21st Nov 2006 07:00
ICAP PLC21 November 2006 Interim Statement for the six months to 30 September 2006 London - 21 November 2006 ICAP plc (IAP.L), the world's largest interdealer broker, today announced itsresults for the six months ended 30 September 2006. Highlights: Six months to 30 Six months to 30 Increase September 2006 September 2005 £m £m % Revenue 542.8 443.9 22Operating expenses(1) 431.1 354.7 22Profit(2) 120.8 98.2 23Profit before taxation - statutory 104.1 95.4 9 EPS (basic) 9.6p 10.2pEPS (adjusted) 12.1p 10.6pDividend per share 3.0p 2.5p • Strong growth in revenue, profit and adjusted EPS • Overall revenue rose by 22% to £542.8 million with electronic revenue increasing by 75% to £86 million helped by the acquisition of EBS. • On an underlying basis(3) revenue and operating profit both grew by 11%. • The Group's operating profit(4) margin grew to 22% from 21% in the six month period. • The Group continues to invest in people and technology, particularly the upgrade to the Group's electronic broking platforms. • The Group remains highly cash generative with a strong balance sheet • An interim dividend per ICAP share of 3.0p will be paid on 23 February 2007. Michael Spencer, Group Chief Executive Officer, said "ICAP enjoyed anencouraging start to the financial year with particularly active markets in thefirst three months, notably during May. Overall activity levels during theseasonally slower summer months were better than the previous year and volumesin September maintained this trend. Underlying market growth in the interdealer market has been increasing and wehave benefited from that growth. We are focussed on developing our businesses inthe faster growing products in energy, transport, credit derivatives, equityderivatives, emerging markets and structured products generally. Market activityin the second half of the financial year has continued to be well ahead of thesame period in the previous year. The integration of EBS is making very good progress and the business isperforming well. The combination of the ICAP and EBS networks provides ICAP witha distinctive capability - a high-speed global network for distribution ofproducts that are increasingly traded around the clock. Almost all otherbusinesses, the interdealer brokers and the exchanges, lack this globalcapability. Consolidation in these markets continues and ICAP remains in a verystrong position." (1) Excludes amortisation and impairment of intangibles arising on consolidation and exceptional items. (2) Profit is defined as pre-taxation profit before amortisation and impairment of intangibles arising on consolidation and exceptional items (3) Adjusted to exclude the impact of foreign exchange and acquisitions. (4) Operating profit excluding amortisation and impairment of intangibles arising on consolidation and exceptional items. There will be a briefing for analysts and shareholders at 10:00 am GMT onTuesday 21 November 2006 at 2 Broadgate, London EC2M 7UR. An audiocast of thepresentation made to analysts at 10:00 am GMT on Tuesday 21 November 2006 willbe available on the web site, www.icap.com at 2:00 pm GMT on Tuesday 21 November2006. 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 Interim Statement for the six months ended 30 September 2006 Review of Operations The Group reported profit of £120.8 million before taxation, amortisation andimpairment of intangibles arising on consolidation and exceptional items; thisrepresents a 23% increase over the prior year. On a statutory basis profitbefore taxation was £104.1 million for six months ended 30 September 2006 (2005- £95.4 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 taxation on the face ofthe consolidated income statement. Regional Summary Europe £m Headline Growth Underlying GrowthRevenue 249.5 28% 19%Operating profit* 60.0 50% 33% Europe was the most profitable division in the first half. The region delivereda very good performance during the period with both voice and electronicrevenues growing rapidly. There has been strong growth in our interest ratederivative business although the rest of the rates products experienced tougherconditions with spreads remaining tight. Demand for corporate bonds remainedsubdued but credit derivatives continued to grow with a significant portiontraded electronically. Energy has produced another very strong performance withour freight derivatives joint venture developing rapidly. Structured equitieshas also performed particularly well. The Americas £m Headline Growth Underlying GrowthRevenue 