31st May 2006 07:01
ICAP PLC31 May 2006 Preliminary Statement for the year ended 31 March 2006 London - 31 May 2006 ICAP plc (IAP.L), the world's largest interdealer broker, today announced itsaudited results for the year ended 31 March 2006. Highlights: Year ended Year ended 31 March 31 March 2006 2005(2) Increase £m £m % Revenue 919.2 812.7 13Administrative expenses(3) 736.4 651.0 13Profit(1) 204.3 176.7 16Profit before tax - statutory 193.0 166.8 16 EPS (basic) 19.6p 18.3pEPS (adjusted) 21.5p 19.4pDividend per share 10.0p 8.25p • Strong growth in profit and adjusted EPS • Overall Group revenue rose by 13% from £812.7 million to £919.2 million with electronic broking revenue increasing by 17% • The Group continues to exercise tight control over its cost base. Excluding broker bonuses, underlying cost growth (at constant exchange rates, excluding the impact of acquisitions) was restricted to 4% • The Group's operating profit3 margin remained constant at 21% reflecting the Group's continuing investment in people and technology, particularly the upgrade to the Group's electronic broking platforms. The Group's electronic broking operating profit margin now exceeds 30% for the first time • The Group remains highly cash generative with a strong balance sheet • The directors recommend a final dividend per ICAP share of 7.5p, which will be paid on 25 August 2006. The full-year dividend would be 10p per share, a rise of 21% on the previous year • The acquisition of EBS is expected to be completed by 5 June 2006 Michael Spencer, Group Chief Executive Officer, said "Both ICAP's electronic andvoice broking businesses have shown strong growth compared with the same periodlast year. We have controlled our costs well, whilst investing in the growth ofthe business. The outcome is a significant increase in profit. Looking ahead, our strategy remains the same. We will continue to extend furtherour electronic broking business into an increasing number of markets with highlyliquid, commoditised products and grow our voice broking business into morestructured products. Our immediate task is to complete the integration of EBS and to begin tocapitalise on the benefits the acquisition brings. We have experienced an activestart to the new financial year with good volumes in most of our products andmarkets. I am pleased to say the firm has never been in such good shape and withso many opportunities." (1) Profit is defined as pre-tax profit before amortisation and impairment of intangibles arising on consolidation and exceptional items. (2) At reported exchange rates and restated on an IFRS basis. (3) Excludes amortisation and impairment of intangibles arising on consolidation and exceptional items as a percentage of revenue. There will be briefing for analysts and shareholders at 09:30 am BST onWednesday 31 May 2006 at 2 Broadgate, London EC2M 7UR. An audiocast of thepresentation made to analysts at 09:30 am BST on Wednesday 31 May 2006 will beavailable on the web site, www.icap.com at 1:00 pm BST on Wednesday 31 May 2006.It will remain on the web site for six months. Contacts: Michael Spencer Group Chief Executive Officer (44) 20 7050 7400Mike Sheard Director of Corporate Affairs (44) 20 7050 7103Neil Bennett The Maitland Consultancy (44) 20 7379 5151 ICAP plc Preliminary Statement for the year ended 31 March 2006 Review of Operations The Group reported profit of £204.3 million before taxation, amortisation andimpairment of intangibles arising on consolidation and exceptional items; thisrepresents a 16% increase over the prior year. On a statutory basis profitbefore taxation was £193.0 million for the year ended 31 March 2006 (2005 -£166.8 million). We continue to believe that profit before taxation,amortisation and impairment of intangibles arising on consolidation andexceptional items better reflects the Group's underlying year-on-yearperformance. This measure is reconciled to profit before tax on the face of theconsolidated income statement. Business drivers ICAP is a growth business in a growing market. Many factors continue to supportthis growth including: • Macro-economic imbalances in currencies, interest rate and credit markets leading to continuing price volatility and the basis for further growth in interest rate and credit derivatives, FX, energy and listed futures markets;• The search for yield among global investors underpinning the growth in structured credit and equity products and reinforcing the attractions of efficient (electronic) execution;• Commoditisation of "flow" markets and the increasing focus on electronic trading and increasing commitment of capital to proprietary and algorithmic trading strategies by dealers and their customers;• Rapid growth in equity derivatives driven by rising stock markets and the search for yield;• Continuing liberalisation of emerging markets and the growth in onshore and local currency fixed income, derivatives and credit markets; and• Increasing regulatory and prudential pressure for best execution and price transparency, which favour electronic trading venues. Historically, the underlying interdealer broking (IDB) market has grown at ratesof 3-5% per annum. With the positive impact of the factors noted above as wellas the continuing very high levels of innovation and product developmentoccurring in the wholesale financial markets today, we believe that(notwithstanding commission compression) somewhat higher growth rates should beseen in the next 12-24 months. The principal areas in which we expect to see faster growth are FX, energy,credit derivatives, equity derivatives and financing, emerging markets andstructured products generally. In addition to the factors noted above, the growth of electronic broking in themore liquid and commoditised markets itself feeds additional growth through: • Driving lower transaction costs which increase trading volumes by encouraging the development of algorithmic and other highly price sensitive trading strategies;• Concentrating volumes among fewer, electronic venues;• Enabling lower post-trade transaction costs through automated confirmation and straight-through processing (STP), thereby increasing customer efficiency and attracting extra marginal volumes. Strategy ICAP's strategic goals remain constant and very clear: to be the leading globalintermediary in the wholesale OTC markets by a clear margin with at least a 35%share of overall market revenues and with 50% of our profit derived fromelectronic broking. As the more commoditised products migrate to electronicbroking we aim to develop the leading global franchise in structured and exoticproducts, energy, credit, equity derivatives and less liquid markets to ensureongoing growth of our voice business. We believe strongly that our voice brokingactivities have material room for further expansion. We have had a consistent strategy for several years which can be summarised as: • Providing customers with more efficient electronic trade execution, reduced integration costs, improved post-trade feeds and liquidity across a wide product range• Maintaining close long-term relationships with our customers• Developing the business through the combination of people and technology• Extending product and service innovation and• Growing our voice and electronic businesses, both organically and by selective acquisition ICAP operates as a global business in markets that are truly global. Our visionis to create the global exchange for OTC financial products and to build aglobal brand in wholesale financial services. We believe that we can bestprovide the service our customers need by combining the strengths of our peopletogether with technology - and that by doing so we set the standard for ourindustry. Acquisition of EBS A key component of the execution of our strategy is the milestone agreement wereached in April 2006 to acquire EBS for US$517 million and 36.1 million newICAP shares. EBS enjoys a leading global position in electronic spot foreignexchange with a very broad customer base, excellent technology and averagetransaction volumes of over US$145 billion per day. In addition, it has wellqualified and experienced management and staff