of revenue, clients and revenue per client. As volatility has reduced from the Q4 peaks, we've seen a step down in quarterly revenue. This is due to a reduction in revenue per client. However, the number of active clients has remained elevated throughout the period, only slightly below that of the Q4 levels. In the period, OTC revenue from new clients was GBP 56 million, which is broadly in line with the revenue from new clients in the second half of the prior year and 130% higher than the revenue generated in the first half of the prior year. Throughout this half, we've continued to onboard an increased number of good quality clients, which is a testament to our marketing capability and specialization. I should add that the retention of these new client cohorts is comparable to the trends we've seen in the historical ones. Moving on to look at revenue by market. You can see on this slide that revenue increased significantly across each of our markets. Revenue in our core markets increased 62% in total, with each of the core markets showing strong performance. The core markets with their established brands benefited significantly from the new client acquisition. Within the significant opportunities, we're reporting another strong performance, with a 91% increase in revenue on the first half of FY '20, which is an additional GBP 36.3 million of revenue. June will talk to you in a moment about the performance of the businesses individually. Moving on to costs. I want to give you some more detail on the breakdown of operating expenses, which have increased by 18% year-on-year. Here, I'm splitting the cost growth into 2 parts: first, the costs that are driven by inflationary-type pressures and our decision to invest further in the business; second, the costs that are related to the significantly higher levels of client demand and activity. In the first group, fixed remuneration increased by GBP 8.3 million. This is primarily driven by headcount growth, which I'll go into more detail in a moment. Additionally, this increase includes annual inflationary-type increases of approximately GBP 2 million. Growth across the rest of this part of the cost base has been as anticipated and includes some further investment in IT and professional fees to support the progression of strategic projects, which we guided to at the full year results announcement back in July. These increases together resulted in operating expenses of GBP 151 million, 9% higher than H1 FY '20. Now in the second group, as a result of the significantly elevated client demand and trading activity, which also drive higher revenues, there was an GBP 11.8 million increase in these costs. First, our marketing spend increased by GBP 7.1 million as we purposely dialed up spend on client acquisition in the half to ensure we capture the high levels of client demand. The result of this additional spend is evident in the number of new clients onboarded in the period, which increased 122% on the first half of FY '20. Second, some of our expenses are driven by levels of client trading and activity. And as we've seen elevated client numbers throughout the first half, we also see higher costs in areas such as client payment charges, market data fees and client debt provisions. These revenue-related costs, as we call them, increased by GBP 4.7 million. So now I'd like to give you a bit more detail on where we've made the additional investments in some of the early results. On the previous slide, the increase in fixed remuneration, I highlighted, included GBP 4 million due to additional headcount, which has increased by 143 heads from November 2019 to November 2020. The majority, over 3/4, of the headcount growth occurred in the first half of FY '21. We've increased our technology headcount by 66, in order to progress our technology resilience program. As we speak, we're only partway through. However, we're very pleased with the results so far. We've significantly increased capacity across our platform since the summer, which enabled us to maintain 100% platform uptime while handling the substantially higher trading volumes we've seen in the first half. We've also increased our operations headcount, which includes client service and account opening by 35. This is partially in response to the step change in the size of the client base, however, some of this was also to help drive a number of operational projects to ensure we can meet the growing demands of our increasingly diverse and global client base. And now on to our financial position. Owned funds generated from operations were GBP 233.4 million, an increase of 119% and which also represents 101% of operating profit. Following the payment of the full year dividend in October, we increased our own funds by over GBP 74.8 million to GBP 907.3 million at the period end. There was a decrease in available liquidity of GBP 143.9 million, which was due to an increase in the broker margin requirement. This was GBP 538 million at the period end compared with GBP 326 million at the end of May 2020. The broker margin peak in the first half was GBP 557 million, reflecting the continuation of heavy trading activity. Our strong financial position and our abundance of available liquidity ensures that we can handle these peaks without having to constrain client trading or take on additional risk. At the end of the first half, we had GBP 273.6 million of headroom above our regulatory capital requirement. Following the acquisition of tastytrade, we expect the capital resources of the enlarged group to remain well in excess of our minimum capital requirements, and we will continue to support the execution of our growth strategy. Finally, I'd like to finish with some guidance points for you. While the level of financial market volatility has reduced from the peaks seen in Q4 of FY '20, it does remain elevated and the macro-environment continues to be uncertain. Should we, however, see further normalization in market volatility or a stabilization in the macro-environment, we would anticipate some reduction in the level of client acquisition and trading activity. And to remind you of the cost guidance I gave back in July, we said you should expect the underlying operating expenses to grow by 3% inflation, plus an additional GBP 10 million investment to support our strategic projects. We're on track with our plans and expect to be in line with this guidance on an underlying basis. The acquisition marketing and revenue-related costs will continue to vary depending on the levels of client demand and client trading activity, moving generally in line with revenue. For variable remuneration at this time and based on our progress towards internal targets, I would suggest you assume a similar charge in the second half as we've reported in the first. Finally, in respect to the tastytrade deal, we do not expect any change to our FY '21 cost outlook at this time as a result of the acquisition of tastytrade, although this will depend on the precise timing of the completion, which is assumed to be in the first quarter of FY '22. I'll now hand over to June for the strategic update.

