24 September 2008

RNS Number: 1471E
IG Group Holdings plc
24 September 2008

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

THIS IS NOT AN OFFER OF SECURITIES FOR SALE INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

IG Group Holdings plc
Proposed acquisition of FXOnline Japan KK
Placing to raise £82.2 million

Introduction
IG Group Holdings plc ("IG", the "Company" or the "Group") is pleased to announce that it has entered into an agreement to acquire 87.5 per cent of the issued share capital of FXOnline Japan KK ("FXOnline"), a leading privately owned Japanese online retail FX trading company, for ¥21.9 billion (£112.2 million) (the "Acquisition"), together with a call option to acquire the remaining 12.5 per cent commencing in January 2011. IG also announces today a fully underwritten placing of up to 32,974,424 new ordinary shares (the "Placing Shares") with institutional and other investors, to raise gross proceeds of £82.2 million (the "Placing") in order to finance part of the consideration that is payable to the shareholders of FXOnline. The balance of the consideration will be funded from IG's existing cash resources.

Key Acquisition highlights

  • Provides immediate scale and infrastructure in a key strategic market
  • An established brand within the Japanese retail FX market
  • An experienced and professional management team, incentivised through a significant continuing interest in the business
  • Revenue has increased at an historical compound annual growth rate of 106 per cent during the period 1 April 2005 to 31 March 2008
  • A highly profitable business generating a pre-tax profit margin of 70 per cent
  • Significant scope to generate synergy benefits Potential to exploit CFD and white labelling opportunities within the Japanese market
  • Valuation represents a multiple of 8.7 times profit after tax in respect of the financial year ended 31 March 2008
  • Expected to be enhancing to earnings per share in the current financial year to 31 May 2009 (1)

Information on FXOnline
Headquartered in Tokyo, FXOnline is a leading privately owned Japanese online retail FX trading company. FXOnline has been at the forefront of innovation within the Japanese retail FX market, including being the first company in Japan to offer clients commission free trading. FXOnline has been successful in building strong brand awareness within the Japanese retail FX market and in attracting new customers, with the number of active clients having increased from 4,154 as at 31 March 2006 to 11,747 as at 31 March 2008. FXOnline has enjoyed a period of rapid and sustained growth during the same period with revenues having increased from ¥1.6 billion (£8.4 million) to ¥7.0 billion (£35.8 million) and pre-tax profits having increased from ¥1.2 billion (£6.4 million) to ¥4.9 billion (£25.0 million).

Year ended 31 March Year ended 31 March 2007 Year ended 31 March 2008 2006 Revenue ¥1.6 billion ¥4.0 billion ¥7.0 billion Pre-tax profit ¥1.2 billion ¥2.8 billion ¥4.9 billion Profit after tax ¥0.7 billion ¥1.6 billion ¥2.9 billion No. of clients trading in 4,154 8,355 11,747 March No. of lots traded in March 90,254 150,544 283,797

FXOnline experienced a slow-down in both revenue and account opening in April and May 2008 as a result of greater competition within the Japanese retail FX market. Following a spread-cut in late May, FXOnline has enjoyed an improvement in trading conditions and in September average daily revenue was 70 per cent higher than the average level achieved during the preceding period of five months. Account opening has also been strong with daily account opening more than double the average over the last five months.

FXOnline's shareholders include two strategic investors, FinTech Global Incorporated and Mizuho Capital, who acquired an aggregate shareholding of 49.99 per cent in FXOnline in March 2007. A further 37.0 per cent of FXOnline is owned by James Gow and the remaining share capital is owned by the current and former management and employees of FXOnline (and related individuals).

FXOnline was founded in 2002 by its current Chief Executive, James Gow, a UK national who has lived in Japan for the last 16 years. Prior to founding FXOnline in 2002, he worked at Cantor Fitzgerald and at ING Securities where he gained extensive experience of the global securities and FX markets. Kazuyasu Hakata is the Chief Financial Officer and Chief Operating Officer of FXOnline. Prior to joining FXOnline he spent 27 years at Fuji Bank and he is a former Chief Financial Officer of Japan Telecom. He has an MBA from INSEAD and has worked extensively in Europe during his career.

FXOnline is regulated by the Japanese Financial Services Authority and employs approximately 45 people.

As at 31 March 2008, FXOnline had gross assets amounting to ¥15.1 billion (£77.7 million).

Reasons for and effects of the Acquisition
The Group evaluates potential new markets as part of its strategy to further strengthen and extend its geographic reach. The Directors of IG believe that FXOnline complements the Group's existing operations and strategy within the Asia Pacific region and provides the Group with immediate scale and infrastructure in a key strategic market.

