Half Year Results

ICAP plc

2014 Half-Yearly Financial Report

Summary

* restated for changes in accounting standards. See note 1 to the financial statements.

**before acquisition and disposal costs and exceptional items.

Key points for the period

· Group revenue decreased by 9% on a constant currency basis (15% on a reported basis) to £620 million.

· 46% increase in TriOptima's revenue (on a constant currency basis) drove the 12% revenue growth (on a constant currency basis) to £108 million in the Post Trade Risk and Information division.

· £12 million investment in EBS Direct resulting in exceptional volume growth, with a daily volume high so far of $28 billion.

· The restructuring programme remains on-track to deliver annualised savings in excess of £60 million. Of this, £43 million will be realised in the current year's income statement, principally in the second half of the year.

· Electronic Markets and Post Trade Risk and Information generated 83% of the Group's trading operating profit in the period (69% for the year ended 31 March 2014).

· Group trading operating profit margin decreased by 5ppt to 16% and trading PBT was 38% down at £86 million, reflecting a combination of on-going investment in new businesses, weaker trading volumes and the adverse impact from FX movements.

· Trading EPS (basic) down 38% to 10.1p; EPS (basic) increased by 50% to 4.5p due to lower acquisition and disposal costs and exceptional items.

· Interim dividend payment to shareholders maintained at 6.60p per share (H1 2013/14 - 6.60p per share).

Michael Spencer, Group Chief Executive Officer, said: "Our first half results reflect a market environment that has remained relatively fragile; despite this, we are cautiously optimistic that we have started to see some welcome signs of activity and more positive sentiment returning in recent weeks. Having experienced multi-year lows over the past year, FX volatility recovered in September and continued into October with EBS recording its highest trading day in three years on 31 October with traded spot volume of $250 billion. Meanwhile, in October BrokerTec had record single day US Treasury volumes of $471 billion.

"We are already seeing some benefits of our restructuring programme, although the bulk of the cost savings from it will come through in the second half of the year. Our Global Broking business has been broadly reshaped to reflect the structural changes taking place in the market place. We continue to deliver both new and enhanced product and technology solutions which are now producing strong results: triResolve has nearly doubled its number of subscriber firms compared to a year ago and EBS Direct reached a new high of $28 billion per day in October.

We continue to see significant medium term opportunities for focused growth across a number of businesses. The investments we have made over many years mean our prospects as a markets operator and infrastructure provider are stronger than ever and give us a unique ability to meet customer and market demands."

Analysts and investors briefing

There will be a briefing for analysts and investors at 9:30am (GMT) on Wednesday 19 November 2014 at 2 Broadgate, London EC2M 7UR. A webcast of the presentation made to analysts will be available at www.icap.com

Contacts

About ICAP

ICAP is a leading markets operator and provider of post trade risk mitigation and information services. The Group matches buyers and sellers in the wholesale markets in interest rates, credit, commodities, FX, emerging markets and equity derivatives through electronic and voice networks. Through our post trade risk and information services ICAP helps its customers manage and mitigate risks in their portfolios. For more information go to www.icap.com

Interim Management Report

Review of operations

Revenue for the six months to 30 September 2014 was down 9% on a constant currency basis, 15% on a reported basis, to £620 million. On a constant currency basis, revenue in Post Trade Risk and Information was up 12%, which was offset by a 5% decrease in Electronic Markets and a 15% decrease in Global Broking.

During the period, the Group continued to experience challenging market conditions with the combination of low and stable interest rates and historically low levels of volatility in foreign exchange markets resulting in subdued trading volumes across Global Broking and EBS. By contrast, the comparative period to 30 September 2013 included heightened volatility as a result of the impact of the commencement of the Federal Reserve tapering debate and monetary policy in Japan. As a result, Global Broking revenue in the first six months were 15% lower on a constant currency basis, and 19% on a reported basis. Similarly, Electronic Markets revenue, because of weak EBS volumes, were down 5% on a constant currency basis and 13% on a reported basis.

September saw an increase in volatility, stimulated by the Scottish referendum and the ECB rate cut, which resulted in a stronger close to the period, a trend which has continued into October. As a result, EBS Market once again achieved average daily volumes (ADV) in excess of $100 billion/day and an all-time daily record of $471 billion in US Treasuries was recorded on BrokerTec.

Trading operating profit for the six months was £100 million, down 26% on a constant currency basis and 34% on a reported basis, reflecting a combination of weaker trading volumes and the on-going investment in new initiatives. During the period the Group invested £29 million (including £8 million capitalised; £7 million in the prior year) in new business lines including EBS Direct, ICAP SEF, triCalculate and Traiana Limithub, an increase of £10 million compared to the same period last year. These new businesses have started to make significant progress, with EBS Direct seeing volumes reach a single day high at $28 billion in late September. In addition, TriOptima grew triResolve clients to more than 1,250 from 670 a year ago and Traiana extended CreditLink services for buy-side firms trading on SEFs; successfully launched CCP Connect for Equities and expanded TR Connect to cover multiple reporting jurisdictions. Investment in these initiatives is expected to continue over the remainder of the financial year, albeit at a slower rate.

