IG cuts UK roles amid global push

For many businesses, Covid-19 has forced management teams to abandon expansion plans and focus on preserving capital. For others, it has simply delayed long-planned shake-ups.

Investors can place trading platform provider IG Group (IGG) in the latter camp, after the FTSE 250 constituent this month finalised a major redundancy round across its marketing division.

IG is not the only financial services group to be cutting jobs in the middle of an economic crisis. UK lenders including Lloyds (LLOY) and NatWest (NWG) have announced lay-offs across their retail branches, while Sabadell-owned TSB is in the process of culling around 12 per cent of its UK workforce. In contrast, Barclays (BARC) chose to delay a major round of job cuts at the onset of the pandemic.

But unlike domestic lenders, which have been badly hit by lower interest rates and rising credit risk, IG has had a very profitable 2020. The group, which makes most of its revenues from the sale of over-the-counter derivatives, is forecast to generate net income of £222m for its current fiscal year, having posted record profits of £240m in the 12 months to May amid surging client demand and trading volumes.

A bumper year for earnings was mirrored in a £3.6m total pay packet for chief executive June Felix, after IG’s remuneration committee decided she had met 97 per cent of targets connected to a performance plan.

IG’s marketing team has not fared as well, despite being singled out for its contribution to client growth and “improved effectiveness…across multiple channels” in a first quarter trading update in September. Investors Chronicle can reveal IG has now made around 60 redundancies in the division, two-thirds of which are in the UK.

In the UK, those staff affected have been offered a maximum of two weeks’ pay per year of tenure, and as low as one week. Affected staff have also been told they are not eligible for a bonus at the end of the current fiscal year, despite exceeding internal targets.

Marketing staff countered with a request for one month’s pay per year of service, arguing the division had been critical to IG’s recent success and that employees were being made redundant in “an exceptionally tough job market”.

The company responded by offering an “enhanced redundancy payment” of £2,000 per employee, alongside additional outplacement help. Statutory redundancy pay is between half and one and a half week’s salary per year of service, depending on a worker’s age.

An IG spokesperson said the job cuts were part of a three-year growth strategy “to deliver a more diversified and sustainable business”, improve performance and provide a “great global focus” for clients. “The programme has resulted in increased use of technology, outsourcing, offshoring and, regrettably redundancies,” the spokesperson added.

The move comes as trading platforms look to increase their investments in technology and other more sustainable drivers of revenue. The sector saw a small arms race in its collective marketing spend earlier this year in a bid to attract waves of new clients who flocked to invest during lockdown, amid record periods of volatility (see chart).

IG management is understood to view this year’s trading conditions as exceptional, and unlikely to continue.

At the same time, Ms Felix has sought to expand its international footprint to target high-growth regions and client bases. Last year, the chief executive hired Tomoharu Furuichi and Maggie Yeung to head up the group’s operations in Japan and China, respectively, as part of growing focus on Asia.

While centred on the UK, IG counts around 1,700 employees across its global network, meaning less than 4 per cent of all roles have been axed. That doesn't make the move or its timing any less distressing for those affected, but - to put it brutally - nor is it likely to displease shareholders, who have been pressing Ms Felix to deliver on her growth strategy. Hold at 816p.

Last IC View: Hold, 831p, 23 Sep 2020