224.2 10% 3%Operating profit* 50.8 1% (6)% Whilst revenue and profit increased on a headline basis, growth in underlyingrevenue was more subdued and there was a small decline in the profitability ofthe region in the period. Emerging markets, mainly driven by Latin Americanproducts, our energy business and structured products have performed very well.However, this has been offset by low activity in the repo market and brokeragecompression in the electronic US Treasuries market. The mix in profitability ofthese businesses has led to an underlying profit decline despite the overallrevenue increase. Asia Pacific £m Headline Growth Underlying GrowthRevenue 69.1 53% 17%Operating profit* 8.3 108% 29% Following last year's upheavals, the first six months of this year represent arebuilding phase. There has been strong revenue growth driven by Koreanproducts, encouraging emerging markets, equity derivatives and interest ratesand energy. ICAP acquired the remaining 45% of our Korean subsidiary in November2006. The market has become highly competitive and whilst staff turnover hasslowed, weaker competitors are still seeking to build their presence. Business Performance To give our investors a greater understanding of the growth drivers to theGroup's business ICAP has revised the segmentation of its business. Thedifferent voice broking segments have been combined into a single voice brokingdivision. The electronic and information divisions remain unchanged. Voice division £m Headline Growth Underlying GrowthRevenue 438.4 15% 13%Operating profit* 85.9 20% 19% The voice division has had a very strong first half. We have continued to seethe trend of robust growth in the more structured and complex products as ourclients leverage both their financial and intellectual capital to enhance yield.Emerging market products have grown in all centres as these markets develop andderivatives in both rates and currency evolve. By far the largest element of ourenergy business is oil related. In addition, other products such as freightderivatives have been an important contributor to growth. However there has been a continued low level of activity in interest ratesproducts such as government and corporate bonds. In addition there has been avery significant slow down in the volumes in the US repo market due tohistorically low levels of volatility. Electronic division £m Headline Growth Underlying GrowthRevenue 86.2 75% 1%Operating profit* 22.8 47% (14)% The most important event in the electronic division was the acquisition in Juneof EBS for $532 million in cash and 36.1 million shares. This significantlyincreased our foreign exchange revenues. The integration is going well with thebusiness performing in line with its pre-acquisition targets. As we announced inSeptember, further synergies have been identified resulting in an anticipatedtotal of $45million of annual cost savings by 2008/9. The costs of achievingthese synergies are anticipated to be in line with the $24million originallyannounced. As noted above, our US fixed income business has maintained its market share butthere has been significant brokerage compression in US Treasury products. Growthin other electronic products has continued, particularly in European repo andcredit derivative products. The temporary effect of double running costsassociated with the upgrading of our fixed income platform has affected margins.This position will improve in the second half as synergies relating to the EBSacquisition come through. Information division £m Headline Growth Underlying GrowthRevenue 18.2 42% -Operating profit* 10.4 42% - Revenue from the information division has grown strongly on the back of theacquisition of EBS. Changes in the revenue mix meant that on underlying basisrevenue and profit were marginally down on the previous year. In addition, in future ICAP will disclose revenue by product group. These areInterest Rates, Credit, Equity, Foreign Exchange, Energy, Emerging Markets andInformation. These groups are aligned with the way our customers group theirbusiness and as a result ICAP is able to explain the drivers of performance moreclearly. The revenues and proportion of ICAP's revenues for these segments areset out below: Revenue Proportion £m of ICAP revenues Interest Rates 232.6 43%Credit 60.2 11%Foreign Exchange 68.7 13%Energy 46.0 9%Equities 61.1 11%Emerging Markets 56.0 10%Information 18.2 3% ======== ======== 542.8 100% ======== ======== Balance sheet and cash flow The Group has again demonstrated its strong cash flow