Thanks, Charlie. I'll now take you through our strategic update covering 3 areas: one, an update on our new client cohorts; two, performance in our core markets; and three, performance on our significant opportunities portfolio. Clearly, we have seen very strong growth in our client base over the last year, a near doubling in the number of OTC-leveraged clients, while adhering to robust onboarding processes. This positive evidence demonstrates the strength of our business and our client acquisition capability. We have driven marketing efficiencies and improved performance. For example, our strategic investment in search engine optimization, SEO, means IG receives 3x more organic traffic than our nearest competitor. Organic traffic is the traffic we do not pay a fee for. And this represents a considerable improvement over the last 2 years. We have also added more data to our algorithms and improved paid search to triple our client acquisition efficiency, reducing our cost per first trade materially. Our marketing capability has enabled us to take advantage of the favorable market conditions and onboard a large number of new clients, 64,000 in the first half of this fiscal year. Most importantly, these new clients are of a similar quality to the existing clients and demonstrate retention rates comparable to historical cohorts and in line with our expectations. Within these new client cohorts, the retention rates among our high-value clients are strong. Over 80% of the most valuable clients acquired in Q4 FY '20 traded during the first 6 months of FY '21. This shows we continue to be the natural home of high-quality loyal clients that trade and generate a recurring revenue stream for the group. Now on to core markets. These established businesses continue to perform ahead of expectations, with revenue up 3% on the record H2 FY '20 and up 62% on the prior year period. Our brand strength in our core markets has contributed to our very strong levels of client acquisition and has resulted in a 107% increase in OTC-leveraged first trades. This growth in the client base has been achieved without any compromise on client quality. Now if you look at the chart on the right-hand side, showing monthly active OTC-leveraged clients over the last 3.5 years, you can see the true benefit of this period of strong client acquisition. From the incredible peak in March 2020, we see a sustained, elevated monthly level of active clients. The signs are that our new clients will remain with us and continue to behave in line with previous cohorts. We have worked hard to retain our entire client base and have pivoted our operational resources to support them as required. At key moments of client activity spikes, such as the Pfizer vaccine announcement in November, we have remained available for all of our clients around the world, 24 hours a day, which is early validation of the investments that we have made in our human capital and technology over the last 6 months. Our active client base is materially larger today than it was a year ago with our new clients showing all the characteristics that we would expect from a typical IG client. And remember, it is the size and quality of our client base that drives growth over the medium term. This puts us in a stronger position today than ever before. Let me now share more detail about our core markets' performance. The results really do speak for themselves. Revenue and active client numbers are up significantly on the prior year as demand levels have remained high with no dilution in client quality. The U.K. and EU have delivered strong results in H1 FY '21, while 2 markets, Australia and Singapore, have continued to deliver even stronger results building from previous record highs. For the first time in its history, IG Singapore has now achieved #1 market position. This is a fantastic achievement. Our client base is the key to our continued success. When markets are interesting and clients want to trade with the provider they trust, they come to IG. Before we move away from the core markets, there's another growth story that I want to spend a little time on, our nonleveraged stock trading business. We have seen a significant increase in both the size and value of this business line. This business delivers a number of advantages. It has a low cost of acquisition and a high rate of retention with clients trading with IG for longer. These clients increase our base of enduring revenue. We are very pleased with our stock trading performance. Now moving on to our significant opportunities. We have delivered a strong performance in these markets, with revenue in the first half of GBP 76.3 million, 91% ahead of the prior year, even allowing for the benefit from favorable market conditions, the underlying performance remains impressive. Revenue across these businesses is driven by the size of the active client base. And since announcing our growth strategy in May 2019, we have delivered an 87% growth in monthly active clients. As we said before, each opportunity is at a different stage and will exhibit a different growth profile. The more established businesses in Japan and emerging markets were out of the blocks more quickly. We've also made strong progress across the rest of the portfolio and expect some of the opportunities to become increasingly important drivers of significant growth into FY '23/24. I'm incredibly proud of the progress we've made across this portfolio to date. I will now share key highlights of our significant opportunity portfolio and have included more details in the appendix. Looking first to Japan, this is clearly a success story for IG, with revenue up 117%. Our progress here has shown the power of our approach, combining local expertise and insight. As a result of the appointment of a local CEO in 2019 with global scale. Today, we are a challenger brand in this sizable market where there's still significant growth potential. We will seek to continue to grow our market share through increased localization efforts, more innovative new products and new distribution partnerships. In emerging markets, we are delighted with the continued natural demand for our products. Active clients are up 46%, driven largely by the Asian economies. This reflects what we know to be the reality, that rising levels of wealth dictate that companies such as ours must be positioned for growth in the Asia region. Clients find us as a result of our