24th May 2005 07:00
ICAP PLC24 May 2005 Preliminary Statement for the year ended 31 March 2005 ICAP plc, the world's largest voice and electronic interdealer broker, todayannounced Preliminary Results for the year ended 31 March 2005. Highlights: Year Year ended ended Variance 31/03/05 31/03/04 £m £m Reported1% Constant2% Group turnover 794.0 801.4 (1) 4Net operating expenses 624.7 641.1 3 (2)Pre tax profit3 178.9 170.2 5 8 EPS - adjusted3 19.5p 18.4p 6Dividends per share 8.25p 7.4p 11 • Profit before tax, goodwill amortisation and exceptional items, rose 5% to £178.9 million (2004: £170.2 million) • Group operating profit margin4 increased, for the fifth successive year, to 21% • Turnover in electronic broking rose to £83.8million (2004: £62.0 million) and profit5 rose to £23.9million (2004: £4.7million) • Adjusted earnings per share rose 6% to 19.5p (2004: 18.4p) • Statutory profit before tax was £131.7 million (2004: £130.5 million). Basic earnings per share were 14.1p (2004: 15.1p) • Cash inflow from operating activities before operating exceptional items was £179.7million (2004: £182.9 million). Shareholders' funds were £448.8 million (2004: £468.2 million) • The directors recommend a final dividend per ICAP share of 6.4p bringing the total dividend to 8.25p per share, a rise of 11% on the previous year Michael Spencer, Group Chief Executive, said: "Our performance in the past year has demonstrated the strength and resilienceof our business in the face of a very weak US dollar and slower markets in thesix months from May 2004. In the second half of the year and particularly sincethe beginning of 2005, we have seen the return of stronger growth in mostmarkets. Against this demanding background we achieved a most encouragingoutcome, delivering improved profit and margins, assisted by reductions in ourcost base. The performance of our electronic broking businesses continues to be outstandingwith rising volumes and increasing market share. In particular, BrokerTec hasexceeded all our early expectations since we acquired it in 2003. Looking ahead, our strategy remains unchanged; to grow both organically andthrough selective acquisition to take our share of the combined voice andelectronic market from an estimated 28% to exceed 35% over the next few years.While we cannot forecast the levels of activity in the financial markets, wewill continue to extend our voice and electronic businesses across these marketsand increase profit by leveraging the scale economies of our businesses." There will be an analyst's briefing at 9:30 am BST on Tuesday 24 May 2005 at 2Broadgate, London EC2M 7UR. An audiocast of the presentation made to analysts at9:30 am BST on 24 May 2005 will be available on the web site, www.icap.com at 1:00 pm BST on 24 May 2005. It will remain on the web site for six months. 24 May 2005 EnquiriesICAP plcMichael Spencer Group Chief Executive (44) 20 7050 7400Mike Sheard Director of Corporate Affairs (44) 20 7050 7103 The Maitland ConsultancyNeil Bennett (44) 20 7379 5151 About ICAP ICAP is the world's largest voice and electronic interdealer broker with a dailyaverage transaction volume in excess of $1 trillion, 50% of which iselectronic. The Group is active in the wholesale market for OTC derivatives,fixed income securities, money market products, foreign exchange, energy, creditand equity derivatives. Please go to www.icap.com for more information. Notes 1 Reported exchange rates2 Constant exchange rate variances are calculated by restating the year to 31/3/04 (the prior year) at the average exchange rate that prevailed for the year to 31/3/05 (the current year). Additionally, an adjustment is made to the relevant year to ensure that there is an equal time period of contribution from acquisitions in the current and prior years.3 Excludes goodwill amortisation and exceptional items.4 Group operating profit before goodwill amortisation and exceptional items, as a percentage of Group turnover.5 Profit is defined as profit before tax, goodwill amortisation, exceptional items, interest and share of operating profit of joint ventures and associates. ICAP plc Preliminary Results for the year ended 31 March 2005 Operating review Our performance in the past year has demonstrated the strength and resilience ofour business in the face of a very weak US dollar and slower markets in the sixmonths from May 2004. Overall market volumes were subdued by lower volatilityand issuance compared to the sustained growth that we have experienced inprevious years. In the second half of the year and particularly since thebeginning of 2005, we have seen the return of stronger growth in most markets.Against this demanding background we achieved a most encouraging outcome andICAP have delivered improved profit and margins, assisted by reductions in ourcost base. The Group's profit before tax, goodwill amortisation and exceptional items was£178.9 million for the year to 31 March 2005 compared with £170.2 million forthe previous year. The Group incurred £9.1 million of exceptional costsincluding £4.1 million of UK property and move related expenses and £5.0 million of various legal and employment related costs in the Asia Pacific region. Profitbefore tax on a statutory basis was £131.7 million, an increase of £1.2 million.Shareholders' funds at 31 March 2005 were down by £19.4 million to £448.8million, after taking account of the £17.3 million share buyback in 2004. The performance of ICAP's electronic broking businesses continues to beoutstanding with