Preliminary Results Presentation London Wednesday May 23 2007 - - PowerPoint PPT Presentation

▶
preliminary results presentation
SMART_READER_LITE
LIVE PREVIEW

Preliminary Results Presentation London Wednesday May 23 2007 - - PowerPoint PPT Presentation

Oct 13, 2023 196 likes •584 views

Preliminary Results Presentation London Wednesday May 23 2007 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

slide-1
SLIDE 1

Preliminary Results Presentation

London Wednesday May 23 2007

slide-2
SLIDE 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

  • f the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001.
slide-3
SLIDE 3

Agenda

Financial Review Business Review Strategic Overview

3 2 1

slide-4
SLIDE 4

Financial results

Strong growth in revenue, profit and adjusted EPS

Revenue Profit* EPS (adjusted) +14% +23% +20%

* Pre-taxation profit before amortisation and impairment of intangibles arising on consolidation and exceptional items.

slide-5
SLIDE 5

Profit before taxation

Year to 31 Mar 2007 Headline variance to prior year £m £m % Revenue 1,106.3 187.1 20% Net operating expenses (858.6) (135.7) (19%) Operating profit 247.7 51.4 26% Net finance charge (2.1) (6.9) n/m Associates 6.0 2.8 88% Profit before taxation 251.6 47.3 23% Mar 07 Mar 06 Margin 22% 21%

5 10 15 20 Revenue Operating profit

Underlying Growth

12% 16%

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

slide-6
SLIDE 6

Movement in profit*

180 200 220 240 260

P r

  • f

i t * Y e a r t

  • M

a r 6 F X N e t A c q u i s i t i

  • n

s A s s

  • c

i a t e s & I n t e r e s t U n d e r l y i n g P r

  • f

i t Y e a r t

  • M

a r 7

* Pre-taxation profit before amortisation and impairment of intangibles arising on consolidation and exceptional items.

£m

Net Acquisitions principally include: -

  • Acquisition of United Fuels (October 05)
  • Korea (subsidiary since February 06)
  • Acquisition of Reset (April 06)
  • Acquisition of EBS (June 06)
  • Disposal of Exotix (Mar 07)

204.3 (8.9) 32.0 (4.1) 28.3 251.6

slide-7
SLIDE 7

Europe

10 20 30 40 50 Revenue Operating profit

Underlying Growth

Year to 31 Mar 2007 £m Headline variance vs 05/06 Revenue 502.4 27% Net operating expenses 378.0 22% Operating profit 124.4 46% Mar 07 Mar 06 Margin 25% 22%

20% 38%

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

slide-8
SLIDE 8

Americas

  • 5

5

Underlying Growth

Year to 31 Mar 2007 £m Headline variance vs 05/06 Revenue 458.3 7% Net operating expenses 354.1 9% Operating profit 104.2 0% Mar 07 Mar 06 Margin 23% 24%

3% (2)%

Revenue Operating Profit

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

slide-9
SLIDE 9

5 10 15 20 25 30 35 Revenue Operating profit

Asia Pacific

Underlying Growth

Year to 31 Mar 2007 £m Headline variance vs 05/06 Revenue 145.6 52% Net operating expenses 126.5 42% Operating profit 19.1 169% Mar 07 Mar 06 Margin 13% 7%

12% 24%

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

slide-10
SLIDE 10

Year to Revenue Variance against prior year 31 Mar 2007 £m Headline Underlying Voice division 867.4 9% 12% Electronic division 199.1 103% 7% Information division 39.8 54% 4%

Segment analysis

Headline margin Year to 31 Mar 07 Year to 31 Mar 06 Voice division 20% 19% Electronic division 28% 30%

The above tables exclude amortisation and impairment of intangibles arising on consolidation and exceptional items. Underlying growth excludes the impact of foreign exchange and net acquisitions.

slide-11
SLIDE 11

Percentage ICAP operating profit

Voice Electronic Information

06/07 05/06

69% 9% 22% 78% 7% 15%

31% 22%

The above charts exclude amortisation and impairment of intangibles arising on consolidation and exceptional items.

