Half Year Report London, 17 November 2009

Transcription

1 Half Year Report 2009 London, 17 November 2009

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 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

3 Financial results 6 months to 30 Sept 2009 Solid performance with growth in revenue and EPS +6% +2% -5% Revenue Profit* EPS** * Pre-tax profit before amortisation and impairment of intangibles arising on consolidation ** Adjusted basic 3

4 Matthew Lester Group Finance Director 4

5 Financial summary Markets stabilising following traumatic conditions of 2008 and early 2009 Lapping strong comparatives Revenue performance solid Benefiting from diversified business model New segmentation improves transparency Continued investment in future growth impacts margins Lower tax rate and purchase of Reset minority results in increased adjusted EPS Continued strong cash flow and balance sheet 5

6 Group profit before tax Headline results 6 months 6 months Var to Sept 09 to Sept 08 Underlying growth Revenue % Net operating expenses (10%) Operating profit (8%) Net finance charge (8) (13) 38% % 0-5 (9%) Associates % Profit before tax (5%) -10 (24%) -15 Sept 09 Sept Operating profit margin 21% 24% -25 Revenue Operating profit The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange. 6

7 Segmental analysis IFRS 8 6 months to Sept 09 Headline results Revenue Operating Profit Core Voice EMEA Americas Asia Pacific 46 2 Total Electronic Broking Post Trade & Information Services New Businesses 101 (7) Total IFRS 8 Requires segments consistent with internal reporting Electronic comprises of EBS, BrokerTec and E CDS Post trade and information services includes Reset, Traiana and voice and electronic data sales New businesses allows management to look at investments separately from core and includes Link, Shipping, Brazil and Cash Equities The above table excludes amortisation and impairment of intangibles arising on consolidation. 7

8 Core voice Headline results 6 months to Sept 09 Headline variance vs prior year Underlying growth EMEA Revenue 256 2% Operating profit 54 (4%) Margin 21% -1ppt % 0-2 EM EA Americas Total US Americas Revenue % Operating profit 41 11% Margin 19% - Asia Pacific Revenue 46 (10%) Operating profit 2 (33%) Margin 4% -2ppts Total core voice Revenue 518 4% Operating profit 97 1% Margin 19% (4%) (8%) (9%) Revenue (12%) (5%) (10%) Operating Profit Memo Revenue Operating profit Asia Pac underlying (22%) (40%) The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange. 8

9 Electronic, post trade, information sales Headline Results 6 months to Sept 09 Headline variance vs prior year Underlying growth Electronic Broking Revenue 122 (5%) Operating profit 47 (6%) Margin 39% - % Revenue 15% Operating Profit 4% Electronic Broking Post trade & information Post Trade and Information Services Revenue 68 33% 0 Operating profit 32 28% Margin 47% -2ppts -10 Post trade financials 6 months to Sept 09 (including share of Trioptima) -20 (24%) Pro-forma revenue Pro-forma operating profit 24 (33%) -40 The above table excludes amortisation and impairment of intangibles arising on consolidation. Underlying growth excludes the impact of foreign exchange. 9

10 Diversifying operating profit Operating profit year to March 2007 Operating profit six months to September 2009 Electronic, Post Trade & Information 31% Electronic, Post Trade & Information 47% Voice 69% Voice 53% 10

11 Impact of investment strategy New businesses Headline variance vs prior year % Largest areas of investment Revenue % Operating profit (7) (158)% Impact on margin (3)ppts Cash equities global Emerging markets Brazil Last 2 years Last 3 years New Products patents Revenue from new business started or acquired 14% 18% New businesses Staff compensation / revenue 6 months to Sept 09 62% Year to Mar 09 59% March 09 2,292 New Business 89 Annualised revenue per voice broker 555k 560k Other (19) IT Spend as a percentage of revenue 11% 11% Sept 09 2,362 The above table excludes amortisation and impairment of intangibles arising on consolidation. 11

12 Net operating expenses 6 Months to Sept % point movement 11% (4)% 6% (3)% (0)% Substantial investments in new businesses (25) 38 (20) (1) 640 Cost savings particularly focused on IEB and US voice broking 600 (1)% Sep-08 FX Performance commissions Investments in new businesses Cost Savings Other Sep-09 The above table excludes amortisation of intangibles arising on consolidation. 12

13 Impact of exchange rates Impact on 2009/10 Transactional Translational Total PBT Six months to September Estimate of full year to March 2010 impact Assumes $1.65/ and 1.10/ for the balance of the year, giving 2009/10 yearly translational rates of $1.61/ and 1.12/ Estimated effective transactional rates for full year to March 2010 are $1.64/ and 1.26/ ( $1.92/ and 1.36/ ). ICAP is exposed to the translation of other currencies e.g. Yen. 13