highly effective and efficient SEO. We will continue to optimize our global onboarding processes, focusing on broadening our language capabilities while also launching products with local audiences in mind. Greater China continues to be a geography with real potential. There are a large number of professional investors, growing wealth and a large existing CBBC market in Hong Kong. This provides solid evidence and meaningful demand for products like ours. Hong Kong remains well positioned as a major financial services hub and the commitment to capital markets in the Hong Kong and the Greater Bay Area is encouraging. Our European multilateral trading facility, Spectrum, is one of our startups that is opening up a new product and market opportunity for us. Through Spectrum, we're entering into the GBP 1 billion exchange-traded derivatives market in Europe. We are seeing growing momentum in this business, which we launched in October 2019, with around 480 million units traded today. We're also pleased to announce that Intermonte, a large Italian firm, with access to over 40,000 retail clients has signed up with Spectrum to offer our turbo24 product to their clients. Other third-party brokers are also very interested in connecting to Spectrum. We still have a long way to go to realize our full potential to become the leading pan-European exchange for retail clients. But these recent developments show, we are well on our way. Institutional, the momentum following the launch of IG Prime in March is continuing with revenue up 70% in the prior year. The revenue per client in this segment is significantly higher than our traditional clients at over GBP 23,000 per client in the half. These relationships take longer to develop, but are typically very long lasting. And finally, the U.S., where we have delivered strong revenue and active client growth, with first trades up 78%. We have initiated work to further integrate the RFED and Nadex to enhance cross-sell opportunities. Historically, in the U.S., our presence has always been smaller than the significant market opportunity. So I would now like to take you through the details of our acquisition in the U.S. of tastytrade. Before we turn to the slides, I just want to say how excited we are to have started such a landmark acquisition and to welcome tastytrade to the wider IG Group family. The acquisition of tastytrade will provide IG with an opportunity to do what we said we would do, accelerate our plans to diversify beyond our core markets and OTC-leveraged products into new geographies and adjacent product lines. It provides IG with another leg of growth for the long term. This acquisition gives us scale in the largest financial services market in the world as well as a fast start to participating in the high-growth U.S. exchange trade options and futures market, a market of 1.5 million retail traders. Tastytrade is a high-margin, rapidly growing, highly ranked player in the active trading segment of this market. The demographic of tastytrade's, ambitious and self-directed client base is very attractive. The average age of tastytrade clients is 42 years old, the same as IG however, U.S. options traders have, on average, 4x the investable wealth compared to our U.K. CFD clients. I strongly believe the strategic and financial rationale of this acquisition are very compelling. Our shared ethos of innovation and focus on self-directed ambitious retail clients is a winning combination. Starting with the strategic and financial elements, we believe this is a landmark transaction that opens up new drivers of growth in the world's largest and still growing listed derivatives market, the U.S. To give you some context, the U.S. options and futures market is bigger than the OTC, CFD and turbo markets in IG's core geographies, combined. Tastytrade expands IG's trading products into the listed options in futures area, increasing the contribution from agency only revenue streams. With this deal, we're taking advantage of a unique opportunity to acquire a disruptive and high-growth, high-margin platform with a distinctive, actionable content-led client proposition. An important added benefit of this deal is the opportunity to offer clients services and products across our 2 platforms, including providing clients in IG's existing markets with access to tastytrade's proposition over time. Finally, what gives us great comfort about the strategic fit, and we will come on to this later on in the presentation, is that IG and tastytrade share a common culture and client-centric ethos focused on ambitious, self-directed retail traders. From a financial point of view, we expect the transaction to be low single-digit accretive to IG's adjusted EPS in the first full year post-completion. At the same time, we anticipate maintaining an investment-grade credit rating as the transaction further strengthens IG's profitability and cash flow. And importantly, the deal structure consisting of a high percentage of shares versus cash aligns incentives for all stakeholders. Let me now take you through the headline terms of the transaction. The total consideration is $1 billion, consisting of $300 million in cash and the issuance of $700 million of IG shares to tastytrade shareholders. The cash element will be funded through GBP 150 million of new debt facilities and the balance from IG's own resources. Following completion, tastytrade's shareholders and management will become significant shareholders of the enlarged share capital of IG. I'm also excited to say that the co-founders of tastytrade, Tom Sosnoff, Kristi Ross, Scott Sheridan and Linwood Ma, will continue to lead the company and join the IG leadership team. We look forward to working with them in driving the business further. In creating alignment between the shareholders and the employees, key senior management have agreed to a phased 5-year lockup on their shares. I'm also pleased that we have agreed with tastytrade's shareholders that they will fund a 4-year retention package for tastytrade employees to demonstrate their long-term commitment. We're really excited to be welcoming and working with all our colleagues at tastytrade. Finally, the transaction is subject to the customary antitrust and regulatory approvals from U.S. regulatory bodies, including from FINRA, and is expected to close in the first quarter of FY '22. I'll now hand over to Charlie for additional details about tastytrade.