rising volumes and increasing market share. Furthermore,electronic broking offers huge economies of scale and our early expectations ofthe BrokerTec acquisition in 2003 has been exceeded. Business drivers ICAP is a growth business in a growth market. Historically, underlying marketrevenue growth has been between 3% and 5% and we believe that the long-termtrend will remain at these levels. The growth drivers in our markets include: •market volatility, including interest rate, FX, credit and commodities •increased commitment of risk capital to the interest rate, energy and FX markets by the hedge funds and banks •growth in bond issuance, driven by national deficit funding or capital raising by corporate and financial institutions •market share changes from industry consolidation •development of new markets e.g. Korea, China and Latin America •introduction of new products e.g. carbon emissions, coal and freight. In the more liquid and commoditised markets, electronic broking createsadditional growth opportunities through: •the efficiency of electronic broking increasing trading volumes and attracting business previously traded directly between banks •increased market concentration and higher barriers to entry resulting in fewer players with larger market shares •increased integration with the banks' client trading systems and "black box" automated trading systems. In the most recent survey of market turnover by the Bank of InternationalSettlements, covering the period between 2001 and 2004, there was continuedstrong growth in interest rate derivatives, products which make a significantcontribution to ICAP's profitability. During the three year period, interestrate swaps volume traded increased on average by 26% per annum and interest rateoptions by 150% per annum. Forward foreign exchange grew more slowly at 14% perannum but foreign exchange options increased significantly more quickly at 30%per annum. In the US Treasuries market in the three months to March 2005, according to theNew York Federal Reserve Board, volumes transacted by interdealer brokers grewby 13%. Volumes in many of the corporate bond markets fell as a result oftighter spreads against government bonds and reduced issuance. In Europe in2004, according to ISMA, Repo markets volumes transacted both voice andelectronically by interdealer brokers grew by 27%. Market position ICAP estimates that turnover in the combined voice and electronic globalinterdealer broker market for OTC derivatives, fixed income securities, moneymarket products, foreign exchange, energy, credit and equity derivativesincreased in 2004 by approximately 4%, after adjusting for the impact ofexchange rate movements and is worth approximately $5.1 billion at 2004/5exchange rates. Included in this total, the estimated market for electronicbroking grew by 14% to approximately $730 million. ICAP continues to be the global leader of the overall market with an estimated28% share and we believe that through both organic growth and selectiveacquisition we can take our share to exceed 35% over the next few years. Using technology to increase trading efficiency ICAP uses a number of different technology platforms to deliver electronicbroking to the different markets we serve. We are continuing to invest so thatin the future the majority of ICAP's services, apart from a few very illiquid orstructured products, are available electronically as well as through voicebrokers. To reduce support costs we will migrate from some of our existingplatforms to newer, more efficient technologies. In addition, we areimplementing a sophisticated capability to provide access across these platformsso that we can satisfy demands in the future from our customers for cross markettrading. The main benefits offered by electronic broking are lower cost, speed and easeof execution. However, the positive impact on bank costs is not limited to onlythe execution of trades, but more importantly to the potential cost savings inthe middle and back office functions. The majority of the costs andinefficiencies in the OTC market usually occur post trade, where transactionsneed to be manually confirmed and input into the banks' systems for bothsettlement of the trade and position management. Electronic broking, together with post trade feeds to providestraight-through-processing (STP) allows the trade to be confirmed, cleared(where the market has clearing),settled, and all the relevant information of thetrade fed through to the banks' position management systems automatically uponthe execution of the trade. Voice-brokered trades are also confirmedelectronically through the same process. This streamlined process reduces costssignificantly, but also enables many more trades to be executed and processedwithin a day, thereby increasing the velocity of trading in these markets. For ICAP a fundamental business requirement is the integration of our networksand systems with those of our customers' systems, in order to facilitate theintegration of applications for trading, market data, analytics and STP.Establishing these links can be difficult and slow, involving the banks ininvesting time and money to complete this integration.Strategy ICAP has had a consistent strategy for several years: the development of anintegrated voice and electronic interdealer broking business with strong marketpositions worldwide and the potential for further growth, whether organic or byacquisition. Our combination of voice and electronic broking brings clear benefits to both ofthese