which will benefit ICAP goingforward. The acquisition of EBS is expected to be completed by 5 June 2006. The acquisition of EBS will more than double ICAP's annual electronic brokingrevenue. In 2005, EBS's revenue was £114 million (up 10% on 2004) and operatingprofit before exceptional items and goodwill amortisation was £20 million. At 31December 2005, the gross assets of EBS were £128 million (net assets: £83million) including cash of £32 million. EBS has budgeted for revenue in 2006 toincrease by 10% to £132 million and operating profit to increase by 54% to £33million. During the first three months of 2006, EBS's operating profit wassignificantly ahead of budget. EBS's market is driven by continuing global macro-economic imbalances, theliberalisation of emerging markets and increasing proprietary risk taking atbanks. Its growth is helped by the expansion of prime broking and algorithmictrading engines and the growth of leveraged investors/hedge funds. Further expansion of the EBS platform is expected to come from the developmentof the algorithmic trading business. The addition to the platform ofnon-deliverable forward FX and the merger of EBS and ICAP's iForwards platformswill continue to move ICAP's forward FX business electronic. As a part of the integration of EBS we are reorganising our reporting structureso that ICAP's electronic broking operations will be integrated in a single,new, global electronic division. This division will be run by Jack Jeffery, CEOof EBS, and David Rutter, CEO of ICAP Electronic Broking North America, will bedeputy CEO. All technology resources of the combined group will be managed on anintegrated basis and report to Jay Spencer, ICAP Global Chief InformationOfficer. A dedicated project management office will oversee the process ofintegration, reporting to Steve McDermott, Executive Director, ICAP plc. We have demonstrated in our previous mergers and acquisitions that there aresignificant economies of scale available by effectively combining thosebusinesses. We expect that the combination of EBS with ICAP's electronic brokingbusinesses will generate annual cost synergies of at least £19 million which canbe achieved by 2008/09. These synergies include network infrastructure, IT andproperty costs. To achieve these synergies, ICAP expects to incur exceptionalcosts of £14 million in the first two years following the acquisition. Themargin from EBS's business, combined with the additional cost synergies, willincrease ICAP's overall margin. In parallel with the continuing development of our voice broking business andthe development of new markets, this acquisition takes us further towards ourgoal of offering comprehensive electronic execution and post-trade services forliquid, commoditised markets. It moves ICAP a step closer to offering fullmulti-asset electronic trading with liquidity in foreign exchange, cash bondsand repo, as well as derivatives in many currencies. In future we want toprovide the ability to cross trade spreads and products and take marketefficiency to a new level. We hope to make it possible soon to trade in a 10year government bond in a local currency and then, through a chain of otherlinked deals, produce a hedged transaction in an interest rate derivative in adifferent currency. Using technology to increase trading efficiency ICAP uses a number of different technology platforms to deliver electronicbroking to the different markets we serve. We continue to invest so that in thefuture 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 are migrating from some of our existingplatforms to newer, more efficient technologies. In addition, we are building asophisticated capability to provide access across these platforms so that we cansatisfy demands in the future from our customers for cross-market trading. The main benefits offered by electronic broking are lower costs, increased speedand ease of execution. However, the positive impact on a bank's costs is notonly limited to the execution of trades, but more importantly to the potentialcost savings in the middle and back office functions. The majority of the costsand inefficiencies in the OTC market usually occur post trade, wheretransactions need to be manually confirmed and input into the banks' systems forboth settlement of the trade and position management. For ICAP a fundamental business requirement is the integration of our networksand systems with those of our customers' post-trade systems. Establishing theselinks can be difficult and slow, involving the banks investing time and money tocomplete this integration, but once established they provide a significantcompetitive advantage. Electronic broking, together with post-trade feeds, provides STP which allowsthe trade to be confirmed, cleared (where the market has clearing) and settledupon the 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. Competitive landscape ICAP remains the global leader in our sector with an overall market shareestimated at between 28-29%, slightly higher than a year ago. In the voice broking markets, the major IDB firms continue to consolidate marketshare as banks seek to rationalise their broking relationships and achieveeconomies of scale. While this process of consolidation has already run a longway in certain products, it is still in the early stages in others (e.g equityderivatives, energy) and we therefore believe the trend will continue for sometime. The acquisition of EBS is a significant step forward in this process of marketconsolidation and will transform the electronic competitive landscape, more thandoubling ICAP's share of OTC electronic broking and widening product coverage. The customer footprint that the combined ICAP electronic broking and EBSnetworks will give us, together with the opportunities for functionalenhancement and delivery of additional products and services over that network,place ICAP in a strong position as the inevitable evolution towards electronictrading takes place. The derivatives exchanges have shown rapid volume growth, particularly in NorthAmerica, as they benefit from the uplift from taking their markets electronic.The launch of new futures or options contracts is a risky and oftendisappointing business. In contrast we have found that innovation in the OTCmarkets is much more frequent and has a much greater chance of success. Recentexamples include credit derivatives, emissions credits and inflation swaps. Liquid futures contracts are natural hedging tools in many of our markets andeach type of instrument helps the development of the other. As the exchangesseek to expand their businesses there is the potential for more competitionbetween the institutional or wholesale financial markets serviced by ICAP andthe exchanges which are open to a much wider variety of users. Geographic analysis ICAP's businesses are broadly distributed with 23 offices worldwide; with Europeand the Americas the two largest regions. The Americas The Americas were the most profitable region in 2005/06 an operating profit* of£103.9 million (2004/05 - £88.2 million) and revenue of £428.2 million resultingin an operating profit* margin of 24.3%. Voice broking, electronic broking andinformation sales were all significant contributors to the profitability of thisbusiness. Overall activity in securities was unchanged on the previous year asflat yield curves and tight credit spread subdued revenues and reduced overallprofitability in securities broking. In contrast, mortgage backed securities andcredit derivatives grew significantly. Increased activity in the energy markets,plus the acquisition of United Fuels, resulted in a significant improvement inrevenue and operating profit*. Our emerging markets business in Latin Americanproducts has expanded strongly this year and we are working to extend ouractivities further. Europe Revenue in Europe increased by 11% to £394.9 million, generating operatingprofit* of £85.3 million (2004/05 - £76.4 million). Most markets performed inline with the previous year. There was continuing growth in the creditderivatives market although demand for bonds in the credit markets wasdiscouraged by tight credit spreads. Overall there