Preliminary Results Presentation London Wednesday May 23 2007
Preliminary Results Presentation
LondonWednesday 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 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.
Agenda
Financial Review
Business Review
Strategic Overview3
2
1
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.
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%
0
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.
Movement in profit*
180
200
220
240
260
Profit*
Year t
o Mar
06 FXNet
Acquis
itions
Associa
tes &
Inter
est
Underl
ying
Profit
Year t
o Mar
07
* 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
Europe
0
10
20
30
40
50
Revenue Operating profit
Underlying GrowthYear to 31 Mar 2007
£m
Headline variancevs 05/06
Revenue 502.4 27%
Net operating expenses 378.0 22%
Operating profit 124.4 46%
Mar 07 Mar 06Margin 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.
Americas
-5
0
5Underlying 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.
0
5
10
15
20
25
30
35
Revenue Operating profit
Asia Pacific
Underlying Growth
Year to 31 Mar 2007
£m
Headline variancevs 05/06
Revenue 145.6 52%
Net operating expenses 126.5 42%
Operating profit 19.1 169%
Mar 07 Mar 06Margin 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.
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.
Percentage ICAP operating profit
VoiceElectronicInformation
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.
Net operating expenses
650
700
750
800
850
12m to
Mar
06 FX
EBS
Other net
acquisi
tions
Broker b
onuse
sInve
st ne
w bus IT
Other12
m to M
ar 07
£m
722.9
66.713.2
44.610.8
15.5 858.69.4
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)
(Exc. B
onus)
The above table excludes amortisation and impairment of intangibles arising on consolidation and exceptional items.
TechnologyNon-Technology
EBS synergies
0
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
Earnings Year
endedYear
ended 31/03/07
£m31/03/06
£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.
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 0 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.
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.
0
50
100
150
200
250
300
350
06/07 Operating increase in cash
Adjusted cash from ops
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 outflow on exceptionals
06/07 net cash impact of initially unsettled trades
06/07 cash inflow on exceptionals
Cash from operations
05/06 06/07
Net cash
-100-50
050
100150200250
Mar-06
Acquistions
Free cashflow
Dividends
FX/Other
Mar-07
Cash
Borrowings
211 (290)
190 (69)
(22)20
£m
CRD waiver
• Waiver granted
• c.£300m of regulatory capital headroom
• Can make acquisitions for debt without reducing headroom
Financial Summary
• Strong top and bottom line performance• Margins increasing• EBS integration providing more opportunities• Cashflow providing strong balance sheet
Agenda
Financial Review
Strategic Overview3
2
1
Business Review
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
…and a strong close to 2006/7
US Equity Derivatives Volumes
Month
ly Vo
lumes
Jul Aug Sep Oct Nov Dec Jan Feb Mar
UK Credit Derivatives Volumes
Month
ly Vo
lumes
ElectronicVoice
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
Month
ly Vo
lumes
Mo
nthly
Volum
es
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
ICAP28-29%
Overall IDB Market(2005 - 2006)
Total: $5.9bn
Total: $6.9bn
ICAP30-31%
Strong momentum across the businessSegment Revenue
GrowthYear 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
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.
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
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
Electronic markets grow faster…
0
1000
2000
3000
4000
5000
6000
2001 2002 2003 2004 2005 2006
CME: Electronic vs PitAvg Daily volumes
0500
10001500
20002500
30003500
2001 2002 2003 2004 2005 2006
CBOT: Electronic vs Open AuctionAvg Daily volumes
Electronic: +64% CAGRPit/Other: +3% CAGR
Electronic: +61% CAGROpen Auction: +3% CAGR
0100
200300
400500
600700
1994 1995 1996 1997 2000 2001 2002 2003 2004
LIFFE 3m Euribor: Electronic vs PitAvg Daily volumes
Electronic: +23% CAGRPit: +5% CAGR
050
100150200250300350400450
1999 2000 2001 2002 2003 2004 2005 2006
LSE: Electronic (SETS) vs Floor (non-SETS)Avg Daily volumes
SETS: +46% CAGRNon-SETS: +5% CAGR
Source: ICAP Estimates
…and have higher barriers to entry
Pre Electronic Trading Post Electronic Trading
ActiveUS 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%)
ICAP: an option on electronic trading
0 1000 2000 3000
Energy
Eq Der
Credit
FX
Rates
IDB Wholesale Market SizeRevenues (US$ millions)
ElectronicVoice
Annual IDB RevenuesSource: 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
Agenda
Financial Review
Business Review
Strategic Overview3
2
1
ICAP priorities
1. Accelerate growth of electronic broking revenue 2. Expand use of electronic global distribution network3. 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
capability4. Complete the integration of Hyde ship broking
business – further transport opportunities5. Deliver incremental synergies from integration of
EBS
Strategic opportunities
• A global OTC exchange
• Electronic exchanges and IDBs
• Product and technology innovation
• Many acquisition targets fully valued
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
Preliminary Results Presentation
LondonWednesday May 23 2007
New ICAP segment componentsNew ICAP segment components
Revised segmentation by markets
Interest Rate Interest rate swapsInterest rate optionsGovernment bondsAgencies MortgagesFuturesRepurchase agreementsCash
Credit Corporate bondsConvertiblesCredit derivativesStructured credit products
Foreign Exchange SpotForwardsOptions
Energy Oil, Gas ,Coal, Electricity, Emissions, Weather, Freight and Bullion
Equities CashDerivativesStructured equity products
Emerging Markets Latin American, Asian, African, Central and Eastern European products
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
Investor Relations queries to:Mike SheardDirector of Corporate AffairsICAP plc2 BroadgateLondon EC2M 7UR(44) 20 7050 [email protected]