Preliminary Results 1 31 May 2006 These materials do not - - PDF document

1

Preliminary Results

31 May 2006

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.

3

Financial Review

Jim Pettigrew Group Finance Director

4

Income Statement

Year ended Year* ended Variance against prior year 31/03/06 £m 31/03/05 £m Reported* £m % Constant** £m % Revenue 919.2 812.7 106.5 13 79.9 10 Net operating expenses (722.9) (638.7) (84.2) (13) (64.8) (10) Operating profit*** 196.3 174.0 22.3 13 15.1 9 Associates (net of tax) 3.2 (1.9) 5.1

N/A

5.1

N/A

Net finance income 4.8 4.6 0.2 4 0.2 4 Profit before tax*** 204.3 176.7 27.6 16 20.4 12

* At reported FX exchange rates on a restated IFRS basis. ** At constant average FX exchange rates, adjusted for the impact of acquisitions. *** Excludes amortisation and impairment of intangibles arising on consolidation and exceptional items.

5

Movement in Profit*

100 120 140 160 180 200 220

Profit 04/05 FX Acquisitions (net) Associates & interest Organic Profit 05/06

* Pre-tax profit excluding amortisation and impairment of intangibles arising on consolidation and exceptional times.

£m

• Positive impact from FX

movements (mainly US$) Average 05/06 – $1.79/£ Average 04/05 – $1.85/£

• Acquisitions:

United Fuels (Oct 05) GovPx (Jan 05)

176.7 3.9 3.3 5.3 15.1 204.3

6

Revenue and Net Operating Expenses Growth*

Net operating Revenue expenses Headline growth 13% 13% Underlying growth 10% 4%

10 20

Revenue Net operating expenses

%

* Growth represents year ended 31/03/06 compared with year ended 31/03/05. Underlying revenue and net

• perating expenses growth excludes the impact of FX movements, material acquisitions and disposals and, in the

case of net operating expenses, bonuses and amortisation and impairment of intangibles arising on consolidation and exceptional items.

05/06 financial year 05/06 financial year

7

Revenue and Net Operating Expenses Growth*

Net operating Revenue expenses Headline growth 13% 13% Underlying growth 10% 4%

10 20

Revenue Net operating expenses

%

* Growth represents year ended 31/03/06 compared with year ended 31/03/05. Underlying revenue and net

• perating expenses growth excludes the impact of FX movements, material acquisitions and disposals and, in the

case of net operating expenses, bonuses and amortisation and impairment of intangibles arising on consolidation and exceptional items.

% 05/06 financial year 05/06 financial year Underlying 5 year track record Underlying 5 year track record

2 4 6 8 10 12 14 01/02 02/03 03/04 04/05 05/06 Revenue Net operating expenses

8

* At reported FX exchange rates. ** At constant current FX exchange rates i.e. after restating prior year at current FX rates and adjusting for the impact of acquisitions in the relevant period.

Year ended Year* ended Variance Against prior period 31/03/06 £m 31/03/05 £m Reported* £m % Constant** £m % Securities broking 350.5 324.6 25.9 8 18.6 6 Derivatives & money broking 368.6 328.4 40.2 12 34.4 10 Energy broking 75.9 50.9 25.0 49 17.6 35 Electronic broking 98.3 83.8 14.5 17 12.4 15 Information Services 25.9 25.0 0.9 4 (3.1) (12) 919.2 812.7 106.5 13 79.9 10

Group Revenue by Business Activity

9

Expenses

Broker Rem. T&E Telecoms Other Overheads Operating Profit

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

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

Year ended 31/03/06

51 3 4 5 16 21

Year* ended 31/03/05

50 3 5 5 16 21

* Restated IFRS basis.

10

5 10 15 20 25 00/01* 01/02* 02/03* 03/04* 04/05 05/06

14%

Margins

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 03/04 04/05 05/06

Electronic Voice

15% 17% 20% 21% %

Group operating profit margin Group operating profit margin Electronic and voice broking margin Electronic and voice broking margin

% 21% * On a UK GAAP basis All numbers before relevant amortisation and exceptionals.

11

Geographic Segment Performance

Americas Americas

Growth % Revenue 14 Profit 18 Margin % 05/06 24 04/05 24

Note: all numbers are on a reported basis and relate to the 12 months period ended 31/03/06 compared with 12 months period ended 31/03/05. Profit is operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items. : US margin to one decimal place: 05/06 24.3%, 04/05 23.6%.

12

Geographic Segment Performance

Americas Americas Europe Europe

Growth % Revenue 14 Profit 18 Margin % 05/06 24 04/05 24 Growth % Revenue 11 Profit 12 Margin % 05/06 22 04/05 22

Note: all numbers are on a reported basis and relate to the 12 months period ended 31/03/06 compared with 12 months period ended 31/03/05. Profit is operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items. : US margin to one decimal place: 05/06 24.3%, 04/05 23.6%.