businesses. We have four years' valuable experience of managing theseactivities in parallel, controlling costs and motivating our staff. Thedevelopment of electronic broking platforms requires a long-term view with aflexible and rapid reaction to changes as the markets evolve and grow. Furtherinvestment has been made in the integration of ICAP's electronic broking systemswith the banks' internal systems which has created an invaluable e-brokingfranchise. ICAP's operations combine voice and electronic broking but we now consider ourcompetitors in two distinct groups: those who have traction in electronicbroking and the remainder who have only voice broking capabilities. ICAP hasdemonstrated its market leadership in both these sectors, which will develop atdifferent rates. The interdealer electronic broking market is estimated to havegrown, at constant exchange rates, by 14% in the past year compared with asteadier 3% growth from voice broking. The established electronic broking operations in many of the bond markets haveshown the importance of first mover advantage as well as volume growth andmarket share advantage successful platforms can achieve. Extending electronicbroking into new markets like European interest rate derivatives is a long-terminvestment. ICAP believes that the time has come for the euro interest rate swapmarket to go electronic and as customer demand grows ICAP wants to lead the way. ICAP believes that its customers' appetite for electronic transactions isaccelerating rapidly and in future the majority of ICAP's services, apart from afew very illiquid or structured products, will be available electronically aswell as through voice brokers. There will be an evolution of the voice broker'srole. More customer coverage; more cross selling; more value added; higherrevenue productivity. Geographic analysis ICAP's businesses are broadly distributed with 23 offices worldwide; with Europeand the Americas the two largest regions. The AmericasThe Americas were the most profitable region in 2004/5 with turnover of £363.8million generating profit* of £85.5 million (2004 - £71.0 million), and a marginof 24%. In addition to voice broking, electronic broking and information saleswere significant contributors to the profitability of this business. In USTreasury non- benchmark issues, our voice broking business has enjoyed its bestresults for the last 5 years, benefiting from co-mingling with BrokerTec'sbenchmark liquidity. We enjoy a majority share of the non-benchmarks market andoperate a combined voice and electronic business with 50% executedelectronically. There was reduced activity in corporate bonds and mortgagebacked securities which reduced overall profitability in securities broking.Increased activity in the energy markets resulted in improved turnover andprofit. Our business in Latin American products has expanded this year and weare working with our partners, the Mexican Bolsa, to extend our activitiesfurther. EuropeWe have benefited from having all our London-based businesses in one buildingfor the first time when we moved into Broadgate in May 2004. The Europeanmarkets had grown quickly in 2003/4 and a repeat of that growth was a tough actto follow. Turnover in Europe increased slightly to £348.7 million, generatingprofit* of £75.9 million (2004 - £81.9 million) reflecting in part the increasedcosts of the new building of £6 million. The medium term euro interest ratemarkets slowed for several months in 2004 but from mid December activity in themedium term markets returned. The final quarter of the financial year sawhealthy volume increases over the same period in 2003/4 accompanied by a usefuladvance in market share in the interdealer brokers market over the quartercompared with the same quarter in the previous year. For much of the year ouroperations in the credit markets for bonds and derivatives were quieter as newissuance slowed and tight credit spreads discouraged trading. In recent weekscredit spread volatility has increased and a return to tight spreads in theshort term seems unlikely. Asia PacificWe have made considerable progress in the Asia Pacific region during the pastseven years and profit* grew to £7.9 million (2004 - £7.4 million) on turnoverof £81.5 million. However the past six months has been marked by a greaternumber of staff movements in our industry, largely driven by a competitorattempting to establish itself in the region. This has had both positive andnegative effects on ICAP. We have strengthened the business with newly recruitedstaff and where we have lost staff we have made significant progress inreplacing them and integrating the new staff into our business. Recently, Bruce Collins joined ICAP as Chief Executive responsible for the AsiaPacific region. He was previously the Group Chief Executive Officer of TullettLiberty, now a part of Collins Stewart Tullett plc. The growing wholesalefinancial markets in the region, including potential markets in China, representa significant opportunity for ICAP and Bruce Collins brings a wealth ofexperience to help us make the most of that opportunity. Business performance ICAP segments its Group turnover and profit* into five divisions: electronicbroking, derivatives and money broking, securities broking, energy broking andinformation services. Electronic brokingThere was a 35% increase in turnover in electronic broking to £83.8 million in2004/5. The operating profit* margin improved to 29% from 8% in the previousyear, demonstrating the substantial operational