The Group has responded to the challenging market conditions in Global Broking by restructuring the business, redesigning compensation packages and retrenching from business lines which had limited growth potential.

Profit before tax was £86 million, down 38% on the prior year with a strong performance by the Group's associates and joint ventures offsetting the slightly higher finance costs as a result of refinancing the €300 million Eurobond ahead of its redemption in July.

Statutory profit before tax was £36 million, net of £22 million of exceptional costs related to the restructuring programme.

Restructuring programme

The cost saving programme initiated over the last three financial years has taken £165 million of cumulative annualised savings out of the business.

In May a new plan was announced, aimed at removing a further £100 million of annualised costs over the next two years, through a combination of business restructuring and compensation reductions making the operation of the business simpler, more efficient and automated.

While the scope of this review is companywide, given the scale of the Global Broking franchise and on-going investment in Electronic Markets and Post Trade and Information Services, the majority of the savings achieved in the last six months came from Global Broking and corporate infrastructure, where the Group is currently executing on a plan to save at least £60m of annualised costs, net of an estimated £20 million of revenue losses. Of the total expected savings, £6 million was recognised in the period and £37 million is expected in the next six months, giving a total of £43 million this financial year and the balance coming through in financial year 2016.

The new programme has been wide ranging and has resulted in a 13% reduction in broker headcount, with a net 261 brokers leaving the firm worldwide and the ratio of broker compensation to revenue being cut by 3ppt on an annualised basis. The benefit is largely cash and the reduction in broker payout ratios will reduce the Group's variable costs. For the financial year 2016, based on current business mix, it is expected that the ratio will be circa 53% - 54%, down from 56% in the current period and from 57% from the year-ended 31 March 2014.

In parallel the Group has been reviewing the way it operates, investing in technology to automate workflows, expanding the global business services divisions and simplifying the corporate and business structure. The Group has also reduced infrastructure headcount by 149.

The restructuring also focused on the growth potential for individual business units within the Group, and in total 21 desks were closed and Global Broking further reduced its presence in credit. This part of the programme will continue into the second half as discussions conclude on various peripheral geographies and businesses and the Group re-adjusts its property portfolio.

The cost of achieving these savings for the first half of the year was £22 million, which was recognised in the period as an exceptional item. The total restructuring cost is expected to be higher as the restructuring programme completes in the second half of the year.

Outlook

Over the course of the last two months, the Group has seen macro economic factors contribute to increased volatility in FX and medium term interest rate markets, which has in turn contributed to increased activity across the Group's FX and rates franchises. Management's expectations for the full year remain unchanged as it remains too early to predict whether current activity levels will persist. However, through the on-going programme of investment in the Electronic Markets and Post Trade Risk and Information Services businesses, the Group remains uniquely positioned to respond to its customer and market demands.

Electronic Markets

ICAP operates BrokerTec and EBS, the world's leading electronic trading platforms in fixed income and FX. These platforms offer efficient and effective trading solutions to more than 2,800 customers in over 50 countries across a range of instruments including spot FX, US Treasuries, European government bonds and EU and US repo. These electronic platforms are built on ICAP's bespoke networks connecting participants in financial markets.

Combined ADVs for the BrokerTec and EBS platforms for the six months ended 30 September 2014 were $710 billion, a decrease of 4% on the previous year reflecting historically low FX volatility in G3 currencies and a strong performance by BrokerTec in the prior year.

For the six months ended 30 September 2014, Electronic Markets revenue decreased by 5% on a constant currency basis and by 13% on a reported basis to £122 million (H1 2013/14 - £141 million). The overall trading operating profit margin declined by 5 percentage points to 34% as a result of lower revenue and increased investment in EBS Direct. The trading operating profit margin is expected to improve in the second half of the year as FX volumes recover from their cyclical lows and lower investment.

BrokerTec

BrokerTec is a leading global electronic platform for the trading of US Treasuries, European government bonds and EU and US repo. BrokerTec facilitates both automated and manual trading for institutions, banks and non-bank professional trading firms.

For the six months ended 30 September 2014, revenue was broadly flat on a constant currency basis and decreased by 10% on a reported basis to £62 million (H1 2013/14 - £69 million), with a stronger performance in EU Repo and European Government Bond markets offsetting a modest decline in US Treasury volumes, where despite continued speculation over the timing of a Federal Reserve rate increase, signs of a US recovery and a number of geopolitical events, volumes decreased by 3% to $156 billion following heightened activity in the comparative period. Market share on BrokerTec remains strong, as the platform remains the central source of liquidity. In October BrokerTec had a record single day of $471 billion in US Treasuries.