Thanks, June. It may be the case that many of you are not familiar with tastytrade and its history. On this slide, we wanted to provide you with some key facts about the company. Tastytrade is a disruptor in the U.S. retail options and futures market with a distinctive client proposition. In terms of that client proposition, it's quite unique in the market today in that it combines differentiated and actionable financial content and investor education with a sophisticated options and futures brokerage. Tastytrade was founded and now led by the same entrepreneurial management team who started the highly successful brokerage firm, thinkorswim, which was publicly listed and then acquired by TD Ameritrade in 2009. The company operates through 2 primary entities: first, tastyworks, the brokerage launched in 2017 and tastytrade, the digital content platform founded in 2011. In the interest of time, I won't read all the bullets on the page, but let me highlight a few things for you for both the brokerage and the content parts of the business. On the brokerage side, as you can see, the core strength is exchange-listed options and futures, where the firm is award-winning with a modern and highly sophisticated technology platform that's 100% proprietary. In a short 4 years since its founding, the platform has grown its account base to over 105,000 brokerage accounts, 15% of which actually come from clients outside the U.S. who want to trade U.S. listed products. It's worth noting that this group of clients represent entirely unsolicited inbound demand as tastytrade has a very limited footprint or marketing outside the U.S. We view this as a terrific opportunity over time for the combined firm, given IG's global footprint and marketing capabilities. It also has some recent and exciting initiatives, like dough, to target more of a mass market clientele interested in trading stocks and ETFs. The content side of the business is absolutely critical and is actually where the business began before expanding into brokerage. Tastytrade is one of the most-watched online financial networks in the world based on YouTube subscribers among the leading U.S. brokerages with around 900,000 registrants, many of whom are sophisticated and ambitious traders. The content is innovative, of high production quality and is entirely free. Now let me take you through a summary of tastytrade's historical operating performance. The charts here really tell the story with nearly 50% to 60% CAGRs in funded and active accounts as well as revenue and EBITDA. It's worth noting that for a young and still rapidly growing business, tastytrade already enjoys a nearly 50% EBITDA margin on $116 million of revenue, which speaks to the quality of the business model and management's execution capabilities. This slide shows a bit of a macro look to provide context about tastytrade's market. The key takeaway here is the chart on the top left which demonstrates that the U.S. retail options and futures market with an estimated 1.5 million retail investors is twice the size of our core FX and CFD markets combined globally. This is in part why this is so strategic for us and is also why this transaction brings not only diversification but growth as well. When you look further at the size of the self-directed U.S. retail equities market, with about 12 million investors and the structural shift within the market towards self-directed investing, where options play an important role in strategic risk management and return optimization, we think this acquisition gives us a tremendous platform for organic growth going forward. Indeed, you can see from the chart on the right, the natural complement between tastytrade and our existing U.S. product set. Our U.S. businesses today play in 2 specific areas that have only 278,000 total retail market participants. Tastytrade now launches us into a growing market with over 1.5 million retail investors, nearly 6x the size of the U.S. market we're facing today. Moving more broadly to the overall U.S. equity options market, which is tastytrade's core strength, it's been on a long and sustained secular growth trajectory, as you can see in the bottom left chart. 2020, in particular, has been a very strong year with last month's average daily trading volume being an all-time record breaking the monthly record set earlier in the year. Tastytrade has, of course, benefited from these trends, but importantly, it's also been growing market share every year in this growing market, growing more than 3x the rate of the market since 2017 when the brokerage was launched. Given how attractive the market is, it's certainly not without competition, and we've included a bit of a simplified market segmentation matrix with the names of some of the other brokerage firms. We believe that tastytrade is among a small handful of pure-play providers in the independent channel that cater to active and sophisticated self-directed clients, where many of the bigger names are much more focused on a different audience, or on asset gathering or as a result of recent consolidation may have other competing priorities. You can see the impact of the transaction on our revenue by product mix. Non-OTC revenues would now represent 15%, 2.5x the current percentage of the enlarged group revenue base of over GBP 900 million. We believe that this not only diversifies our revenue but brings in very high-quality revenue in that tastytrade has a pure agency model. What I mean by that is that it doesn't act as principal, does not commit capital and has a small and simple balance sheet. It earns fees on volumes traded and a spread on client cash. The other benefit from the deal is that the U.S. listed options and futures represent a more mainstream product set that help us to start diversifying the group's regulatory risk profile that today is driven more by OTC-leveraged products. From a product standpoint, as you can see on the bottom of the slide, IG will now have a full spectrum of derivative products, both OTC and listed, with some really exciting international expansion opportunities for tastytrade, in particular, capitalizing on IG's global footprint. Here, we look at the deal from a geographic standpoint. The deal represents a step change in IG's U.S. presence, which is the single largest retail trading market in the world to 13% of total group revenue on a pro forma basis. As you're aware, growing our presence in the U.S. has been a key part of our strategic priorities or what you will know as the significant opportunities. As you can see on the right, our target of GBP 160 million of revenue from these markets by the end of FY '22, and we've made great progress in this regard organically. The acquisition of tastytrade builds on and amplifies that progress to a very significant extent. And importantly, revenues from the deal will be on top of the GBP 160 million target we're still aiming for. I'll now hand you back to June to take you through the final slides on this acquisition and to close today's presentation.

