INTERIM RESULTS PRESENTATIONINTERIM RESULTS PRESENTATION 25 NOVEMBER 2003. 2 INTRODUCTION • Most...
Transcript of INTERIM RESULTS PRESENTATIONINTERIM RESULTS PRESENTATION 25 NOVEMBER 2003. 2 INTRODUCTION • Most...
INTERIM RESULTS PRESENTATION25 NOVEMBER 2003
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INTRODUCTION
• Most successful first half – pre-tax profit increased by 47%
• Underlying operating profit growth, pre acquisition, 28%
• BrokerTec performance better than expected, electronic broking now profitable
• Overall market conditions extremely active
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PROFIT & LOSS 6 months
ended 6 months*
endedVariance
Against prior period 30/09/03
£’m 30/09/02
£’m
£’m
% Turnover 407.7 311.3 96.4 31 Expenses (327.1) (259.8) (67.3) (26) Group operating profit 80.6 51.5 29.1 57 JVs & Associates 4.6 4.2 0.4 10 Total operating profit 85.2 55.7 29.5 53 Net interest 0.2 2.5 (2.3) - Pre-tax profit** 85.4 58.2 27.2 47
47
*At reported exchange rates.**Excludes goodwill amortisation and exceptional items.
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UNDERLYING GROWTHVariance against prior period
Turnover Expenses £’m % £’m % Headline 96.4 31 (67.3) (26)Acquisitions – BrokerTec (26.8) 19.9 – APB (9.2) 8.1 – Nittan (11.1) 8.2 – First Brokers (5.3) 4.2 – Intercontinental Energy (0.8) 0.7Fx Movements 5.2 (5.9)Other (1.7)Bonuses 25.4 Underlying 48.4 16 (8.4) (5)
Notes : Consolidated from; BTec May 03, APB Oct 02, Nittan Nov 02, First Brokers May 02, Intercontinental Energy June 03.
: Excess of US BEIP grant over increased US costs following move from WTC to Harborside shown in “Other” as an add-back for purpose of calculating underlying cost increase.
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PROFIT & MARGIN PROFILEBY REGION
0 10 20 30 40 50
Asia Pacific
Europe
Americas
6 Months to 30/9/026 Months to 30/9/03
10%
19%
21%
24%
14%
9%
£mNote: Profit excludes share of profit (losses) for JVs & associates, goodwill amortisation, exceptional items and interest.
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PROFIT & MARGIN PROFILE BY BUSINESS
-10.0 0.0 10.0 20.0 30.0 40.0
6 Months to 30/09/02
6 Months to 30/09/03
£’m
Securities broking
Information
Derivatives and money broking
Electronic broking4%
18%73%
Energy16%12%
65%65%
16%
19%22%
Note: Profit excludes share of profit (losses) for JVs & associates, goodwill amortisation, exceptional items and interest.
-94%
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EARNINGS 6 months
ended6 months*
ended 30/09/03
£’m30/09/02
£’m
Pre-tax profit 85.4 58.2 Goodwill amortisation (17.8) (6.7) Exceptional items 3.7 12.9 Taxation (23.1) (19.7) Minority interests (2.1) (1.3) Profit for the financial period 46.1 43.4
Earnings per share – basic 41.5p 43.7p Earnings per share – adjusted 45.7p 35.9p
Interim dividend per share 8.5p 7.0p
*At reported exchange rates.
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PRE-TAX EXCEPTIONAL ITEMS
6 monthsended
30/09/03£’m
WTC insurance proceeds 4.6 BrokerTec integration (1.9) Other: BEIP grant relating to prior year 2.8 Increase in vacant property provisions (1.8) Operating exceptional items (0.9) 3.7
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TAXATION Pre-tax
profitTax Effective
rate £’m £’m % Subsidiaries 80.8 (27.9) 35 JVs & Associates 4.6 (1.8) 39 85.4 (29.7) 35 Exceptional items 3.7 1.0 N/A
Goodwill amortisation (17.8) 5.6 N/A
71.3 (23.1) N/A
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EARNINGS 6 months
ended6 months*
ended 30/09/03
£’m30/09/02
£’m
Pre-tax profit 85.4 58.2 Goodwill amortisation (17.8) (6.7) Exceptional items 3.7 12.9 Taxation (23.1) (19.7) Minority interests (2.1) (1.3) Profit for the financial period 46.1 43.4
Earnings per share – basic 41.5p 43.7p Earnings per share – adjusted 45.7p 35.9p
Interim dividend per share 8.5p 7.0p
*At reported exchange rates.
