Preliminary Results 24 May 2005 These materials do not constitute - - PowerPoint PPT Presentation

Preliminary Results

24 May 2005

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.

INTRODUCTION

• Strong, resilient business
• Overall market conditions

– From May 2004 - slower markets - Corporate bonds, Mortgages, Euro medium IRS – Followed by a return of stronger markets, particularly in 2005

• Outstanding electronic broking

performance, huge economies of scale

Preliminary Results

24 May 2005

PROFIT & LOSS

Year ended Year ended* Variance Against prior year 31/03/05 £m 31/03/04 £m Reported* £m % Constant** £m % Group turnover 794.0 801.4 (7.4) (1) 27.4 4 Net operating expenses (624.7) (641.1) 16.4 3 (13.9) (2) Group operating profit 169.3 160.3 9.0 6 13.5 9 JVs and associates 5.0 8.3 (3.3) (40) (3.1) (38) Total operating profit 174.3 168.6 5.7 3 10.4 6 Net interest 4.6 1.6 3.0 188 3.1 207 Pre-tax profit*** 178.9 170.2 8.7 5 13.5 8

* At reported FX exchange rates. ** At constant average FX exchange rates, adjusted for the impact of acquisitions. *** Excludes goodwill amortisation and exceptional items.

TURNOVER & EXPENSES GROWTH

(At constant exchange rates ex acquisitions)

* Net FX movements made up of the following impacts on operating profit: £6.5m translational, £4.5m transactional, less £3.2m of increase in hedging gains eliminated for constant exchange purposes. ** Consolidated from BrokerTec May 2003, Intercontinental Energy June 2003, Ried Thunberg Feb 2004, Gov P/X Jan 2005. TFS/ICAP Singapore formerly a subsidiary, now a JV from April 2004 . (No economic change to profit). Note: The £13.9m cost increase is made up of a £6.2m (3%) increase in bonuses and a £7.7m (2%) increase in costs (ex bonus).

Variance against prior period Group turnover Net operating expenses £m % £m % Headline (7.4) (1) 16.4 3 FX Movements* 42.1 (34.3) Acquisitions**: – BrokerTec (7.5) 5.0 – Intercontinental Energy (0.6) 0.5 – Ried Thunberg (0.5) 0.5 – Gov P/X (1.8) 1.1 – TFS/ICAP (Singapore) 4.9 (4.9) Other (1.8) 1.8 Constant 27.4 4 (13.9) (2)

1ST HALF/2ND HALF PERFORMANCE

Variance against prior period (constant basis)*

6 months ended 6 months ended Year ended 30/09/04 31/3/05 31/03/05 Group turnover 1% 7% 4% Net operating expenses (1%) (4%) (2%) Pre-tax profit ** 2% 14% 8%

Net operating expenses split: Expenses (ex broker bonus) (2.2%) (1.9%) (2.1%) Broker bonus 1.3% (6.7%) (2.7%)

* At constant average FX exchange rates, adjusted for the impact of acquisitions. ** Excludes goodwill amortisation and exceptional items.

EXPENSES

Variable component of broker remuneration

Broker Rem. T&E Telecoms Other Overheads Operating profit

Classification as a %

• f Group turnover

Year to March 05

51 4 5 5 15 20

Year to March 04

51 3 5 4 16 21

%

% of turnover 10 20 30 40 50 60 70 80 90 100 04/05 03/04 Fixed Variable

55% 56%

BROKER REMUNERATION RATIOS

% 10 20 30 40 50 60 70 00/01 01/02 02/03 03/04 04/05 Group Asia Pacific Broker remuneration/ Group turnover

EXPENSES

Variable component of broker remuneration

Broker Rem. T&E Telecoms Other Overheads Operating profit

Classification as a %

• f Group turnover

Year to March 05

51 4 5 5 15 20

Year to March 04

51 3 5 4 16 21

%

% of turnover 10 20 30 40 50 60 70 80 90 100 04/05 03/04 Fixed Variable

55% 56%

PROFIT & MARGIN PROFILE BY BUSINESS ACTIVITY

10 20 30 40 50 60 70 80 2004 2005 Securities broking Derivatives & money broking Energy broking Electronic broking Information services £m 16% 18% 15% 13% 29% 65% 61% 8% 22% 23%

Notes:

• 1. Profit is defined as pre-tax profit before goodwill amortisation, exceptional

items, interest, and excludes share of profit /(loss) of JVs and associates.