Thanks, Charlie. There are no charts on this slide, but what it speaks to is no less important. This slide speaks to fit and culture. This is critically important to this management team, to our Board, and to the founders of tastytrade, who are joining our senior management team and are also going to be large, long-term shareholders of IG. As we evaluated this opportunity, we paid a lot of attention to the question of, do the 2 companies share the same ethos, the same philosophy, the same core values? Ultimately, this is also critically important to all our employees and above all, our clients. And we are very comfortable in saying that while both IG and tastytrade bring some unique core strengths to the table, as should be the case, this combination rests on the foundation of common values. These are focus on knowledgeable, self-directed and ambitious retail traders, build client knowledge, expertise and confidence, high-quality client service, a passion for innovation. Both companies share an entrepreneurial ethos, combined with a culture of regulatory compliance and client-centric focus. When you add this to the established core strengths of IG and the key strengths of tastytrade that we talked about earlier on in this call, we think this is a truly compelling combination. I want to close my prepared remarks on this acquisition with a summary of the anticipated financial impact of this transaction, which I think is attractive for shareholders. It provides IG an additional driver of growth through the acquisition of a fast-growing business, operating at attractive profit margins and delivering strong cash conversion. It is financially compelling with the acquisition expected to be low single-digit accretive to IG's adjusted earnings per share in the first full year post completion. It will have a low-risk integration process given that there is no significant integration required. Tastytrade is adjacent to IG's existing proposition, complementing IG's existing organic growth strategy in its core markets. Tastytrade's experienced senior management team, who have a proven track record. Also, there is a clear alignment of interest through a phased 5-year lockup period for key tastytrade management shareholders and management continuity enabled via 4-year retention package for other employees funded by tastytrade shareholders, and it creates the potential for further long-term value creation through both expanding in new markets and IG's products being used across tastytrade's larger U.S. client base. Let me now take you through our summary and outlook. I am pleased to say we are stronger and better positioned than ever before to deliver sustainable value. We're doing what we said we would do. We have delivered strong performance against the growth strategy I set out 18 months ago and have significantly expanded our high-quality, loyal client base. We've demonstrated outstanding resilience. Our business model of being on the same side as our clients, our risk management, our systems and our people have us enabled to deliver an exceptional first half performance. As a result, we are a company that is extremely well positioned to maintain strong growth going forward. We've shown our ability to execute. And at the same time, play our role in the broader community through responsible ESG efforts and investment, and we have announced a strategically and financially compelling acquisition of tastytrade. And now to close with our outlook. We're very pleased with the success of our client acquisition, which, combined with favorable market conditions, has delivered a step change in the size of our client base. This will serve us well should we see any normalization in client acquisition or trading activity in response to changes in the macro-environment. However, our client base is materially larger today than a year ago, and levels of new client retention are comparable to historic averages, providing a strong base for growth. The addition of tasty trade will add significant scale to our footprint in the U.S., diversifying our products, creating a larger client base and providing a new avenue for growth. We truly have lots of exciting growth opportunities to look forward to in FY '22 and beyond. Thank you for your time today. I'll now open it up to questions.

