2010 2010 .............................................. London 19 - - PowerPoint PPT Presentation

Annual Results Annual Results Presentation

2010 2010

.............................................. London 19 May 2010 London, 19 May 2010

These materials do not constitute an offer to sell or the solicitation of an offer to purchase any security. These materials contain "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current Company expectations and are subject to risks and uncertainties, which could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to: fluctuations in interest rates and foreign currency exchange rates; market acceptance

• f new trading technologies; global and regional economic conditions and legislative,

l t d liti l d l t d d ti d i t ti l titi i th regulatory and political developments; and domestic and international competition in the Company's global markets. Additional information regarding these and other factors is available in the Company's reports available on request from the Company. ............................................................................................................................................. This document may not be distributed where to do so would be unlawful. This document y may not be distributed in the UK except to persons falling within article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001.

2

Financial results

Solid performance with increased revenue and EPS

a c a esu ts

+1% +1% +3%

• 5%

Revenue* Profit** EPS*** DPS

3

* From continuing operations ** From continuing operations pre-tax profit before amortisation and impairment of intangibles arising on consolidation and exceptional items *** Adjusted basic – Continuing operations

Matthew Lester

Group Finance Director

4

Financial summary Financial summary

• More diverse business lapping strong 08/09 comparators

More diverse business lapping strong 08/09 comparators

• Improving volumes and lower costs producing good profit

growth in electronic broking g g

• Strong revenue and profit growth in post trade risk and

information services

• Non-voice broking activities moving towards 50% of group

profits

• Strong balance sheet and cash flow
• Europe/Asia agency cash equities treated as discontinued

businesses

5

Group profit before tax Group profit before tax

Year to 31 Mar 10 Year to 31 Mar 09 Var vs PY

Underlying performance Headline results

% £m £m

Revenue 1,605 1,585 1% Net operating (1,251) (1,220) (3)%

• 5

(6%)

expenses (1,251) (1,220) (3)% Operating profit 354 365 (3)% Net finance charge (28) (24) (17)%

5 (13%)

Associates 7 9 (22)% Profit before tax 333 350 (5)%

• 10
• 15

Revenue Operating profit Mar 10 Mar 09 Operating profit margin 22% 23%

6

The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items. Underlying growth excludes the impact of foreign exchange.

Core voice

Headline results

Year to 31 Mar 10 Headline variance

Core voice

Underlying performance

2

EMEA US £m vs prior year

EMEA Revenue 506 (3)% Operating profit 115 (15)%

%

• 6
• 4
• 2

US Total

p g p ( ) Margin 23%

• 3 ppts

US Revenue 434 3%

(6%) (6%) (4)%

• 12
• 10
• 8

Operating profit 80 5% Margin 18%

• Asia

(7%) ( ) ( ) (12%) (7%)

• 16
• 14

Revenue 96 0% Operating profit 1 n/m% Margin 1% +3 ppts

(12%)

Total core voice Revenue 1,036 0% Operating profit 196 (6)% Margin 19%

• 1 ppt

Revenue Operating Profit

Memo Revenue Operating profit Asia underlying (9%) n/m%

7

g pp

The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items. Underlying growth excludes the impact of foreign exchange.

Electronic, post trade risk & information

Headline results

Year to 31 Mar 10 Headline variance

, p

Underlying performance

£m vs prior year

Electronic

4 6

Electronic

Revenue Operating Profit

% 5%

Revenue 252 0% Operating profit 100 14% Margin 40% +5 ppt

2 4

Post trade risk & info

2%

Post Trade Risk and Information Services

• 6
• 4
• 2

Revenue 142 15% Operating profit 69 13% Margin 49%

• 10
• 8
• 6
• 14
• 12

(11%) (13%) 8

The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items. Underlying growth excludes the impact of foreign exchange.