Japan is the second largest retail FX market in the world, behind the United States, and the Directors of IG believe that it is an attractive market for the following reasons:

  • It has been experiencing extremely rapid growth during the course of the last few years
  • It is a fragmented market and the Directors of IG believe that this should provide the Group with an opportunity to capture additional market share
  • It offers the potential to exploit CFD and white labelling opportunities
  • It has an established regulatory framework that firms are required to operate within

The Directors of IG expect to derive significant synergies from applying the Group's hedging methodology to FXOnline's volume, moving clients onto IG's PureDeal platform and from offering IG products to the FXOnline client base (e.g. CFDs). The Directors of IG also expect the Acquisition to be enhancing to earnings per share in respect of the current financial year (1).

On a pro forma basis, the proportion of the Group's revenue derived from non-UK clients increases from 27 per cent to 39 per cent (3).

Details of the Acquisition
The consideration that is payable by IG in respect of the 87.5 per cent shareholding in FXOnline that is being acquired amounts to ¥21.9 billion (£112.2 million). An initial amount equal to ¥15.3 billion (£78.5 million) will be payable in cash on completion of the Acquisition and the remaining ¥6.6 billion (£33.7 million) of the consideration will be placed into an escrow account pending the successful relocation and hosting of the current FXOnline trading platform to servers that are housed within IG's existing data centres in the UK. It is anticipated that the monies held in the escrow account will be released during the course of November 2008.

The amount of consideration that is payable by IG to the shareholders of FXOnline will be subject to adjustment on a ¥-for-¥ basis following final determination of the net surplus capital of FXOnline as at 30 September 2008. The consideration may also be subject to a downward adjustment in the event that the current FXOnline trading platform is not operable for a significant period during normal business hours prior to the successful relocation and hosting of the current FXOnline trading platform to the servers that are housed within IG's existing data centres in the UK.

The remaining 12.5 per cent shareholding in FXOnline that is not being acquired by IG is to be retained by James Gow. IG and James Gow have agreed that IG shall have the right to acquire this residual shareholding pursuant to a call option arrangement exercisable twice annually commencing in January 2011 according to a pre-agreed formula that is linked to the future financial performance of FXOnline. The price that is payable by IG in respect of this residual shareholding is subject to a cap of £80.0 million.

Future operating arrangements
Following completion of the Acquisition, it is intended that the current FXOnline trading platform will be relocated to servers that are housed in IG's data centres in the UK. It is expected that this relocation will be completed during the course of November 2008. IG will feed prices into the FXOnline platform and the risk management and hedging activities of FXOnline will be undertaken from IG's offices in London and Melbourne. Once the existing FXOnline platform has been relocated to IG's data centres, it is intended that there will be a gradual phased migration of all FXOnline clients off the existing platform onto IG's PureDeal platform.

IG's senior management team has been working closely with the FXOnline management team during the course of the last few months and a significant amount of the work that is required to be undertaken in order to achieve a successful integration of the two businesses has already been completed. The Directors of IG expect that the level of integration costs incurred by IG will be minimal.

In connection with the Acquisition, Andrew MacKay (Executive Director) will be appointed Head of IG's Asia Pacific business. Andrew will be relocating to Tokyo where he will work closely with James Gow to oversee the integration of FXOnline and to assist with the proposed launch by FXOnline of CFDs into the Japanese market. A number of other operational and IT specialists who currently work in IG*s London office will also be relocating to Tokyo. James Gow and Kazuyasu Hakata have agreed to continue in their current roles within the business following completion of the Acquisition.

Current trading
IG issued an Interim Management Statement on 9 September 2008 in respect of the three month period ended 31 August 2008. At that time, the Group announced that it had made a strong start to the financial year with sustained high client activity levels.

  • Revenue for the quarter of £53 million represented a 29 per cent increase on the corresponding quarter in the prior financial year
  • Client recruitment levels in the financials business continued to remain strong with the total number of spread betting and CFD accounts opened in the quarter being 45 per cent higher than in the corresponding quarter in the prior financial year
  • The recently established businesses in France, Spain and the USA, together with the Singapore, German and Italian operations which were established in 2006, continued to make good progress and experienced rapid revenue growth
  • Operating costs were in line with management expectations

Current trading remains strong with the Group's financial business continuing to benefit from high levels of market volatility which is a key driver of client activity. During the most recent period of exceptional market volatility the Group achieved record levels of client transactions and record levels of account openings for both financial spread betting and CFDs.