leverage in these businesses.Volumes on ICAP's electronic broking platforms reached record levels of US$56trillion in the final quarter of our financial year to 31 March 2005, up 48% onthe same period in 2004. The electronic broking model provides a highly attractive financial leveragedynamic to the Group. Although commission rates per unit of sale aresignificantly lower under the electronic broking model compared to voice, thisis more than offset by the lower electronic broking cost base. In particular thelower electronic broking cost base has a higher fixed costs component thanvoice, thereby creating significant financial leverage opportunities. The Group's results demonstrate very clearly that practice has followed theory,with the Group's electronic broking operations increasing their market share inthe year and posting significant gains in turnover, profit and the profitmargin. ICAP's electronic broking footprint is much more extensive than any other brokerand currently includes active and off-the-run US Treasuries, Bills, Notes,Bonds, Strips, TIPS and Basis trading as well as Agencies and Mortgages;European, UK, Australian, Japanese and South African government bonds; US$ andeuro repurchase agreements; Eurobonds and credit derivatives; EONIAS and forwardforeign exchange. In the key US Treasury market, electronic volume increased by 59% over theprevious year to reach US$12 trillion for the final quarter of the financialyear. We estimate that our combined voice and electronic market share overall inUS Treasury products exceeded 60% for the quarter, a substantial increase from48% in the same period in 2004. ICAP is also firmly established as market leaderin the European and US$ Repo markets where electronic broking volumes in thefinal quarter grew significantly to reach US$21 trillion in Europe and US$22trillion in North America. We are constantly seeking new opportunities to extend electronic brokingalongside our voice broking business: • ICAP launched credit derivatives on the BrokerTec platform during November with a focus on single credits as well as indices. Upgraded functionality has recently been added to the system and the 17 banks which have the latest version deployed have reacted very positively. We also plan to offer single name credit derivatives together with corporate bonds on the same screens for transaction. • In September 2004 we launched in short dated interest rate swaps (EONIAS) and now have 21 banks installed on our i-Swap platform with 18 more in the pipeline. Our next move will be the extension of i-Swap euro maturity out to 50 years. We plan to do this in autumn 2005 which involves building a link into the London Clearing House's Swapclear facility to ultimately offer Swapclear members the ability to novate electronically executed trades straight through from i-Swap to the London Clearing House. With this functionality for longer dated interest rate swaps, credit issues would be minimized and could potentially release very rapid volume growth. • The i-Forwards platform is now installed with 24 banks in Europe and three in the US with installations beginning in Asia in June this year. The platform currently covers the main forward foreign exchange markets; Euro, Yen, Sterling, Australian, New Zealand and Canadian dollars and the Swiss franc. • Credit Repo was launched in conjunction with the voice broking desk in London in April 2005, and this has seen a positive start, with good support from the banks. Derivatives and money brokingICAP's turnover in derivatives and money markets grew from £309.2 million to£312.6 million, generating profit* which increased to £70.7 million (2004 -£68.5 million). Although medium term euro interest swap activity was lower, mostother interest rate derivatives markets were active. In particular, interestrate options in both the Americas and in Europe enjoyed a consistently busyyear. Given the turbulence in the foreign exchange markets, forward foreignexchange revenues responded with another year of growth. The non-deliverableforward FX market businesses benefited from broad market coverage and volatilityin the emerging markets. Securities brokingThe overall effect of changes in market activity and the weaker US dollar wasreduced turnover of £321.7 million, generating a profit* of £51.9 million (2004- £66.5 million). Rising interest rates depressed issuance in the corporate bondand mortgage markets, but emerging markets attracted increased activity.Overall, credit default derivatives continued to grow and the introduction oftrading in credit default indices spurred the electronic broking in this market.Issuance to fund rising deficits fuelled volumes in the government bond markets.Average daily US Treasury volumes grew to $567 billion in the first quarter of2005, 13% ahead of the previous quarter and 18% above the same period in theprevious year. In the past year we have broadened ICAP's futures business and become clearingmembers of Euronext.Liffe, Eurex, Chicago Mercantile Exchange, Chicago Board ofTrade and the International Petroleum Exchange. An agency clearing agreementallows ICAP to clear all other principal exchanges. The global clearing platformis based on the London hub allowing ICAP to offer a highly competitive service.The execution business has been similarly expanded and integrated with theestablishment of new desks in New York and Sydney added to London. ICAP nowoffers its clients access to all electronic exchanges in the three time zonesvia a single platform. Energy