Diversifying operating profit

Operating profit coming from non voice broking businesses (2003 2010)

Diversifying operating profit

Comments

• Almost 50% operating profit from

electronic broking, post trade risk and i f ti broking businesses (2003 – 2010)

45% 50%

information

• TriOptima will increase this further

35% 40% 45% 20% 25% 30% 10% 15% 20% 0% 5% 2003 2004 2005 2006 2007 2008 2009 2010 9

The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items.

Impact of investment strategy

New businesses

£m

Impact of investment strategy

Largest areas of investment

• Emerging markets –

Brazil Revenue 175 Operating profit * (11 )

• New Products –

patents Impact on current year margin

• 3 ppts

2010 2009 Y Y t Total voice brokers**

Revenue from new business started or acquired in the last two years** 10% 14%

Year 31 Mar 10 Year to 31 Mar 09

Staff compensation / revenue** 59% 59% March 09 2,221 New Business 129 Revenue per voice broker** £533k £542k IT Spend as a percentage of revenue ** 11% 11% Other (66) March 10 2,284

10

p p g % %

* The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items. ** From continuing operations

Net operating expenses Net operating expenses

Year to March 2010 (continuing operations)

1,300

• Substantial

investments in new b i 6%

% point

movement

£m

4% 0% (1)% (4)% 3% (2)% businesses

• Cost savings

particularly focused 68 44 (52) (23) 6

1,250

p y

• n IEB and US

voice broking 68 (12) 1,220 1,251

1,200 Mar-09 FX Performance commissions Investments in new businesses IT Cost Savings Re-Org in 09 Mar-10

11

The above table is from continuing operations and excludes amortisation and impairment of intangibles arising on consolidation and exceptional items.

Exchange rate sensitivities Exchange rate sensitivities

Impact on 2009/10 PBT (1)

Transactional(2) £m Translational(3) £m Total £m

PBT (1)

£m £m £m

Profit increase 32 21 53 Estimated impact at forecast FX rates for 2010/11 on PBT(1) (4)

Transactional £m Translational £m Total £m

2010/11 on PBT

£m £m £m

Dollar 10 4 14

Hedged 2010/11 79% @ $1.51/£ Hedged 2010/11 79% @ $1.51/£

Euro(5) 17 (1) 16

Hedged 2010/11 84% @ €1.14/£

(1) PBT from continuing operations (2) Effective transactional rates for year to 31 March 2010 are $1.64/£ and €1.27/£ (3) 2009/10 yearly translational rates of $1.59/£ and €1.13/£ (4) Assumes average rates of $1.55/£ and €1.15/£ for 10/11 (5) Includes impact from TriOptima based on profits to 31 December 2009

12

Earnings – total operations Earnings total operations

Year to 31 Mar 10 Year to 31 Mar 09 £m £m Profit before tax* 333 350 Effective tax rate 32% 33% Tax* (107) (117) Profit for the year* 226 233 Exceptional items (52)

• Loss for the year from discontinued operations

(18) (4) Amortisation and impairment of intangibles (40) (43) Profit for the year – total operations 116 186 Att ib t bl t Attributable to - Owners of the group 116 175 Minority interests

• 11

Earnings per share – basic 18.0p 27.6p 13

* From continuing operations and before amortisation and impairment of intangibles arising on consolidation and exceptional items. Adjusted weighted average number of shares 12 months ended Mar 10 - 643m (Mar 09 - 634m). .

g p p p

Earnings – continuing operations Earnings continuing operations

Year to 31 Mar 10 Year to 31 Mar 09 £m £m Profit for the year from continuing operations* 226 233 Earnings per share – Adjusted basic** 35.1p 34.7p Dividend per share 17.55p 17.05p 14

* From continuing operations and before amortisation and impairment of intangibles arising on consolidation and exceptional items. ** From continuing operations Adjusted weighted average number of shares 12 months ended Mar 10 - 643m (Mar 09 - 634m).