13

Geographic Segment Performance

Americas Americas Europe Europe Asia Pacific Asia Pacific

Growth % Revenue 14 Profit 18 Margin % 05/06 24 04/05 24 Growth % Revenue 11 Profit 12 Margin % 05/06 22 04/05 22 Growth % Revenue 14 Profit (24) Margin % 05/06 7 04/05 11

Note: all numbers are on a reported basis and relate to the 12 months period ended 31/03/06 compared with 12 months period ended 31/03/05. Profit is operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items. : US margin to one decimal place: 05/06 24.3%, 04/05 23.6%.

14

Earnings

Year ended Year ended 31/03/06 £m 31/03/05 £m Profit before tax* 204.3 176.7 Amortisation and impairment of intangibles (11.3) (0.8) Exceptional items

• (9.1)

Taxation (72.2) (57.2) Profit for the year 120.8 109.6 Attributable: Equity holders of parent 117.2 107.5 Minority interests 3.6 2.1 Earnings per share – basic 19.6p 18.3p Earnings per share – adjusted 21.5p 19.4p Interim dividend per share 2.50p 1.85p Final dividend per share 7.50p 6.40p * Before amortisation and impairment of intangibles arising on consolidation and exceptional items. Note: all at reported exchange rates, and prior year restated for IFRS.

15

Exchange Rate Sensitivities

Pre hedging impact on pre-tax profit Including EBS US$ +/- 10 cents £10m* £12m* Euro +/- 10 cents £7m** £7m

* £4m transactional, £6m translational. ** Almost entirely transactional.

16

UK Transactional Forex Hedging

Year to 31/03/07 Currency Exposure (m) Cover US$ 117 100%* @ 1.79 Euro 162 25% @ 1.39-1.45** Year to 31/03/08 Currency Exposure (m) Cover US$ 120 40% @ 1.82 Euro 170

• * Percentage cover for the remainder of the financial year.

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

17

Cash Flow

• 100
• 50

50 100 150 200 250

12 mths March 06 12 mths March 05

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 £13.4m £109.1m Initially unsettled matched trans- actions

18

Balance Sheet

Year ended Year* ended 31/03/06 £m 31/03/05 £m Intangibles arising on consolidation 276.7 256.5 Other non-current assets 172.6 130.9 Cash 339.9 231.3 Overdrafts (0.1) (0.6) Net cash 339.8 230.7 Private debt placement (128.7)

• Net creditors

(40.6) (98.1) Net assets 619.8 520.0

* 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.

19

20

Key Financial Success Factors over the Past 7 Years

• Combination of organic and acquisition revenue growth
• Effective cost management
• Electronic broking leverage
• Industry leading margin performance
• Efficient conversion of profit to cash

21

Operational Review

Mark Yallop Group COO

22

Current market activity

Investor flight from…

– Emerging markets – Base metals – Leveraged trades – Equities – US dollar assets – Short volatility positions

Has benefited…

– Government bonds – Short interest rate products – Derivative markets

• ver cash

Key Market Events Impact on ICAP Significantly higher turnover in …

– Spot FX – Emerging markets FX, derivatives – Credit derivatives – Equity derivatives – Some corporate bond sectors – “Active” Government bonds/IRS – OIS/FRAs

At the expense of …

– Mortgages – Some corporate bond sectors – Emerging market eurobonds

With limited impact on …

– Off the run governments – Repo

23

Macro market themes

Macroeconomic imbalances in currencies, rates and credit Search for Yield ……………………. Commoditisation of “flow” markets….. Continuing liberalisation of emerging markets Increasing regulatory scrutiny……. Price volatility. Growth in IR Derivatives, CDS, FX, Energy Derivatives, Futures Growth in structured credit, structured equity

• products. Focus on cheap execution.

Increasing polarisation of dealer business models. More risk taking. More focus on electronic trading. Growth in onshore and local currency derivatives, fixed income and credit markets Good for e-platforms, best execution/price transparency Key Environmental Factors Impact on ICAP Improved equity markets ….. Continuing strong competition in cash equities. Best

• pportunities in financing and derivatives

24

Implications for ICAP growth path

• Credit Derivatives
• Equity derivatives
• Equity financing
• Energy
• Emerging markets
• FX
• Exchange products

1. Close remaining market share gaps in key products – electronic and voice 2. Developing our structured/ “exotic” products capability 3. Developing our post trade services capability

• Price discovery
• Anonymous execution
• Post trade netting
• Post-confirmation processing
• Portfolio reduction tools

