Half Year Report 2009 London, 17 November 2009 These materials do - - PowerPoint PPT Presentation

Half Year Report 2009

London, 17 November 2009

2

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,

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 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.

3

Solid performance with growth in revenue and EPS Revenue Profit* EPS** +2%

• 5%

+6%

* Pre-tax profit before amortisation and impairment of intangibles arising on consolidation ** Adjusted basic

Financial results 6 months to 30 Sept 2009

4

Matthew Lester Group Finance Director

5

Financial summary

• Markets stabilising following traumatic conditions of 2008 and

early 2009

• Lapping strong comparatives
• Revenue performance solid
• Benefiting from diversified business model
• New segmentation improves transparency
• Continued investment in future growth impacts margins
• Lower tax rate and purchase of Reset minority results in

increased adjusted EPS

• Continued strong cash flow and balance sheet

6

Group profit before tax

Underlying growth

• 25
• 20
• 15
• 10
• 5

Revenue Operating profit (9%) (24%)

%

The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange.

Revenue 809 764 6% Net operating expenses 640 581 (10%) Operating profit 169 183 (8%) Net finance charge (8) (13) 38% Associates 5 4 25% Profit before tax 166 174 (5%) Sept 09 Sept 08 Operating profit margin 21% 24%

Headline results 6 months 6 months Var to Sept 09 to Sept 08 £m £m

7 Operating Profit £m Revenue £m 6 months to Sept 09 Headline results

Segmental analysis – IFRS 8

Core Voice EMEA 256 54 Americas 216 41 Asia Pacific 46 2 Total 518 97 Electronic Broking 122 47 Post Trade & Information Services 68 32 New Businesses 101 (7) Total 809 169

• IFRS 8 Requires

segments consistent with internal reporting

• Electronic comprises
• f EBS, BrokerTec

and E CDS

• Post trade and

information services includes Reset, Traiana and voice and electronic data sales

• New businesses

allows management to look at “investments” separately from core and includes Link, Shipping, Brazil and Cash Equities

The above table excludes amortisation and impairment of intangibles arising on consolidation.

8

• 14
• 12
• 10
• 8
• 6
• 4
• 2

EMEA Americas Total

Headline variance vs prior year 6 months to Sept 09 £m Headline results

Core voice

EMEA Revenue 256 2% Operating profit 54 (4%) Margin 21%

• 1ppt

US Americas Revenue 216 11% Operating profit 41 11% Margin 19%

• Asia Pacific

Revenue 46 (10%) Operating profit 2 (33%) Margin 4%

• 2ppts

Total core voice Revenue 518 4% Operating profit 97 1% Margin 19%

• Revenue

Operating Profit %

Underlying growth (4%) (9%) (8%) (12%) (10%)

The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange.

(5%) Memo Revenue Operating profit Asia Pac underlying (22%) (40%)

9 Headline variance vs prior year 6 months to Sept 09 £m Headline Results

Electronic, post trade, information sales

Electronic Broking Revenue 122 (5%) Operating profit 47 (6%) Margin 39%

• Post Trade and Information Services

Revenue 68 33% Operating profit 32 28% Margin 47%

• 2ppts
• 40
• 30
• 20
• 10

10 20 Electronic Broking Post trade & information

Revenue Operating Profit

% Post trade financials 6 months to Sept 09

(including share of Trioptima)

£m

Pro-forma revenue 50 Pro-forma operating profit 24 Underlying growth (24%) 15% (33%) 4%

The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange.

10

Operating profit year to March 2007

Diversifying operating profit

Electronic, Post Trade & Information 31% Voice 69% Operating profit six months to September 2009 Electronic, Post Trade & Information 47% Voice 53%

11 Headline variance vs prior year % £m

New businesses

Impact of investment strategy

• Cash equities – global
• Emerging markets –

Brazil

• New Products –

patents

Largest areas of investment

Revenue 101 16% Operating profit (7) (158)% Impact on margin (3)ppts £560k £555k Annualised revenue per voice broker 59% 62% Staff compensation / revenue 11%

Year to Mar 09

11% IT Spend as a percentage of revenue

6 months to Sept 09

The above table excludes amortisation and impairment of intangibles arising on consolidation.