was more activity in thesterling markets. The emerging markets business had a good year, particularly ineastern European foreign exchange. In the energy markets we saw strong growthacross oil, electricity, coal and gas. Asia Pacific Following the turmoil last year when there were significant staff movementsbetween brokers as competitors attempted to establish themselves in the region,a very competitive environment has emerged. Operating profit* fell in the yearto 31 March 2006 to £7.1 million (2004/05 - £9.4 million) on revenue of £96.1million. During the year we strengthened the business with newly recruitedstaff. In Australia we acquired an interest rate swaps team by agreement with acompetitor. The team has proved to be very successful. Business performance ICAP segments its Group revenue and operating profit* into five divisions:electronic broking, derivatives and money broking, securities broking, energybroking and information services. Electronic broking ICAP's voice and electronic broking businesses operate as two strong parallelbusinesses. ICAP is the leading electronic interdealer broker in the fixedincome markets. By combining with EBS in foreign exchange, ICAP will be thelargest global electronic broker in liquid, commoditised OTC markets providingcustomers with the broadest product range, the widest electronic footprint andstrong post-trade support. There was a 17% increase in revenue in electronic broking to £98.3 million in2005/06. The operating profit* margin improved to 30% from 28% in the previousyear, despite the additional costs of running two platforms in parallel in thesecond half of the financial year as we migrate to our new electronic brokingplatform. This demonstrates the substantial operational leverage in thesebusinesses. Despite flatter and at times inverted yield curves, issuance to fund risingdeficits and the growth of "black-box" automated trading systems maintainedvolumes in the government bond markets. Overall average daily US Treasury volumewas $561 billion/day in the first quarter of 2006, virtually unchanged from thesame period in the previous year. Electronic volumes in the US Treasury productson the BrokerTec platform increased by 23% over the previous year, to averageUS$126 billion/day. We estimate that our average combined voice and electronicmarket share overall in US Treasury products continued to exceed 58% during thesame period. ICAP is also firmly established as market leader in the Europeanand US$ repo markets. Average electronic broking volumes in the last quarter of2005/06 had increased by 18% to reach US$211 billion/day in Europe. In the USrepo market overall volumes were down 7%, ICAP's electronic volumes were downjust 1% at US$180 billion/day. We continue to make some progress in accessing the Italian government bondmarkets following the agreement with Monte Titoli S.p.A. to give ICAP ElectronicBroking direct access to their systems for the clearing and settlement ofItalian government bonds and repo. We have recently gained access to both thecentral counterparties (Cassa di Compensazione e Garanzia and LCH-Clearnet). Tocomplete the process we are hopeful that the Dipartimento del Tesoro may revisethe current primary dealer assessment process and give equal weight to volumestraded on any platform. Investment in our technology platforms continues. Migrating the BrokerTecplatform to a new technology is underway and will incur additional costs in theshort term but will deliver lower costs and greater scalability in the longerterm. To prepare for the longer term potential of cross market trading we arecontinuing to invest in i-Connect which will interconnect several brokingplatforms and customer interfaces. ICAP's electronic broking footprint is already much more extensive than anyother broker and currently includes active and off-the-run US Treasuries, bills,notes, bonds, strips, TIPS and basis trading as well as agencies and mortgages;European, UK, Australian, Japanese and South African government bonds; US$ andeuro repurchase agreements; Eurobonds and credit derivatives; EONIAS and forwardforeign exchange. Electronic broking of credit default swaps and indices inLondon has established a good market position; customers have access to bondsand credit repo on the same display. In the Americas, mortgage backed securitieshas established liquidity and electronic volumes are growing. Credit defaultindices have recently been launched. On the other platforms: • i-Forwards - ICAP's electronic broking system for forward foreign exchange is now being used by 71 banks in Europe, the US and Asia • i-Swap - Since we launched electronic broking in euro interest rate swaps has been disappointing as our customers focus on automating their client facing systems. We believe that the banks will turn their attention to electronic broking in the interdealer market once their customer systems are completed. The lengthy process of installation and integration has 15 banks live for trading medium term euro interest rate swaps and a further four in process. For trading in euro overnight indexed swaps, 33 banks are live on the platform Derivatives and money broking Although yield curves flattened, interest rate markets have remained reasonablyactive and revenue has shown steady improvement. The Group's broad marketcoverage of the emerging markets meant that we benefited from increased flowsand volatility, particularly in Latin American derivatives and foreign exchange.As a result, ICAP's revenue in derivatives and money markets grew from £328.4million to £368.6 million, increasing operating profit* to £83.4 million (2004/05 - £75.7 million). Securities broking The overall effect of changes in market activity was increased revenue of £350.5million, up 8%, generating operating profit* of £54.0 million (2004/05 - £52.0million). Credit default derivatives continued to grow and the introduction oftrading in credit default indices spurred electronic broking in this market. In the past year we continued to broaden ICAP's futures business and are nowclearing members of Euronext, Liffe, Eurex, Chicago Mercantile Exchange, ChicagoBoard of Trade, NYMEX and the International Petroleum Exchange. An agencyclearing agreement allows ICAP to clear on all other principal exchanges. Theglobal clearing platform is based on the London hub and allows ICAP to offer ahighly competitive service globally. The execution business in London has beensimilarly expanded and integrated with new desks in New York and Sydney. ICAPnow offers its clients access to all electronic exchanges in the three timezones via a single platform. The OTC equity derivatives markets have grown significantly and we havebenefited from this increased activity. We believe that there are significantopportunities to grow further in this highly fragmented market. Energy broking Our energy businesses have experienced a substantial increase in activity,particularly in the oil markets and ICAP Energy's revenue rose to £75.9 millionfrom £50.9 million in 2004/05. Operating profit* rose by 101% to £15.1 million.In early October we completed the acquisition of the majority of the assets ofUnited Fuels International, Inc. and its Affiliates (United Fuels). United Fuelshas a strong presence in US oil, oil related markets, emissions and coal whichis a great addition to our core strength in US power and gas. It has continuedto be an excellent fit with ICAP's leading position in the energy markets inEurope and Asia particularly the London and Singapore based businesses in oiland refined products. For the second year running ICAP Energy was named Broker of the Year by EnergyRISK magazine in a poll of market participants. Information services ICAP produces a broad array of prices and information covering most OTCfinancial markets. As markets move to electronic broking there is increasedconcentration of market share and information from these markets becomes morevaluable. ICAP distributes its information mainly through professional datavendors including Reuters, Bloomberg, Telerate and Thomson. In the highlycompetitive environment among these data vendors, the market for financialinformation remains