brokingThe electricity, gas and oil related products markets have been very active inthe past year with oil being the most visible, and the long-term growthpotential remains attractive. ICAP estimates that the global interdealer brokingmarket for energy products grew by 22% in 2004/5. The market is currentlyfragmented and is continuing to develop, which could lead to opportunities forconsolidation. ICAP Energy's turnover rose to £50.9 million from £41.4 million in 2003/4.Profit* rose by 46% to £7.6 million. Turnover in the North American electricitymarket grew significantly, where new clearing mechanisms have attracted newmarket entrants. In Europe, there has been an encouraging expansion inelectronic broking of energy products. ICAP Energy was named Broker of the Yearby Energy RISK magazine in a poll of market participants. In January ICAP established a joint-venture with J.E.Hyde to address the growingmarkets for Freight Forward and Shipping derivatives. This combines J.E.Hyde'slongstanding expertise in the shipping markets with ICAP's strengths incommodity and commodity derivative broking. In addition ICAP Energy beganbroking a new commodity, carbon emissions, under the European Union scheme whichlimits the carbon dioxide that companies in energy-intensive industries areallowed to emit. Information servicesICAP produces a wide array of prices and information covering most OTC financialmarkets. As markets move to electronic broking there is increased concentrationof market share and information from these markets becomes more valuable. ICAPdistributes its information mainly through professional data vendors includingReuters, Bloomberg, Telerate, Thomson and Telekurs. There is significant competition between these data vendors. As a result, themarket for financial information continues to be tight, which reduces potentialspending available for the purchase of financial information. Turnover increasedslightly to £25.0 million in 2004/5 and profit* was £15.2 million. In January ICAP acquired the outstanding shares in GovPX, Inc. GovPX is aleading provider of US fixed income and derivative information to in excess of1,000 client sites and over 8,000 subscribers. This information is distributedunder the GovPX, AgencyPX, RepoPX and SwapPX brands. GovPX is primarilydistributed as an optional service via the major market data vendors whichinclude Bloomberg, Reuters and Telerate and delivery direct to client sites. Inaddition, GovPX offers services to disseminate end of day and historical data. Cost management Given the slower business activity levels in the first half of the financialyear, special attention was focused on cost management throughout the Group'soperations. A cost review exercise was undertaken in July 2004 with the targetof eliminating at least £7 million of costs in the 2004/5 financial year. Thistarget was more than achieved and has enabled the Group to deliver a relativelymodest 2% increase in underlying costs (excluding broker bonus costs) in 2004/5compared to the prior year. This was after absorbing an increase in UK propertycosts following the move to new premises at Broadgate. Broker remuneration remains the largest component at an unchanged level of 51%of Group turnover. The variable component of broker remuneration cost, which islinked to turnover and profit growth, is 55% of total broker employment costsand this compares with 56% in the prior year. In overall terms, it is estimatedthat some 50% of the Group's cost base is of a variable nature. Recently there have been signs of increased competitive pressures in theinterdealer broker sector as evidenced by the attempts by some of the markets'participants in the Asia Pacific region to rationalise and rebuild their voicebroking businesses. This has potentially adverse implications for the Group'sAsia Pacific employment costs ratio and it is being monitored very closely.However, given that the region's employment costs represent only 5% of Groupturnover this in itself, should not have a material impact on the Group'soverall employment costs/turnover ratio. US Dollar subordinated debt private placement To optimise the flexibility of ICAP's capital structure for future developmentsthe Group is in the process of completing a US$225 million 10 year subordinated debt private placement. It is anticipated that funding will take place at the end of June 2005. The entire debt issue will qualify as Tier II Capital for regulatory purposes. This means that the Group, on completion of the transaction, will have substantially increased its headroom over its current FSA consolidated regulatory capital requirement in anticipation of any potential increase in regulatory capital requirement over the next few years as a consequence of the introduction of Basel II. The placement includes US$193 million of fixed rate debt and a US$32 million floating rate component.The fixed rate debt will be at a 5.84% coupon with a 10 year maturity. At thefifth anniversary, the fixed debt will reset to a floating rate with a 50 basispoint step up on the relevant floating rate. ICAP has an option to repay thefixed debt at five years, and the floating debt after two years. Dividend ICAP continues to be a highly cash generative business which has allowed us toinvest in the development of the business and has enabled the Group to maintaina progressive approach to the dividend paid to shareholders: the directorsrecommend a final dividend of 6.4p per share to be paid on 26 August 2005 toshareholders on the