The repo market is pivotal to the effective functioning of almost all financial markets and provides an efficient source of collateralised money market funding. Activity in repo has remained subdued as regulations requiring banks in the US to hold higher amounts of capital to support their repo businesses are phased in resulting in a 2% decrease in US repo ADVs to $217 billion.

In Europe, the ECB move into negative interest rate territory back in June, coupled with increased capital requirements, has meant trading activity remains range bound. BrokerTec has benefitted from an improvement in market share as well as an increased interest in trading term repo electronically as participants look for more efficiencies and cost savings while satisfying increased regulatory oversight. The combination of these factors has resulted in a 2% increase in European repo ADVs to $254 billion.

European government bond volumes remained buoyant, with strong issuance and good secondary market turnover. Volatility in the shorter end of the curve, particularly in the periphery markets in the Eurozone, benefitted the platform. BrokerTec has implemented a series of initiatives to capture increased flow from primary dealers and continues to make gains across multiple markets. The addition of new customers is also helping to add new flow and interest in these periphery markets.

EBS

EBS, ICAP's electronic FX business, is a reliable and trusted source of orderly, executable and genuine liquidity across all major and emerging market currencies. It has responded to changing market dynamics through enhancements to EBS Market, the exchange-like central limit order book platform and the launch of EBS Direct, the disclosed liquidity platform.

Historically low FX volatility has resulted in a 22% decrease in ADVs on EBS to $82 billion during the period. As a result, revenue for the six months ended 30 September 2014 decreased by 7% on a constant currency basis and by 17% on a reported basis to £56 million (H1 2013/14 - £67 million). More recently, September was characterised by a significant increase in volatility and improved trading conditions across all regions which has continued into October.

EBS Market has maintained its position as the primary interbank venue for the trading of the world's most actively traded currency pairs including euro/dollar and dollar/yen. Consistent with the strategy to expand into new markets there was significant growth in EM currency pairs traded on the EBS Market platform. The dollar/offshore Chinese renminbi is now the fifth most actively traded currency pair on EBS Market and ADVs has grown by more than 200% during the period. Dollar/ruble volumes increased despite the recent tightening of sanctions in Russia.

Over the past year EBS Market has continued to invest in new product functionality and cost efficiencies. For example, EBS Iceberg Orders, which was launched in October 2013 and has been successfully adopted by the manual trading community, has allowed traders to minimise their market impact by displaying only a portion of their overall order.

EBS Direct, the disclosed liquidity service which was launched in November 2013, has demonstrated exceptional growth over the period. By October 2014, ADVs on EBS Direct increased to $19 billion ($11 billion in June) and subsequently reached a single day record of $28 billion. EBS Direct leverages EBS's extensive customer base, global networks and geographic reach. This scalable platform provides direct access to an enlarged customer base. Since its launch, adoption of the platform has exceeded expectations with over 17 liquidity providers and 268 liquidity consumers using the service (including 35 non-bank institutions). EBS Direct is providing ICAP with new incremental revenue opportunities, for example more than one third of the volume on EBS Direct was transacted in Commonwealth currencies. This has also supported an increase in Commonwealth activity on EBS Market.

EBS Direct is expected to remain in an investment phase over the next 12 months as additional functionality and services are added to the platform including aggregation, trade execution enhancements and the launch of FX Forwards (FX Swaps and Outright Forwards). In addition, EBS announced this week the launch of EBS Select, an anonymous, segmented, bilateral liquidity pool which will further enhance EBS's multi-product offering. Through the integration of MyTreasury, ICAP's electronic money market platform for corporate treasury investors, into EBS Direct, it will offer FX products to its existing customer base. During the period £12 million was invested in EBS Direct of which £3 million has been capitalised (H1 2013/14 - £9 million invested of which £4 million capitalised). During the second half, investment spend is expected to be at the same level as the prior year.

Post Trade Risk and Information

The Post Trade Risk and Information business operates the leading market infrastructure for post trade processing and risk management across asset classes and enables users of financial products to reduce operational and system-wide risks. The services offered by the Post Trade Risk and Information business enable customers to increase the efficiency of trading, clearing and settlement and facilitate the effective management of capital and associated cost.

The portfolio risk services businesses comprise Reset and TriOptima which identify, neutralise, reconcile and remove risk within portfolios of derivatives transactions; Traiana, which provides pre trade risk and post trade processing solutions; and the information and data sales business.

For the six months ended 30 September 2014, revenue increased by 12% on a constant currency basis and by 5% on a reported basis to £108 million (H1 2013/14 - £103 million) reflecting strong revenue growth in TriOptima. Trading operating profit marginally decreased to £42 million resulting in a 3 percentage point decrease in the trading operating profit margin to 39% as a result of increased investment in TriOptima and Traiana and reduction in revenue in EBS data and Reset.

