Interim Results 22 November 2005 These materials do not constitute - - PDF document

1

Interim Results

22 November 2005

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 of 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.

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Financial Review

Jim Pettigrew Finance Director

4

Income Statement

6 months ended 6 months* ended 30/09/05 £m 30/09/04 £m Variance £’m % Revenue 443.9 395.8 48.1 12 Net operating expenses (349.5) (315.2) (34.3) (11) Group operating profit** 94.4 80.6 13.8 17 Associates (net of tax) 1.8 0.4 1.4 >100 Net interest 2.0 2.3 (0.3) (13) Profit before tax** 98.2 83.3 14.9 18

* At reported FX exchange rates on a restated IFRS basis. ** Excludes amortisation and impairment of intangibles and exceptional items. Note: FX movements have no material impact on the results.

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Revenue and Net Operating Expenses Growth*

Net operating Revenue expenses Headline growth 12% 11% Underlying growth 11% 3%

10 20 Revenue Net operating expenses

%

* Growth represents 6 months ended 30/09/05 compared with 6 months ended 30/09/04. Underlying revenue and net operating expenses growth excludes; the impact of FX movements, acquisitions, the proportional consolidation of JVs and, in the case of net operating expenses, bonuses.

6

Underlying Revenue Performance*

% Electronic 24 Voice 11 Information services (14) Group 11

* Underlying revenue growth excludes the impact of FX movements, acquisitions and the proportional consolidation of JVs.

7

Expenses

Broker Rem. T&E Telecoms Other Overheads Operating Profit

04/05 05/06 10 20 30 40 50 60 70 80 90 100 Variable 55 58 Fixed 45 42 04/05 05/06

Classification as a % of revenue Classification as a % of revenue Variable component of broker remuneration Variable component of broker remuneration

%

6 months ended 30/09/05

51 3 5 4 16 21

6 months ended 30/09/04

51 4 5 4 16 20

Note: all figures are for the 6 months ended 30/09/05 (comparatives 6 months ended 30/09/04).

8

Margins

5 10 15 20 25 00/01 01/02 02/03 03/04 04/05

14% 15% 17% 20% 21% % Group operating profit margin Group operating profit margin 5 10 15 20 25 30 35 40 45 50 03/04 04/05 05/06*

Electronic Voice

Electronic and voice broking margin Electronic and voice broking margin %

* 6 Months to 30/09/05

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Geographic Segment Performance

Americas Americas Europe Europe Asia Pacific Asia Pacific

Growth % Revenue 10 Profit 24 Margin % 05/06 25 04/05 22 Growth % Revenue 16 Profit 17 Margin % 05/06 21 04/05 20 Growth % Revenue 7 Profit (32) Margin % 05/06 9 04/05 14

Note: all numbers are on a reported basis and relate to the 6 months period ended 30/09/05 compared with 6 months period ended 30/09/04. Profit is Group operating profit before amortisation and impairment of intangibles.

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Earnings

6 months ended 6 months ended 30/09/05 £’m 30/09/04 £’m Profit before tax* 98.2 83.3 Amortisation and impairment of intangibles (2.8)

• Exceptional items
• (6.0)

Taxation (33.5) (26.6) Profit for the period 61.9 50.7 Attributed to: Equity holders of parent 60.7 49.9 Minority interests 1.2 0.8 Earnings per share – basic 10.2p 8.6p Earnings per share – adjusted 10.6p 9.0p Interim dividend per share 2.50p 1.85p

* Before amortisation and impairment of intangibles and exceptional items. Note: all at reported exchange rates, restated for IFRS.

11

Cash Flow

• 60
• 40
• 20

20 40 60 80 100 120 140

6 mths to Sept 05 6 mths to Sept 04 Profit before tax Dep’n/ capex Working capital Tax Dividend Group net cash flow Share buy back

£

Acqui- sitions Private placement Asso- ciates Excep- tionals

£118.8m £-44.8m

12

Balance Sheet

6 months ended 12 months* ended 30/09/05 £m 31/03/05 £m Goodwill 257.3 253.7 Other non-current assets 149.6 133.7 Cash 350.0 231.3 Overdrafts (0.5) (0.6) Net cash 349.5 230.7 Private debt placement (126.1)

• Net creditors

(71.3) (98.1) Net assets 559.0 520.0

* On a restated IFRS basis, but excluding the gross up of all amounts due and payable by counter parties in respect of matched principal business.