characteristics. Cashgenerated by operations has grown to £118.8 million (2005: £71.4 million). Aftertaxation and interest payments, cash flow from operating activities grew to£66.2 million from £50.8 million in the comparable period. This was despite anincrease in cash taxation paid of over £28 million, mainly relating to a changein the timing of US taxation payments within the year. Following the acquisition of EBS the group has net borrowings of £70 million.Absent acquisitions, we expect to be in a broadly cash neutral position by March2007. Our balance sheet remains strong by industry standards. Regulatory capital changes In January 2007 the Group will become subject to the new Capital RequirementsDirective. Earlier this month ICAP submitted to the FSA its application for awaiver from consolidated supervision under the Directive. We have worked closelywith the FSA to understand their requirements. Following extensive discussionswith the FSA, the Group expects to receive a waiver to the consolidatedsupervision requirements. Should the waiver be granted then ICAP would not berequired to deduct goodwill arising on consolidation from the calculation of itsFinancial Resources. Dividend In May 2005 ICAP announced that in the normal course of events, interimdividends will be calculated at 30% of the previous year's full year dividend.As a result, an interim dividend of 3.0 pence per share (2005: 2.5 pence)covering the six-month period to 30 September 2006 will be paid on 23 February2007 to shareholders on the register on 26 January 2007. Outlook In a low yield environment we expect banks and hedge funds to increase theircommitment of capital to structured products. We expect our markets to continueto be active, assisted by growth in credit products particularly structuredcredit, continuing growth in algorithmic trading and the growth of commoditiesas an asset class. Underlying market growth in the interdealer market has been increasing and wehave benefited from that growth. We are focussed on developing our businesses inthe faster growing products in energy, transport, credit derivatives, equityderivatives, emerging markets and structured products generally. The integration of EBS is making very good progress and the business isperforming well. The combination of the ICAP and EBS networks provides ICAP witha distinctive capability - a high-speed global network for distribution ofproducts that are increasingly traded around the clock. Almost all otherbusinesses, the interdealer brokers and the exchanges, lack this globalcapability. Consolidation in these markets continues and ICAP remains in a verystrong position. Market activity in the second half of the financial year has continued to bewell ahead of the same period in the previous year. Assuming these marketactivity levels continue, profit (before taxation, amortisation and impairmentof intangibles arising on consolidation and exceptional items) for the financialyear ended 31 March 2007 is anticipated to be in line with current analystsforecasts once the deterioration in the US dollar exchange rate with sterlinghas been taken into account. *Operating profit excludes amortisation and impairment of intangibles arising onconsolidation and exceptional items. Underlying additionally excludes the impactof foreign exchange and acquisitions. 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 interest rate, credit, foreignexchange, energy and equity products. With over 3,400 staff, ICAP has a strongpresence in each of the three major financial markets, London, New York andTokyo, together with a local presence in 20 other financial centres. For moreinformation go to www.icap.com. Consolidated Income Statement Unaudited 6 months ended 30 September 2006 Before amortisation & impairment of Amortisation intangibles & impairment arising on of consolidation & intangibles Exceptional exceptional arising on items items consolidation (note 3) Total Note £m £m £m £m-------------------------------- ---- ------- ------- ------- -------Revenue 2 542.8 - - 542.8Operating expenses (431.1) (13.4) (2.5) (447.0)Other income 7.4 - - 7.4-------------------------------- ---- ------- ------- ------- -------Operating profit 2 119.1 (13.4) (2.5) 103.2Finance income 8.5 - - 8.5Finance costs (10.7) - - (10.7)Share of profits of associates (after tax) 3.9 (0.8) - 3.1-------------------------------- ---- ------- ------- ------- -------Profit before taxation 120.8 (14.2) (2.5) 104.1Taxation 4 (44.9) - 1.4 (43.5)-------------------------------- ---- ------- ------- ------- -------Profit