[Operator Instructions] And the first question is from the line of Ian White of Autonomous Research.

Thanks for the presentation and for taking my questions. I had three, please, all around the acquisition. So question one, can you talk a bit about the M&A process itself? Is this a deal you've been looking at for some time? And was the acquisition part of a competitive process? That's question one, please. Secondly, can you talk us through the buy versus build considerations with tastytrade. Essentially, why did it make sense to buy tastytrade versus building out some of these opportunities organically? You've obviously had some success building out a slightly different exchange-traded franchise in the EU region, why couldn't that have been done in the Asia Pacific region without doing this acquisition, for example? That's question 2. And then just lastly, can you just say a bit about how you see the regulatory environment for retail trading in the U.S.? We're seeing one firm, I think, potentially run into trouble there recently for alleged aggressive marketing. How do you see the constraints facing tastytrade going forward, please?

Yes. Thank you, Ian. I'll turn it over to Charlie for the first question on M&A.

Ian, thanks for the question. On the process itself, there wasn't an auction or bidding process with this. When we extended our nonbinding offer, we also entered into an exclusivity arrangement with tastytrade. That gave us the time, and I think the clear water that we needed to do a pretty detailed comprehensive due diligence. So really, it was up to us to decide as well as tastytrade, obviously, to decide whether this was the right thing for both of us going forward. And obviously, we've concluded that we both think it's the right thing.

On question two, let me take that one, buy versus build. Clearly, we have a great history in terms of building things and making them successful. But what we saw here was a track record that already existed, both with the team that had built thinkorswim before. One of the most successful platforms in the market that was acquired by TD Ameritrade. They've done it before, highly successful, became a core asset of TD Ameritrade. They're doing it again, faster, better than before. And we think there was a great opportunity to capitalize on the things they've already built in a huge market where they've made great penetration. In terms of the regulatory environment, we did a lot of due diligence on this, as you can imagine. And we are comfortable that, looking at the regulatory environment, first of all, it is different. As we've seen in every part of the world, different standards, different prospects. One of the things that gives us great comfort is the fact that this option and trading market -- options and futures market is focused historically on people that are very sophisticated both here, as we mentioned, and that is a segment of the market that really looks at systematically and strategically optimizing performance and also managing risk against a broader equity portfolio. We also think that the education content that tastytrade offers really creates a lot of richness in terms of quantitative analysis, packaged in an accessible way.

The next question is from Ben Bathurst of RBC.