register on 29 July 2005 making a total dividend of 8.25pper share for the year. The Board has decided that, in the normal course of events, future interimdividends will be calculated at 30% of the previous year's full year dividend. Outlook Looking ahead our strategy remains unchanged; to grow both organically andthrough selective acquisition to take our share of the combined voice andelectronic market from an estimated 28% to exceed 35% over the next few years.We cannot control the direction or the levels of activity in the financialmarkets which are currently enjoying a reasonably volatile period driven by therecent corporate bond downgrades and doubts about the direction and scale ofinterest rate moves by the central banks. Our task is to extend our voice andelectronic businesses across these markets and increase profit* by leveragingthe scale economies of our businesses. •Profit is defined as profit before tax, goodwill amortisation, exceptional items, interest and share of operating profit of joint ventures and associates and is reconciled to statutory profit before interest and tax in the segmental analysis shown in note 2. Audited Consolidated Profit and Loss Account Year ended 31 March 2005 Year ended 31 March 2004 Before Before goodwill goodwill amortisation amortisation and Exceptional and Exceptional exceptional Goodwill items (note exceptional Goodwill items (note items amortisation 3) Total items amortisation 3) Total Note £m £m £m £m £m £m £m £m------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------ Turnover 2(a) 812.7 - - 812.7 819.3 - - 819.3includingshare of jointventuresLess share of (18.7) - - (18.7) (17.9) - - (17.9)jointventures'turnover------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Group turnover 794.0 - - 794.0 801.4 - - 801.4Net operating 4 (624.7) (37.5) (9.1) (671.3) (641.1) (38.4) (5.3) (684.8) expensesGroup operating 169.3 (37.5) (9.1) 122.7 160.3 (38.4) (5.3) 116.6profitShare of operating 5.0 (0.6) - 4.4 8.3 (0.4) - 7.9profit ofjoint venturesand associatesTotal operating 174.3 (38.1) (9.1) 127.1 168.6 (38.8) (5.3) 124.5profitNet profit on - - - - - - 4.4 4.4disposal oftangible fixedassets------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Profit before 2(b) 174.3 (38.1) (9.1) 127.1 168.6 (38.8) (0.9) 128.9interestNet interest 4.6 - - 4.6 1.6 - - 1.6receivable------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Profit on 178.9 (38.1) (9.1) 131.7 170.2 (38.8) (0.9) 130.5ordinaryactivitiesbefore taxationTaxation on 5 (59.8) 11.5 1.2 (47.1) (57.6) 12.0 2.8 (42.8)profit onordinaryactivities------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Profit on 119.1 (26.6) (7.9) 84.6 112.6 (26.8) 1.9 87.7ordinaryactivitiesafter taxationMinority (2.1) - - (2.1) (3.2) - - (3.2)interests -equity------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Profit for the 117.0 (26.6) (7.9) 82.5 109.4 (26.8) 1.9 84.5financial yearDividends 6 (50.8) - - (50.8) (44.9) - - (44.9)------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Retained 66.2 (26.6) (7.9) 31.7 64.5 (26.8) 1.9 39.6profit for thefinancial year------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------Earnings per10p ordinaryshare- basic 7 14.1 p 15.1 p- diluted 7 13.4 p 13.8 p- adjusted 7 19.5 p 18.4 p------------ ------ --------- ---- --------- -------- ------- ---- --------- ---- --------- ---- ------ ------ Audited Consolidated Balance Sheet As at As at 31 March 31 March 2005 2004 Note £m £m------------------------------ ------ ---------- ------------------Fixed assetsIntangible assets 218.6 269.0Tangible assets 66.2 64.7Investments- Investments in joint venturesShare of gross assets 12.1 9.3Share of gross liabilities (3.7) (3.4)Goodwill arising on acquisition 0.7 0.8------------------------------ ------ ---------- ------------------ 9.1 6.7- Investments in associates 8.5 6.6- Other investments 7.4 3.2------------------------------ ------ ---------- ------------------ 25.0 16.5------------------------------ ------ ---------- ------------------ 309.8 350.2Current assetsDebtors 719.2 521.0Investments 16.2 15.9Cash at bank and in hand 227.0 214.2------------------------------ ------ ---------- ------------------ 962.4 751.1Creditors: amounts falling due within one (782.7) (589.7) year------------------------------ ------ ---------- ------------------Net current assets 179.7 161.4------------------------------ ------ ---------- ------------------Total assets less current liabilities 489.5 511.6Creditors: amounts falling due after more (21.3) (21.5) than one yearProvisions for liabilities and charges (8.9) (11.2)------------------------------ ------ ---------- ------------------Net assets 459.3 478.9------------------------------ ------ ---------- ------------------Capital and reservesCalled up share capital 8 60.6 57.8Contingent share capital 8 7.0 108.1Share premium account 8 215.2 143.7Other reserves 8 28.8 28.0Profit and loss account 8 137.2 130.6------------------------------ ------ ---------- ------------------Shareholders' funds - equity 448.8 468.2Minority interests - equity 10.5 10.7------------------------------ ------ ---------- ------------------ 459.3 478.9------------------------------ ------ ---------- ------------------ Consolidated Statement of Total Recognised Gains and Losses Year ended Year ended 31 March 31 March 2005 2004 £m £m--------------------------------- ---------- ------------------Profit for the financial year 82.5 84.5Adjustments to reserves- Exchange adjustments on net investments inoverseas