tight. However, several multi-year contracts with thesevendors have been agreed this year. Revenue increased slightly to £25.9 millionin 2005/06 and operating profit* was £14.2 million. Regulatory capital changes The Group has historically been subject to "Consolidated Supervision" by theFSA, under which it has been required to maintain consolidated regulatorycapital in excess of regulatory capital requirements. For this purpose,consolidated regulatory capital is computed net of intangible assets. Thepractical implication of this has been that, like many firms subject toConsolidated Supervision, ICAP has been required to fund all the goodwillarising on material acquisitions with equity. Based on undertakings given by the Group and the Group's low risk profile, theFSA has been able to grant ICAP a waiver from Consolidated Supervision, whicheffectively removes this requirement to deduct goodwill from consolidatedregulatory capital. However, the regulatory landscape is changing and thiswaiver will need to be reaffirmed in light of these new requirements. On 1 January 2007 the Group will become subject to the new Capital RequirementsDirective (CRD). Under the CRD, the circumstances in which a group may avoiddeducting goodwill from regulatory capital are more restrictively defined;nevertheless it will still be possible provided that such a group has noexposure to market risk in its activities. Following extensive discussions with the FSA, the Group believes that it will beable to meet the tougher tests in the CRD and continue to calculate itsconsolidated regulatory capital requirement on this more advantageous basis. This decision has very significant implications for the business strategy andfuture capital structure of the firm. Provided that the Group can continue tomeet the CRD's "zero market risk" test, a much higher proportion of current andfuture goodwill can be financed with senior debt rather than equity orsubordinated debt. Funding the acquisition of EBS To finance the acquisition of EBS the Group arranged an underwritten debtfacility from JP Morgan for up to £400m which provides, together with our owninternal cash resources, the funds required to close the deal. A combination of five year bullet term and revolving syndicated senior debtfacilities are being finalised to take out this underwritten facility andprovide term funding for the Group. These facilities total £300 million inaggregate, a level that reflects the take up of the equity alternative. Themargin, covenants, and other terms of these facilities reflect the competitivenature of the banking markets, the improving nature of the Group's credit andthe highly cash generative nature of our business. Accordingly, these newfacilities have also been used to refinance other, more expensive, workingcapital facilities. The new facilities will be repaid from the substantial cash flow generated bythe Group. Outlook We have witnessed an active start to the new financial year with good volumes inmost of our products and markets. The immediate task is to complete theintegration of EBS and to begin to capitalise on the benefits the acquisitionbrings. Looking ahead, we will continue to extend our electronic brokingbusiness into markets with highly liquid, commoditised products and to extendour voice broking business into more structured and other products. Activity in our markets is driven by the volatility generated from a broad rangeof influences, over which we have no control. We aim to achieve secular growthfrom increasing market share and expanding product coverage. Our operatingprofit margin growth depends on our cost control and our ability to extract thescale economies that make these businesses so sustainable. I am pleased to saythat the firm has never been in such good shape and with so many opportunities. Dividend Subject to shareholder approval, a 7.5p final dividend is proposed. Thiscompares with 6.4p in the prior year and would result in a full-year dividend of10p, which represents a 21% increase over the prior year. This is the sixthconsecutive year that we have been able to increase the dividend and reflectsthe underlying earnings performance in the year and the Group's currentfinancial position. The full-year dividend remains more than twice covered bythe profit before taxation, amortisation and impairment of intangibles arisingon consolidation and exceptional items. During the year the board implemented its earlier decision that future interimdividends will be calculated as 30% of the previous year's full-year dividend.This approach will continue in the 2006/07 financial year. * Operating profit before amortisation and impairment of intangibles arising onconsolidation and exceptional items. We continue to believe that this measurebetter reflects the Group's performance and it is reconciled to statutory groupoperating profit in the segmental analysis. 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 is electronic.The Group is active in the wholesale market for OTC derivatives, fixed incomesecurities, money market products, foreign exchange, energy, credit and equityderivatives. With over 3,000 staff, ICAP has a strong presence in each of thethree major financial markets, London, New York and Tokyo, together with a localpresence in 20 other financial centres. For more information go to www.icap.com Audited Consolidated Income Statement Year ended 31 March 2006 Year ended 31 March 2005 Before Before amortisation amortisation & impairment & impairment of Amortisation of Amortisation intangibles & impairment intangibles & impairment arising on of arising on of consolidation intangibles consolidation intangibles & exceptional arising on Exceptional & exceptional arising on Exceptional items consolidation items Total items consolidation items Total Note £m £m £m £m £m £m £m £m------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Revenue 2 919.2 - - 919.2 812.7 - - 812.7Administrativeexpenses (736.4) (10.7) - (747.1) (651.0) (0.7) (9.1) (660.8)Other income 13.5 - - 13.5 12.3 - - 12.3------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Operatingprofit 2 196.3 (10.7) - 185.6 174.0 (0.7) (9.1) 164.2Finance income 14.6 - - 14.6 6.9 - - 6.9Finance costs (9.8) - - (9.8) (2.3) - - (2.3)Share ofprofit/(loss)of associates(after tax) 3.2 (0.6) - 2.6 (1.9) (0.1) - (2.0)------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Profit beforetaxation 3 204.3 (11.3) - 193.0 176.7 (0.8) (9.1) 166.8Taxation 4 (72.2) - - (72.2) (58.4) - 1.2 (57.2)------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Profit for theyear 132.1 (11.3) - 120.8 118.3 (0.8) (7.9) 109.6------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Attributable to:Equity holdersof the parent 128.5 (11.3) - 117.2 116.2 (0.8) (7.9) 107.5Minorityinterests 3.6 - - 3.6 2.1 - - 2.1------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- ------- 132.1 (11.3) - 120.8 118.3 (0.8) (7.9) 109.6------------------- ----- ----------- ----------- --------- ------- ----------- --------- --------- -------Earnings perordinary share - basic 6 19.6p 18.3p - diluted 6 19.1p 17.5p Audited Consolidated Statement of Recognised Income and Expense Year ended Year ended 31 March 31 March 2006 2005 £m £m--------------------------------------------------------- ----------- -----------Revaluation of available for sale investments 13.5 -Net movement on cash flow hedges (4.2) -Actuarial gains/(losses) on post-retirementemployee benefits 0.2 (1.0)Exchange adjustments on net investments inoverseas subsidiaries 17.2 (7.2)Net current tax on items recognised in equity 4.4 -Net deferred tax on items recognised in equity (2.8) 0.4--------------------------------------------------------- ----------- -----------Income/(expense) recognised directly in equity 28.3 (7.8)Profit for the year 120.8 109.6--------------------------------------------------------- ----------- -----------Total recognised income for the year 149.1 101.8--------------------------------------------------------- ----------- -----------Total recognised income for the year attributable to:Equity holders of the parent 145.5 99.9Minority interests 3.6 