I've also got a couple of questions on tastytrade. First, really on the financial side. When you're looking through the numbers for the business, I just wondered to what extent you considered the 2020 numbers to be sort of exceptionally enhanced due to the pandemic and the boom in retail trading in the U.S. over the course of last year. And so sort of following on from that, what do you see as being a realistic trajectory of growth going forward from that 2020 base for tastytrade? And moving away from the financials, I see that the -- and you have mentioned the founders left thinkorswim within 2 years or so, the sale to TD Ameritrade to set up tastytrade in 2011. But it clearly seems to be that the plan is for them to hang around for a bit longer this time. I'm just wondering if you could just talk a bit more about the measures you've got in place to help ensure that, that happens. I note the lockups, but is there anything else in place to encourage them to stay on in the company in the management capacity or even anything else to prevent them from setting up another business in the short term? Those are my 2 questions.

Thanks very much for those questions. I'm going to ask Charlie to do the first 2 on the financials. I'll take the third.

Ben, thanks a lot for the question. I mean I think the essence of what your questions get to is one around sustainability. So we'll pass the prologue for the business with some of the material that we've showed here. I think it is fair to say that, I mean, tastytrade, like ourselves, I mean, we are getting some benefit from the current market dynamic. I think that's playing. But I think the more fundamental driver of growth at tastytrade is more structural in nature, and therefore, we think this performance will be more enduring. I would say a couple of things here. I mean the options and futures market itself is growing. There's a continued growth in equities investing now in the U.S. over the last 10 years or more. And in many ways, I think options and futures is a natural extension of that. So I think that growth trajectory will flow from one into the other. I think also related to that is that you have a continued ongoing trend towards self-directed investing and trading. And that trend doesn't show from what we see any sign of stopping or any sign of being discouraged. If anything, it's actually becoming a lot easier for individuals to direct their own financial affairs. And I think those are 2 important trends that are underlying this. Now within those market trends, the way we look at it is, then how is tastytrade positioned within all of that. And we think they are very well positioned. I think for starters, they have very powerful content within tastytrade itself. They have a state of the art platform, very rich in feature functionality and they also have competitive pricing. So they have the triumvirate of those 3 things that, again, I think, make them well positioned. You also have, as I mentioned in my remarks, some consolidation that's happening in the sector right now. And we do believe that will create opportunity, and it's already creating opportunity to grow basically at other people's expense. It is a top-ranked platform for active traders, much like IG. And of course, you've got a very strong, very experienced management team who've done this before, and they really understand the market. So we do think it's sustainable. And really, I would probably just point you to the one piece of guidance that we gave you today, that adjusted EPS will be accretive within that first year. So I think that gives some, if you will, confidence or a measure of how we're looking at the forward in the business from the point of completion.

And in terms of retention, that was clearly one of the things we diligence very intensively, had lots of conversations about this. And not only is the lockup, a 5-year lockup in place. But one of the other features that gave us real comfort was the fact that the shareholders, tastytrade's shareholders, including the management team, have put their hand in their own pocket to ensure that there's a retention package, a multi-year retention package for tastytrade employees. So a real sign of commitment. And of course, we've done all the things in terms of noncompetes, that you would imagine. But more importantly, one of the things that differentiates this particular transaction is the shared values and the obvious revenue synergies, both in terms of -- for us, we did not have a large franchise in the United States, unlike in the case of TD Ameritrade, and so this is totally complementary. In addition, throughout all of our due diligence, the tastytrade team did what they said they would do. And that was the deal that they struck to stay as long as they did. And we believe that what we have structured, really makes a lot of sense for both parties. We're very excited about the combination.

The next question is from Martin Price of Jefferies.

Yes. A couple of questions from me, if I may. The first is on stockbroking. Clearly, another strong performance in the first half. I was just wondering if you could provide an update on the strategy for this business, I guess, given that it currently sits outside the scope of the significant opportunities portfolio. Is the focus primarily on organic growth, or would you see any value in potential deals in that division, too? Second question is just on Japan. Again, another strong performance. I wonder if you could provide an update on discussions with introducing brokers that could provide runway to further growth as we look beyond financial 2022. I wonder if you could also provide an update on how significant binary options there are in terms of revenue contribution?