Reset

Reset is the market leading provider of risk mitigation services that reduce the basis risk within portfolios from fixings in the interest rate, FX and inflation markets and also address structural imbalances within trading portfolios. Basis risk results from the structure of the instruments traded and a mismatch of exposure over time.

Reset's revenue is correlated to the movement in both actual and forecast short term interest rates which remain at a cyclical low. For the six months ended 30 September 2014, revenue increased by 7% on a constant currency basis and decreased by 5% on a reported basis to £20 million (H1 2013/14 - £21 million) as episodic interest rate volatility and flat short-term yield curves constrained activity levels during the period.

TriOptima

TriOptima, through triReduce and triResolve, is the market leader in risk termination and risk mitigation solutions for OTC derivatives, primarily through the elimination and reconciliation of outstanding transactions. TriOptima is well positioned to benefit from the new regulatory landscape as its products are strategically aligned with the G20 policy objective of reducing risk in the financial system.

For the six months ended 30 September 2014, revenue increased by 46% on a constant currency basis and by 38% on a reported basis to £29 million (H1 2013/14 - £21 million) driven by increased participation in triReduce portfolio compression cycles and the uptake of the portfolio reconciliation service, triResolve. During the period £4 million was invested in new product initiatives in TriOptima of which £2 million has been capitalised (H1 2013/14 - £2 million invested of which £1 million capitalised).

During the period triReduce terminated $61 trillion of gross notional outstanding (H1 2013/14 - $17 trillion). The more stringent leverage ratio included within the Basel III rules has increased the demand from banks for the triReduce compression service. Since its launch in 2003, triReduce has eliminated more than $510 trillion in total notional volume from the OTC derivatives market for more than 240 legal entities, including both bank and non-bank institutions.

triReduce continues to offer new services and in October eliminated $284 billion in gross notional outstanding in the first SwapClear compression cycle for cleared South African rand (ZAR) interest rate swaps. With the completion of the ZAR cycle, triReduce now offers multilateral compression cycles in 10 currencies for cleared swaps based on a sophisticated methodology which allows for the elimination of trades beyond simple end-date netting offered by some clearing houses. For non-cleared swaps triReduce covers 27 currencies. triReduce is working with multiple clearing houses to facilitate portfolio compression for cleared trades.

Strong demand for triResolve was driven by the introduction of the EMIR requirements for regular reconciliation of derivative portfolios. triResolve has benefitted from a significant increase in the number of customers using the service, increasing from 670 to more than 1,250 sell and buy-side firms over the past year that now participate in more than 283,000 party-to-party reconciliations each month.

triCalculate, the counterparty credit risk analytics service based on an innovative new methodology, is now in its pilot phase and is expected to go into commercial launch in the next calendar year.

Traiana

Traiana operates the leading market infrastructure for pre trade risk management and post trade processing across multiple asset classes. Its robust and proven product suite automates trade processing across the life cycle for FX, cash equities, equity swaps, futures, OTC derivatives and fixed income. Traiana's Harmony network connects more than 550 global banks, broker/dealers, buy side firms and trading platforms.

For the six months ended 30 September 2014, revenue increased by 8% on a constant currency basis and by 2% on a reported basis to £25 million (H1 2013/14 - £24 million). The increase is primarily attributable to subscription based revenue in products such as CreditLink and cross-asset regulatory reporting. As a result of low FX volatility, the Harmony platform saw a decline in the number of FX transactions processed.

While FX remains the largest revenue segment, Traiana continues to innovate, grow and diversify its business into other asset classes delivering networked based solutions for all financial market participants. There is particular investment in real-time credit management and allocation systems and the expansion of regulatory reporting into multiple jurisdictions. Regulatory approval was recently received from three separate regulatory bodies and three pan-European clearing houses for the launch of Equity CCP Connect, a clearing service which provides banks immediate expense and risk reduction through the netting and clearing of OTC Equity transactions.

Information Services

ICAP Information Services (IIS) delivers independent OTC data solutions to financial professionals creating the transparency that is essential for market participants. ICAP Indices, the index arm of IIS, develops and publishes a range of transaction-backed indices.

For the six months ended 30 September 2014, revenue decreased by 2% on a constant currency basis and by 8% on a reported basis to £34 million (H1 2013/14 - £37 million) as it was impacted by the reduction in EBS-related data sales arising from lower underlying volumes. Excluding EBS-related sales, IIS's revenue was flat on a constant currency basis and decreased by 5% on a reported basis.

The IIS product offering has been expanded to incorporate innovative services and advanced solutions. These include the recent launch of an ICAP Equity Derivatives product and continued expansion of ICAP's flagship Interest Rate Derivatives package.

Other Post Trade Risk and Information investments

ICAP's Post Trade Risk and Information business invests in new companies developing innovative technology-led offerings via Euclid Opportunities which is majority owned by ICAP. Investment has been made in Duco, an on-demand reconciliation provider; OpenGamma, a real-time market risk analytics provider, and Enso Financial, a provider of analytics and counterparty intelligence to fund managers. In October 2014, ICAP made a further investment into Enso Financial designed to assist the firm's expansion plans.