for the period 75.9 (14.2) (1.1) 60.6-------------------------------- ---- ------- ------- ------- -------Attributable to:Equity holders of the parent 75.2 (14.2) (1.1) 59.9Minority interests 0.7 - - 0.7-------------------------------- ---- ------- ------- ------- ------- 75.9 (14.2) (1.1) 60.6-------------------------------- ---- ------- ------- ------- -------Earnings per ordinary share- basic 6 9.6p- diluted 6 9.3p-------------------------------- ---- ------- ------- ------- -------Proposed interim dividend per share 5 3.0p-------------------------------- ---- ------- ------- ------- ------- Unaudited 6 months ended 30 September 2005 Before amortisation & impairment of Amortisation intangibles & impairment arising on of consolidation & intangibles exceptional arising on Exceptional items consolidation items Total Note £m £m £m £m-------------------------------- ---- ------- ------- ------- -------Revenue 2 443.9 - - 443.9Operating expenses (354.7) (2.8) - (357.5)Other income 5.2 - - 5.2-------------------------------- ---- ------- ------- ------- -------Operating profit 2 94.4 (2.8) - 91.6Finance income 4.9 - - 4.9Finance costs (2.9) - - (2.9)Share of profits of associates (after tax) 1.8 - - 1.8-------------------------------- ---- ------- ------- ------- -------Profit before taxation 98.2 (2.8) - 95.4Taxation 4 (33.5) - - (33.5)-------------------------------- ---- ------- ------- ------- -------Profit for the period 64.7 (2.8) - 61.9-------------------------------- ---- ------- ------- ------- -------Attributable to:Equity holders of the parent 63.5 (2.8) - 60.7Minority interests 1.2 - - 1.2-------------------------------- ---- ------- ------- ------- ------- 64.7 (2.8) - 61.9-------------------------------- ---- ------- ------- ------- -------Earnings per ordinary share- basic 6 10.2p- diluted 6 9.9p-------------------------------- ---- ------- ------- ------- -------Proposed interim dividend per share 5 2.5p-------------------------------- ---- ------- ------- ------- ------- Audited year ended 31 March 2006 Before amortisation & impairment of Amortisation intangibles & impairment arising on of consolidation & intangibles exceptional arising on Exceptional items consolidation items Total Note £m £m £m £m-------------------------------- ---- ------- ------- ------- -------Revenue 2 919.2 - - 919.2Operating expenses (736.4) (10.7) - (747.1)Other income 13.5 - - 13.5-------------------------------- ---- ------- ------- ------- -------Operating profit 2 196.3 (10.7) - 185.6Finance income 14.6 - - 14.6Finance costs (9.8) - - (9.8)Share of profits of associates (after tax) 3.2 (0.6) - 2.6-------------------------------- ---- ------- ------- ------- -------Profit before taxation 204.3 (11.3) - 193.0Taxation 4 (72.2) - - (72.2)-------------------------------- ---- ------- ------- ------- -------Profit for the period 132.1 (11.3) - 120.8-------------------------------- ---- ------- ------- ------- -------Attributable to:Equity holders of the parent 128.5 (11.3) - 117.2Minority interests 3.6 - - 3.6-------------------------------- ---- ------- ------- ------- ------- 132.1 (11.3) - 120.8-------------------------------- ---- ------- ------- ------- -------Earnings per ordinary share - basic 6 19.6p- diluted 6 19.1p-------------------------------- ---- ------- ------- ------- -------Proposed interim dividend per share 5 2.5p-------------------------------- ---- ------- ------- ------- ------- Consolidated Statement of Recognised Income and Expense Unaudited Unaudited Audited 6 months ended 6 months ended year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m----------------------------------------------------------------- ------- ------- -------Net revaluation of available for sale investments 0.2 4.8 13.5Net movement on cash flow hedges 0.8 (2.1) (4.2)Actuarial gains on post retirement employee benefits - - 0.2Exchange adjustments on net investments in overseas subsidiaries (26.1) 13.0 17.2Net current tax on items recognised in equity (1.0) - 4.4Net deferred tax on items recognised in equity (4.3) - (2.8)----------------------------------------------------------------- ------- ------- -------Income and expense recognised directly in equity (30.4) 15.7 28.3Profit for the period 60.6 61.9 120.8----------------------------------------------------------------- ------- ------- -------Total recognised income and expense for the period 30.2 77.6 149.1----------------------------------------------------------------- ------- ------- -------Total