Movement in free cash flow Movement in free cash flow

Profits vs free cash flow Year to Mar 10 Year to Mar 09 Year to Mar 08

Cash from operations

£m £m £m Profit pre amortisation* 208 229 213 Free cash flow 219 296 232

500

£m

Cash > Profit 11 67 19 Calculation of free cash flow Year to Year to

(15) (21) (87) 13

400 450 500

Calculation of free cash flow Year to 31 Mar 10 £m Year to 31 Mar 09 £m Cash from operations 345 455

455 345 ( ) (21)

250 300 350

Interest and tax (69) (101) Cash flow from operating activities 276 354 Capital expenditure (66) (63)

345

1 00 1 50 200

Capital expenditure (66) (63) Dividends from associates and investments 9 5 Free cash flow 219 296

1 00 M ar-09 Net impact

• f initially

unsettled items Year on year changes in working capital Year on year impact of exceptionals M ovements due to trading M ar-1

15

* Profits after tax from total operations excluding amortisation and impairment of intangibles arising on consolidation and exceptional items.

Net debt Net debt

Movement in net debt

150 50 100

(92)

• 50

Mar-09 Free cash Dividends Acquisitions Mar-10

£m

‐126

• 100

(126) (149) 219 (148)

• 200
• 150

16

Financing Financing

Acquisitions and Borrowings Cash and Debt Principal acquisitions TriOptima £119m Post trade services As at 31 March 2010 Cash £504m TriOptima £119m Post trade services Link* earn-out £14m Equity Derivatives Reset minority buyout £29m Post trade services Cash £504m Gross debt £(652)m Net Debt £(148)m R fi i i i i Gross debt/EBITDA** Refinancing activities Eurobond July 2014 €300m RCF May 2013 $880m 31 March 2010 1.6x y $

17

*Final Installment due Q2 2010 ** From continuing operations

Financial summary Financial summary

• More diverse business lapping strong 08/09 comparators

More diverse business lapping strong 08/09 comparators

• Improving volumes and lower costs producing good profit

growth in electronic broking g g

• Strong revenue and profit growth in post trade risk and

information services

• Non-voice broking activities moving towards 50% of group

profits

• Strong balance sheet and cash flow

18

Mark Yallop

Chief Operating Officer

19

Introduction

• Strategic Goals

g – the infrastructure provider to the world’s wholesale OTC markets – the leading global intermediary the leading post trade services provider – the leading post-trade services provider

• Financial Goals

– to generate profit evenly distributed between voice broking, electronic broking and post-trade services – superior EPS growth for our investors p g

• Positioning

A growing business in a growing market – A growing business in a growing market – Investing for the future – Strongly positioned for changes in the OTC markets

20

ICAP’s diverse business mix C s d e se bus ess

• Rates: -7% Following exceptional 2008/09,

normalising conditions, narrower spreads ICAP group revenues by asset class normalising conditions, narrower spreads and rising risk appetite underpin solid performance in flow markets

• FX: +19% Traiana growth, new currencies,

£919 m

100% =

£1,585 m £1,605 m

Rates

further expansion of prime banks and electronic volumes

• Equities: -11% Weaker derivatives markets

ith remaining cash eq ities affected b with remaining cash equities affected by review

• Emerging markets: +11% Renewed risk

appetite increasing volumes particularly at

FX Equities Emerging Markets

appetite increasing volumes particularly at short end of yield curve in Europe and Latin America

• Credit: +7% Securities markets growth

Credit Commodities

• ffsetting slower credit derivatives
• Commodities: +10% Strong growth in

Europe and US, primarily in oil, natural gas d l C b i i t bl

21

and coal. Carbon emissions stable. Shipping market still near cyclical lows

Electronic markets Electronic markets

ICAP Electronic Volumes (ADV, $bn) Major Markets Fixed Income:

– Maintained market leading position in electronic

250 +28%

Percentage Growth (Apr 09 to Mar 10)

trading of UST, US and EU Repo products – Enhanced platform for a number of fixed income products – Launch of new CDS electronic platform