Global Broking

The Global Broking business is active in wholesale markets across all asset classes as shown below:

For the six months ended 30 September 2014, the trading performance of Global Broking was impacted by a combination of structural and cyclical factors. Historically low interest rates and FX volatility, flat yield curves, bank deleveraging and the impact of the introduction of the SEF in the US continued to limit trading activity. There was moderate improvement in activity in September and October primarily across FX and Rates.

Against the backdrop outlined above, revenue for the six months ended 30 September 2014 decreased by 15% on an constant currency basis and by 19% on a reported basis to £390 million (H1 2013/14 - £482 million), reflecting a year-on-year decline of 24% in the first quarter of the year followed by a 15% decline in the second quarter. In contrast, the revenue decline during the period was 6% on a constant currency basis when compared to the second half of 2013/14. The improvement seen in the second quarter commenced in late August and has continued into September.

Trading operating profit reduced by £36 million to £17 million resulting in a fall in the overall trading operating margin to 4%. This reflects the impact of fixed costs, a decline in trading activity in higher margin products and the investment in ICAP's SEF. The margin is expected to improve in the second half of the year as the benefits of the restructuring programme are realised. The cost base has been actively lowered across all business lines, primarily through the reduction of headcount, employee compensation and the streamlining of the product offerings. Restructuring of the Global Broking division remains on-track to deliver a more focused business and annualised savings in excess of £60 million.

Rates

The rates business comprises interest rate derivatives, government bonds, repos and financial futures. Rate products contribute the largest share of Global Broking's revenue (34%) of which interest rate derivatives represents the most significant component. Trading was restrained by the ongoing low interest rate environment, bank customer's reduced risk appetite and the impact of regulatory changes as customers become familiar with the new SEF environment resulting in a 23% decrease in revenue for the six months ended 30 September 2014.

Trading activity in interest rate derivatives in the US and Europe was muted over the first five months of the year, in part, due to uncertainty around the introduction of the new SEF regime. Volatility improved in late August and September, driven by central bank actions and the uncertainty created in the UK by the Scottish independence referendum. Off-the-run US treasuries were negatively impacted by the migration of voice broking to electronic platforms. As part of the restructuring project, ICAP assessed the ongoing viability of the global financial futures model and concluded that a streamlined, regionally focused offering was better suited to serving ICAP's customers on cost effective terms.

During the period in order to bridge the CFTC's SEF rules with the financial services regulation of the United Kingdom and European Economic Area, ICAP launched the first global SEF in order to mitigate the risk of liquidity fragmentation. This dually regulated entity, ICAP Global Derivatives Limited, allows market participants from all key jurisdictions to participate in the same global liquid pool for G3 rate products. The ICAP SEF saw additional growth in market share with material increases in activity in butterflies, switches and outrights and is now a leading hybrid platform in dollar rates using i-Swap technology. During the period, £8 million was invested in the SEF of which £2 million was capitalised (H1 2013/14 - £1 million, which was capitalised).

Commodities

The commodities business comprises energy (including electricity, crude oil, refined products, natural gas, coal, and alternative fuels), environmental markets, shipping, metals, agriculture and soft commodities.

For the six months ended 30 September 2014, revenue decreased by 17% reflecting a lack of volatility across the range of products and increased capital requirements resulting in a number of banks leaving or reducing exposure to this sector. The restructuring of the commodities business has led to 10 desk closures which generated total revenue of £3 million in the period.

Despite recent volatility in the price of oil, the collapse of the differential between European and US benchmarks has reduced wholesale trading volumes. Volatility in North American natural gas prices continues to be impacted by oversupply from fracking. The impact of natural gas displacing coal has resulted in lower and less volatile electricity prices consequently impacting trading volumes. In Europe, volatility in the electricity market has remained low as a consequence of milder temperatures and an excess of generation from renewable sources.

ICAP is in discussions with Howe Robinson Group Pte Ltd to combine their ship broking businesses to create a global business operating across multiple locations. The merged business is expected to be operational in the second calendar quarter of 2015.

Emerging Markets

ICAP is active in emerging markets across Asia Pacific, Latin America, Central and Eastern Europe and Africa. Emerging market revenue includes domestic activity in local markets and cross border activity in globally traded emerging market money and interest rate products.

For the six months ended 30 September 2014, revenue decreased by 20% (unchanged on constant currency basis from H2 2013/14) reflecting a weak performance across all regions. An increase in NDF volumes in Latin America as a result of the fallout from the Argentinean sovereign default was offset by low interest rate volatility and the World Cup in Brazil adversely impacted trading volumes. In addition revenue from non-deliverable products associated with Asian emerging markets decreased due to the migration of activity to EBS and geopolitical events. The liberalisation of renminbi as a settlement currency continues to drive growth in those related products.