• 2. Bar represents profit, % is margin.

PROFIT & MARGIN PROFILE

BY GEOGRAPHIC REGION

10 20 30 40 50 60 70 80 90 100 2004 2005 £m Asia Pacific Americas Europe 9% 24% 19% 24% 22% 10%

Notes:

• 1. Profit is defined as pre-tax profit before goodwill amortisation, exceptional

items, interest, and excludes share of profit (loss) of JVs and associates.

• 2. Bar represents profit, % is margin.

VOICE/ELECTRONIC MARGINS

Group Electronic Voice* Voice* (ex Corp Bonds, Mortgages) % % % % 2004/05 21 29 20 21 2003/04 20 8 21 21

* Voice includes information services.

GROUP OPERATING PROFIT MARGIN

5 10 15 20 25 99/00 00/01 01/02 02/03 03/04 04/05 7% 14% 15% 17% 20% 21% * %

* Proforma 15 months, all others based on 12 months’ reported results.

EARNINGS

Year ended Year ended* 31/03/05 £m 31/03/04 £m Pre-tax profit 178.9 170.2 Goodwill amortisation (38.1) (38.8) Exceptional items (9.1) (0.9) Taxation (47.1) (42.8) Minority interests (2.1) (3.2) Profit for the financial period 82.5 84.5 Earnings per share – basic 14.1p 15.1p Earnings per share – adjusted 19.5p 18.4p Interim dividend per share 1.85p 1.7p Proposed final dividend per share 6.40p 5.7p

* At reported exchange rates.

PRE-TAX EXCEPTIONAL ITEMS

Year ended 31/03/05 £m UK property move* 4.1 Asia Pacific & other 5.0 9.1

* Mainly surplus leasehold provisions. Lower than 6 months to 30/09/04 following sublet of UK property.

TAXATION

Pre-tax profit Tax Effective rate Prior year rate £m £m % % Subsidiaries 173.9 (56.4) 32 34 JVs & Associates 5.0 (3.4) 68 36 178.9 (59.8) 33 34

Exceptional items (9.1) 1.2 Goodwill amortisation (38.1) 11.5 131.7 (47.1)

PROFIT*/CASH CONVERSION

20 40 60 80 100 120 140 160 180 2002 2003 2004 2005 Group operating profit Cash inflow from

• perating

activities (FRS1)

103% 125% 114% 106%

£m

* Operating profit before goodwill amortisation and exceptional items.

CASHFLOW

Year ended Year ended 31/03/05 £m 31/03/04 £m Pre-tax profit 178.9 170.2 JVs & associates (1.6) (4.7) Depreciation 21.7 26.9 Net capital expenditure* (26.3 ) (28.0) Exchange adjustments (4.7) (21.7) Working capital and other (12.9) 0.9 Tax (44.2) (49.7) 110.9 93.9 Share buy back (17.3)

• Acquisitions/investments**

(27.3) (13.0) Dividends*** (47.1) (37.1) Exceptional items (4.8) (1.2) Change in net funds 14.4 42.6

* Year ended 31/03/05 excludes: £4.8m of payments to acquire fixed asset investments (taken to acquisitions/investments); and £2.7m net payments to acquire own shares (taken to ‘working capital and other’). ** Includes: deferred consideration of £12.0m (First Brokers and ICAP Energy formally APB); the acquisition of Gov P/X £2.8m (£5.2m net of £2.4m of cash acquired); an increase in the Group’s existing shareholding in its Exotix subsidiary of £1.2m; and a number of acquisitions of associates £6.5m (including Ryes Capital £3.2m). It also includes £4.8m which mainly relates to exchange memberships for Group’s Futures initiatives. ** Dividends include equity dividend paid of £45.0m and £2.1m of dividends paid to minorities.