March 09 2,292 New Business 89 Other (19) Sept 09 2,362

New businesses

18% 14% Revenue from new business started or acquired

Last 3 years Last 2 years

12

Net operating expenses

550 600 650 700 Sep-08 FX Performance commissions Investments in new businesses Cost Savings Other Sep-09

6 Months to Sept 09

• Substantial

investments in new businesses

• Cost savings

particularly focused

• n IEB and US

voice broking 11%

% point

movement

581 67 38 640 (25)

£m

The above table excludes amortisation of intangibles arising on consolidation.

(1) (20) 6% (3)% (0)%

(1)%

(4)%

13

Impact of exchange rates

51 17 34 Estimate of full year to March 2010 impact 17 Transactional £m 42 25 Six months to September 2009 Total £m Translational £m Impact on 2009/10 PBT

Assumes $1.65/£ and €1.10/£ for the balance of the year, giving 2009/10 yearly translational rates of $1.61/£ and €1.12/£ Estimated effective transactional rates for full year to March 2010 are $1.64/£ and €1.26/£ (2009 - $1.92/£ and €1.36/£). ICAP is exposed to the translation of other currencies e.g. Yen.

14

Exchange rate sensitivities 2010/11

18 2 16 Euro** 9

Transactional £m Total £m Translational £m

Updated full year unhedged impact

• f 10c strengthening vs sterling 2010/11
• nwards on PBT

22 13 Dollar*

* Variance of 10c movement vs $1.64/£ transactional and $1.61/£ translational ** Variance of 10c movement vs €1.26/£ transactional and $1.12/£ translational *** Assumes $1.65/£ and €1.10/£ for 10/11 and the balance of 09/10

55% @ €1.15/£ Hedged 2010/11

21

• 21

Euro 18 Total

30% @ $1.52/£ Hedged 2010/11

2

Transactional £m Total £m Translational £m

Estimated impact at current FX rates for 2010/11 on PBT *** (3) (5) Dollar

15

Earnings

* Before amortisation and impairment of intangibles arising on consolidation. Adjusted weighted average number of shares 6 months ended Sep 09 - 639m (Sep 08 - 635m). .

6 months to Sept 2008 £m 6 months to Sept 2009 £m

Profit before tax* 166 174 Tax* (54) (59) Effective tax rate 33% 34% Profit for the period* 112 115 Amortisation and impairment of intangibles inclusive of tax (18) (18) Profit for the period 94 97 Attributable to: Equity holders of parent 94 92 Minority interests

• 5

Interim dividend 5.11p 4.7p Earning per share – basic 14.7p 14.5p Earning per share – adjusted basic 17.5p 17.2p

16

Movement in free cash flow

206 229 112 Profit pre amortisation* 232 296 107 Free cash flow 67

Year to Mar 09 £m

26 (5) Cash > Profit

Year to Mar 08 £m 6 months to Sept 09 £m Profits vs free cash flow

75 107 Free cash flow 4 9 Dividends from associates and investments (23) (29) Capital expenditure 94 127 Cash flow from operating activities (57) (41) Interest and tax 151 168 Cash from operations

6 months to Sept 08 £m 6 months to Sept 09 £m Calculation of free cash flow

151 168 (9) (2) 28

100 110 120 130 140 150 160 170 180 190 200 Sep-08 Net impact of initially unsettled items Movement due to changes in working capital Movement due to trading Sep-09

Cash from operations

* Profit after tax excludes amortisation and impairment of intangibles arising on consolidation.

£m

17

Net borrowings

• 150
• 100
• 50

50 Mar-09 Free cash Dividends Acquisitions Other Sep-09

(126) (56) 107 (59) (144)

£m

Movement in net borrowings (10)

18

Financing

Acquisitions and Borrowings Principal Acquisitions Link* earn-out £14m Equity Derivatives Reset minority buyout £29m Post-trade services Borrowings Eurobond issue – July 2009 €300m Committed headroom at 30 Sept 09 £364m Cash and Debt As at 30 September 2009 Cash £430m Gross debt £(574)m Net Debt £144m Gross debt/EBITDA* 30 September 2009 1.45