slide-12
SLIDE 12

Net operating expenses

650 700 750 800 850

1 2 m t

  • M

a r 6 F X E B S O t h e r n e t a c q u i s i t i

  • n

s B r

  • k

e r b

  • n

u s e s I n v e s t n e w b u s I T O t h e r 1 2 m t

  • M

a r 7

£m

722.9 66.7 13.2 44.6 10.8 15.5 858.6 9.4

19%

11% 6% 2% 1% 2% (3)%

12 mths to 31 Mar 07 12 mths to 31 Mar 06 Broker remuneration % of revenue 47% 51% Variable % of broker remuneration 60% 58%

(24.5) ( E x c . B

  • n

u s )

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

slide-13
SLIDE 13

Technology Non-Technology

EBS synergies

10 20 30 40 50 60 2006/7 2007/8 2008/9 Full impact $m

$58m

Exceptional costs to achieve the synergies are forecast to be $48m, of which $21m will be recognised in 2006/07.

Increased synergies – significant IT contract cancellation EBS staff now relocated to 2 Broadgate Integration of front office staff complete Technology integration on track Projected Annual Synergies - US$ millions

slide-14
SLIDE 14

Earnings

Year ended Year ended 31/03/07 £m 31/03/06 £m Profit before taxation* 251.6 204.3 Amortisation and impairment of intangibles (42.6) (11.3) Exceptional items 4.8

  • Taxation

(88.1) (72.2) Profit for the period 125.7 120.8 Attributed to: Equity holders of parent 121.3 117.2 Minority interests 4.4 3.6 Earnings per share – basic 19.3p 19.6p Earnings per share – adjusted 24.6p 21.5p Full year dividend per share 12.3p 10.0p

* Before amortisation and impairment of intangibles arising on consolidation and exceptional items. Note: At reported exchange rates.

slide-15
SLIDE 15

Exchange rate sensitivities

Impact on 2006/07 PBT Transactional Translational Total £m £m £m PBT reduction 2 7 9 Anticipated impact on 07/08 PBT Dollar Euro Total £m £m £m Translational 5 5 P&L rate 07/08 vs 06/07 1.97 vs 1.89 n/a Transactional 2 1 3 Effective rate 07/08 vs 06/07 1.85 vs 1.80 1.47 vs 1.46

* Assumes Spot $/£1.97 for balance of year.

slide-16
SLIDE 16

Movement in free cash flow

Calculation of free cash flow 12 mths to 12 mths to 31 Mar 07 £m 31 Mar 06 £m Cash from operations 303.5* 150.3* Interest and taxation (86.2) (57.3) Cash flow from operating activities 217.3 93.0 Capital Expenditure (31.1) (19.6) Dividends from associates 3.9 0.8 Free cash flow 190.1 74.2

* This figure includes the impact of initially unsettled matched transactions. 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.

50 100 150 200 250 300 350

06/07 Operating increase in cash Adjusted cash from

  • ps

150.3 39.7 20.6 64.6 303.5 £m 6.3 260.9 22.0

05/06 initially unsettled trades 05/06 cash

  • utflow on

exceptionals 06/07 net cash impact

  • f initially

unsettled trades 06/07 cash inflow on exceptionals

Cash from operations

05/06 06/07

slide-17
SLIDE 17

Net cash

  • 100
  • 50

50 100 150 200 250 Mar-06 Acquistions Free cash flow Dividends FX/Other Mar-07

Cash Borrowings 211 (290) 190 (69) (22) 20

£m

slide-18
SLIDE 18

CRD waiver

  • Waiver granted
  • c.£300m of regulatory capital headroom
  • Can make acquisitions for debt without reducing headroom
slide-19
SLIDE 19

Financial Summary

  • Strong top and bottom line performance
  • Margins increasing
  • EBS integration providing more opportunities
  • Cashflow providing strong balance sheet
slide-20
SLIDE 20