1.9--------------------------------------------------------- ----------- ----------- 149.1 101.8--------------------------------------------------------- ----------- -----------Net adjustment as at 1 April 2005 as a result ofadoption of IAS32 and IAS39 --------------------------------------------------------- ----------- -----------Equity holders of the parent 6.1 ---------------------------------------------------------- ----------- ----------- Audited Consolidated Balance Sheet--------------------------------------------------------- ----------- ----------- As at As at 31 March 31 March 2006 2005 Note £m £m--------------------------------------------------- ------ ----------- -----------AssetsNon-current assetsIntangible assets arising on consolidation 276.7 256.5Intangible assets arising from developmentexpenditure* 16.5 15.7Property, plant and equipment* 50.2 51.5Investment in associates 33.1 8.9Deferred tax assets 33.7 42.9Trade and other receivables 4.0 4.4Available for sale investments 35.1 -Other investments - 7.5--------------------------------------------------- ------ ----------- ----------- 449.3 387.4--------------------------------------------------- ------ ----------- -----------Current assetsTrade and other receivables 10 144,354.7 680.6Available for sale investments 11.8 -Other investments - 16.2Cash and cash equivalents 339.9 231.3--------------------------------------------------- ------ ----------- ----------- 144,706.4 928.1--------------------------------------------------- ------ ----------- -----------Total assets 145,155.7 1,315.5--------------------------------------------------- ------ ----------- -----------LiabilitiesCurrent liabilitiesTrade and other payables 10 (144,325.9) (708.3)Short-term borrowings and overdrafts (0.1) (0.6)Short-term provisions (3.9) (7.5)Tax payable (51.8) (38.0)Obligations under finance leases (0.1) (0.7)--------------------------------------------------- ------ ----------- ----------- (144,381.8) (755.1)--------------------------------------------------- ------ ----------- -----------Non-current liabilitiesTrade and other payables (10.4) (11.1)Long-term borrowings (128.7) -Retirement benefit obligations (2.1) (2.7)Tax payable - (9.8)Deferred tax liabilities (9.2) (12.7)Long-term provisions (3.6) (3.8)Obligations under finance leases (0.1) (0.3)--------------------------------------------------- ------ ----------- ----------- (154.1) (40.4)--------------------------------------------------- ------ ----------- -----------Total liabilities (144,535.9) (795.5)--------------------------------------------------- ------ ----------- -----------Net assets 619.8 520.0--------------------------------------------------- ------ ----------- -----------EquityCapital and reservesCalled up share capital 13 60.8 60.6Contingent share capital 13 - 7.0Share premium account 13 217.4 215.2Other reserves 13 39.9 28.8Retained earnings 13 285.7 197.9--------------------------------------------------- ------ ----------- -----------Equity attributable to equity holders of theparent 603.8 509.5Minority interests - equity 13 16.0 10.5--------------------------------------------------- ------ ----------- -----------Total equity 619.8 520.0--------------------------------------------------- ------ ----------- ----------- * Reclassification of non-current assets (note 1) Audited Consolidated Cash Flow Statement Year ended Year ended 31 March 31 March 2006 2005 Note £m £m--------------------------------------------------- ------ ----------- -----------Cash flows from operating activities 11 95.6 133.0Cash flows from investing activitiesDividends received from associates 0.8 0.9Other equity dividends received 0.3 -Interest received from third parties 11.6 6.8Payments to acquire property, plant, andequipment* (13.0) (21.6)Intangible development expenditure* (6.6) (5.3)Receipts from sale of property, plant, andequipment 0.8 0.3Net payments to acquire financial assets held at fair value (7.0) -Net payments to acquire available for salefinancial investments (5.7) (5.2)Acquisition of interests in businesses net ofcash acquired (32.8) (16.0)Acquisition of associates (8.5) (5.1)--------------------------------------------------- ------ ----------- -----------Net cash flows from investing activities (60.1) (45.2)--------------------------------------------------- ------ ----------- -----------Cash flows from financing activitiesInterest element of finance lease payments - (0.1)Interest paid to third parties (7.2) (1.8)Dividends paid to minority interests (1.3) (2.1)Equity dividend paid (53.1) (45.0)Share capital purchased for cancellation - (17.3)Payments to acquire own shares (4.0) (3.8)Receipts from sale of own shares - 1.1Proceeds from issue of ordinary shares 2.4 0.8Capital element of finance lease payments (0.8) (1.5)Private placement funds received net of fees 124.8 ---------------------------------------------------- ------ ----------- -----------Net cash flows from financing activities 60.8 (69.7)--------------------------------------------------- ------ ----------- -----------Exchange adjustments 12.8 (4.7)Net increase in cash and cash equivalents 109.1 13.4Net cash and cash equivalents at beginning ofyear 230.7 217.3--------------------------------------------------- ------ ----------- -----------Net cash and cash equivalents at end of year 339.8 230.7--------------------------------------------------- ------ ----------- ----------- * Reclassification of non-current assets (note 1) 1 Basis of preparation and first time adoption of IFRS The Financial Statements for the year ended 31 March 2006 are the Group's first annual accounts to be prepared in accordance with International Financial Reporting Standards (IFRS). The date of transition to IFRS is deemed to be 1 April 2004 and the results for the year ended 31 March 2005 have been restated accordingly, except for changes relating to IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS39 "Financial Instruments: Recognition and Measurement" which have been adopted prospectively from 1 April 2005. The Financial Statements have been prepared in accordance with IFRS, IFRIC interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Financial Statements have also been prepared under the historical cost convention, as modified to include the fair value of certain financial instruments and in accordance with the IFRS adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. Under IFRS the Group will maintain the columnar format for the presentation of its consolidated income statement. This will enable the Group to continue its practice of improving the understanding of its results by presenting profit for the year before amortisation and impairment of intangibles arising on consolidation and exceptional items. This is the profit measure used in the adjusted EPS calculation and is considered to be the most appropriate as it better reflects the Group's underlying cash earnings. Profit before amortisation and impairment of intangibles arising on consolidation and exceptional items is reconciled to profit before taxation on the face of the income statement. Items which are of a material and non-recurring nature, such as disposals of items of property, plant and equipment, restructuring of activities and litigation settlements, have been disclosed separately to give a clearer presentation of the Group's results. These items are shown as 'exceptional items' on the face of the income statement. The Group has reclassified assets arising from development expenditure as intangible with effect from 1 April 2004. Previously such assets had been included within property, plant and equipment. The consolidated balance sheet for the year ended 31 March 2005 has been restated to present intangible assets arising from development expenditure separately from property, plant and equipment. As a consequence, intangible assets arising from development expenditure have increased by £15.7m, with property, plant and equipment decreasing by a corresponding amount. The amortisation of assets arising from development expenditure remains in the income statement within the column 'before amortisation and impairment of intangibles arising on consolidation and exceptional items'. There was no effect on the net assets of the Group or on the profit before taxation for the year ended 31 March 2005. Intangible assets arising on consolidation represent goodwill and other separately identifiable intangible assets on business combinations since 1 April 2004. The amortisation and any impairment is included in the income statement within the column 'amortisation and impairment of intangibles arising on consolidation'. 