* 12 Months to 30 Sept 09 * Final Installment due Q2 2010

19

Financial summary

• Markets stabilising following traumatic conditions of 2008 and

early 2009

• Lapping strong comparatives
• Revenue performance solid
• Benefiting from diversified business model
• New segmentation improves transparency
• Continued investment in future growth impacts margins
• Lower tax rate and purchase of Reset minority results in

increased adjusted EPS

• Continued strong cash flow and balance sheet

20

Mark Yallop Group Chief Operating Officer

21

A reminder: ICAP goals and strategy

• To be the leading global intermediary and post-trade services provider

in the wholesale OTC markets

• 35% share of overall market revenues
• 50% of profit derived from electronic broking
• To generate superior EPS growth for our investors
• Build and maintain close long term relationships with customers
• Leverage people and technology in a unique business model
• Provide customers with more efficient electronic execution and post-trade services,

reduced integration costs and deep liquidity across a wide product range

• Extend product and service innovation
• Grow the business, both organically and by selective acquisition

Goals

Strategy

22

The world … then and now

• Credit markets in crisis….
• Massive global de-

leveraging ahead

• Investment banking model

finished

• Hedge fund era ending;

bank proprietary trading

• ver
• Many banks will need

protracted government support

• Sweeping and extensive

regulatory change

• OTC markets will move to

exchanges

• More record bank results in

flow markets on rising volumes, narrower spreads

• De-leveraging slows

markedly; volatility falls

• Banks re-hiring staff
• Hedge funds inflows

continue on good performance

• First signs of “real world”

economic growth

• Clearing and trade

warehouse decisions made

• Next big issue:

OTC e-trading

• Banks report record results

in flow markets; lower volumes but wider spreads

• Significant de-leveraging

already achieved

• Agency brokers back in

vogue

• Hedge fund inflows; bank

VaR increasing

• TARP repayments begin;
• ther government support

starts to be withdrawn

• Intense regulatory focus on

market infrastructure

• Exchanges: “not all products

can be cleared or trade on an exchange” 15 September 2008 May 2009 November 2009

23

Our customers (and their customers)

200 400 600 800 1 ,000 1 ,200 1 ,400 1 ,600 1 ,800 2,000

1 1 .0x 1 4.0x 1 7.0x 20.0x 23.0x 26.0x 29.0x 32.0x 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09

Estimated hedge fund assets under management* Brokerage industry leverage

£bn

* Hedge Fund Research Q3/09 Report

Source: Credit Suisse. Brokerage industry includes Goldman Sachs, Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley

Banks

• 2008 survivors post strong 2Q, 3Q

results in their “flow” FICC businesses

• Volumes growing; spreads narrowing
• Leverage ratios stabilising
• Risk capital commitments remain high
• Re-hiring staff

Hedge funds

• Hedge fund performance +6.9% in 3Q,

and +17.1% YTD through September.

• Hedge fund industry assets to $1.53

trillion in 3Q09, up from $1.41 trillion at 2008 year end

• New money inflows

24

ICAP’s diverse business mix

ICAP group revenues by asset class (£m) Rates FX Credit Equities Commodities Emerging Markets

9% 10% 10% 11% 12% 12% 13% 9% 8% 13% 13% 11% 10% 8% 8% 16% 17% 15% 16% 44% 43% 42% 39% 11%

FY 2006/2007 FY 2007/2008 FY 2008/2009 HY 2009

• Rates: +1% Flow businesses solid. No significant

shift in maturity structure in the interest rate derivatives

• FX: +6% Increasing number of EBS customers,

algos, prime banks

• Emerging markets: -3% Strong LatAm, Asia offset

by weaker Russia/E Europe

• Credit: +37% Strong corporate bonds, CDS more
• subdued. Structured products remain a very small %
• f ICAP business
• Equities: -1% Strong growth in Cash Equities offset

by weaker revenues in derivatives

• Commodities: +12% Strong growth in US, Asia

commodities – oil, natural gas, power and carbon

• emissions. Shipping market still near cyclical lows
• Core voice business performing resiliently following

the very high volumes seen in 2007 and 2008.