undertakings (7.1) (27.5)--------------------------------- ---------- ------------------Total recognised gains and losses for the year 75.4 57.0--------------------------------- ---------- ------------------ Reconciliation of Movements in Consolidated Shareholders' Funds Year ended Year ended 31 March 31 March 2005 2004 £m £m------------------------------ ---------- ------------------Profit for the financial year 82.5 84.5Dividends (50.8) (44.9)------------------------------ ---------- ------------------Retained profit for the financial year 31.7 39.6Other recognised gains and losses (7.1) (27.5)Movements in contingent share capital (26.8) 85.2Other ordinary shares issued 0.8 120.0Ordinary shares cancelled (17.3) -Increase in investment in own shares (0.7) (1.7)------------------------------ ---------- ------------------Net (decrease)/increase in shareholders'funds (19.4) 215.6Opening shareholders' funds 468.2 252.6------------------------------ ---------- ------------------Closing shareholders' funds 448.8 468.2------------------------------ ---------- ------------------ Consolidated Cash Flow Statement Year ended Year ended 31 March 31 March 2005 2004 Note £m £m------------------------------ ------ ---------- ------------------Cash inflow from operating activitiesBefore operating exceptional items 11(a) 179.7 182.9 Operating exceptional items paid (4.8) (5.6)------------------------------ ------ ---------- ------------------ 174.9 177.3Dividends received from joint venturesand associates 3.4 3.6 Returns on investments and servicing of financeInterest received from third parties 6.8 3.5Interest paid to third parties (1.8) (0.6)Interest element of finance lease rental payments (0.1) (0.2)Dividends paid to minority interests (2.1) (1.4)------------------------------ ------ ---------- ------------------ 2.8 1.3TaxationUK CorporationTax paid (20.6) (19.8)Overseas tax paid (23.6) (29.9)------------------------------ ------ ---------- ------------------ (44.2) (49.7)Capital expenditure and financial investmentPayments to acquire tangible fixed assets (26.6) (25.0)Receipts from sale of tangible fixed assets 0.3 0.8Insurance proceeds in respect of tangible fixed assets - 4.4Payments to acquire fixed asset investments (4.8) (0.5)Receipts from sale of fixed asset investments - 0.1------------------------------ ------ ---------- ------------------ (31.1) (20.2)Acquisitions and disposalsAcquisition of interests in businesses (18.4) (32.3)Acquisitions of associates and joint ventures (6.5) -Cash held by subsidiaries acquired 2.4 19.3------------------------------ ------ ---------- ------------------ (22.5) (13.0) Equity dividends paid (45.0) (35.7) Management of liquid resourcesPurchase of current asset investments (4.0) (0.2)Receipts from sale of current asset investments 3.6 ------------------------------- ------ ---------- ------------------ (0.4) (0.2)Financing Proceeds from issue of ordinary shares 0.8 2.4Ordinary shares repurchased (17.3) -Payments to acquire own shares (3.8) (3.4)Receipts from sale of own shares 1.1 -Capital element of finance lease rental payments (1.5) (1.3)------------------------------ ------ ---------- ------------------ (20.7) (2.3)------------------------------ ------ ---------- ------------------Increase in cash in the year 11(c) 17.2 61.1------------------------------ ------ ---------- ------------------ 1 Basis of Preparation The Financial Statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. The accounting policies are unchanged from those set out in the Annual Report of ICAP plc for the year ended 31 March 2004. The financial information set out in this document does not comprise the statutory accounts of the Group within the meaning of Section 230 of the Companies Act 1985, but has been extracted from the audited statutory accounts for the year ended 31 March 2005. The audited statutory accounts to 31 March 2005 have not yet been delivered to the Registrar of Companies, but the audit report was unqualified and did not contain a statement under Section 237 of the Companies Act. 2 Segmental information (a) Turnover Analysis by Year ended 31 March 2005 Year ended 31 March 2004 activity ------------ -------------------- --------------------- Continuing Joint Continuing Joint operations ventures Total operations ventures Total £m £m £m £m £m £m ------------ -------- -------- -------- --------- --------- ------- Securities 321.7 2.9 324.6 365.0 4.3 369.3 broking Derivatives 312.6 15.8 328.4 309.2 13.6 322.8 and money broking Energy 50.9 - 50.9 41.4 - 41.4 broking Electronic 83.8 - 83.8 62.0 - 62.0 broking Information 25.0 - 25.0 23.8 - 23.8 services ------------ -------- -------- -------- --------- --------- ------- 794.0 18.7 812.7 801.4 17.9 819.3 ------------ -------- -------- -------- --------- --------- ------- Analysis by geographic location ------------ -------- -------- -------- --------- --------- ------- Americas 363.8 10.2 374.0 371.7 12.1 383.8 Europe 348.7 5.8 354.5 345.1 5.2 350.3 Asia Pacific 81.5 2.7 84.2 84.6 0.6 85.2 ------------ -------- -------- -------- --------- --------- ------- 794.0 18.7 812.7 801.4 17.9 819.3 ------------ -------- -------- -------- --------- --------- ------- The geographic analysis presented above shows the turnover by origin. There is no material difference between the turnover by origin and turnover by destination. (b) Profit before interest Analysis by Year ended 31 March 2005 activity Continuing Joint operations ventures Total before and before goodwill associates