13

Operational Review

Mark Yallop Group Chief Operating Officer

14

Operational Review

• 1. Industry Dynamics and the Competitive

Landscape

• 2. Developments in Asia
• 3. Voice business
• 4. Electronic business
• 5. Importance of Innovation

15

Capital allocated to markets continues to rise …

1000 2000 3000 4000 5000 6000 7000 8000 9000 2000 2001 2002 2003 2004 100 200 300 400 500 600 700 800 900 1000 Number (line) $bn assets (bars) Hedge funds Number and AUM Hedge funds Number and AUM

100 200 300 400 500 600 700 800 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 5,000 10,000 15,000 20,000 25,000 Interest Rate VaR Fixed Income Revenues Major banks interest rate VaR/ Fixed income revenues Major banks interest rate VaR/ Fixed income revenues

Source: Morgan Stanley Source: Hennessee Group LLC; Hedgefund Research

16

The search for yield continues …

Bond spreads US Corporate (10 year) Bond spreads US Corporate (10 year)

2 3 4 5 6 7 8 9 10 11 12 1 Y e a r 3 Y e a r 5 Y e a r 7 Y e a r 9 Y e a r 1 2 Y e a r 2 Y e a r 3 Y e a r

USD/03/2005 USD/09/2005 EUR/03/2005 EUR/09/2005

Yield Curves US$ and Euro Yield Curves US$ and Euro

1 2 3 4 5 6 7 8

AA A BBB BB B

2002 2003 2004 2005

Source: Wrightson ICAP Source: ICAP

17

Significant fiscal and economic imbalances remain …

• 6
• 4
• 2

2 4 6 1997 1998 1999 2000 2001 2002 2003 2004 China Eurozone Japan US

Global Government debt outstanding (US$ Trillions) Global Government debt outstanding Current account deficits (US$ Trillions) (as a proportion of GDP (%)) Current account deficits (as a proportion of GDP (%))

2 3 4 5 6 7 8 1997 1998 1999 2000 2001 2002 2003 2004

Eurozone Japan US

Source: ICAP Source: ICAP

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Risk transfer and ALM remain critical …

2000 4000 6000 8000 10000 12000 14000 1993 1995 1997 1999 2001 2003

6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 16000 2000 2001 2002 2003 2004 2005 International Bonds And Notes

Amounts Outstanding (US$ billions)

International Bonds And Notes

Amounts Outstanding (US$ billions)

Banks: External Loans And Deposits

(US$ billions)

Banks: External Loans And Deposits

(US$ billions) Source: BIS Source: BIS

19

Industry consolidation continues …

35 36 37 38 39 40 41 42 43 44 45 46 2000 2005 Global FX Top 5 Market Share (%) Global FX Top 5 Market Share (%) 50.5 51 51.5 52 52.5 53 53.5 54 54.5 55 2003 2005 Medium Term IRS Medium Term IRS 52 52.5 53 53.5 54 54.5 55 55.5 56 56.5 2003 2005 Equity Derivatives Equity Derivatives ICAP Customer Revenues Top 10 Market Share (%) ICAP Customer Revenues Top 10 Market Share (%)

38% 45% 52% 54% 56% 53%

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Overall market growth rates 2004/2005

10 20 30 40 Interest Rate Swaps Exchange traded derivatives FX Options Interest Rate Options FX Forwards OTC Equity derivatives Commodity derivatives Credit Default Swaps

%

140%

Source: ISDA, BIS

21

Competitive landscape: market penetration

North America Europe Asia/Other Global

US Treasuries US Repo US Agencies US Corporates/HY US Mortgages Canadian GB's Bradys IRS Swaps/Derivatives Credit Derivatives Euro-Govts/EU Basis UK Gilts EU Repo Other Eurobonds Pfandbriefe Credit Derivatives IRS Swaps/Derivatives JGBs Australia GBs South Africa GB's FX/Forwards FX Options FX Spot Cash Markets Energy & Commodities Equity derivatives

