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 Year Variance ended ended* Against prior year 31/03/05 31/03/04 Reported* Constant** £m £m £m % £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) 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) * 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).
1 ST HALF/2 ND HALF PERFORMANCE Variance against prior period (constant basis)* 6 months 6 months Year ended ended 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 Classification as a % Variable component of of Group turnover broker remuneration % of turnover 55% 56% 100 90 80 70 Year to % Year to 60 March 05 March 04 Fixed 50 Broker Rem. 51 51 Variable 40 T&E 3 4 30 Telecoms 5 5 20 Other 4 5 10 Overheads 16 15 0 Operating profit 20 21 04/05 03/04
BROKER REMUNERATION RATIOS % 70 60 50 Broker Group 40 remuneration/ Asia Pacific Group turnover 30 20 10 0 00/01 01/02 02/03 03/04 04/05
EXPENSES Classification as a % Variable component of of Group turnover broker remuneration % of turnover 55% 56% 100 90 80 70 Year to % Year to 60 March 05 March 04 Fixed 50 Broker Rem. 51 51 Variable 40 T&E 3 4 30 Telecoms 5 5 20 Other 4 5 10 Overheads 16 15 0 Operating profit 20 21 04/05 03/04
PROFIT & MARGIN PROFILE BY BUSINESS ACTIVITY Securities 16% broking 18% 23% Derivatives & money broking 22% Energy 15% broking 13% Electronic 29% broking 8% Information 61% 2004 2005 services 65% 0 10 20 30 40 50 60 70 80 £m 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 24% Americas 19% Europe 22% 24% Asia 10% Pacific 9% 2004 2005 0 10 20 30 40 50 60 70 80 90 100 £m 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 % 25 21% 20% 20 17% 15% 14% 15 10 7% 5 0 * 99/00 00/01 01/02 02/03 03/04 04/05 * Proforma 15 months, all others based on 12 months’ reported results.
EARNINGS Year Year ended ended* 31/03/05 31/03/04 £m £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 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 Effective Prior year profit Tax rate 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 £m 114% 106% 180 Group operating 160 125% profit 140 120 Cash inflow from 100 operating 103% 80 activities (FRS1) 60 40 20 0 2002 2003 2004 2005 * Operating profit before goodwill amortisation and exceptional items.
CASHFLOW Year ended Year ended 31/03/05 31/03/04 £m £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 31/03/04 £m £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.
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