14 Exchange rate sensitivities 2010/11 Updated full year unhedged impact of 10c strengthening vs sterling 2010/11 onwards on PBT Transactional Translational Total Dollar* Euro** Estimated impact at current FX rates for 2010/11 on PBT *** Transactional Translational Total Dollar 2 (5) (3) Hedged 2010/11 $1.52/ Euro Hedged 2010/ / Total 18 * Variance of 10c movement vs $1.64/ transactional and $1.61/ translational ** Variance of 10c movement vs 1.26/ transactional and $1.12/ translational *** Assumes $1.65/ and 1.10/ for 10/11 and the balance of 09/10 14

15 Earnings 6 months to Sept months to Sept 2008 Profit before tax* Tax* (54) (59) Effective tax rate 33% 34% Profit for the period* Amortisation and impairment of intangibles inclusive of tax (18) (18) Profit for the period Attributable to: Equity holders of parent Minority interests - 5 Interim dividend 5.11p 4.7p Earning per share basic 14.7p 14.5p Earning per share adjusted basic 17.5p 17.2p * Before amortisation and impairment of intangibles arising on consolidation. Adjusted weighted average number of shares 6 months ended Sep m (Sep m).. 15

16 Movement in free cash flow Profits vs free cash flow 6 months to Sept 09 Year to Mar 09 Year to Mar 08 Cash from operations Profit pre amortisation* Free cash flow Cash > Profit (5) (2) Calculation of free cash flow 6 months to Sept 09 6 months to Sept (9) Cash from operations Interest and tax Cash flow from operating activities Capital expenditure Dividends from associates and investments Free cash flow 168 (41) 127 (29) (57) 94 (23) Sep-08 Net impact of initially unsettled items Movement due to changes in working capital Movement due to trading 168 Sep-09 * Profit after tax excludes amortisation and impairment of intangibles arising on consolidation. 16

17 Net borrowings Movement in net borrowings 50 0 Mar-09 Free cash Dividends Acquisitions Other Sep (126) 107 (59) (144) -100 (56) -150 (10) 17

18 Financing Acquisitions and Borrowings Cash and Debt Principal Acquisitions Link* earn-out 14m Equity Derivatives As at 30 September 2009 Cash 430m Reset minority buyout 29m Post-trade services Gross debt (574)m Net Debt 144m Borrowings Eurobond issue July m Gross debt/ebitda* 30 September Committed headroom at 30 Sept m * Final Installment due Q * 12 Months to 30 Sept 09 18

19 Financial summary Markets stabilising following traumatic conditions of 2008 and early 2009 Lapping strong comparatives Revenue performance solid Benefiting from diversified business model New segmentation improves transparency Continued investment in future growth impacts margins Lower tax rate and purchase of Reset minority results in increased adjusted EPS Continued strong cash flow and balance sheet 19

20 Mark Yallop Group Chief Operating Officer 20

21 A reminder: ICAP goals and strategy Goals To be the leading global intermediary and post-trade services provider in the wholesale OTC markets 35% share of overall market revenues 50% of profit derived from electronic broking To generate superior EPS growth for our investors Strategy Build and maintain close long term relationships with customers Leverage people and technology in a unique business model Provide customers with more efficient electronic execution and post-trade services, reduced integration costs and deep liquidity across a wide product range Extend product and service innovation Grow the business, both organically and by selective acquisition 21

22 The world then and now 15 September 2008 May 2009 November 2009 Credit markets in crisis. Massive global deleveraging ahead Investment banking model finished Hedge fund era ending; bank proprietary trading over Many banks will need protracted government support Sweeping and extensive regulatory change OTC markets will move to exchanges Banks report record results in flow markets; lower volumes but wider spreads Significant de-leveraging already achieved Agency brokers back in vogue Hedge fund inflows; bank VaR increasing TARP repayments begin; other government support starts to be withdrawn Intense regulatory focus on market infrastructure Exchanges: not all products can be cleared or trade on an exchange More record bank results in flow markets on rising volumes, narrower spreads De-leveraging slows markedly; volatility falls Banks re-hiring staff Hedge funds inflows continue on good performance First signs of real world economic growth Clearing and trade warehouse decisions made Next big issue: OTC e-trading 22