goodwill Goodwill Total £m £m £m £m £m ------------ -------- -------- -------- --------- --------- ------- Securities 51.9 (0.9) 51.0 (11.0) 40.0 broking Derivatives 70.7 5.8 76.5 (6.2) 70.3 and money broking Energy 7.6 - 7.6 (2.8) 4.8 broking Electronic 23.9 0.1 24.0 (11.6) 12.4 broking Information 15.2 - 15.2 (6.5) 8.7 services ------------ -------- -------- -------- --------- --------- ------- 169.3 5.0 174.3 (38.1) 136.2 ------------ -------- -------- -------- --------- --------- ------- Exceptional (9.1) items (note 3) ------------ -------- -------- -------- --------- --------- ------- Total 127.1 ------------ -------- -------- -------- --------- --------- ------- Year ended 31 March 2004 Continuing Joint operations ventures Total before and before goodwill associates goodwill Goodwill Total £m £m £m £m £m ------------ -------- -------- -------- --------- --------- ------- Securities 66.5 0.7 67.2 (11.1) 56.1 broking Derivatives 68.5 7.0 75.5 (7.4) 68.1 and money broking Energy 5.2 - 5.2 (2.9) 2.3 broking Electronic 4.7 0.6 5.3 (11.6) (6.3) broking Information 15.4 - 15.4 (5.8) 9.6 services ------------ -------- -------- -------- --------- --------- ------- 160.3 8.3 168.6 (38.8) 129.8 ------------ -------- -------- -------- --------- --------- ------- Exceptional (0.9) items (note 3) ------------ -------- -------- -------- --------- --------- ------- Total 128.9 ------------ -------- -------- -------- --------- --------- ------- Analysis by Year ended 31 March 2005 geographic location Continuing Joint operations ventures Total before and before goodwill associates goodwill Goodwill Total £m £m £m £m £m ------------ -------- -------- -------- --------- --------- ------- Americas 85.5 2.9 88.4 (28.0) 60.4 Europe 75.9 (0.7) 75.2 (7.1) 68.1 Asia Pacific 7.9 2.8 10.7 (3.0) 7.7 ------------ -------- -------- -------- --------- --------- ------- 169.3 5.0 174.3 (38.1) 136.2 ------------ -------- -------- -------- --------- --------- ------- Exceptional (9.1) items (note 3) ------------ -------- -------- -------- --------- --------- ------- Total 127.1 ------------ -------- -------- -------- --------- --------- ------- Year ended 31 March 2004 Continuing Joint operations ventures Total before and before goodwill associates goodwill Goodwill Total £m £m £m £m £m ------------ -------- -------- -------- --------- --------- ------- Americas 71.0 3.7 74.7 (28.7) 46.0 Europe 81.9 2.8 84.7 (7.3) 77.4 Asia Pacific 7.4 1.8 9.2 (2.8) 6.4 ------------ -------- -------- -------- --------- --------- ------- 160.3 8.3 168.6 (38.8) 129.8 ------------ -------- -------- -------- --------- --------- ------- Exceptional (0.9) items (note 3) ------------ -------- -------- -------- --------- --------- ------- Total 128.9 ------------ -------- -------- -------- --------- --------- ------- 3 Exceptional items Year ended Year ended 31 March 31 March 2005 2004 £m £m --------------------------------------------- --------- ------- Operating exceptional items (a) Property and move related expenses (4.1) (2.4) Other operating exceptional items (5.0) (2.9) --------------------------------------------- --------- ------- (9.1) (5.3) --------------------------------------------- --------- ------- Non-operating exceptional items (b) Profit on disposal of tangible fixed assets - 4.4 --------------------------------------------- --------- ------- Exceptional items included in profit before interest (9.1) (0.9) Taxation (c) 1.2 2.8 --------------------------------------------- --------- ------- Total exceptional (losses)/profits (7.9) 1.9 --------------------------------------------- --------- ------- (a) Operating exceptional items Operating exceptional items recognised during the year ended 31 March 2005 were: - a loss of £4.1m in respect of UK property relocation costs (2004-£2.4m). - a loss of £5.0m for other operating exceptional items principally arising as a result of legal and employee related matters in the Far East, with legal costs being allocated to all companies involved in such litigation (2004 - loss of £2.9m in respect of acquisition related exceptional costs of £5.6m offset by a grant receivable in the US in relation to a prior year of £2.7m). (b) Non-operating exceptional items Non-operating exceptional items in the prior year of £4.4m represent the final receipt of material damage insurance proceeds in connection with the World Trade Center disaster. (c) Taxation A taxation credit of £1.2m (2004 - £2.8m) arose on the exceptional items for the year. 4 Net operating expenses Year ended Year ended 31 March 31 March 2005 2004 £m £m -------------------- --------- --------- Operating expenses before goodwill amortisation and 637.0 653.2 operating exceptional items Other operating income (12.3) (12.1) -------------------- --------- --------- 624.7 641.1 Goodwill 37.5 38.4 Operating exceptional items (note 3) 9.1 5.3 -------------------- --------- --------- Net operating expenses 671.3 684.8 -------------------- --------- --------- Other operating income for the year ended 31 March 2005 includes £9.7m (2004 - £7.7m) relating to a BEIP grant receivable in the US. 5 Taxation on profit on ordinary activities Year ended Year ended 31 March 31 March 2005 2004 £m £m -------------------- --------- --------- Current taxation UK Corporation Tax at 30.0% (2004 - 30.0%) - Current year 29.0 30.4 - Double tax relief (5.7) (4.9) - Adjustment to prior years (2.7) 0.6 Overseas taxation - Current year 39.1 25.6Related Shares:
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