ICAP Tullett Liberty Tradition / Viel GFI BGC/Euro/ eSpeed MTS EBS Reuters Others

Electronic Only Voice / Electronic Voice only Not Available

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Competitive landscape: financial performance

Voice & Electronic Broking Revenues (£ millions) and EBIT Margins (%) – 6 months to September 2005 Voice & Electronic Broking Revenues (£ millions) and EBIT Margins (%) – 6 months to September 2005

50 100 150 200 250 300 350 400 450 500

ICAP CST/Prebon* Tradition/Viel* GFI eSpeed

21% 14% 8% 17%

• 4%

19% 14% 8% 17% 31%

• 4%

Voice Electronic Overall £m

*Six months to June 2005

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Asia

• New Regional CEO; over 70 new staff

recruited

• Regional highlights

– Korea – Singapore – Japan – Equity Derivatives

• China
• Outlook

24

Voice Businesses

• Increasing market share
• Growth in higher margin businesses

– Emerging markets – Credit – Options – Commodities – Equity derivatives

• Electronic vision

25

Electronic business

Average Electronic Broking Volumes

All Fixed Income Products ($billion/day per half year)

Average Electronic Broking Volumes

All Fixed Income Products ($billion/day per half year)

Highlights Highlights

Electronic volumes up 32% year on year to US$473bn/day Market share in US Treasuries ~58% Market leader in Repo US$ 177bn in Europe US$ 185bn in North America Launch of: Canadian Treasuries Corporate Repo iForwards volumes tripled Agreement with Monte Titoli

50 100 150 200 250 300 350 400 450 500 Sept 03 Mar 04 Sept 04 Mar 05 Sept 05

$billion/day

Sources: BrokerTec, ICAP, estimates from eSpeed and MTS including some actual data from websites

• counting only trades executed electronically. B to B only.

26

Profit & Margin Profile By Business Activity

10 20 30 40

6 Months ended 30/09/05 6 Months ended 30/09/04

Securities broking Derivatives and money broking Energy broking Electronic broking Information services £m 15.3% 12.7% 19.8% 22.1% 22.6% 31.4% 23.6% 15.6% 57.0% 61.8%

Note: : profit is defined as profit before tax, amortisation and impairment of intangibles, exceptional items, interest, and excludes share of profit/(loss) of associates. : bar represents profit, % is margin.

27

Innovation

Fixed income product life-cycles are getting ever shorter Margin erosion is a fact of life Innovation in new markets and new products is a critical complement to our strategy of turning commoditised voice markets electronic and ensuring that ICAP participates in the faster growing new markets Today nearly 8% of revenues derive from products or markets ICAP was not present in 3 years ago. Nearly [15]% of revenues come from faster growing, early life-cycle businesses. We will increasingly be focussed on innovation in new markets to extend our growth and complement the e businesses

Implications for ICAP Implications for ICAP

5 10 15 20 25

2 2 / 3 2 3 / 4 2 4 / 5 6 m

• n

t h s t

• 3

S e p 5

Revenues from non-commoditised and new products (%) Revenues from non-commoditised and new products (%)

%

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Strategy Review

Michael Spencer

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Strategic developments

• Concentration of liquidity

– Voice and electronic – Voice only – Electronic only

• Arrival of private equity/leverage

– Implications of Collins Stewart Tullett deal

• The decade of evolution to electronic broking
• Role of the exchanges – CBoT, CME, ICE,

Euronext LIFFE/Borsa Italiana/MTS, NYMEX

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Outlook

• Underlying market revenue growth 3 – 5%. Key market sectors to

grow much faster

– credit derivatives: 20-25%, – OTC equity derivatives: 12-15%, – energy markets: 19-22%

• Increasing ICAP’s share of the combined voice and electronic

market to 35% within a few years

– establishing leadership in the more rapidly growing markets – exploiting new products and markets – migrating the more liquid, commoditised markets to electronic broking – selective acquisitions

• Market activity in the second half of the financial year has continued

to be well ahead of the same period in the previous year.

• Assuming these market activity levels continue, profit (before tax,

exceptional items and amortisation and impairment of intangibles) for the financial year ended 31 March 2006 is anticipated to be in line with current analysts forecasts.