Thanks very much. This is June. Let me talk about the stock broking business and the growth that we've seen there. What we have -- we've always had a stockbroking business. And what we've been able to do in the -- in this last performance that we've just printed shows that with a little bit extra focus on something that already exists. Our clients really do enjoy the customer service that we provide and the offering that we have to offer in the stockbroking area. So this is serving current clients in the markets where we have this capability. And it creates, as I said, another broader base of recurring revenue. In terms of Japan, it's a large market for us, obviously. And we see the business continuing to grow principally from new products that we will continue to expand the -- as I said, the approach that we've used in terms of providing global expertise as well as local insights and then making it very appropriate for that market will be key. And we would anticipate more products coming into that market going forward. So introducing brokers that is an area where we do see a lot of interest. As most of you know that have worked in Japan, those building on relationships and -- take some time. But we're really encouraged with the receptivity that we've had from a number of players there. They see the innovation we're providing, and they're excited about working with us.

June, you want me to pick up on binaries?

Yes.

So on binaries, the reference point I would give you is probably our FY '20 revenues around that business, which is around GBP 15 million, maybe GBP 16 million.

The next question is from Portia Patel of Canaccord.

Portia here. I just had 2 questions on tastytrade, please. So first was on the historical financials that you've provided. Just noted, obviously, the strong revenue growth in FY '20, but that didn't seem to translate into EBITDA margin expansion, which one might have expected. And on the PBT line, it looks like the PBT margin fell to 42% in FY '20 from 57% in FY '19. So firstly, just wondering if you could explain a bit about the historical profit dynamics for tastytrade? And then secondly, in a similar vein. Looking forward, on the basis that it seems like you're expecting low 40% year-on-year revenue growth trajectory to continue for tastytrade. How would you encourage us to think about the evolution of the adjusted PBT margin going forward?

Thank you, Portia. We'll turn that over to Charlie.

Thanks, June. The way I would think about some of their historical financials is to keep in mind that -- I mean this is still a relatively young business. They're investing in the business as they go. And that's something that we think is quite good and quite healthy. I think with margins that are in the high 40s, I think that's a terrific place to be, and I would expect that, that would be able to continue on that basis. In some ways, I guess, a bit like IG. It is an invest and grow business, and that will go back and forth. You may have a period when some of the investment may be a bit more pronounced than others. But again, it's all just part of building a quality franchise and a bigger business. I'm not going to give any guidance right now in terms of how to think about the business necessarily over time. We still have months to go before we can get to completion. And when we do get to completion, then I'll bring it all together and give you some updates in terms of how we're thinking about it, not just for tasty, but for the combined group as a whole. But I think it's a bit early to do that right now.

Okay. I think that's all we have on the phone lines. We now have a couple of questions from the web. The first 2 are from Mark Williams and from Peel Hunt, of which we've already covered the first, which talks about the buy versus build. The second, on the lockups, I just wanted to clarify whether ICV (sic) [ TCV ] and Lightbank that will own 5.7% of IG are only subject to a 6-month lockup and also how the phase lockup for the remaining shareholders will work?

Mark, thanks for that question. Yes. TCV and Lightbank will be subject to a 6-month lockup period. So that is correct. In terms of the remaining shareholders, it's focused on the 4 founders, if you will, that's a 5-year lockup that releases ratably 20% per year over the 5-year period.

Thank you, Charlie. And then our final question today from [ Matthew Cassellica ]. Regarding the capital increase, is this being put to a shareholder approval? And what is the envisaged timetable?

Thanks, Matt. We applied the class tests, as you would imagine, and it does screen as a Class 2 test. So it does not require shareholder approval. The envisioned timetable, that's something I think we can probably give some update on as we go along. We have regulatory approvals, principally in the U.S. that we'll need to satisfy. Those could take several months. So again, I think we can probably give an update maybe in our Q3 time frame, something like that as to when we might be able to be more precise about a completion date. I think if you wanted to have a placeholder for now, I would suggest June 1.

Thank you, Charlie. We have no more questions. So I'll hand back to June to close out the call.

Thank you, everyone, for your time today. We're obviously very pleased with the progress that we've made, both in terms of our existing business and also the tastytrade transaction, and we see lots of opportunities for growth in not only the coming year but in the years beyond. Appreciate your support. Looking forward to meeting many of you over the coming days and weeks. Thank you.

This presentation has now ended.