Equities

The equities business principally comprises equity derivatives. For the six months ended 30 September 2014, revenue decreased by 16% (unchanged on constant currency basis from H2 2013/14) due to very low levels of market volatility as equities markets for the most part traded in very narrow ranges. Market share during the period remained stable.

FX and money markets

The FX and money markets business comprises spot, forwards and cash products. For the six months ended 30 September 2014, revenue decreased by 11% reflecting difficult market conditions as FX volumes in spot and forwards declined as a result of reduced exchange rate volatility, the low interest rate environment and bank internalisation of FX flows. This was compounded by a lower risk appetite and increased commission pressure.

Credit

The credit business comprises corporate bonds (representing approximately 90% of total credit revenue) and credit derivatives and contributes the smallest share of Global Broking's revenue (7%). The credit business is being restructured and product offerings have been streamlined. For the six months ended 30 September 2014, revenue decreased by 17%. The restructuring of the Credit business has led to 11 desk closures in the period.

Summary consolidated income statement

Trading PBT

Trading PBT for the six months ended 30 September 2014 decreased by 38% to £86 million reflecting a decrease in the trading operating profit across all segments and adverse FX movements.

Net finance expense for the period increased by £2 million on the prior year largely due to double running interest expense on the €350 million senior notes issued in March 2014 and the €300 million senior notes up to their maturity in July 2014. Going forward, the €350 million senior notes will provide £6 million annualised savings in interest expense. Net finance expense for the year ending 31 March 2015 is expected to be £32 million.

Profit from associates and joint ventures remained in line with the prior year. See note 1 to the financial statements for further details on the change in accounting method for joint ventures.

Tax

The Group manages its tax affairs in accordance with the tax strategy, the objectives of which were to deliver shareholder value by complying with tax obligations and being open and transparent with the relevant tax authorities.

The Group's trading effective tax rate ('ETR') for the six months to 30 September 2014 is 24% (year ended 31 March 2014 - 22%), based on the estimated full year trading ETR. The trading ETR of 24% compares to the UK statutory tax rate of 21%.

The increase in the Group ETR over the prior year primarily results from certain one-off adjustments in the prior year, offset by the reduction in the UK corporation tax rate. The effective tax rate continues to be driven by geographical mix of profits and changes in tax legislation. The full year trading ETR is expected to fall in the range 23% to 25%.

Trading EPS

Trading EPS (basic) declined by 38% to 10.1p reflecting a decrease in the trading profit for the period. EPS (basic) increased to 4.5p (30 September 2013 - 3.0p).

Dividend

Consistent with previous practice, ICAP's interim dividend per share has been calculated at 30% of the prior year's full year dividend. An interim dividend of 6.60p per share (H1 2013/14 - 6.60p per share) covering the six month period to 30 September 2014 will be paid on 6 February 2015 to shareholders on the register at 4 January 2015. The shares will be quoted ex-dividend from 8 January 2015.

Acquisition and disposal costs

In line with the prior period, the Group's acquisition and disposal costs of £28 million (£21 million net of tax) are primarily driven by the amortisation of intangibles arising on consolidation.

Exceptional items

The Group's policy is to disclose separately items in its income statement as exceptional which are non-recurring and material in both size and nature. For the six months to 30 September 2014, exceptional items before tax were £22 million (£15 million net of tax), relating to the Group's restructuring programme. The exceptional cost for the full year ending 31 March 2015 is expected to be higher as the restructuring programme completes in the second half of the year.

Free cash flow

ICAP is cash generative and it is expected that over the medium term free cash flow and post-tax trading profit will converge. Historically, the first half cash conversion has always been lower due to seasonality as short-term positive movements in working capital, which are primarily related to infrastructure, Electronic Markets and Post Trade Risk and Information bonuses in the preceding second half, reverse.

Trading free cash flow generated during the period was £14 million, a conversion rate of 22% (H1 2013/14: 12%) representing a shortfall of £51 million on the trading profit after tax for the period of £65 million. Free cash flow for the 12 months ended 30 September 2014 is 90% (30 September 2014: 112%) as the seasonality impact is eliminated.

In addition to historical phasing as noted above, the low conversion rate for the period is driven by short-term timing differences as movement in restricted funds and initially unsettled trades at the balance sheet date had an aggregate adverse impact on free cash flow of £30 million, reducing the conversion rate by 46 ppt.

During the period, net interest payment was £22 million, largely consistent with prior period payment of £21 million. The year-on-year decrease in the cash outflow relating to interest and tax is driven by a lower net tax payment in the period (H1 2014/15 - £8 million; H1 2013/14 - £42 million). The lower net tax payment reflected refunds received in the period relating to the prior year.

ICAP continues to invest heavily in new product initiatives across Electronic Markets and Post Trade Risk and Information, as represented by an investment of its cash flows from trading activities in capital expenditures in those divisions.