A number of financial regulators have, in recent days, announced restrictions on the practice of short-selling shares. However, the Directors of IG expect the impact of these restrictions on the Group's revenues to be negligible.

The Directors of IG confirm that there has been no change to the current trading and outlook of the Group in the period following the issue of the Interim Management Statement. While it remains difficult to predict future trends in volatility or client reaction to any change in market conditions, the Directors of IG believe that the Group remains well positioned for further growth and are confident of the Group's prospects.

Details relating to the Placing
In connection with the Acquisition, IG also announces today that it intends to raise £82.2 million from institutional and other investors by means of a Placing of up to 32,974,424 Placing Shares, which is intended to partially fund the Acquisition. Completion of the Acquisition and the Placing are inter-conditional.

James Gow has undertaken to subscribe for Placing Shares with a value of £3.25 million at the Placing Price (as such term is defined below). These shares will be subject to customary lock-up arrangements for a period of 12 months. In addition, the Executive Directors of IG, Messrs Howkins, Hetherington, MacKay and Clutton, intend to apply for Placing Shares with a value of approximately £2 million (in aggregate) at the Placing Price. The Placing Shares have been underwritten by UBS, subject to certain terms and conditions set out in a placing agreement between UBS and IG. The Placing Shares will constitute less than 10.0 per cent of IG's current issued share capital.

UBS is acting as sole bookrunner and broker for the Placing. The Placing will be conducted in accordance with the terms and conditions set out in the appendix to this announcement and will be effected by means of an accelerated bookbuild placing of the Placing Shares (the "Bookbuild Process").

The books will open with immediate effect. The timing of the closing of the books, pricing and allocations is at the discretion of UBS and IG. Details of the placing price in respect of the Placing Shares (the "Placing Price") will be announced as soon as practicable after the close of the Bookbuild Process.

The Placing Shares will be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of 0.005 pence each in the capital of IG, including the right to receive all future dividends and other distributions, other than the final ordinary dividend that is payable in respect of the financial year ended 31 May 2008.

Application will be made for the Placing Shares to be admitted to the Official List of the UK Listing Authority and to be admitted to trading by the London Stock Exchange on its market for listed securities ("Admission"). Admission and dealings in the Placing Shares are expected to take place at 8.00 am on 29 September 2008.

Attention is drawn to the detailed terms and conditions of the Placing described in the appendix to this announcement (which forms a part of this announcement). Participants in the Placing will be subject to such terms and conditions and will also be providing the representations, warranties, acknowledgements and undertakings contained in such appendix.

Commenting on the Acquisition, Tim Howkins, Chief Executive of IG said:

"Like IG, FXOnline has a history of strong growth and innovation. There is a good cultural fit between the two businesses and the potential for immediate synergies. IG has a successful track-record of international expansion and the acquisition of FXOnline and our entry into the Japanese FX market represent an important milestone in our strategic plans."

Commenting on the Acquisition, James Gow, Chief Executive of FXOnline said:

"IG is an ideal partner for FXOnline and this agreement will allow us to strengthen further our position in the Japanese market. We look forward to working with IG and being able to introduce new products and IG's market leading technology to both new and existing clients."

Notes:

(1) The statements in this announcement regarding the enhancement of earnings per share do not constitute profit forecasts nor should they be interpreted to mean that the earnings per share of IG for the current or future financial years will necessarily match or exceed the historical published earnings per share of IG

(2) Amounts stated in Japanese Yen included in this announcement have been converted into GB Pounds at a rate of ¥195 / £1.00

(3) The reference to the proportion of Group revenue derived from non-UK clients is calculated on a pro forma basis using the revenue of IG for the financial year ended 31 May 2008 and the revenue of FXOnline for the financial year ended 31 March 2008

(4) The financial information included in this announcement relating to FXOnline is based upon unaudited financial statements

IG will host a conference call for analysts and investors today, 24 September 2008, at 9.00 am (London). Interested parties can listen to the conference call by using the international dial-in +44 (0) 1452 542 303 and passcode 66255710. Presentation slides that provide an overview of the transaction will be made available at www.iggroup.com before the start of the conference call.

A replay of the conference call will be available for a period of 14 days after the event by dialling +44 (0) 1452 550 000 and using the passcode: 66255710.

For further information please contact:

IG Group Holdings plc                            020 7896 0011
Tim Howkins, Chief Executive
Steve Clutton, Finance Director

Financial Dynamics                                020 7269 7200
Robert Bailhache
Nick Henderson

UBS Investment Bank                            020 7567 8000
Adrian Haxby
Tom Johnson

Lexicon Partners                                    020 7653 6000
Mark Hennessy
Nick Chapman