23 Our customers (and their customers) Banks 2008 survivors post strong 2Q, 3Q results in their flow FICC businesses Volumes growing; spreads narrowing Leverage ratios stabilising Risk capital commitments remain high Re-hiring staff 32.0x 29.0x 26.0x 23.0x 20.0x 17.0x 14.0x 11.0x Brokerage industry leverage 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 Hedge funds Estimated hedge fund assets under management* Hedge fund performance +6.9% in 3Q, and +17.1% YTD through September. Hedge fund industry assets to $1.53 trillion in 3Q09, up from $1.41 trillion at 2008 year end New money inflows bn 2,000 1,800 1,600 1,400 1,200 1, * Hedge Fund Research Q3/09 Report Source: Credit Suisse. Brokerage industry includes Goldman Sachs, Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley 23

24 ICAP s diverse business mix Rates ICAP group revenues by asset class () FX Emerging Markets Equities Credit Commodities 44% 43% 42% 39% 16% 17% 11% 10% 9% 8% 11% 15% 8% 13% 16% 8% 13% 12% 12% 13% 9% 10% 10% 11% FY 2006/2007 FY 2007/2008 FY 2008/2009 HY 2009 Rates: +1% Flow businesses solid. No significant shift in maturity structure in the interest rate derivatives FX: +6% Increasing number of EBS customers, algos, prime banks Emerging markets: -3% Strong LatAm, Asia offset by weaker Russia/E Europe Credit: +37% Strong corporate bonds, CDS more subdued. Structured products remain a very small % of ICAP business Equities: -1% Strong growth in Cash Equities offset by weaker revenues in derivatives Commodities: +12% Strong growth in US, Asia commodities oil, natural gas, power and carbon emissions. Shipping market still near cyclical lows Core voice business performing resiliently following the very high volumes seen in 2007 and

25 Emerging markets opportunities Russia and Eastern Europe Operating offshore from London with 30 employees India Fragmented market structure Electronic markets opening up 50 local staff in Mumbai China Successful JV with local partner CFETS, 70 local staff ex Hong Kong Brazil: A big opportunity - represents >65% of revenue potential in Latin America 25

26 Brazil: A $1 billion market and growing ICAP Brazil Equities Fixed Income Commodities Retail ICAP LATAM Headcount (Sept 2009) Markets Clients Build BOVESPA Equities BM&F Futures Bonds Softs/Metals/ Energy/Shipping BOVESPA Equities Institutional Banks/Inst. Banks/Inst/Corp Retail/Inst. Organic Acq. (Arkhe) Organic Organic Other LATAM, 270 Onshore Brazil, 222 Reais trading moving onshore: 36% of volumes from overseas Full integration of Arkhe and ICAP on 30 November 2009 Equities: 122 top institutional client accounts opened ~2% BOVESPA overall market share ~16% capture of potential wallet Robust DMA platform just launched Fixed Income: ~9% share on BM&F overall Local bonds ~13% market share. Proprietary electronic platform to be launched Dec 09 Building Global bond and private debt desks Retail Equities: >1,500 accounts open September 2009 ranking: #21 Listed Futures Commodities Fixed Income ICAP Brazil Headcount (Sept 2009) Note: Other LATAM includes US based headcount Retail Equities 26

27 Equities: The Opportunity Market opportunity Institutional frustration with bulge bracket business model Demand for independent, un-conflicted agency broker Very significant revenue pool No existing businesses available to acquire at realistic prices Organic Build Opportunity to hire talented staff attracted to ICAP global brand Differentiated approach to research and corporate access Deployment of Apollo and Relevance Block crossing and technology solutions as well as voice broking 80 Bulge Bracket Service Provision Niche 0 Target Market position BNY Convergex Instinet ITG $0.5BN< Revs < $1.5BN Knight 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Market share 27

28 Cash Equities progress report Voice Customers Technology Research Organic build out of ~210 employees in cash equities globally Locations: London, Germany, HK, Singapore, Tokyo, Sydney, NY and Rio and Sao Paulo Product: Cash, Convertibles, High Yield, Risk Arb/Event Driven, ADR/GDR US business >300 new accounts EU/Asia business >450 new accounts BlockCross launched October 2009 anonymous block crossing in 6,000 stocks to buy/sell side Portfolio Trading platform already launched Apollo quant and market timing tool covering 6,000 stocks has 1,000 users Relevance client application will be ready next year Algorithmic Trading launching January 2010 Differentiated sectoral research product launched; leveraging ICAP credit and economic research as well Sector trading model implemented in NA Distinctive strategic and corporate access programme under way in UK 28

29 The regulatory landscape The Regulatory Agenda Dealer 1 Dealer 2 Dealer 3 Dealer n 3 2 Electronic OTC Trading Transparent price formation Auditable price structure US: ASEFs Europe: MTFs Trade Repositories One repository per asset class Golden Transparency source of trade for data regulators Source of post trade transparency Electronic marketplace(s) Trade Repositories Voice broking 1 Clearing Very high % of inter-dealer trades Proportion of customer trades ~75% ~25% CCP 1 CCP 2 CCP n Dealer m Bilateral Settlement Dealer n 4 Ancillary Services Portfolio compression, etc 29