Balance sheet

The Group's net assets at 30 September 2014 were £929 million, £54 million lower than the 31 March 2014 position (£983 million) principally reflecting the payment of the 2013/14 final dividend of £99 million, which was partially offset by £29 million profit for the period, £9 million gain from retranslation of foreign currency net assets, driven by the strengthening of dollar against sterling during the period, and additional £7 million gain from other increases in equity.

Net debt

The Group's overall funding position remains strong given the maturity profile of its committed financings, the manageable level of gross debt and the committed undrawn headroom under its core credit facility.

Net debt at 30 September 2014 of £204 million has increased by £115 million on the 31 March 2014 position of £89 million. Gross debt of £620 million is 2.1 times (30 September 2013: 1.7 times) of Trading EBITDA for the twelve months ended 30 September 2014.

The increase in the net debt position resulted from usual seasonality of major cash flows including the dividend payment of £99 million in July 2014, cash payment of £26 million for exceptional items (which includes an £8 million payment on final settlement with the SEC relating to their investigation on Link Brokers Derivatives LLC). Trading free cash flow for the period of £14 million partially offset the adverse movement on the net debt position.

At 30 September 2014, the Group had committed undrawn headroom under its core credit facility of £411 million (31 March 2014 - £425 million; 30 September 2013 - £379 million). Short-term borrowings is comprised of $193 million (equivalent of £119 million) subordinated loan notes which mature in June 2015; the JPY 10 billion Japanese yen loan (equivalent to £56 million), which matures in March 2015 and £23 million overdrafts related to short-term timing differences on trade settlements. The Group will review its options in the public and private debt markets to consider the most appropriate refinancing of the US dollar and Japanese yen denominated short term borrowings.

As at 30 September 2014 the Group's long-term issuer default rating on senior debt remained unchanged from 31 March 2014 at BBB (stable) with Fitch and Baa2 (negative) with Moody's.

Regulatory capital

ICAP currently operates its business under an investment firm waiver which was granted by the FSA under the EU Capital Requirements Directive in 2011 and runs until April 2016. The waiver modifies the basis on which regulatory capital is calculated for the Group, and at 30 September ICAP had £0.8bn of headroom on this basis.

The effect of the waiver is to exclude goodwill and other intangibles from the calculation and, in so doing, allows the Group to undertake acquisitions using debt rather than equity finance. In the event that the waiver was not renewed in 2016, applying a consolidated approach to credit and market risks would give an incremental regulatory capital requirement of approximately £0.6 billion, which in line with recent precedent would most likely be eliminated through retained profits over time.

ICAP operates approximately 40 regulated subsidiaries globally. Each is locally capitalised and regulated. Together these entities hold £410 million of cash (including restricted funds) of which £345 million is held by the Global Broking businesses. Electronic Markets and Post Trade Risk and Information hold £53 million and £12 million respectively.

Risk

Details of Group's approach to risk management and its risk profile were set out on pages 42 to 49 of the Group's 2014 Annual Report. As of 30 September 2014, the directors have reviewed the Group's risk profile in the context of current market conditions and the outlook for the remaining six months of the financial year. In addition, they have reconsidered previous statements made on risk appetite, risk governance and internal controls and do not consider there to be any significant changes since the report.

The Group continues to consider strategic, operational and liquidity to be the principal risks to which it is exposed.

Risk outlook

ICAP is clearly subject to the changing financial market environment resulting from global regulatory reforms, challenges in the real economy and continued regulatory enforcements actions, including against many of the Group's largest bank customers. As this moving legislative background influences our clients, markets and operating approaches, it is clear that these changes play a part in the strategic direction of the Group.

Our overall risk profile remains fundamentally unchanged. ICAP retains its belief in the level of strategic risk to which the Group is exposed is materially unaltered and the Group continues to proactively look for strategic opportunities in these dynamic environments.

Directors' statement of responsibilities

The directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and that the interim management report and the condensed set of financial statements herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

· an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report.

Going concern basis

The financial statements are prepared on the going concern basis, as the directors are satisfied that the Group has the resources to continue in business for the foreseeable future. In making this assessment, the directors have considered a wide range of information relating to present and future conditions, including the Group's profitability, liquidity requirements, plans and financing arrangements.

Changes in directors

As announced on 30 September 2014, Iain Torrens, the Group Finance Director, will be leaving the Group. The search for his replacement is underway and an announcement will be made in due course.

A list of current directors is maintained on the ICAP plc website www.icap.com.