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CASHFLOW 6 months ended 6 months ended 30/09/03
£’m30/09/02
£’m Pre-tax profit 85.4 58.2 JVs & associates (2.8) (1.4) Depreciation 14.7 6.8 Net capital expenditure (15.2) (7.8) Working capital and other* (17.4) (16.8) Tax (18.5) (14.9) 46.2 24.1 Acquisitions/investments** (7.7) (18.1) Dividend (26.1) (17.9) Exceptional items*** 2.9 (11.7) Change in net funds 15.3 (23.6)
•Includes the following “outflows”: £5.2m exchange adjustment and an increase of £17.0m of matched but unsettled transactions (all subsequently settled). This is offset by £4.8m of other net inflows.
** Net of : £24.0m spend (First Brokers £15.9m, APB £0.6m, IEB £4.9m and BrokerTec fees £2.6m) less £19.3m cash acquired with BrokerTec. Also includes £3.0m spend on own shares (included in capex and financial investments in FRS 1 statement).
*** Includes WTC insurance claim receipt of £4.6m (included in capex under FRS 1).
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BALANCE SHEET 6 months
ended12 months
ended 30/09/03
£’m31/03/03
£’m Goodwill 282.1 118.8 Other fixed assets 85.2 68.1 Net funds 199.9 184.6 Net creditors (86.2) (108.3) Net assets 481.0 263.2
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CAPITAL & RESERVES
£’m Shareholders’ funds at 1/4/03 254.8 BrokerTec - shares issued 117.3 - contingent share capital 83.7 Share options exercised 0.4 Other changes to contingent share capital (9.8)Profit for the financial period 46.1 Dividend (12.4)Exchange adjustments (8.6)Shareholders’ funds at 30/9/03 471.5 Minority interests 9.5 Net assets 481.0
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EXCHANGE RATE SENSITIVITY
Pre hedging Impact on
pre-tax profit
US$ +/- 10 cents £7m* Euro +/- 10 cents £4m**
* £2.5m transactional, £4m-£5m translational.
** Almost entirely transactional.
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UK TRANSACTIONAL FOREX HEDGING
Year to 31/03/04 Currency Exposure (m) Cover US$ 60 86% @ 1.55 Euro 100 50% @ 1.46 Year to 31/03/05 Currency Exposure (m) Cover US$ 65 62% @ 1.61* Euro 100 17% @ 1.44*
*Blended rate variable according to spot at maturity. Worst case position shown here.
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BROKERTEC UPDATE
• Results since acquisition (7/5/03) tracking above original expectations.
Revenue £26.8mProfit £ 6.9mMargin 26%
• Integration well underway.- Cost savings this year will exceed the original
£2.2m target.- One-off costs of £1.9m at 30/9/03. Forecast to
be £5m at 31/3/04.- More synergies achievable in 2004/2005.
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BROKERTEC UPDATE
• Goodwill - Transaction created £180m of goodwill*
after provisional fair value adjustments. - Amortisation period set at 10 years.
• Segmentals- Allocations of costs and goodwill between
electronic and data divisions in place.- Allocations between electronic and voice
divisions to be finalised by 31/3/04.
* Based on share price at 30 September 2003 for valuation of contingently issuable shares.
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ELECTRONIC BROKING VOLUMES ALL PRODUCTS (average $ billion/day)
0
50
100
150
200
250
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03
ICAP/ETCMTS GroupeSpeedBrokerTec + ETC from 2Q03
Sources: BrokerTec, ICAP, estimates from eSpeed and MTS websites - counting only trades executed electronicallyE
LEC
TRO
NIC
BR
OK
ING
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BROKERTEC COMBINATION • Integration well underway. Most staff
relocated into ICAP space• Cross Connect project, combining the
liquidity of BrokerTec and ICAP completed in September 2003
• Rationalisation of operations including networking and removal of duplicated support costs
• Integration of technology development, standardise on common technologies
• Extend BrokerTec customer base
ELE
CTR
ON
IC B
RO
KIN
G
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MARKET SIZE ESTIMATE* GLOBAL INTERDEALER BROKING 2002 - $4.3 billion
Electronic Broking - FX &
other5%
Electronic Broking - Securities
7%Voice Broking
88%
ELE
CTR
ON
IC B
RO
KIN
G
*Total revenues not including equities. Where no public information is available, estimates have been used.
