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Ladies and gentlemen, welcome to the IG Group Q3 Full Year '19 Revenue Update Conference Call. My name is Julie, I will be the operator for your call this morning. It will be a short presentation by Paul Mainwaring, followed by a question-and-answer session. [Operator Instructions] I would now hand you over to Paul Mainwaring, Chief Financial Officer. Please go ahead.
Thank you. Good morning, everybody, and thank you for being on the call. You've seen the statement this morning, so I can just set out the -- what we see as the major points. Just a reminder that Q3 of our FY '19 financial year is the second quarter when the ESMA measures have been in effect throughout, and we are comparing our Q3 performance with our Q2 performance as the primary comparison rather than against Q3 last year, which was obviously before the ESMA measures had come into effect and which also benefited from the heightened level of interest in cryptocurrencies.Our revenue in the quarter of GBP 108 million is 12% lower than in Q2. However, encouragingly, the total number of OTC leveraged active clients in the quarter was up by 1%. And the lower revenue is due to lower revenue per client, which reflects the difficult market conditions for us in the quarter, particularly in February, and is not a reflection of any further weakness in the ESMA -- any further impact of the ESMA measures.We've continued to attract new clients, which is also encouraging, with 7,700 new clients placing their first trade in Q3. And we've also continued to see applications for clients to actually categorized as professional. Encouragingly, in the ESMA region, we've seen the number of retail clients increase by 2%, up to 46,600 in the quarter, which we again think is a good indication for the future. And then, finally, just a note that we have launched our new U.S. subsidiary, we are set, and IG Europe as our European contracting entity for client [indiscernible] at the end of January. And Spectrum, our MTF, is still expected to launch before the end of the financial year.Our cost guidance for FY '19 remains unchanged. We are reiterating, the board expects to maintain the 43.2p per share annual dividend. And also, please note that we will provide a business and strategic update on the morning of 22nd of May, which will be the opportunity for June Felix to set out her observations on the company and the strategy for growth in FY '20 and beyond.So with that, I'd like to open the call for questions.
[Operator Instructions] The first question comes from the line of Ben Williams of Liberum.
Clearly, market conditions are, yes, as I see it, fairly extreme in terms of low volatility. Tight trading ranges that's for low propensity trade. Would it be helpful and would you wish to give a characterization of the months and roughly where we are now? And I suppose, everybody is going to be thinking after poor trading conditions month -- quarter like this, how it extrapolates below that for looking at the year, et cetera? Yes, this looks to me, like, pretty much trough in terms of how trading conditions get. Could you give some sort of sense of where we're in the range of what you think normal trading conditions are this quarter ended up?
Yes. Thank you. And I think we would say that Q2 was more reflective of, what we might call, normal trading conditions, and Q3 was a reflection of weaker trading conditions. And for those of you who do the simple math as I do, if you think that GBP 40 million month is a kind of an okay month, and I'm talking very much in round terms here. And a GBP 45 million-plus month is a good month and the GBP 35 million minus month is a poor month, then if you got the 3 okay months, you're at GBP 120 million, which is Q2. And if you have one or more poor months in a quarter, you're at least GBP 10 million below that, and that's sort of where we are. So I think in looking forward, it's always difficult to extrapolate as many one quarters as we have sought to set out before. So we would expect that a more normal set of trading conditions would lead to revenue more similar to what we saw in Q2.
The next question comes from the line of Ian White of Autonomous Research.
Just a couple from me, please. First of all, on cost, and I acknowledge your guidance for FY '19 remains unchanged. Looking ahead to FY '20, what levers might you have to essentially reduce the cost base or reduce the rate of growth of the cost base to offset further revenue pressures if market volatility doesn't recover? If you're able to just talk me through what you see as the options there, please? That will be question one. And then just question...
Let me take that one first then. Let me take that one first, so I don't lose my track. I mean, first of all, we do think that we've got to create value by driving the revenue rather than by cutting the cost. And we've continued to invest throughout last year and this year in the product developments that are coming to -- have or are coming to launch. So we've got the RFED, throughout Europe we've got the MTF. And there are other products that we have developed and launched, which have been -- we talked about the -- as an [indiscernible] product in Japan I think at the half year. So we do believe that, that is the way to continue to grow by having the products that attract a client base of size and quality who will trade when the opportunities are there. And so the one most variable cost we have is in our prospect acquisition, how much we spend on marketing and branding. And when you're launching new products, we would not expect to reduce that level of spend. So -- and we will set this out in much more detail when we come to the update on the 22nd of May as to what our plans are. But we expect to grow value and grow our earnings by growing the revenue rather than by cutting the cost.