2 Segmental information In accordance with IAS14 "Segment Reporting" the Group has defined the primary segment as geographic as this is substantially the basis on which it manages its operations. (a) Analysis by geographic segment Year ended 31 March 2006 Americas Europe Asia Pacific Total £m £m £m £m------------------------------------------------------- ---------- --------- ---------- --------- Revenue 428.2 394.9 96.1 919.2------------------------------------------------------- ---------- --------- ---------- --------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 103.9 85.3 7.1 196.3 Amortisation and impairment of intangibles arising on consolidation (3.0) (6.7) (1.0) (10.7) Exceptional items - - - -------------------------------------------------------- ---------- --------- ---------- --------- Operating profit 100.9 78.6 6.1 185.6 Net finance income 3.8 0.6 0.4 4.8 Share of post-tax profit of associates - 1.7 0.9 2.6------------------------------------------------------- ---------- --------- ---------- --------- Profit before taxation 104.7 80.9 7.4 193.0------------------------------------------------------- ---------- --------- ---------- --------- Included in revenue is £24.7m in respect of joint ventures (Americas £11.0m, Europe £7.8m, Asia Pacific £5.9m). Included in operating profit is £6.3m in respect of joint ventures (Americas £3.2m, Europe £1.8m, Asia Pacific £1.3m). Year ended 31 March 2005 Americas Europe Asia Pacific Total £m £m £m £m------------------------------------------------------- ---------- --------- ---------- --------- Revenue 374.0 354.5 84.2 812.7------------------------------------------------------- ---------- --------- ---------- --------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 88.2 76.4 9.4 174.0 Amortisation and impairment of intangibles arising on consolidation (0.5) (0.2) - (0.7) Exceptional items 0.3 (7.0) (2.4) (9.1)------------------------------------------------------- ---------- --------- ---------- --------- Operating profit 88.0 69.2 7.0 164.2 Net finance income/(cost) 1.3 3.4 (0.1) 4.6 Share of post-tax profit/(loss) of associates - (2.7) 0.7 (2.0)------------------------------------------------------- ---------- --------- ---------- --------- Profit before taxation 89.3 69.9 7.6 166.8------------------------------------------------------- ---------- --------- ---------- --------- Included in revenue is £18.7m in respect of joint ventures (Americas £10.2m, Europe £5.8m, Asia Pacific £2.7m). Included in operating profit is £6.0m in respect of joint ventures (Americas £2.9m, Europe £1.6m, Asia Pacific £1.5m). (b) Analysis by business segment Year ended 31 March 2006 Derivatives Securities and money Energy Electronic Information broking broking broking broking services Total £m £m £m £m £m £m----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Revenue 350.5 368.6 75.9 98.3 25.9 919.2----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 54.0 83.4 15.1 29.6 14.2 196.3 Amortisation and impairment of intangibles arising on consolidation (1.9) (0.9) (0.7) (5.0) (2.2) (10.7)----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Operating profit 52.1 82.5 14.4 24.6 12.0 185.6----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Included in revenue is £24.7m in respect of joint ventures (securities broking £3.2m, derivatives and money broking £21.5m). Included in operating profit is £6.3m in respect of joint ventures (securities broking - loss of £0.1m, derivatives and money broking - profit of £6.4m). Year ended 31 March 2005 Derivatives Securities and money Energy Electronic Information broking broking broking broking services Total £m £m £m £m £m £m----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Revenue 324.6 328.4 50.9 83.8 25.0 812.7----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 52.0 75.7 7.5 23.7 15.1 174.0 Amortisation and impairment of intangibles arising on consolidation - (0.2) - - (0.5) (0.7) Exceptional items (2.2) (6.7) (0.3) 0.1 - (9.1)----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Operating profit 49.8 68.8 7.2 23.8 14.6 164.2----------------------------------------- ---------- ----------- --------- ---------- ----------- ------- Included in revenue is £18.7m in respect of joint ventures (securities broking £2.9m, derivatives and money broking £15.8m). Included in operating profit is £6.0m in respect of joint ventures (securities broking £0.1m, derivatives and money broking £5.9m). 3 Profit before taxation Year ended Year ended 31 March 31 March 2006 2005 Profit before taxation is stated after charging/(crediting): £m £m----------------------------------------------------------------------------- ---------- --------- Amortisation and impairment of intangible assets arising on consolidation - Subsidiaries 10.7 0.7 - Associates 0.6 0.1 Amortisation of intangible assets arising from development expenditure 6.3 6.6 Depreciation of property, plant and equipment - Owned assets 15.9 15.0 - Assets held under finance leases 0.1 0.1 Operating lease rentals - minimum lease payments 13.1 12.9 Exchange adjustments (1.0) 1.5----------------------------------------------------------------------------- ---------- --------- Auditors' remuneration - Statutory audit services 1.9 1.5 - Tax services 1.7 1.1 - Other non-audit services 0.3 0.2----------------------------------------------------------------------------- ---------- --------- 3.9 2.8----------------------------------------------------------------------------- ---------- --------- 4 Taxation Tax charged to the income statement in the year Year ended Year ended 31 March 31 March 2006 2005 £m £m----------------------------------------------------------------------------- ---------- --------- Current taxation UK Corporation Tax at 30.0% (2005 - 30.0%) - Current year 27.6 29.5 - Double tax relief (0.1) (5.7) - Adjustment to prior years (5.5) (2.7) Overseas taxation - Current year 47.4 41.1 - Adjustment to prior years (0.2) (2.9)----------------------------------------------------------------------------- ---------- --------- 69.2 59.3 Deferred taxation 3.0 (2.1)----------------------------------------------------------------------------- ---------- --------- 72.2 57.2----------------------------------------------------------------------------- ---------- --------- 5 Dividends Year ended Year ended 31 March 31 March 2006 2005 Amounts recognised as distributions to equity holders in the year: £m £m ----------------------------------------------------------------------------- ---------- --------- Final dividend for the year ended 31 March 2005 of 6.4p per ordinary share (2004 - 5.7p) 38.2 34.0 Interim dividend for the year ended 31 March 2006 of 2.5p per ordinary share (2005 - 1.85p) 14.9 11.0----------------------------------------------------------------------------- ---------- --------- 53.1 45.0----------------------------------------------------------------------------- ---------- --------- On 30 May 2006 the board proposed a final dividend of 7.5p per share for the year ended 31 March 2006. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end, the total amount payable would be £44.9m. 6 Earnings per ordinary share Basic earnings per share is calculated by dividing the profit for the year attributable to equity holders of the parent of £117.2m (2005 - £107.5m) by the weighted average number of ordinary shares in issue during the year of 597.5m shares (2005 - 586.9m). The weighted average number of ordinary shares in issue excludes the weighted average number of shares held by trusts relating to employee share schemes to which the participating employees are not unconditionally entitled, being 9.2m shares (2005 - 9.9m). Diluted earnings per share takes into account the dilutive effect of share options outstanding under the Company's employee share schemes and the dilutive effect of contingent share capital. Year ended 31 March 2006 Year ended 31 March 2005 Earnings Earnings Earnings Shares per share Earnings Shares per share £m millions pence £m millions pence--------------------------------------- -------- -------- --------- -------- -------- ---------- Basic 117.2 597.5 19.6 107.5 586.9 18.3 Dilutive effect of share options - 16.4 (0.5) - 13.8 (0.4) Dilutive effect of contingent share capital - 1.3 - - 13.1 (0.4)--------------------------------------- -------- -------- --------- -------- -------- ---------- Diluted 117.2 615.2 19.1 107.5 613.8 17.5--------------------------------------- -------- -------- --------- -------- -------- ---------- Adjusted earnings per share is based on earnings before amortisation and impairment of intangibles arising on consolidation and exceptional items (and their tax effects). Since post-acquisition profits are included in earnings, the adjusted weighted average number of shares takes into account the effect of contingent share capital. Year ended 31 March 2006 Year ended 31 March 2005 Earnings Earnings Earnings Shares per share Earnings Shares per share £m millions pence £m millions pence--------------------------------------- -------- -------- --------- -------- -------- ---------- Basic 117.2 597.5 19.6 107.5 586.9 18.3 Amortisation and impairment of intangibles arising on consolidation 11.3 - 1.9 0.8 - 0.1 Exceptional items - - - 9.1 - 1.6 Taxation on exceptional items - - - (1.2) - (0.2) Dilutive effect of contingent share capital - 1.3 - - 13.1 (0.4)--------------------------------------- -------- -------- --------- -------- -------- ---------- Adjusted 128.5 598.8 21.5 116.2 600.0 19.4--------------------------------------- -------- -------- --------- -------- -------- ---------- 7 Acquisitions (a) Subsidiaries United Fuels International, Inc and related companies (United Fuels) In October 2005, the Group acquired the operating assets of United Fuels, an energy and commodity broker based in the US, for cash consideration of $27.8m (£15.7m). Since the date of acquisition, United Fuels has contributed £6.5m to revenue and £1.0m to pre-tax profit before amortisation and impairment of intangibles arising on consolidation and exceptional items. Other acquisitions During the year the Group made other acquisitions totalling £12.2m. Other acquisitions contributed £9.7m to the Group's revenue and £1.1m to pre-tax profit before amortisation and impairment of intangibles arising on consolidation and exceptional items (b) Associates BSN Holdings Limited and subsidiaries (BSN) In November 2005, the Group acquired a 25.1% interest in BSN, a fund manager based in the Cayman Islands with operations in the UK and the US, for total consideration of $34.9m (£20.0m including costs). The intangible asset arising on consolidation represents the fair value of customer relationships, and is being amortised over five years. BSN has contributed £0.1m to Group pre-tax profits before amortisation of intangible assets arising on consolidation since the date of acquisition. 8 Contingent liabilities (a) In July 2003, it was announced that two of the Group's subsidiaries and the Company were among those being sued in connection with an alleged infringement of patent number 6,560,580 (580 Patent) in the USA. The Group rejected the claim. The jury trial commenced on 7 February 2005. Prior to the commencement of the trial, the claimants stated their damage claims against the defendants, including the Group, to be an amount of up to $104m as at 30 September 2004. On the first day of trial, the Court dismissed all of the monetary claims against the Group. The Court also dismissed all of the claims challenging use of the OM Click Exchange System for ICAP Electronic Broking LLC (formerly BrokerTec USA LLC) ("IEB"). The case then proceeded to trial on the limited issue of the claimants' request for injunctive relief as to the use of a second computer system, the ICAP Securities USA LLC (formerly Garban LLC) ("ICAP Securities") GTN and on the Group's counterclaim for judgment declaring that the ICAP Securities GTN did not infringe the 580 Patent. On 22 February 2005, the jury found that the application for the 580 Patent failed to provide an adequate written description in certain of the 580 Patent claims. In addition, the jury found that the ICAP Securities GTN infringed certain claims of the 580 Patent, but that the claimed infringement had not been wilful. On 4 April 2005, the claimants and the Group filed post-trial applications. On 12 December 2005, the Court ruled on the claimants' and the Group's applications pertaining to the jury's verdict and denied all applications, thus leaving the jury's verdict undisturbed. On 22 February 2006, the Court ruled on the Group's application pertaining to claimants' asserted inequitable conduct in the prosecution of the 580 Patent. The Court ruled in favour of the Group and declared that the 580 Patent was procured by inequitable conduct and as a result was unenforceable. A final order as to all matters decided by the jury and the Court was entered on 3 April 2006. On 27 April 2006 a claimant filed a Notice of Appeal seeking to appeal the jury's decision and the Court's ruling. At this stage it is not possible to predict the outcome with certainty or to determine the extent of liability, if any, of the Group following any appeal, but based on current available information and after consultation with the Group's lawyers, the directors continue to expect a successful outcome for the Group. No provision has been made in the Financial Statements for the year ended 31 March 2006. (b) ICAP plc has received correspondence from National Australia Bank (NAB) alleging that revaluation data, supplied by an individual within ICAP-Nittan Pte Limited (ICAP-Nittan), one of ICAP's Singapore subsidiaries and a member of the TFS-ICAP joint venture, helped mask trading losses in NAB's foreign exchange options business. On 27 January 2004 NAB announced that it incurred foreign exchange option trading losses of A$360 million (£158 million). Detailed reports following full investigations into these losses were published by PricewaterhouseCoopers (PwC) and the Australian Prudential Regulation Authority in March 2004 and indicated that NAB incurred these foreign exchange trading losses between April 2003 and January 2004. The PwC report includes descriptions of how certain NAB dealers concealed losses by processing false spot foreign exchange and false foreign exchange option transactions, booking one-sided internal foreign exchange option transactions and using incorrect dealing rates for genuine transactions. The reports analyse the cause of these trading losses, including the methods of concealment allegedly employed by the NAB dealers, repeated failures of NAB risk management, absence of NAB financial controls, gaps in NAB back office procedures, inadequate NAB corporate governance and NAB corporate cultural weaknesses. NAB accepted the findings of the PwC report on 28 April 2004. Neither ICAP-Nittan nor any other member of the ICAP Group or TFS-ICAP accept any responsibility for these NAB foreign exchange trading losses and intend to vigorously contest any claim which may be made against them in this matter. ICAP-Nittan has been informed that a similar allegation has been asserted by NAB against another inter-dealer broker, which is not a party to the TFS-ICAP joint venture, in respect of these foreign exchange options trading losses. It is not possible at this stage to predict the outcome with certainty nor to determine the extent of liability, if any, of ICAP plc or ICAP-Nittan. No provision has been made in the Financial Statements for the yeare ended 31 March 2006. 