2011 2011 .............................................. London 18 - - PowerPoint PPT Presentation

Annual Results Annual Results Presentation

2011 2011

.............................................. London 18 May 2011 London, 18 May 2011

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 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 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

• f new trading technologies; global and regional economic conditions and legislative,

regulatory and political developments; and domestic and international competition in the g y p p ; p 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 Services and Markets Act 2000 (Financial Promotion) Order 2001.

2

Financial results

Solid growth in revenue, profit and EPS

a c a esu ts

+13% +8% +4% Revenue Profit* EPS**

3

* Pre-tax profit before acquisition and disposal costs and exceptional items ** Adjusted basic – Continuing operations

Iain Torrens Group Finance Director

4

Group profit before tax Group profit before tax

Underlying growth Headline results Year to Mar 11 Year to Mar 10 Var vs. PY £m £m %

Revenue 1,741 1,605 8% 2% 7% 8% 9% Revenue Net Operating Expenses (1,366) (1,251) (9%) Operating Profit 375 354 6% 3% 3% 8% 2% 3% 4% 5% 6% Net finance charge (28) (26) (8%) Associates 3 7 (57%) Profit before Tax 350 335 4% 3%

• 1%

Underlying FX TriOptima Headline 8% Operating profit 10% 3% 6% (2%)

• 2%

4% 6% p g p Mar 11 Mar 10 Operating profit margin 22% 22% (7%) (8%) (6%) (4%) (2%) Underlying FX TriOptima Headline

5

The above table is from continuing operations and excludes acquisition and disposal costs and exceptional items. Underlying growth excludes the impact of foreign exchange and recently acquired businesses

Voice broking

Core Voice Year to Mar 11 Variance

Voice broking

Commentary

New businesses Year to Mar 11 Year to Mar 10 £m

• vs. prior year

EMEA Revenue 578 1% Operating Profit 114 (4%) M i 20% (1 t)

£m £m

Margin 20% (1ppt) Americas Revenue 471 2% Operating Profit 83 0%

Revenue 72 54 Operating Profit (21) (24) Impact on margin (2ppt) (2ppt)

p g Margin 18%

• Asia Pacific

Revenue 134 6% O ti P fit (3) (143%)

Revenue from voice businesses started

Operating Profit (3) (143%) Margin (2%) (8ppt) Total Core Voice Revenue 1,183 2%

4% 10%

• r acquired in the last two years

Operating Profit 194 (7%) Margin 16% (2ppt)

6

The above table is from continuing operations and excludes acquisition and disposal costs and exceptional items. Underlying growth excludes the impact of foreign exchange. Headline variance and underlying growth has been measured against the restated numbers published at half year.

Electronic, post trade & information

Headline Results Year to Mar 11 Variance

, p

Operating profit coming from non voice broking businesses (2003 – 2011) £m

• vs. prior year

Electronic Revenue 302 20%

businesses (2003 2011)

60% Post trade

Revenue 302 20% Operating Profit 123 23% Margin 41% 1ppt Post Trade Risk & Information Services

19% 21% 40% 50% Electronic

Revenue 184 30% Operating Profit 79 14% Margin 43% (6ppt)

29% 33% 8% 7% 12% 13% 17% 20% 30% 3% 14% 15% 19% 26% 24% 29% 33% 9%

• 10%

2003 2004 2005 2006 2007 2008 2009 2010 2011

7

The above tables are from continuing operations and excludes acquisition and disposal costs and exceptional items.

Key performance indicators Key performance indicators

Year to Mar 11 Year to Mar 10 Voice revenue per voice broker* £542k £533k IT spend as a percentage of revenue* 12% 11% Average daily electronic volumes $778bn $630bn Global market share estimate 23-25% 22-24% Average proportion of profits converted to cash** 107% 118% As at Mar 11 As at Mar 10 Average proportion of profits converted to cash** 107% 118% Total voice broker headcount 2,312 2,284 8

The above table is from continuing operations and excludes acquisition and disposal costs and exceptional items. * From continuing operations for twelve months to March 2011 vs twelve months to March 2010 ** 3 year average of profits and free cashflow, both from continuing operations and excluding acquisition and disposal costs and exceptional items

Net operating expenses Net operating expenses

Year to 31 March 2011

(2)%

% point

movement

(2)% (3)% (2)%

1,400 O ff t 22 11 17 1,350 Other new businesses One off costs Other 23 23 1,366 19 1 250 1,300 £m TriOptima 1,251 1,200 1,250 Mar 10 FX New businesses IT Other costs Mar 11

9

The above table is from continuing operations and excludes acquisition and disposal costs and exceptional items.