recognised income and expense for the period attributableto:Equity holders of the parent 29.5 76.4 145.5Minority interests 0.7 1.2 3.6----------------------------------------------------------------- ------- ------- ------- 30.2 77.6 149.1----------------------------------------------------------------- ------- ------- ------- Consolidated Balance Sheet Unaudited as at Unaudited as at Audited as at 30 September 30 September 31 March 2006 2005 2006 Note £m £m £m----------------------------------------------------------- ---- ---------- ---------- ----------AssetsNon-current assetsIntangible assets arising on consolidation 8 714.9 257.3 276.7Intangible assets arising from development expenditure 19.5 2.3 16.5Property, plant and equipment 62.7 67.9 50.2Investments in associates 39.2 12.3 33.1Deferred tax assets 32.1 42.8 33.7Trade and other receivables 4.6 5.4 4.0Available for sale investments 32.2 18.9 35.1----------------------------------------------------------- ---- ---------- ---------- ---------- 905.2 406.9 449.3----------------------------------------------------------- ---- ---------- ---------- ----------Current assetsTrade and other receivables* 7 53,897.4 42,646.7 44,145.7Available for sale investments 11.5 11.5 11.8Cash and cash equivalents 292.6 350.0 339.9----------------------------------------------------------- ---- ---------- ---------- ---------- 54,201.5 43,008.2 44,497.4----------------------------------------------------------- ---- ---------- ---------- ----------Total assets 55,106.7 43,415.1 44,946.7----------------------------------------------------------- ---- ---------- ---------- ----------LiabilitiesCurrent liabilitiesTrade and other payables* 7 (53,834.5) (42,636.7) (44,116.9)Short-term borrowings and overdrafts (67.9) (0.5) (0.1)Short-term provisions (7.9) (2.7) (3.9)Tax payable (43.9) (46.9) (51.8)Obligations under finance leases (0.1) (0.2) (0.1)----------------------------------------------------------- ---- ---------- ---------- ---------- (53,954.3) (42,687.0) (44,172.8)----------------------------------------------------------- ---- ---------- ---------- ----------Non-current liabilitiesTrade and other payables (57.5) (10.3) (10.4)Long-term borrowings 9 (295.1) (126.1) (128.7)Retirement benefit obligations (2.2) (2.7) (2.1)Tax payable (7.9) (7.5) -Deferred tax liabilities (9.4) (15.5) (9.2)Long-term provisions (2.6) (6.7) (3.6)Obligations under finance leases - (0.3) (0.1)----------------------------------------------------------- ---- ---------- ---------- ---------- (374.7) (169.1) (154.1)----------------------------------------------------------- ---- ---------- ---------- ----------Total liabilities (54,329.0) (42,856.1) (44,326.9)----------------------------------------------------------- ---- ---------- ---------- ----------Net assets 777.7 559.0 619.8Equity attributable to equity holders of the parentCapital and reservesCalled up share capital 64.8 60.7 60.8Share premium account 394.7 216.0 217.4Other reserves 38.8 40.7 39.9Retained earnings 264.9 228.8 285.7----------------------------------------------------------- ---- ---------- ---------- ----------Equity attributable to equity holders of the parent 10 763.2 546.2 603.8Minority interests - equity 10 14.5 12.8 16.0----------------------------------------------------------- ---- ---------- ---------- ----------Total equity 777.7 559.0 619.8----------------------------------------------------------- ---- ---------- ---------- ---------- * Restated for changes to the presentation of matched principal transactions (see note 7). Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 months ended 6 months ended year ended 30 September 30 September 31 March 2006 2005 2006 Note £m £m £m--------------------------------------------------------- ----- ---------- ---------- ----------Cash flows from operating activities 11(a) 66.2 50.8 93.0Cash flows from investing activitiesDividends received from associates 2.2 0.8 0.8Other equity dividends received - - 0.3Payments to acquire property, plant and equipment (14.6) (7.7) (13.0)Intangible development expenditure (2.2) (2.2) (6.6)Receipts from sale of property, plant and equipment - - 0.8Net receipts/(payments) in respect of available for sale investments 2.2 - (5.7)Acquisition of interests in businesses, net of cash acquired (274.2) (11.4) (32.8)Acquisition of interests in associates (8.1) (0.2) (8.5)--------------------------------------------------------- ----- ---------- ---------- ----------Net cash used in investing