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Interim Results

22 November 2005

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Revenue & Net Operating Expenses Growth

Variance against prior period Revenue Net operating expenses £m % £m % Headline 48.1 12 (34.3) (11) Proportional consolidation of JVs (3.3) 3.4 FX Movements:- UK transactional* (0.5) 1.1

• Translational

1.0 (0.7)

• IFRS classification

(1.8) 1.8 Acquisitions of GovPX (Jan 05) (2.6) 1.2 Closure of Prague office (Mar 05) 0.4 (0.3) Bonuses 22.3 Underlying** 41.3 11 (5.5) (3)

* Net revenue FX movements of £0.5m represents £0.8m re Euro strengthening, offset by £0.3m re US Dollar

• weakening. The £1.1m expenses adjustment eliminates the effect of the reduction in hedging gains in the current

period compared to prior period. ** In calculating the growth % JVs are excluded from revenue and cost.

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Cash Flow

6 months ended 6 months* ended 30/09/05 £m 30/09/04 £m Profit before tax 98.2 83.3 Associates (1.0)

• Depreciation

11.8 11.8 Net capital expenditure (9.9) (25.6) Working capital and other (18.7) (20.7) Tax (23.3) (20.2) 57.1 28.6 US dollar debt placement 122.4

• Share buy back
• (17.3)

Acquisitions/investments** (15.1) (19.8) Dividends (39.3) (35.7) Exceptional items (6.3) (0.6) Change in net cash 118.8 (44.8)

* Restated on an IFRS basis. ** 6 months ended 30/09/05 includes acquisition of interests in the businesses net of cash acquired of £11.4m (£10.1m in respect of First Brokers and ICAP Energy (APB) earnout), £3.8m of payments to acquire fixed asset investments, £0.2m acquisition of associates and net of £0.3m of sale of investments. Note: As part of the IFRS restatement of the 6 months ended 30/09/04 a number of reclassification have taken place (e.g. depreciation of £11.8m excludes the amortisation of cost of own shares of £1.2m). There is also a difference in the definition of net cash under IFRS and net funds under UK GAAP, and the IFRS cash flow includes the proportional consolidation of JVs. The change in net cash of £44.8m in the 6 months ended 30/09/04 is reconciled to the net funds movement under UK GAAP of £49.4m as follows: proportional consolidation of JVs of £3.5m and £1.1m in respect of the change in definition of net cash/net funds.

34

Exchange Rate Sensitivities

Pre hedging impact on profit before tax US$ +/- 10 cents £9m* Euro +/- 10 cents £6m**

* £3m transactional, £6m translational. ** Almost entirely transactional.

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UK Transactional Forex Hedging

Year to 31/03/06 Currency Exposure (m) Cover US$ 108 68% @ 1.74 Euro 136 30% @ 1.40-1.43* Year to 31/03/07 Currency Exposure (m) Cover US$ 108 20% @ 1.71 Euro 136 7% @ 1.33-1.39*

* Blended rate variable according to spot at maturity. Best case/worse case position shown here.

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Profit & Margin Profile By Business Activity

10 20 30 40

6 Months ended 30/09/05 6 Months ended 30/09/04

Securities broking Derivatives and money broking Energy broking Electronic broking Information services £m 15.3% 12.7% 19.8% 22.1% 22.6% 31.4% 23.6% 15.6% 57.0% 61.9%

Notes :profit is defined as profit before tax, amortisation and impairment of intangibles, exceptional items, interest, and excludes share of profit/(loss) of associates. :bar represents profit, % is margin.

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Business Activity Revenue Growth

6 months ended 30/09/05 6 months ended 30/09/04 Variance against prior year Headline Underlying £m £m £m % % Securities broking 174.8 164.4 10.4 6 6 Derivatives & money broking 172.7 156.0 16.7 11 11 Energy broking 34.3 23.7 10.6 45 45 Electronic broking 49.3 39.9 9.4 24 24 Information services 12.8 11.8 1.0 8 (14) 443.9 395.8 48.1 12 11

Notes: revenue includes proportional consolidation of JVs.

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Investor Relations queries to: Mike Sheard Director of Corporate Affairs ICAP plc 2 Broadgate London EC2M 7UR (44) 20 7050 7103 mike.sheard@icap.com