190 210 230 +50% me ($bn)

EU Repo

Launch of new CDS electronic platform – Increased penetration of MyTreasury platform within money market arena

FX:

150 170 190 +23% e Daily Volum

US Repo

– Continued growth in prime business – Increased take-up of web-based front end – In-roads made in Commonwealth currencies I i i k t t ti

110 130 +39% Average

Spot FX

– Increase in emerging markets counterparties and trading activity including LatAm and Asian NDFs and Russian Rouble – New record deals/min (2,617) in Dec 2009

50 70 90

US Treasuries

– New record low intra-regional and global deal times

50 22

Progress in post trade risk services g p

Risk management Trade Processing

• Harmony FX customer network growing
• Harmony FX billable events/trade rising

Fi t t i d f H F t d TriOptima − Interest rate derivative repository now live − Portfolio reconciliation service handling 5 8

g g

• First customers signed for Harmony Futures and

Equities

• CLSAS trade aggregation JV on track for full

implementation by end June 2010 − Portfolio reconciliation service handling 5.8 million trades (single count) − Portfolio compression service for >150 bank and non-bank subscribers eliminated $40.3 t illi f t t di d i ti t t i trillion of outstanding derivatives contracts in 2009 Reset – Strong market position in slower markets

Harmony Message Center

Average Transactions per day (000s)

252 358

g p – Focus on new product development ReMatch – Identifies and reduces basis and calendar risk th h lti l t l tti

per day (000s)

24 40 41 56 61 117 166 187 211 232 252

through multi-lateral netting – Launched market risk mitigation for CDS Acadiasoft – Automation solutions for collateral management

23

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008

Automation solutions for collateral management – Minority stake

2009 2010

OTC derivatives regulatory reform g y

Dealer 1 Dealer 2 Dealer n Dealer 3

The Regulatory Agenda

Voice Electronic Electronic OTC Trading

• Transparent price formation

?

Voice broking Electronic marketplaces Transparent price formation

• “Auditable” price structure
• US: SEFs
• Europe: MTFs

?

Clearing

• Very high % of vanilla D2D

CCP 1 CCP CCP 2 Dealer Dealer

~75% ~25%

Collateralised

y g trades; fewer non-vanilla trades

• Proportion of customer trades

CCP 1 Reconciliation compression risk management etc CCP n CCP 2 Dealer n Dealer m A ill S i

Bilateral Settlement

Reconciliation, compression, risk management etc Ancillary Services Trade Repositories Golden source of trade data

• Transparency for

regulators Trade Repositories

• Golden source of trade data
• Source of post trade

transparency

24

Regulatory Issues for Dealers g y

Issue Trend Implication ICAP Impact

Solvency and

• Increased capital liquidity
• Higher costs reduce flows?
• On balance

Solvency and liquidity

• Increased capital, liquidity

requirements for banks

• Greater usage of CCP

structures

• Higher costs reduce flows?
• Lower capital requirements of CCP

reduce costs (capital and

• perational) and increase flows?
• On balance

somewhat negative Structural industry reform to reduce systematic risk

• “Volcker” rule
• Living wills/funeral plans
• Resolution/recovery

authority

• Reduced proprietary flow from US

banks; substitution by HFs?

• Longer term fragmentation of prop

business increase reliance on intermediaries?