25

EBS financing

• Earlier than anticipated US regulatory clearance
• Completion now expected to be by 5 June 2006
• Full take up of the 36.1 million new ICAP shares
• Financing by a mixture of cash, equity and debt
• ICAP has agreed with its relationship banks the

syndicated debt facilities supporting the acquisition

On 21 April 2006, ICAP agreed to acquire all the share capital of EBS Group Ltd

26

Strategic rationale for transaction

• 1. Takes ICAP a big step

further towards its strategic goals

• 2. ICAP will be the largest

global electronic broker in liquid, commoditised OTC markets providing customers with:

– the broadest product range – the widest electronic footprint – strong post trade support

• 3. Moves ICAP a step closer

to create a single global multi-product platform with significant further growth potential

• ICAP electronic revenues will more

than double, to ~$375m pa (2005)

• Transaction raises ICAP overall

market share from 28% to ~32%

• Proportion of Group profits from

electronic broking estimated to rise to ~33% of total

• Combined global network will cover

~1,500 customer installations plus further 470 users with secure internet access

• Significant economies of scale

achievable over time through combining and leveraging technology networks and platforms

27

EBS financial profile

Highlights US$ millions Highlights US$ millions

25% 18% 9%

Operating margin

57 37 16 Operating profit¹ 170 169 171 Expenses¹ 227 206 187 Revenue 2006

Budget

2005

Audited

2004

Audited Year to 31/12

• During Q1 2006 EBS operating

profit was significantly ahead of budget

• Cash generation ~100% of profit
• Expenses breakdown in 2005

was:

• Staff: 40%
• Networks/Comms: 26%
• Commission:

6%

• Other: 28%
• Gross assets of EBS were

$221m, including cash of $55m at 31 December 2005

Notes . Notes .

¹Before amortisation of intangibles and exceptional items. EBS results are on a UK GAAP basis but no significant differences are expected under IFRS

28

Developments at EBS

• Continuing global macro-economic

imbalances

• Increasing proprietary risk taking

at banks

• Growth of single and multi-dealer

bank portals

• Growth of leveraged

investors/hedge funds

• Growth of Prime Broking
• Development of algorithmic trading

engines

• Growth in trade flows
• Liberalisation of emerging markets
• Role of other ECNs

50 100 150 200 250 300

2 / 1 / 2 6 1 6 / 1 / 2 6 3 / 1 / 2 6 1 3 / 2 / 2 6 2 7 / 2 / 2 6 1 3 / 3 / 2 6 2 7 / 3 / 2 6 1 / 4 / 2 6 2 4 / 4 / 2 6 8 / 5 / 2 6 2 2 / 5 / 2 6

Total Daily Spot FX Turnover - 2006 US$ billions (All volume recorded as single count) Total Daily Spot FX Turnover - 2006 US$ billions (All volume recorded as single count) Key Trends Key Trends High volume trading days on EBS spot in 2006 17 May record day – US$258 bn

29

Transaction details

• A cash payment of US$ 775 million for 100% of the share capital
• f EBS

Cash Consideration Share Alternative…. Overall Cost….. ….

• EBS shareholders could elect to receive, in aggregate, up to 36.1

million new ICAP shares in lieu of up to one third of the cash payment to which they would otherwise have been entitled

• Individual EBS shareholders could receive further ICAP shares

as part of their consideration in lieu of cash, to the extent that

• ther shareholders elected to receive less than their full

entitlement of new ICAP shares.

• New ICAP shares issued as part of the transaction are locked-up

for a period of six months.

• The full number of new ICAP shares offered to EBS shareholders

has been taken up so the total consideration will be: – $517 million in cash and – 36.1 million new ICAP shares

30

Sources & uses of funds

Sources and uses: 1,033 Total uses 1,033 Total sources 116 Free cash on Balance Sheet post- acquisition 18 Transaction costs 20 EBS working capital 55 EBS cash acquired EBS debt to be refinanced 308 New ICAP equity 54 ICAP facility to be refinanced 179 Revolving Facility (part drawn) 308 Equity consideration 312 Term Loan (fully drawn) 517 Cash consideration 179 Free cash on ICAP balance sheet pre-acquisition Uses (US$ million) Sources (US$ million)

Note: US$/£ at 0.56

31

Facility overview

Amount Purpose Margin Commitment fee Utilisation fee Tenor £175,000,000

• To finance the

acquisition of EBS

• Refinance certain of

ICAP’s existing undrawn loan facilities 32.5bp p.a. 16bp p.a. until drawn n/a 5-year bullet Amount Purpose Margin Commitment fee Utilisation fee Tenor £125,000,000

• General corporate

purposes 32.5bp p.a. 16bp p.a. while undrawn

• 2.5bp for 33.3% - 66.6%

drawings

• 5bp of 66.6% - 100%

drawings

• From 18months

5-year bullet

Term loan facility Revolving credit facility

32

Competitive landscape

• The IDB/exchange environment remains very

competitive and complex with many players and moving parts

• Further industry consolidation still likely as a result of:

– Globalising financial markets and the need for scale – Economic incentives – Highly fragmented nature of some broking markets – Regulatory changes (e.g. CRD) – Difficulty of establishing new liquidity pools from scratch

• The timetable for this remains very uncertain
• ICAP business model – combining operational/financial

leverage of “exchange” model with innovation/speed to market of “IDB” model – is uniquely well positioned

33

Industry revenues in 2005*

500 1000 1500 2000

ICAP Deutsche Boerse NYSE/Arca CST Euronext CME Tradition Cantor NASDAQ GFI CBOT LSE ICE ISE Creditex

Sources: Company data, ICAP estimates, Morgan Stanley Research estimates

* 2005 Revenue in US$ million including clearing revenue for exchanges ICAP Revenue 2005/06 plus EBS 2005 Cantor includes eSpeed and BGC estimates, NYSE & Arca proforma estimates

34

Preliminary Results

31 May 2006

35

ICAP goals

Goals

• To be the leading global intermediary in the

wholesale OTC markets by a clear margin

• 35% share of overall market revenues
• 50% of profit derived from electronic broking
• Become the “employer of choice” for

graduates entering our industry

• Generate superior returns on capital for our

shareholders

We believe that we can best provide the service our customers need by combining the strengths of our people together with technology – and that by doing so we will redefine our industry

36

ICAP strategy

Strategy

• Provide customers with more efficient

electronic trade execution, reduced integration costs and deep liquidity across a wide product range

• Maintain close long term relationships

with customers

• Develop the business through the

combination of people and technology

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

by selective acquisition

37

Preliminary Results

31 May 2006

38

Revenue & Net Operating Expenses Growth

Variance against prior year Revenue Net operating expenses £m % £m % Headline 106.5 13 (84.2) (13) FX movements:- UK transactional** (3.7) 3.3

• Translational

(13.8) 10.3 Acquisitions** :- United Fuels (6.5) 5.5

• Gov Px

(3.5) 0.9

• Korea

(1.0) 0.4 Prague office closure 1.9 (1.0) Constant 79.9 10 (64.8) (10) Bonuses 48.5 Underlying 79.9 10 (16.3) (4)

* UK transactional represents £0.1m re euro strengthening, £1.6m re US Dollar strengthening, offset by lower hedging gains of £1.3m in 05/06. ** United Fuels acquired Oct 05, Gov Px acquired Jan 05, and Korea became a subsidiary from Mar 06.

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Taxation

Pre-tax profit Tax Effective rate Prior year rate £m £m % % Subsidiaries 201.1 (69.9) 35 32 Associates (gross of tax) 5.5 (2.3) 42 68 206.6 (72.2) 35 33 Tax on associates (2.3) 204.3

40

Cashflow

Year ended Year ended 31/03/06 £m 31/03/05 £m Pre-tax profit(1) 204.3 176.7 Associates (2.4) 2.8 Depreciation(2) 22.3 21.7 Net capital expenditure (18.8) (26.6) Working capital FX and other (3.7) (18.9) Tax (61.7) (46.8) 140.0 108.9 Initially unsettled matched transactions(3) (41.0)

• Private placement receipt

124.8

• Share buy back
• (17.3)

Acquisitions/investments(4) (54.0) (26.3) Dividends(5) (54.4) (47.1) Operating exceptionals (6.3) (4.8) Change in net cash 109.1 13.4

Notes: 1. Excluding amortisation and impairment of intangibles arising on consolidation, and exceptional items. 2. Includes £6.3m amortisation of capitalised software development. 3. Usually, in a matched principal transaction, both sides settle on the same day. Occasionally, for various reasons, only one side of the transaction may settle giving rise to a temporary cash position which reverses on the completion of the other side of the transaction, normally within 24 hours. 4. Includes acquisitions of subsidiaries, £32.8m, associates £8.5m, and investments of £12.7m. 5. Includes dividends paid to minority interests of £1.3m.

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10 20 30 40 50 60 70 80 90

2005 2006

Profit & Margin Profile by Business Activity

Securities broking Derivatives & money broking Energy broking Electronic broking Information services

Notes:

• 1. Profit is defined as operating profit before amortisation and impairment of

intangibles arising on consolidation and exceptional items.

• 2. Bar represents profit, % is margin.

£m

15% 16% 23% 28% 30% 15% 20% 23% 60% 55%

42

Electronic/Voice Margins*

Group Electronic Voice** % % % 2005/06 21 30 19 2004/05 21 28 19 2003/04*** 20 8 20

* Operating profit before amortisation and impairment of intangibles arising on consolidation, and exceptional items. ** Voice excluding information services. *** UK GAAP.