Exchange rate sensitivities Exchange rate sensitivities

Impact on 2010/11 O ti P fit (1)

Transactional(2) Translational(3) Total

Operating Profit (1)

£m £m £m

Profit increase 27 3 30 Estimated impact at current FX rates for 2011/12 on Operating Profit(1)(4)

Transactional £m Translational £m Total £m

Dollar (8) (11) (19)

Hedged 2011/12 89% @ $1.60/£

Euro (1)

• (1)

Hedged 2011/12 80% @ €1.16/£

(1) Operating Profit from continuing operations (2) Effective transactional rates for year to 31 March 2011 are $1.53/£ and €1.15/£ (3) 2010/11 yearly translational rates of $1.56/£ and €1.17/£ (4) Assumes average rates of $1.65/£ and €1.15/£ for 11/12

10

Earnings – total operations Earnings total operations

Year to Mar 11 Year to Mar 10 Effective tax rate Mar 11 £m Mar 10 £m % 2009/10 ETR 32

Profit before Tax * 350 335

2009/10 ETR 32 Ongoing reduction (1) One off settlement of

Effective tax rate 26% 32% Tax (90) (107) Profit for the year * 260 228

Net exceptional items*** PY matters (5) Total 26

Profit for the year 260 228 Exceptional items (15) (52) Loss for the year from discontinued operations 4 (18)

Net exceptional items £m Write down of assets (15)

Amortisation and impairment of intangibles (62) (42) Profit for the year - total operations 187 116

Write down of assets (15) Excess provision release - Discontinued business 4 T t l (11)

Earnings per share - basic 28.7p 18.0p Earnings per share - adjusted basic** 39.9p 35.4p Dividend per share 19 95p 17 55p

11

* From continuing operations and before acquisition and disposal costs and exceptional items. ** From continuing operations *** Post tax Adjusted weighted average number of shares year ended Mar 11 – 652m (Mar 10 - 643m).

Total (11)

Dividend per share 19.95p 17.55p

Movement in free cash flow Movement in free cash flow

Profits* vs. free Year to Mar 11 Year to Mar 10

Cash from continuing operations

cash flow £m £m

g p

400

Profit pre amortisation 260 228 Ongoing free cash flow 210 264 Cash > Profit (50) 36

Year to Year to

38

375

£m

Cash > Profit (50) 36 3 year average of profits converted to cash* 107% 118%

Calculation of free cash flow Year to Mar 11 £m Year to Mar 10 £m

390 8 21 24 363

350

£

C h f i ti 363 390

300 325

Cash from ongoing operations 363 390 Interest and tax (86) (69) Cash flow from ongoing operating activities 277 321 Capital expenditure (69) (66)

300

Mar 10 Net impact of initially unsettled items Change in restricted funds FX on working capital Other Mar 11

Dividends from associates and investments 2 9 Ongoing free cash flow 210 264 Discontinued and exceptionals (21) (46) Free cash flow 189 218

12

* Profits after tax from continuing operations excluding acquisition and disposal costs and exceptional items.

Free cash flow 189 218

Net debt Net debt

Movement in net borrowings Cash and Debt

As at 31 March 2011 £m C h 404 +£68m Cash 404 Gross debt (565) Net debt (161) (229) (161) Restricted funds £m 31 March 2011 73 189 (90) (29) (2)

£m

(148)

31 March 2010 81 Gross debt : EBITDA**

Free cash Dividends Acquisitions Other Mar 11

31 March 2011 1.3x 31 March 2010 1.6x

13

* Net debt for 2010 is represented after adjusting for restricted funds ** From continuing operations

Financial summary Financial summary

• Growth in revenues, profits and EPS

p

• Record revenues of over £1.7bn
• 54% of ICAP operating profits now from non-voice broking

p g p g activities

• Strong growth in electronic markets with record revenues and

profits

• Continued development of post trade businesses including

f O completion of TriOptima integration

• Strong balance sheet and cash flow
• Renewed capital waiver for another 5 years

14

Mark Yallop Group Chief Operating Officer

15

Introduction

ICAP operating profit

Goals

Th i f id h ld’ h l l

17% 19% 21%

– The infrastructure provider to the world’s wholesale OTC markets – The leading global intermediary Th l di t t d i id