By order of the board

Consolidated income statement

The consolidated Financial Statements, including accompanying notes, were approved by the board on 19 November 2014 and were signed on its behalf by:

Notes to the Financial Statements

(a) Basis of preparation

The condensed consolidated financial statements for the half year to 30 September 2014 do not constitute statutory financial information as defined in section 434 of the Companies Act 2006. The condensed consolidated financial statements are unaudited but have been reviewed by the auditors, PricewaterhouseCoopers LLP, and their report is set out at the end of this document. The Annual Report for the year ended 31 March 2014 has been filed with the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated financial statements for the half year to 30 September 2014 have been prepared in accordance with the DTR4.2 of the FCA and with IAS34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB') and endorsed by the European Union (EU). These condensed consolidated Financial Statements should be read in conjunction with the Annual Report for the year ended 31 March 2014 which was prepared in accordance with IFRSs as issued by the IASB and endorsed by the EU at that date.

During the period, the Group adopted the following new accounting standards:

· IFRS10 Consolidated Financial Statements (replaced IAS 27 Consolidated and Separate Financial Statements),

· IFRS11 Joint Arrangements (replaced IAS 31 Joint Ventures),

· IFRS12 Disclosure of Interests in Other Entities,

· IAS27 Separate Financial Statements (replaced IAS 27 Consolidated and Separate Financial Statements); and

· IAS28 Investments in Associates and Joint Ventures (replaced IAS 28 Investments in Associates).

All other accounting policies in the preparation of the Half-yearly financial statements remained consistent with those applied in the preparation of the Annual Report for the year ended 31 March 2014.

The adoption of IFRS11 Joint Arrangements and IAS28 Investments in Associates and Joint ventures had a material effect on these consolidated financial statements as the Group's joint ventures are now accounted for using the equity accounting method under IAS28. Income statement and balance sheet line items for the prior year comparatives have been restated. The impact of the retrospective adoption on the profit after tax was for the six months ended 30 September 2014 was nil, but restated revenue and operating expenses for the six months ended 30 September 2013 were £10m and £7m lower, respectively. The balance sheet impact was immaterial.

The adoption of other standards had no material impact on the financial statements for the half year ended 30 September 2014.

The preparation of financial information requires the use of estimates and assumptions about future conditions. The use of available information and the application of judgement are inherent in the formation of estimates; actual results in the future may differ from those reported. The significant judgements and estimates applied by the Group in these consolidated Financial Statements have been applied on a basis consistent with the Annual Report for the year ended 31 March 2014.

Presentation of primary statements

The Group maintains a columnar format for the presentation of its consolidated income statement. The columnar format enables the Group to continue its practice of improving the understanding of its results by presenting trading profit for the period. This is the profit measure used to calculate trading EPS and is considered to be the most relevant as it better reflects the Group's underlying cash earnings.

Profit before acquisition and disposal costs and exceptional items are reconciled to profit before tax on the face of the consolidated income statement. On the face of the consolidated income statement basic and diluted EPS have been disclosed.

(b) Future accounting developments

At 30 September 2014, the following standards have been issued by the IASB which are not effective for these consolidated financial statements.

· In July 2014, IASB issued IFRS9 Financial Instruments, which will replace IAS39 Financial Instruments: Recognition and Measurement. The standard will be effective for annual periods beginning on or after 1 January 2018. ICAP will adopt IFRS9 for its financial statements for the year ended 31 March 2019.

· In May 2014, IASB issued IFRS15 Revenue from contracts with customers, which will replace IAS18 Revenue and IAS11 Construction Contracts and other related interpretations on revenue recognition. The standard will become effective for annual periods beginning on or after 1 January 2017. ICAP will adopt IFRS15 for its financial statements for the year ended 31 March 2018.

The basis of identifying segments and measuring segmental results is set out on page 107 of the ICAP plc Annual Report for the year ended 31 March 2014.

* Trading EBIT is the trading profit before deducting net finance cost and tax.

** Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation and depreciation charges. Segments' trading EBITDA best represents the cash generated from their ongoing operations.

*** Given the Group's debt financing arrangements are managed centrally through a treasury function, ICAP plc Board does not incorporate net finance cost in the assessment of the segments' performance.

**** Total capital expenditure for the Group includes £1m investment made to develop corporate intangible assets, which are not segment specific.

* Trading EBIT is the trading profit before deducting net finance cost and tax.

** Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation and depreciation charges. Segments' trading EBITDA best represents the cash generated from their ongoing operations.

*** Given the Group's debt financing arrangements are managed centrally through a treasury function, ICAP plc Board does not incorporate net finance cost in the assessment of the segments' performance.

**** Total capital expenditure for the Group includes £3m investment made to develop corporate intangible assets, which are not segment specific.

The table below shows the actual impact on the Group's results for the six months ended 30 September 2014 compared to the previous half year of the movement of the dollar and euro exchange rates in terms of transactional and translational exposure.

The principal exchange rates which affected the Group, expressed in currency per pound sterling, are shown below:

The table below shows the impact on the Group's half-year results of a 10 per cent appreciation, which the Group considers to be an appropriate sensitivity measure, in the dollar and euro in terms of transitional and transactional exposure.