Agenda

Financial Review Strategic Overview

3 2 1

Business Review

slide-21
SLIDE 21

Powerful, positive business drivers…

1. Low global interest rates 2. Strong growth in derivatives volumes 3. Emerging Markets opening up 4. Technology impact 5. Regulatory change

slide-22
SLIDE 22

…and a strong close to 2006/7

US Equity Derivatives Volumes Monthly Volumes

Jul Aug Sep Oct Nov Dec Jan Feb Mar

UK Credit Derivatives Volumes Monthly Volumes Electronic Voice

Jul Aug Sep Oct Nov Dec Jan Feb Mar

Jul Aug Sep Oct Nov Dec Jan Feb Mar

Jul Aug Sep Oct Nov Dec Jan Feb Mar

US Treasury Volumes EU Carbon Emission Volumes Monthly Volumes Monthly Volumes

slide-23
SLIDE 23

Rising market share and better diversification

Sources: ICAP, Morgan Stanley Research

* Excludes information division ** Excludes revenue from cash equities

15% 9% 11% 12% 44% 9% 29% 12% 12% 12% 6% 29%

ICAP revenue (2005/06)*

52% 14% 8% 9% 6% 11%

ICAP revenue (2006/07)* Dealer revenue (2006)** Rates Credit Foreign Exchange Energy Equities Emerging/Other

ICAP

28-29% Overall IDB Market (2005 - 2006)

Total: $5.9bn

Total: $6.9bn ICAP

30-31%

slide-24
SLIDE 24

Strong momentum across the business

Segment

Revenue Growth

Year on Year

Major Themes

Rates

+1%

  • Low volatility/inverted curves
  • Derivatives vs. securities
  • Market share advances
  • New product launches
  • Technology enhancements
  • Success in post trade

Credit

+0%

  • Corporate bonds in decline
  • Very strong growth in CDS
  • Growth in US structured credit products
  • Technology enhancements
  • Electronic penetration in Europe

FX

+127%

  • Growth in Algorithmic trading
  • Growth in FX Prime Broking
  • New currency launches
  • NetLink and post trade services
  • Technology enhancements
  • New metals: Platinum and Palladium

Energy

+30%

  • Growth in EU natural gas
  • Growth in Emissions
  • Strong growth in all US energy sectors
  • Freight derivatives

Equities

+69%

  • Vanilla derivatives growth
  • Structured Equity Derivatives
  • Growth in risk arbitrage broking
  • Satisfactory year in Asia

Emerging Markets

+18%

  • Russia
  • Turkey
  • Eastern Europe/C4
  • Mexico, Brazil, Latin America
  • Korea
  • China
slide-25
SLIDE 25

Innovation: new markets

Project Background

Shipping (ICAP Hyde)

  • Double digit industrial growth in China driving demands for

raw materials

  • Seaborne trade up to 50% of global oil, iron ore production
  • Tanker market very fragmented
  • Freight derivatives still tiny relative to underlying

Insurance (ICAP JLT)

  • US$26,000 billion annual risk market
  • US$50 billion hedging market
  • Inefficient capital allocation and price discovery
  • Dealer and insurer interest in new risk transfer

mechanisms for life and catastrophe.

slide-26
SLIDE 26

Innovation: existing voice markets

Segment Major Voice Opportunities Credit

  • Single name vanilla CDS
  • ABX, Loan CDs
  • Structured credit products

Energy

  • Soft commodities, ethanol, uranium/industrial metals, carbon/emissions
  • Commodity indices, structured products
  • Consolidation of fragmented IDB energy market
  • Freight derivatives

Equities

  • Single name equity derivatives (US, UK, HK, Korea)
  • Structured equity derivatives (global)
  • Index derivatives (HK, Korea)
  • Variance Swaps (US, UK)

Emerging Markets

  • Eastern Europe: C4, Russia and Turkey
  • Middle East, Islamic markets
  • Latin America: Mexico, Brazil, Chile
  • Asia: Korea, China, India
slide-27
SLIDE 27

Innovation: electronic markets

  • Prices become more transparent
  • Bid-ask spreads contract
  • Commissions contract
  • Algorithmic trading commences
  • Volumes rise
  • Market structure changes
  • Barriers to entry rise

In electronic markets … … the rules are different

1.

Market growth rates are much higher than in a voice environment

2.

Technology creates new trading techniques

3.