24% 29% 33%

– The leading post-trade services provider – Generate profit evenly distributed between voice broking, electronic broking and post-trade services Deliver superior EPS growth for investors – Deliver superior EPS growth for investors

Strategy

59% 52% 46%

– Seize opportunities created by regulatory reform – Leverage comparative advantage of “voice plus electronic” business model

2009 2010 2011

– Leverage investments made over 2007-2010 – Leverage group infrastructure – Focus on markets with structurally higher growth f d t l

2009 2010 2011

Voice Electronic Post Trade 16

fundamentals

ICAP’s diverse business mix C s d e se bus ess

• Rates: +10% Continued to benefit from bond

issuance coupled with growth in derivative ICAP group revenues by asset class issuance coupled with growth in derivative

• markets. Repo volumes remain strong.

Additional revenue from TriOptima and growing data sales

£1,605m £1,741m

• FX: +10% Improved electronic volumes and

continued increase in prime customers, Traiana and forwards growth Eq ities 17% Stagnant to decreasing

39% 40%

Rates

• Equities: -17% Stagnant to decreasing

market volumes in EU, Asia and commission pressure, reduced prop trading

• Emerging markets: +35% Continued growth

18% 18%

FX

Emerging markets: +35% Continued growth in Brazil for both revenues and market share. Latam and Asian NDF markets performed strongly as did Central European rates

9% 11% 10% 8%

Emerging markets Equities

• Credit: -9% Flat corporate bond volumes

compounded by narrowing spreads, NA CDS volumes lower, partially offset by TriOptima C diti +22% R d t di l

11% 12% 13% 11%

Commodities Credit markets

17

• Commodities: +22% Record trading volumes

in oils, benchmark highs in natural gas and coals, growth in electricity and shipping

2010 2011

Regulation is a big opportunity…

Theme Opportunity for ICAP

Regulation is a big opportunity…

Basel rules

• Increased focus on vanilla flow products suits ICAP business model
• Some SIFIs increase trading/risk appetite to provide shareholder returns
• New hybrid debt instruments needed for bank capital structure

El t i

t di i t ti b d l

Electronic Trading

• e-trading increases transaction numbers and volumes
• Chance to become the leading SEF/OTF operator for derivatives trading
• Prime broking of derivatives extends effective ICAP customer base

Post Trade

• Trading volumes increase with more transparent prices

Transparency

• New opportunities for tick data sales

Processing

• Multi-lateral processing significantly more onerous than bilateral
• More high frequency, electronic order flow and smaller ticket sizes

Cl i

O ti i ti f i b t l i h

Optimisation of margin between clearing houses

• Multi-lateral processing significantly more onerous than bilateral

Clearing

• Optimisation of margin between clearing houses
• Portfolio compression and risk mitigation opportunities at clearing houses
• Stronger bilateral clearing infrastructure

Repositories

• Trade repository operators needed for all asset classes; add-on services
• Optimisation of margin between clearing houses

p

p y p

• Instrument type databases need to be developed

Risk Mitigation

• Mandatory regular reconciliation by banks with customers
• Mandatory regular portfolio compression
• Multiple types of basis risk not yet addressed by ReSet ReMATCH
• Multiple types of basis risk not yet addressed by ReSet, ReMATCH

Governance

• Regulators raising the governance bar for our competition

18

Voice broking: executing on growth

• pportunities
• pportunities

Rates and FX

• Volatility remains high in European sovereign debt crisis
• Euro and cross currency swaps performed particularly well

44% of voice

wing wing Rates and FX

Euro and cross currency swaps performed particularly well

• High levels of government bond issuance

revenues

Commodities

• Record trading volumes in oil, while natural gas and coal reached new

benchmark highs

• Established strength in electricity oil natural gas emissions and coal

17% of voice

and grow and grow Commodities

• Established strength in electricity, oil, natural gas, emissions and coal
• Growth in softs and agricultural commodities, ethanol, uranium and base

metals revenues

Emerging

• Increase in volume and market share in rate business
• Key growth markets: Russia and Turkey