• Modest in near

term y intermediaries? Market infrastructure/ product reform

• Expansion of electronic

trading

• Mandated usage of CCP
• Dealers will need to embrace e-

trading

• Lower total trading costs will boost
• Very positive for

e-execution

• Very positive for

g for eligible trades

• Automation of post trade

affirmation/ confirmation

• Commodities regulation

volumes

• Smaller ticket sizes will challenge

processing infrastructure

• Bilateral clearing infrastructure

d t b t th d post trade risk businesses

• Voice business

continues for less liquid products g

• Securitisation reform

needs to be strengthened liquid products Regulation in adjacent industries

• AIFM directive/HF

regulation

• Increasing importance of Asia?
• Customer base

moves offshore

25

industries

Timetable: Implementation starting 2011

Electronic CDS

• Trading CDS electronically since 2005 in

ICAP Global Electronic CDS Index Volumes Europe

• Increased focus and trading in our US CDS

Index electronic offering since summer 2009

Average Monthly Volume ($ bn)

• 22 market participants in Europe, 13 in US
• E-trading now covers: Itraxx Europe, Hi-vol,

Crossover Financials and Sovereigns Crossover, Financials and Sovereigns indicies in Europe and Markit CDX NA Investment Grade High Volatility, High Yield and LCDX indicies in the US

• STP connectivity to all major dealers
• Significant growth in e-trading of CDS,

despite slow CDS markets recently despite slow CDS markets recently

• Single name, structured, correlation and
• ther parts of CDS market continue to be

largely voice brokered largely voice brokered

26

Initiatives 2002-2010

Voice

2002 2003 2004 2005 2006 2007 2008 2009 2010

27

From continuing operations

Initiatives 2002-2010

Electronic

2002 2003 2004 2005 2006 2007 2008 2009 2010

28

From continuing operations

Initiatives 2002-2010

Post Trade

2002 2003 2004 2005 2006 2007 2008 2009 2010

29

From continuing operations

Operating Profit 2005-2010 p g

• Profits from non-voice businesses have

ICAP Profit Contribution

350 400

Post Trade

grown to 48% of total profits in 2010 from 22% in 2005

• Acquisition of TriOptima will take non-voice

250 300 350

Electronic Voice

Acquisition of TriOptima will take non-voice profits above 50% of total for the first time

• Despite the crisis over the last two years,

200 250

voice profits have still grown by 6% CAGR since 2005, a period of substatial investment

100 150

• Electronic and Post Trade and Data profits

have grown at 33% & 36% CAGR respectively over the period 2005 to 2010

50 2005 2010 Year ended 31 March 30

From continuing operations and before amortisation and impairment of intangibles arising on consolidation and exceptional items

Network Businesses

Key value of network Voice Electronic Post trade businesses broking markets and data

• Attractiveness of network to users increases

businesses broking markets and data

• Attractiveness of network to users increases

as new customers join

• Physical, global networks technically

challenging and time consuming to construct

• challenging and time consuming to construct
• Network integrated with customer operations
• High operating leverage
• High operating leverage
• Technology controlled in-house to retain

flexibility

• Transaction based economic model
• 31

Summary

• Markets normalising after two turbulent years

Summary

Markets normalising after two turbulent years – Risk appetite increasing, spreads narrowing, volumes increasing – EM and Asia leading the way and presenting new

• pportunities
• New regulation and its impact is still undecided

– ICAP well positioned for probable changes p p g – Diversified model will be a competitive advantage

• Past investments position the firm for growth

p g – Key building blocks now in place – Focus for 2010 is on organic opportunities and leveraging

32

g pp g g existing assets

Michael Spencer

Group Chief Executive Officer

33

Outlook Outlook

• Business is in good shape, more broadly based than ever

Business is in good shape, more broadly based than ever

• Focused on building and developing organically
• Well positioned to take advantage of any changes in

Well positioned to take advantage of any changes in regulation and market structure

• Expand use of the market infrastructure we have created

p

• Good start to the new financial year, volatile conditions

creating more active markets

34

Investor Relations: Investor Relations: Mike Sheard

Director of Corporate Director of Corporate Affairs

+44 (0) 20 7050 7103 mike sheard@icap com mike.sheard@icap.com

............................................................

ICAP plc ICAP plc 2 Broadgate, London EC2M 7UR +44 (0) 20 7000 5000 +44 (0) 20 7000 5000 www.icap.com