25

Emerging markets opportunities

India Fragmented market structure Electronic markets opening up 50 local staff in Mumbai Russia and Eastern Europe Operating offshore from London with 30 employees China Successful JV with local partner CFETS, 70 local staff ex Hong Kong

Brazil: A big opportunity - represents >65% of revenue potential in Latin America

26 26

Brazil: A $1 billion market and growing

Onshore Brazil, 222 Other LATAM, 270

ICAP LATAM Headcount

(Sept 2009)

ICAP Brazil Headcount

(Sept 2009)

Reais trading moving onshore: 36% of volumes from overseas Full integration of Arkhe and ICAP on 30 November 2009 Equities:

• 122 top institutional client accounts opened
• ~2% BOVESPA overall market share
• ~16% capture of potential wallet
• Robust DMA platform just launched

Fixed Income:

• ~9% share on BM&F overall
• Local bonds ~13% market share. Proprietary electronic

platform to be launched Dec 09

• Building Global bond and private debt desks

Retail Equities:

• >1,500 accounts open
• September 2009 ranking: #21

ICAP Brazil

Retail Commodities Listed Futures Equities Fixed Income

Equities Fixed Income Commodities Retail Institutional Banks/Inst. Banks/Inst/Corp Retail/Inst. Organic

• Acq. (Arkhe)

Organic Organic BOVESPA Equities BM&F Futures Bonds Softs/Metals/ Energy/Shipping Clients Build Markets BOVESPA Equities

Note: Other LATAM includes US based headcount

27

Equities: The Opportunity

BNY Convergex ITG Knight Instinet 10 20 30 40 50 60 70 80 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Target Market position

$0.5BN< Revs < $1.5BN Niche Bulge Bracket

Market share Service Provision

• Institutional frustration with “bulge bracket”

business model

• Demand for independent, un-conflicted

agency broker

• Very significant revenue pool
• No existing businesses available to acquire

at realistic prices

• Opportunity to hire talented staff attracted

to ICAP global brand

• Differentiated approach to research and

corporate access

• Deployment of Apollo and Relevance
• Block crossing and technology solutions as

well as voice broking

Market opportunity

Organic Build

28

• Organic build out of ~210 employees in cash equities globally
• Locations: London, Germany, HK, Singapore, Tokyo, Sydney, NY and

Rio and Sao Paulo

• Product: Cash, Convertibles, High Yield, Risk Arb/Event Driven,

ADR/GDR

Cash Equities progress report

• US business >300 new accounts
• EU/Asia business >450 new accounts
• BlockCross launched October 2009 – anonymous block crossing in

6,000 stocks to buy/sell side

• Portfolio Trading platform already launched
• Apollo quant and market timing tool covering 6,000 stocks has 1,000

users

• Relevance client application will be ready next year
• Algorithmic Trading launching January 2010
• Differentiated sectoral research product launched; leveraging ICAP

credit and economic research as well

• Sector trading model implemented in NA
• Distinctive strategic and corporate access programme under way in UK

Voice Customers Technology Research Voice

29

The regulatory landscape

Clearing

• Very high % of inter-dealer trades
• Proportion of customer trades

Transparency for regulators Voice broking Electronic marketplace(s) Trade Repositories CCP 1 Portfolio compression, etc Dealer 1 Dealer 2 Dealer n Dealer 3 CCP n CCP 2 Dealer n Dealer m

Electronic OTC Trading

• Transparent price formation
• “Auditable” price structure
• US: ASEFs
• Europe: MTFs

Trade Repositories

• One repository per asset class
• Golden source of trade data
• Source of post trade transparency

Ancillary Services

Bilateral Settlement

~75% ~25%

1 2 3 The Regulatory Agenda 4

30

Electronic broking

• Fixed Income:
• Global ADV reach $500bn in September

recovering half of volume lost since peak

• Automated volumes in UST back up to

45%, level last seen in 2007

• New total daily transaction records in

August (US: 5.1m and EU: 2.7m)

• New record US and EU order book

activity/sec in July and August

• FX:
• Model trading business increasing
• Prime customer numbers and volumes

increasing

• Co-Location customers increasing
• New markets in Brazil, Korea, Taiwan,

Russia

50 100 150 200 250 300 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09

UST Treasuries* Electronic FX

0% 5% 10% 15% 20% 25% 30% 35% 40% Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09