15% of voice

ablished ablished markets

Key growth markets: Russia and Turkey

• Strong performance in CDS

revenues

• ~80% increase in revenue

Esta Esta Brazil

80% increase in revenue

• Strong growth trajectory
• Largest independent broker

Investing for growth

LME

• Asia desk commenced trading in November 2010 and New York desk to

be launched soon

areas areas LME

be launched soon

• New futures mini contact launched on SGX in February 2011
• Option trading platform to be rolled out

Profitable 2010/11

Intellectual

• Growing pipeline of deals
• Over 100 lots in last auction

Profitable 2010/11

Newer Newer Property

• New products: “Covenant Not to Sue”

Profitable 2010/11 19

Developing post trade (1) Developing post trade (1)

Traiana – providing post trade solutions for over 10 years

FX prime brokerage automation Build the network: Harmony Add value with services From vendor to industry partner Move into

• ther FX

segments Move into new asset classes

15 P i R l i C di CLS i N PB FX E i /

• 15 Primes
• From manual to

electronic

• From T+1 to

same day

• Real-time post

trade network

• Dealer-to-dealer
• Dealer-to-client
• Platforms
• Credit
• Margin
• Retail

aggregation

• Real-time
• CLS aggregation

JV

• Cemented role

in FX markets, elevated brand

• Non-PB FX

segments

• STP, allocation,

confirmations

• Strategic alliance
• Equity swap/

CFDs

• ETDs
• Cash equities

y reconciliations

• Reporting

g with State Street

Harmony CLSAS

558 622 723 824

Average transactions per day (000s)

101 92 141 144 173

Average transactions per day (000s)

(Calendar quarters) 24 40 41 56 61 117 166 187 211 232 252 357 1 3 4 9 14 20 32 44 54 92

20

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010 2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2010 2011

Developing post trade (2)

TriOptima

• 36% growth in compression cycles and 177% growth

Developing post trade (2)

Reset

• Anticipation of higher inflation and speculation about
• 36% growth in compression cycles and 177% growth

in reconciliations

• Record compression volumes: $45.8trn in rates and

$8.5trn in credit p g p raising abnormally low interest rates led to the return of strong demand in final quarter

• Significant investment in technology upgrades over last

18 months now coming to fruition

• Realigned management along product verticals to fully

maximise the opportunity in front of us

• Increase sales focus of organisation to drive top line

expansion 18 months now coming to fruition

• Inflation swaps service launched in 2010
• New basis swaps service taken live in April 2011 – over

20 different banks participated in initial run

• Growth potential through expansion of triReduce and

triResolve and risk mitigation through automation of bilateral collateralisation for non-cleared OTC products

• Basis swaps is a key market for the expansion of Reset

– number of major liquid currencies – number of basis risks in each currency

• Launch of further new products anticipated shortly

p p y

ReMATCH

• The beachhead established in EM has been extended

into western European sovereigns and we are now ki i i th

Reset – FRA 3m USD equiv volumes (mthly ave)

making gains in many other areas

• 71 runs and $184bn in trades in 2010/11
• The product has been tested and proved its worth in

some of the most volatile credit markets we have seen

21

2007 2008 2009 2010 Q1 2011

Traditional electronic markets Traditional electronic markets

ICAP Electronic Volumes (ADV, $bn) Markets

300

Fixed Income:

• Maintained market leading position in electronic trading
• f UST US and EU repo products

EU Repo

250

• f UST, US and EU repo products
• Strong year-on-year volume growth in UST, US and EU

repo – including the launch of EU repo trading in Spain

• Further momentum in credit (CDS) in both investment

grade and high yield indices

($bn)

US Repo

150 200

• Significant growth of MyTreasury platform – fund

providers, investors and value of funds under management

Daily Volume

US Treasuries

100 150

FX:

• Steady year on year increase in volumes
• Significant growth in Commonwealth and EM

counterparty numbers and trading activity – records achieved in AUD CNH RUB and electronic LatAm and

Average D

Spot FX

50

achieved in AUD, CNH, RUB and electronic LatAm and Asian NDFs

• Launch and ongoing trading momentum in electronic

Fix Orders – five of the most actively traded FX market fixes are now available

22

• Phased launch of decimalised pricing including

decimals in the major currency pairs in March 2011

Illustration: Migration to e-trading Illustration: Migration to e trading

Breakdown of Annual IDB Commission Pool

Assume 50% Possible market

ILLUSTRATIVE

Electronic Total Market Voice $1.1bn

Oth

$9.5bn $8.4bn $8.4bn

Assume 50% E transition

$8.4bn

Possible market structure? GFI BGC Others GFI TLPR Dealerweb Other

50%

Voice

75%

Others

Tradition BGC ICE Reuters

89% 11%

e

Margin ~16%

25% 45% 35%

ICAP Others

ICAP ICAP TLPR

~45% ~25% 50%

Electronic

M i

45% 55%

ICAP?