BALANCE SHEET

As at As at 31/03/05 £m 31/03/04 £m Goodwill 218.6 269.0 Other fixed assets 91.2 81.2 Net funds 241.6 227.2 Net creditors (92.1) (98.5) Net assets 459.3 478.9

US$ PRIVATE PLACEMENT

• US$225m 2015 subordinated debt private

placement

• US$193m fixed at 5.84% coupon, (can be

repaid by ICAP at five years)

• US$32m floating (can be repaid after two

years)

• Qualifies as Tier II Capital/BASLE II
• Receive funds at the end of June
• Reduces the Group’s cost of capital
• Hedge against the Group’s US$ net assets

EXCHANGE RATE SENSITIVITIES

Pre hedging impact on pre-tax profit US$ +/- 10 cents £8m* Euro +/- 10 cents £6m**

* £2.5m transactional, £5.5m translational. ** Almost entirely transactional.

UK TRANSACTIONAL FOREX HEDGING

Year to 31/03/05 Currency Exposure (m) Cover US$ 69 100% @ 1.69 Euro 124 56% @ 1.41-1.44* Year to 31/03/06 Currency Exposure (m) Cover US$ 69 76% @ 1.74 Euro 124 32% @ 1.38-1.45* Year to 31/03/07 Currency Exposure (m) Cover US$ 69 10% @ 1.76 Euro 124

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

shown here.

IFRS

• No material changes from IFRS presentation to

analysts in March.

• Implementation remains on track.
• No major impact on ICAP.
• Financial statements for year to 31 March 2005

converted to IFRS – available at AGM on 13 July 2005.

• Interim numbers to September 2005 will be prepared

under IFRS.

MAIN FINANCIAL MESSAGES

Financial year to 31 March 2005:

• Resilient profit and margin performance
• Captured the benefits of electronic broking leverage
• Demonstration of continuing effective cost management
• ICAP highly cash generative with a strong balance sheet

Financial year to 31 March 2006:

• Focus on revenue growth
• Fully harness electronic broking leverage potential
• Maintain cost discipline

Preliminary Results

24 May 2005

INTRODUCTION

• Consistent strategy for several years
• A strong market position with

significant further organic and acquisition growth potential

• Developing an integrated voice and

electronic broking business

• Creating the leading global eBroking

franchise

GROWTH DRIVERS

• Market volatility, including interest rate, FX,

credit and commodities

• Increased commitment of risk capital to the

interest rate, energy and FX markets by the hedge funds and banks

• Growth in bond issuance, driven by

national deficit funding or capital raising by corporate and financial institutions

• Market share changes from industry

consolidation

• Acquisition opportunities

VOICE BROKING

• Voice volumes grew by 3% in constant terms

– CDS markets active, indices – Medium term derivatives had a slow period then rebounded

• Implications of mergers:

– Collins Stewart Tullett/Prebon Yamane – Cantor Fitzgerald/BGC/Maxcor/eSpeed

• Development of new markets e.g. China,

Korea & Latin America

• Introduction of new products e.g. carbon

emissions, coal and freight

INDUSTRY STRUCTURE

Estimated turnover in the interdealer broking market

100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500

2004/5 2003/4 ICAP Tradition Cantor/eSpeed/ BGC/Maxcor* Other e-brokers Other Energy brokers $’m Collins Stewart Tullett/Prebon* GFI Others

Notes: Estimates have been used where there is no publicly available data At the prevailing average exchange rates * Combined businesses on a proforma basis

ICAP eBROKING VOLUMES

• Record levels of US$56 trillion in the first

quarter of 2005, up 48% on the same period in 2004.