30 Electronic broking Fixed Income: Global ADV reach $500bn in September recovering half of volume lost since peak Automated volumes in UST back up to 45%, level last seen in 2007 New total daily transaction records in August (US: 5.1m and EU: 2.7m) New record US and EU order book activity/sec in July and August FX: Model trading business increasing Prime customer numbers and volumes increasing Co-Location customers increasing New markets in Brazil, Korea, Taiwan, Russia % 35% 30% 25% 20% 15% 10% 5% 0% UST Treasuries* Electronic FX Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Nov-07 Feb-08 May-08 ICAP Electronic broking volumes EBS Prime ADV and No of Counterparties Aug-08 Nov-08 Feb-09 May-09 Aug Prime % of EBS Volume Avg Prime Ctpy's 30

31 Electronic derivatives markets Variable Volumes 1 Impact Lower total trading costs increase arbitrage opportunities and hence volumes Result 2 3 Dealers contribute additional voice business to electronic market; eliminate inter-bank sales desks Algorithmic traders who cannot operate in voice market arrive to exploit arbitrage opportunities Substantial jump in trading volumes and sustainably higher volume growth rates Market Share Commissions ICAP Costs Material concentration of market share over time for leading and second platform. Smaller platforms uneconomic. Lower unit commissions reflecting lower variable costs Substantially lower costs per transaction once fixed overhead is covered. Typical margin in mature e-markets ~40% plus Lower average commissions, lower variable costs plus Sustainable higher operating profit margins equals Higher revenues and profits 31

32 Post trade services opportunity Post-Trade: a $22bn opportunity Life Cycle Activity Business Opportunities ~0.3m ~1.0m ~51m ~$22.0bn ~$9.0bn OTC Derivatives Pre-Trade and Trade Compliance Pre-Deal Pricing Deal Entry Static Data Legacy infrastructure/processes constrain volume growth, increase costs and risk Major opportunities: Pre-booking, aggregation, netting, confirmation, limit monitoring, allocation services Network businesses ~49.0m Daily Transactions ~$5.0bn FX, Cash Rates ~$8.0bn Listed Markets Annual Cost Operational Processes Matching, Affirmation & Confirmation Clearing & Settlement Customer Valuations Collateral Management Nostro Recs High cost/ risk of managing collateral; huge manual effort required No standard industry solution for buy or sell side Need for centralised network based margin service ICAP s already identified market segments have the potential to produce $500 million revenue within five years Risk Management Accounting Processes VaR, Stress Calcs Risk Management Regulatory Reporting Portfolio/Deal Valuations General Ledger Postings Dealers under pressure to reduce credit risk, capital, operational risk Portfolio managers want to reduce 2 nd order risks Network businesses 32

33 Post-trade platform update Average Harmony Message Center transactions per day (000s) Recent Developments Traiana trade aggregation JV with CLS Group Addresses post trade issues generated by high frequency trading Reduces operational risk, post trade costs Eight key banks involved, robust pipeline JV ready for launch on final Fed approval Average number of trades reconciled by TriResolve (m) ReMatch launch Post trade market risk mitigation for CDS Identifies and reduces basis and calendar risk through multi-lateral netting TriOptima Rates Trade Repository Appointed by ISDA for $418 trillion interest rate derivative repository on Sept 16,

34 Summary The OTC world didn t end in September 2008 and is not ending now OTC markets are stabilising after a period of volatile growth New businesses - Brazil/EM, Cash Equities, Electronic Derivatives and Post Trade are higher growth opportunities. We will continue to invest Overall, the markets ICAP is positioned in should grow at 8-10% pa over the medium term ICAP s electronic and post trade capability plus its voice franchise position us extremely well for inevitable changes in the market landscape 34

35 Michael Spencer Group Chief Executive Officer 35

36 Outlook 1. Strategic Goal: the infrastructure provider to the world s wholesale OTC markets the leading global intermediary the leading post-trade services provider 2. Financial Goal: to generate profit evenly distributed between voice broking, electronic broking and post-trade services and superior EPS growth for our investors 3. We are: A growing business in a growing market Investing for the future Strongly positioned for changes in the OTC markets 36

37 Half Year Report 2009 London, 17 November 2009

38 Investor Relations: Mike Sheard Director of Corporate Affairs +44 (0) ICAP plc 2 Broadgate, London EC2M 7UR +44 (0)