9 Exchange rates The principal exchange rates which affect the Group, expressed in currency per £1, are shown below: Closing rate Closing rate Average rate Average rate as at as at year ended year ended 31 March 2006 31 March 2005 31 March 2006 31 March 2005--------------------------------------------------- ------------- ------------- ------------- ------------- US dollar 1.73 1.89 1.79 1.85 Euro 1.43 1.45 1.46 1.47 Yen 204.66 202.11 202.05 197.91--------------------------------------------------- ------------- ------------- ------------- ------------- The Group is exposed to foreign exchange translational risk on consolidation of its overseas operations not denominated in sterling. During the year ended 31 March 2006, the US dollar appreciated by 8% with respect to sterling and the euro appreciated by 2%. In accordance with IAS21 "The Effects of Changes in Foreign Exchange Rates", the resulting translational exchange difference is included within the £17.2m exchange gain taken directly to reserves, as disclosed in the consolidated statement of recognised income and expense. 10 Matched principal transactions Certain Group companies are involved as principal in the purchase and simultaneous commitment to sell securities between third parties. Such trades are complete only when both sides of the deal are settled, and so the Group is exposed to risk in the event that one side of the transaction remains unsettled. Substantially all the transactions settle within a short period of time and the settlement risk is considered to be minimal. The Group has adopted IAS32 and IAS39 prospectively from 1 April 2005. Hence matched principal transactions as at 31 March 2005 are accounted for in accordance with UK GAAP. Under UK GAAP, the amounts due to and payable by counterparties in respect of matched principal business expected to settle in the normal course of trading are offset and the net amount is included in trade and other receivables. Only outstanding transactions which have gone beyond settlement date and where neither side of the transaction has settled are shown gross. The gross amount included in both trade and other receivables and trade and other payables is £509.9m as at 31 March 2005. Under IFRS, all amounts due to and payable by counterparties in respect of matched principal business are shown gross. The gross amount included as at 31 March 2006 in trade and other receivables is £142,730.8m, and in trade and other payables is £142,679.2m. Certain Group companies are involved in collaterised stock lending transactions as an intermediary between counterparties. Under UK GAAP, the net amount is included in trade and other payables (31 March 2005 - £0.3m). Under IFRS such amounts are shown gross with £1,409.2m included in trade and other receivables as at 31 March 2006 and £1,410.2m included in trade and other payables. 11 Cash flow Reconciliation of profit before taxation to net cash flow from operating activities Year ended Year ended 31 March 31 March 2006 2005 £m £m-------------------------------------------------------------------------------- ----------- --------- Profit before taxation 193.0 166.8 Operating exceptional items - 9.1 Share of operating (profits)/losses of associates after tax (3.2) 1.9 Amortisation and impairment of intangible assets arising on consolidation 11.3 0.8 Amortisation of intangible assets arising from development expenditure 6.3 6.6 Depreciation of property, plant and equipment 16.0 15.1 Other amortisation and impairments 0.2 0.4 Share-based payments 4.4 2.0 Profit on sale of property, plant and equipment - (0.1) Profit on sale of other investments - (0.9) Net finance income (4.8) (4.6) Taxation (61.7) (46.8) Increase in trade and other receivables (84.7) (30.2) Increase in trade and other payables 25.1 17.7 Operating exceptional items paid (6.3) (4.8)-------------------------------------------------------------------------------- ----------- --------- Net cash flow from operating activities 95.6 133.0-------------------------------------------------------------------------------- ----------- --------- 12 Post balance sheet events (a) EBS Group Limited (EBS) On 21 April 2006, the Group announced that it had agreed to acquire all of the share capital of EBS, a provider of foreign exchange trading and market data solutions to the professional spot foreign exchange community. The acquisition of EBS is expected to be completed by 5 June 2006. The consideration for 100% of the share capital of EBS is payable in cash with a partial share alternative. Following the announcement on 16 May 2006 that the EBS shareholders have elected to receive the maximum number of shares on offer, the consideration is US$517 million in cash and 36.1 million new ICAP shares. Based on the closing ICAP share price of 529 pence on 15 May 2006, the day before the release of the announcement, the aggregate consideration would be $876 million. The new ICAP shares issued as part of the transaction will be subject to lock-up arrangements for a period of six months. The cash consideration to be paid to EBS shareholders will be financed by a combination of ICAP's internal cash resources and debt. ICAP has an underwritten commitment for the total amount of required debt finance. (b) Electronic Traveller Limited Since the year end the Group has acquired the business of Electronic Traveller Limited (ETL), a company registered in the British Virgin Islands, for an initial cash consideration of £5.5m (US$9.7m). ETL is a provider of global electronic interest rate and currency derivatives brokerage services. The balance of the consideration payable in cash is dependant upon the performance of the company in the period from 3 April 2006 to 31 December 2008. The total consideration is capped at £100m. 13 Capital and reserves Statement of changes in shareholders' equity Contingent Share Share share premium Other Retained Minority capital capital account reserves earnings Total interests Total £m £m £m £m £m £m £m £m----------------------------- -------- ---------- --------- -------- --------- -------- ---------- ---------- As at 1 April 2004 57.8 108.1 143.7 28.0 159.7 497.3 10.7 508.0 Contingent share capital issued 3.4 (96.1) 70.9 - - (21.8) - (21.8) Other ordinary shares issued 0.2 - 0.6 - - 0.8 - 0.8 Ordinary shares cancelled (0.8) - - 0.8 (17.3) (17.3) - (17.3) Other movements in contingent share capital - (5.0) - - - (5.0) - (5.0) Increase in investment in own shares - - - - (2.7) (2.7) - (2.7) Profit for the year - - - - 107.5 107.5 2.1 109.6 Dividends paid in the year - - - - (45.0) (45.0) (2.1) (47.1) Share-based payments in the year - - - - 3.3 3.3 - 3.3 Actuarial losses on post-retirement employee benefits - - - - (1.0) (1.0) - (1.0) Exchange adjustments on net investments in overseas subsidiaries - - - - (7.0) (7.0) (0.2) (7.2) Deferred tax on items recognised in equity - - - - 0.4 0.4 - 0.4----------------------------- -------- ---------- --------- -------- --------- -------- ---------- ---------- As at 31 March 2005 60.6 7.0 215.2 28.8 197.9 509.5 10.5 520.0 Impact of adoption of IAS32 and IAS39 - (7.0) - 9.0 (2.9) (0.9) - (0.9)----------------------------- -------- ---------- --------- -------- --------- -------- ---------- ---------- As at 1 April 2005 60.6 - 215.2 37.8 195.0 508.6 10.5 519.1 Ordinary shares issued 0.2 - 2.2 - - 2.4 - 2.4 Increase in investment in own shares - - - - (4.0) (4.0) - (4.0) Profit for the year - - - - 117.2 117.2 3.6 120.8 Dividends paid in the year - - - - (53.1) (53.1) (1.3) (54.4) Share-based payments in the year - - - - 4.4 4.4 - 4.4 Revaluation of available for sale investments - - - 13.5 - 13.5 - 13.5 Net movements on cash flow hedges - - - (4.2) - (4.2) - (4.2) Actuarial gains on post-retirement employee benefits - - - - 0.2 0.2 - 0.2 Exchange adjustments on net investments in overseas subsidiaries - - - - 17.2 17.2 - 17.2 Net current tax on items recognised in equity - - - - 4.4 4.4 - 4.4 Net deferred tax on items recognised in equity - - - (7.2) 4.4 (2.8) - (2.8) Other movements in minority interests - - - - - - 3.2 3.2----------------------------- -------- ---------- --------- -------- --------- -------- ---------- ---------- As at 31 March 2006 60.8 - 217.4 39.9 285.7 603.8 16.0 619.8----------------------------- -------- ---------- --------- -------- --------- -------- ---------- ---------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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