50 100 150 200 250

Prime % of EBS Volume Avg Prime Ctpy's

ICAP Electronic broking volumes EBS Prime ADV and No of Counterparties

31

Electronic derivatives markets

6 5 4 3 2 1

Higher revenues and profits

Sustainable higher operating profit margins Substantially lower costs per transaction once fixed overhead is covered. Typical margin in mature e-markets ~40% ICAP Costs Lower average commissions, lower variable costs Lower unit commissions reflecting lower variable costs Commissions Material concentration of market share over time for leading and second platform. Smaller platforms uneconomic. Market Share Algorithmic traders who cannot operate in voice market arrive to exploit arbitrage opportunities Dealers contribute additional voice business to electronic market; eliminate inter-bank sales desks Substantial jump in trading volumes and sustainably higher volume growth rates Lower total trading costs increase arbitrage

• pportunities and hence volumes

Volumes

Result Impact Variable

plus plus equals

32

Post trade services opportunity

Post-Trade: a $22bn opportunity

Listed Markets FX, Cash Rates OTC Derivatives ~$8.0bn ~$5.0bn ~$9.0bn Annual Cost Daily Transactions ~49.0m ~1.0m ~0.3m

~$22.0bn ~51m

ICAP’s already identified market segments have the potential to produce $500 million revenue within five years

Nostro Recs Collateral Management

Accounting Processes Risk Management Operational Processes Pre-Trade and Trade

Static Data Compliance General Ledger Postings VaR, Stress Calcs Risk Management Regulatory Reporting Portfolio/Deal Valuations Deal Entry Pre-Deal Pricing

Life Cycle Activity

Clearing & Settlement Matching, Affirmation & Confirmation Customer Valuations

• Legacy infrastructure/processes

constrain volume growth, increase costs and risk

• Major opportunities: Pre-booking,

aggregation, netting, confirmation, limit monitoring, allocation services

• Network businesses
• High cost/ risk of managing

collateral; huge manual effort required

• No standard industry solution for

buy or sell side

• Need for centralised network based

margin service

• Dealers under pressure to reduce

credit risk, capital, operational risk

• Portfolio managers want to reduce

2nd order risks

• Network businesses

Business Opportunities

33

Recent Developments

Post-trade platform update

2.5 8.3 10.3

2007 2008 2009 2007 2008

Average number of trades reconciled by TriResolve (m)

• Traiana trade aggregation JV with CLS Group
• Addresses post trade issues generated by high

frequency trading

• Reduces operational risk, post trade costs
• Eight key banks involved, robust pipeline
• JV ready for launch on final Fed approval
• ReMatch launch
• Post trade market risk mitigation for CDS
• Identifies and reduces basis and calendar risk

through multi-lateral netting

• TriOptima Rates Trade Repository
• Appointed by ISDA for $418 trillion interest rate

derivative repository on Sept 16, 2009 Average Harmony Message Center transactions per day (000s)

2009

34

• The OTC world didn’t end in September 2008 and is not ending

now

• OTC markets are stabilising after a period of volatile growth
• New businesses - Brazil/EM, Cash Equities, Electronic

Derivatives and Post Trade are higher growth opportunities. We will continue to invest

• Overall, the markets ICAP is positioned in should grow at 8-10%

pa over the medium term

• ICAP’s electronic and post trade capability plus its voice

franchise position us extremely well for inevitable changes in the market landscape

Summary

35

Michael Spencer Group Chief Executive Officer

36

Outlook

• 1. Strategic Goal: the infrastructure provider to the world’s

wholesale OTC markets

• the leading global intermediary
• the leading post-trade services provider
• 2. Financial Goal: to generate profit evenly distributed between

voice broking, electronic broking and post-trade services and superior EPS growth for our investors

• 3. We are:
• A growing business in a growing market
• Investing for the future
• Strongly positioned for changes in the OTC markets

Half Year Report 2009

London, 17 November 2009

Investor Relations: Mike Sheard Director of Corporate Affairs +44 (0) 20 7050 7103 mike.sheard@icap.com ICAP plc 2 Broadgate, London EC2M 7UR +44 (0) 20 7000 5000 www.icap.com