• US Treasury markets

– electronic volumes up by 86% to US$12 trillion for the quarter – combined voice and electronic market share

• verall > 60% up from 48% in 1st quarter 2004
• Market leader in the European and US$

Repo markets

– US$21 trillion in Europe – ICAP estimated share over 70% of nominal volume (< 1 month)

• f interdealer broking market

– US$22 trillion in North America

ICAP eBROKING VOLUMES

10 20 30 40 50 60 3 QTR 2003 4 QTR 2003 1 QTR 2004 2 QTR 2004 3 QTR 2004 4 QTR 2004 1 QTR 2005

US$ Trillion/quarter

All Other EU Repo US Repo US Treasury

PROGRESS OF eBROKING

• Accelerating trading volumes

– Improved efficiency – Integration with the banks’ client trading and “black box” automated trading systems – Increased concentration

• Overall eBroking IDB turnover grew by 14%
• High fixed/low variable costs structure.
• eBroking increasing “market share”
• eBroking new products

eBROKING FRANCHISE

• BrokerTec exceeded original expectations
• Significant economies of scale, leverage

potential

• Significant experience within management

group – running both voice and electronic liquidity pools

• Competitors in two distinct groups – voice
• r electronic
• Extensive electronic broking footprint
• Increasing customer appetite for eBroking

across a range of products

EXTENDING eBROKING

• Credit derivatives

– November launched on Brokertec platform – Single credits plus indices. – Recently upgraded functionality to 17 banks – Single name CDS with corporate bonds on the same screens

• Interest Rate Swaps

– Short dated interest rate swaps (EONIAS), 21 banks installed - 18 in pipeline – Extension of i-Swap euro maturity out to 50 years - autumn 2005 – Link into the LCH’s Swapclear to minimise credit issues could potentially release very rapid volume growth.

• Forward FX

– i-Forwards platform in 24 banks in Europe and 3 in the US – Installations begin in Asia in June – Platform currently covers; Euro, Yen, Sterling, Australian, New Zealand and Canadian dollars and the Swiss franc.

• Credit Repo

– Launched in April 2005 on BrokerTec in conjunction with the voice broking desk in London

OUTLOOK

• Grow both organically and through selective

acquisitions to take market share from an estimated 28% to exceed 35%

• Performance of electronic broking businesses
• Leveraging economies of scale
• Reasonable volatility so far this year, currently

driven by bond downgrades and interest rate doubts

• On track to deliver improved results in the

current year - assuming current market activity levels continue

Preliminary Results

24 May 2005

GROUP TURNOVER

BY GEOGRAPHICAL SEGMENTS

Year ended Year* ended Variance Against prior period 31/03/05 £m 31/03/04 £m Reported* £m % Constant** £m % America 363.8 371.7 (7.9) (2) 12.8 4 Europe 348.7 345.1 3.6 1 9.0 3 Asia Pacific 81.5 84.6 (3.1) (4) 5.6 7 794.0 801.4 (7.4) (1) 27.4 4

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

GROUP TURNOVER

BY BUSINESS ACTIVITY

Year ended Year* ended Variance Against prior period 31/03/05 £m 31/03/04 £m Reported* £m % Constant** £m % Securities broking 321.7 365.0 (43.3) (12) (21.5) 6 Derivatives & money broking 312.6 309.2 3.4 1 19.6 7 Energy broking 50.9 41.4 9.5 23 10.5 26 Electronic broking 83.8 62.0 21.8 35 19.2 31 Information Services 25.0 23.8 1.2 5 (0.4) (2) 794.0 801.4 (7.4) (1) 27.4 4

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

£m Shareholders’ funds at 1/04/04 468.2 Share capital issued during the year* 75.1 Decrease in contingent share capital** (101.1) Profit for the financial year 82.5 Dividends (50.8) Exchange adjustments (7.1) Shares bought back and cancelled (17.3) Increase in investment of own shares (0.7) Shareholders’ funds at 31/03/05 448.8 Minority interests 10.5 Net assets 459.3

CAPITAL AND RESERVES

* £74.3m relates to 33.7m BrokerTec “earnout” shares issued in July 2004. ** Includes £5.0m in respect of deferred consideration paid in cash relating to the First Brokers’ and APB acquisitions. The balance of £96.1m is contingent consideration in respect of BrokerTec which is now reversed following the issue of the BrokerTec “earnout” shares in July 2004. (The difference between £96.1m and the £74.3m reflects the reduction in ICAP share price between 31/03/04 and the date of the issue of the shares.)

Investor Relations queries to : Mike Sheard Director of Corporate Affairs ICAP plc 2 Broadgate London EC2M 7UR (44) 207 050 7103 mike.sheard@icap.com