I understand. And on the second one, please. And there seems to be sort of consensus across the industry, there will be an FCA thematic review into professional client categorization. Just wondered if you had any color regarding the potential timing as to when you expect that review to arrive, please?
Thank you. We are not aware of the timing. We have been asked for a data by the FCA, which we have responded to or are responding to. I am not aware that we've been given any time line for when the FCA expect to have review that data, not just from us, but we understand some -- the other regulated businesses in the U.K., we have -- I'm not aware there's a time line for the expected output of that.
The next question is from the line of Richard Taylor of Barclays.
Just a question on the dividend, please. You've said that you're going to retain the 43p dividend. Is there's sort of earnings level below which you wouldn't be willing to retain that sort of dividend, given that the cover is over 100% now? And can you help us understand your sort of framework for that with regards to your capital headroom?
Yes, certainly. So let's talk about the capital and liquidity headroom. And I can absolutely assure you, and I don't want to say that lightly, that there is no capital or liquidity constraint to this payment 43.2p per share dividend even if the earning was slightly lower than that, okay? There's absolutely no constraint upon it. We have sufficient capital headroom and sufficient liquidity. We obviously expect that our earnings in future years will grow from here, and that's why we made the statement originally at the end of FY '18 in a year when we increased the dividend up to the 70% of FY '18 earnings. We expect to maintain it until those earnings are developed. Our view on that has not changed. And that's what we expect to be able set out in more detail on the 22nd of May to give the market confidence again that our earnings will grow and that -- and we will restore the level the dividend cover that we have set out.
[Operator Instructions] The next question comes from a line of Joanna Nader of RBC Capital Markets.
Just wanted to ask a couple of questions. I guess, first on the behavior of the ESMA retail clients, and I just wondered if there's anything sort of further you can say on sort of how they're behaving in terms of revenue per client, like, what the sort of drivers are in terms of number of trades? Are they just much less active or are they starting to sort of increase in terms of their size of their trades? They're used to the excess deposits. And sort of anything their behaviorally that you're sort of starting to see over the past not just this quarter but now over the previous quarter as well? And secondly, just -- I know it's very early days but just wondering if you can say anything on the U.S. FX business in terms of traction, what you're seeing.
Sure. Okay. Let's start with the ESMA retail clients, and we've had 2 quarters post ESMA, so we were able to compare the two. And it does seem that and I'm going to carry at risk because we only had 2 quarters of comparing. And then any shorter time period really doesn't make much sense. But it does seem that as one would expect, ESMA retail clients, their trading is constrained by the ESMA product intervention measures. Which means that when markets are more volatile and retail clients kind of only trade up to the amount they are prepared to put out risk, which means that when markets are less volatile, people still want to trade. And they're finding enough opportunity to trade, which means that their activity does not reduce as much. As a professional client in period between high vol and low vol, because their trading is not constrained, so that one thing we've drawn from that. And overall -- that the whole, the impact on retail clients has really been to reduce the size of their trade, so people still like trading and still like -- they're taking a position and view on the market, but they're not able to do so in the same size. But they were prior to the [indiscernible] being introduced, that's the main change in behavior. It's a little early, I think from the Q2, given the market vol to read too much into the headroom that retail clients hold on their accounts. But we [indiscernible] effectively have more month and be able to discern whether there's been a significant change in behavior in that regard, but that's a little early for us to tell you. And then on the U.S., as the business launched at the end of January, that's what we call sort of a soft launch, so really a prime the pumping in the marketing effort. That marketing effort really started at the end of February, so we've had really in terms of actively seeking accounts only 2 or 3 weeks of doing so. We're very pleased with the traction that the message is getting out there. We are promoting the business on the basis of the spreads we offer on the major currency pairs which is substantially lower than what's currently available in the market, and we're expecting [indiscernible] you can service. And we're seeing what we would expect in the market where we haven't been present for 10 years, the people are -- they're trying us out first. And we've got some good examples of where people have tried us out with a relatively small deposit and then they come back and deposited a significant amount and seemingly transferred their trading activity to us. We're really pleased with how it started. But it is only a couple of weeks, 2 or 3 weeks really of promoted activity. So again, when we come to the end of May, we'll be able to give you more and more color on that.
And this concludes our question-and-answer session. I would like to turn the conference back over to Paul for any closing remarks.
Okay, guys, thank you very much for taking part. Thanks for your interest and Liz and [ Fergus ] are obviously available for any further follow-up questions that you may have. And then I look forward to seeing you all towards the end of May.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.