ICAP share Revenue $2 1bn ICAP share Revenue $2 9bn

25%

Calendar 2010 c

Margin ~40%

55%

Others

Revenue $2.1bn Profit $0.3bn Revenue $2.9bn Profit $0.9bn

Conservative estimate of zero growth in market size Source: ICAP estimates

Excludes current E market

+$0.6bn

23

Electronic interest rate swaps (eIRS) Electronic interest rate swaps (eIRS)

• Successful launch of eIRS platform in

Electronic orderbook volume (€bn)

17% 16% 13% 20% 16% 26% 32%

September 2010 facilitates trading in euro interest rate swaps (1 – 30 year)

• The platform brings increased transparency

53 36 44 46 50 53 85 S 10 O t 10 N 10 D 10 J 11 F b 11 M 11

The platform brings increased transparency and greater efficiency to the world’s largest OTC derivatives market

Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11

• Unique pre-trade credit screening allows

electronic execution against firm prices

• 41 banks traded through the platform

Volume of trades executed electronically through eIRS system by month since launch with percentage of total trades on electronic order book

Users of electronic order book

39 41

41 banks traded through the platform

• Over €360bn volume transacted via electronic
• rder book to date – strong growth into 2011

22 26 30 35 35 39 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11

• Over 4,300 trades transacted via electronic
• rder book to date – over 20% of our euro

swap total

Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11

24

p

Total number of banks that have traded through the electronic order book since launch

eIRS market depth and quality eIRS market depth and quality

ICAP IRS customers Development of Market Maker bid-ask SwapClear vs non-SwapClear members p spreads* and quoting times**

80% 100

**Average

SwapClear members Non-SwapClear members

70% 90

• Nov = 100

%age of trading day with electronic quotes

e %age of trading da

members

66% 34%

% 60% 80

er spread indexed to ay each founding m

66%

40% 50% 60 70

verage market make

Indexed market maker spread

market maker provid

Total: 80 banks

30% 50 Nov Dec Jan Feb Mar

* Av

Indexed market maker spread

des streaming quote

Total: 80 banks

es

eIRS - trade analysis

2%

eIRS trade analysis

Trading composition IRS l tf f ilit t t t t di

35% 30% 11% 10% 9% 20% 2% Outrights Futures cross Basis

• eIRS platform facilitates strategy trading –

components include curve spreads, butterflies, futures crosses and basis

15% 43% 25% V i El t i Butterflies Spreads

• Technology enables instantaneous calculation
• f multi leg trades too complex for human

intevention – driving incremental business

To interims Breakdown of euro IRS trades performed by ICAP voice only compared to eIRS system Voice Electronic

Impact of streaming prices

• Almost 80% of eIRS trades are spread and

butterflies vs. 40% by voice

68% 86% 59% 85% 92% Since launch

• Multiple banks streaming prices in up to 85

different instruments

• 92% of implied chain trades through the eIRS

42% All trades E/E trades Implied chain trades Percentage of trades through the eIRS system that include at least one side generated from

92% of implied chain trades through the eIRS system generated by streaming prices with firm credit

Percentage of trades through the eIRS system that include at least one side generated from streaming prices

26

Electronic trading allows additional execution and leads to smaller trade size compared to voice business alone

Michael Spencer Group Chief Executive Officer

27

Summary

• 1. Regulation

A d i f h

Summary

– A driver for growth – ICAP is ready to grasp the opportunities created 2 Electronic IRS

• 2. Electronic IRS

– Unique platform functionality – Growth in electronic order book – Growth in users

• 3. Performance

V i b ki k t h i – Voice broking: market share gains – Electronic markets: continued growth in market share and product development p – Post trade: improved performance and new product innovation

• 4. Continued investment ensures ICAP remains at the forefront of the

i d t

28

industry

Investor Relations:

Alex Dee +44 (0) 20 7050 7123

alex.dee@icap.com

ICAP plc ICAP plc 2 Broadgate, London EC2M 7UR +44 (0) 20 7000 5000 +44 (0) 20 7000 5000 www.icap.com