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ELECTRONIC BROKING PENETRATION% OF BUSINESS TRANSACTED ELECTRONICALLY
US Treasury Bonds
T Bills
US Agencies
US$ Repo
Mortgage Backed
Securities
0 20 40 60 80 100
ELE
CTR
ON
IC B
RO
KIN
G
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COMPETITOR REVIEW
E/V Listed status Revenues (£m)1
2002/3
Pre Tax (£m)
2002/3
Margin %
Market Share %
ICAP E+V Listed London 664 123.7 18.4 25.6
Tullett Liberty V Lon. Collins Stewart 424 35.5 8.4 15.3
Tradition V Listed Zurich 350 24 6.9 14.0
Prebon V Private 283 9 3.2 10
Cantor/Espeed E+V Private/Listed NY 200* 32* 16 8
GFI V Private 136* 24* 17.6 5
Eurobrokers V Listed NY 92 12.1 13.2 4
EBS E Consortium 75 12* 16 2.9
MTS E Consortium 39* ? ? 1.5
ICE E Consortium/Private 38* ? ? 1.5
Trio V Listed London 34 5.4 15.9 1.2
1 Total revenues not including equities. * Where no public information is available, estimates have been used.
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PRODUCT MARKET SHARESDerivativesLondon swaps 35-40% (Industry estimates)London interest options 50% (Industry estimates)NY swaps 40% (ICAP estimate)
BondsTreasuries 44% + (ICAP+BrokerTec)Agencies 70% + (ICAP+BrokerTec)Mortgages 34% + (ICAP+BrokerTec)US$Repos 54% + (ICAP+ BrokerTec)US Corporates 40% (ICAP estimate)UK Gilts
Money MarketsLondon Deposits 26% (Industry estimates)London Spot 6% (Industry estimates) (60% voice only)London Forward FX 25% (Industry estimates)NY Moneymarkets 35% (ICAP estimate)NY Forward FX 32% (ICAP estimate)
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INDUSTRY DEVELOPMENTS
• Increased concentration, big get stronger
• Pace of consolidation elsewhere has been slightly disappointing but will pick up, driven by:- Increasing impact of technology- The growth of e-broking- Weakness of some balance sheets- Wider appreciation of the potential of scale economies
THE
IND
US
TRY
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CONSISTENT GROWTH• Continued expansion through both
organic growth and acquisitions • Underlying cost base remains stable • Market conditions have been extremely
active as medium-term interest rates have been volatile
• Growth areas:- Interest Rate Swaps and Options- Fixed income - government, mortgage, repo- Energy - electricity, gas and oil related- Credit derivatives
DR
IVE
RS
FO
R G
RO
WTH
26
HISTORIC VOLATILITY10 Year Interest Rate Swap Rates GBP, EUR & USD
Source: ICAP data (Exponentially Weighted Moving Average)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1 Oct'01 9 Jan'02 19 Apr'02 28 Jul'02 5 Nov'02 13 Feb'03 24 May'03 1 Sep'03 10 Dec'03
Eur GBP USD
DR
IVE
RS
FO
R G
RO
WTH
27
INTERNATIONAL BONDS AND NOTESAMOUNTS OUTSTANDING (US$ billions)
0
200
400
600
800
1000
1200
1400
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Governments
International organisationsCorporate issuers
Source: BIS (27 countries, 2003 to June only)
DR
IVE
RS
FO
R G
RO
WTH
28
MARKET GROWTHINCREASE IN INTEREST RATE SWAPS OUTSTANDING (US$bn)
0
10
20
30
40
50
60
70
80
90
100
Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Jun-03
Source: BIS
DR
IVE
RS
FO
R G
RO
WTH
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STRATEGY• Growth from both voice and electronic markets
• Growth from building market share organically and, where appropriate, through selective acquisition. Current share c.26%, aiming for more than 30%
• Improving efficiency of both ICAP’s and our customers operations through application of technology
• Developing and delivering technology to make cross market trading possible. ICAP’s liquidity in a broad range of benchmark derivative and cash markets provide a significant competitive advantage
• Integration between ICAP’s networks and systems and our customers’ networks and systems creates a pipeline for our products and services. Other brokers will find this is difficultand slow to replicate
• Continuing innovation
STR
ATG
EY
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• Leveraging off our unique combination: the world’s leading voice and electronic broker
• Continue growing market share (both voice and electronic)
• Completing the integration of BrokerTec• Market conditions remain good for ICAP
• High levels of bond issuance• Credit derivatives grow further• Energy related activity• Medium term interest rate volatility • Turning point in the interest rate cycle
OUTLOOKO
UTL
OO
K
INVESTING IN ICAPFor further information, contact:
Mike SheardDirector of Corporate AffairsICAP plcPark House16 Finsbury CircusLondon EC2M 7UR
Tel: (44) 20 7574 7771Mob: (44) 20 7770 [email protected]