The normal market structure is two competing platforms, rather than many voice brokers

slide-28
SLIDE 28

Electronic markets grow faster…

1000 2000 3000 4000 5000 6000 2001 2002 2003 2004 2005 2006

CME: Electronic vs Pit Avg Daily volumes

500 1000 1500 2000 2500 3000 3500 2001 2002 2003 2004 2005 2006

CBOT: Electronic vs Open Auction Avg Daily volumes Electronic: +64% CAGR Pit/Other: +3% CAGR Electronic: +61% CAGR Open Auction: +3% CAGR

100 200 300 400 500 600 700 1994 1995 1996 1997 2000 2001 2002 2003 2004

LIFFE 3m Euribor: Electronic vs Pit Avg Daily volumes Electronic: +23% CAGR Pit: +5% CAGR

50 100 150 200 250 300 350 400 450 1999 2000 2001 2002 2003 2004 2005 2006

LSE: Electronic (SETS) vs Floor (non-SETS) Avg Daily volumes SETS: +46% CAGR Non-SETS: +5% CAGR

Source: ICAP Estimates

slide-29
SLIDE 29

…and have higher barriers to entry

Pre Electronic Trading Post Electronic Trading Active US Treasuries Spot FX IDB Market Share (%)

ICAP (58%) Reuters (30%) eSpeed (41%) ICAP (60%) Voice (10%) Voice (1%) Marshall (20%) Tullet (15%) Harlow (15%) Prebon (10%) Others (10%) Reuters (20%) EBS (10%)

Source: ICAP Estimates

Garban (15%) Liberty (15%) Cantor (40%) FBI (10%) Chapdelaine (3%) Tullet (2%) RMJ (10%) Hill (3%) Prebon (2%)

slide-30
SLIDE 30

ICAP: an option on electronic trading

1000 2000 3000 Energy Eq Der Credit FX Rates IDB Wholesale Market Size Revenues (US$ millions)

Electronic Voice

Annual IDB Revenues

Source: ICAP Estimates

  • Interest Rate Swaps
  • European government bonds
  • MBS
  • Prime Broking and algorithmic traders
  • Emerging currencies
  • Forwards/ndfs
  • CDS Indices
  • CDS single names
  • US and Asian markets
  • Equity Indices
  • Single name derivatives
  • Europe: Oil and oil derivatives
  • US: Oil, natural gas, electricity
  • Clearing

Major Electronic Growth Opportunities

slide-31
SLIDE 31

Agenda

Financial Review Business Review Strategic Overview

3 2 1

slide-32
SLIDE 32

ICAP priorities

  • 1. Accelerate growth of electronic broking revenue
  • 2. Expand use of electronic global distribution network
  • 3. Expand in new products and geographic areas to

continue growth of voice broking business

  • Pursue acquisition and organic growth in

emerging markets and energy

  • Further improve credit and equity derivatives

capability

  • 4. Complete the integration of Hyde ship broking

business – further transport opportunities

  • 5. Deliver incremental synergies from integration of

EBS

slide-33
SLIDE 33

Strategic opportunities

  • A global OTC exchange
  • Electronic exchanges and IDBs
  • Product and technology innovation
  • Many acquisition targets fully valued
slide-34
SLIDE 34

Summary

  • An outstanding year
  • FTSE 100 entry
  • Increased market share
  • Completed largest acquisition
  • Very positive business fundamentals
  • Full pipeline of new electronic product
  • Plenty of new initiatives in voice
  • Over £250m profit
  • Record operating margin
  • Strong underlying growth
slide-35
SLIDE 35

Preliminary Results Presentation

London Wednesday May 23 2007

slide-36
SLIDE 36

New ICAP segment components New ICAP segment components

Revised segmentation by markets

Interest Rate Interest rate swaps Interest rate options Government bonds Agencies Mortgages Futures Repurchase agreements Cash Credit Corporate bonds Convertibles Credit derivatives Structured credit products Foreign Exchange Spot Forwards Options Energy Oil, Gas ,Coal, Electricity, Emissions, Weather, Freight and Bullion Equities Cash Derivatives Structured equity products Emerging Markets Latin American, Asian, African, Central and Eastern European products

slide-37
SLIDE 37

Revenue Operating profit FY 07 FY 06 FY 07 FY 06 £m £m £m £m Headline 1,106.3 919.2 247.7 196.3 FX - Translational (29.6) (6.6)

  • Transactional

(3.8) (2.3) Acquisitions - EBS (99.8) (30.9)

  • Other

(27.7) (3.9) (9.0) (0.8) Closed Businesses (12.8) (17.2) 1.0 (6.1) Charity Day (7.1) (5.2) Underlying 958.9 859.5 208.8 180.5 Underlying growth 12% 16%

Underlying calculation

slide-38
SLIDE 38

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