activities (294.7) (20.7) (64.7)--------------------------------------------------------- ----- ---------- ---------- ----------Cash flows from financing activitiesDividends paid to minority interests (2.0) (1.1) (1.3)Equity dividend paid (47.6) (38.2) (53.1)Payments to acquire own shares (4.0) (3.7) (4.0)Proceeds from issue of ordinary shares 6.3 0.9 2.4Capital element of finance lease payments (0.1) (0.5) (0.8)Funds received from borrowing, net of fees 177.8 122.4 124.8--------------------------------------------------------- ----- ---------- ---------- ----------Net cash from financing activities 130.4 79.8 68.0--------------------------------------------------------- ----- ---------- ---------- ----------Exchange adjustments (17.0) 8.9 12.8--------------------------------------------------------- ----- ---------- ---------- ----------Net (decrease)/increase in cash and cash equivalents (115.1) 118.8 109.1Net cash and cash equivalents at beginning of period 11(b) 339.8 230.7 230.7--------------------------------------------------------- ----- ---------- ---------- ----------Net cash and cash equivalents at end of period 11(b) 224.7 349.5 339.8--------------------------------------------------------- ----- ---------- ---------- ---------- Notes to the Financial Statements 1 Basis of preparation The accounting policies followed in the Interim Report are the same as those published in the Annual Report for the year ended 31 March 2006. There has been a redefinition of the business activity segments (note 2) and a change to the presentation of matched principal transactions (note 7). Comparatives have been restated accordingly in both cases. The Interim Report for the 6 months to 30 September 2006 does not constitute statutory financial information as defined in Section 240 of the Companies Act 1985. The Interim Report is unaudited but has been reviewed by the auditors, PricewaterhouseCoopers LLP, and their report is set out at the back. The statutory accounts for the year ended 31 March 2006 have been filed with the Registrar of Companies and the auditors issued an unqualified report thereon which did not contain any statement under Section 237 of the Companies Act 1985. The Group maintains the columnar format for the presentation of its income statement. This enables the Group to continue its practice of improving the understanding of its results by presenting profit for the period 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. Intangible assets arising on consolidation represent goodwill and other separately identifiable intangible assets. The amortisation and any impairment is included in the income statement within the column 'amortisation and impairment of intangibles arising on consolidation'. 2 Segment reporting In accordance with IAS14 "Segment Reporting", the Group has defined its primary segment as geographic as this is the basis on which it manages its operations. For reporting purposes, Europe includes South Africa and Bahrain. Following the acquisition of EBS, the Group's secondary segmentation has been redefined to show voice, electronic and information divisions. The voice division consists of the previous segments of derivatives and money broking and securities broking and energy broking. The comparative periods have been restated in accordance with the new segmentation. The new segments have been adopted as management believe they better reflect the differing margins and risk profiles of the Group's businesses. The voice division represents trades concluded directly by the Group's staff for interest rates, credit, foreign exchange, energy, equities and emerging market products. The electronic division represents trades concluded via electronic trading platforms and post-trade services. The information division represents the sale of market data and research services. (a) Primary segment - Geographic 6 months ended 30 September 2006 Asia Americas Europe Pacific Total £m £m £m £m ------------------------------------------------------- ------- ------- ------- ------- Revenue 224.2 249.5 69.1 542.8 ------------------------------------------------------- ------- ------- ------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 50.8 60.0 8.3 119.1 Amortisation and impairment of intangibles arising on consolidation (2.5) (4.9) (6.0) (13.4) Exceptional items (0.5) (2.0) - (2.5) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 47.8 53.1 2.3 103.2 Net finance (costs)/income (0.6) (1.9) 0.3 (2.2) Share of profits of associates (after tax) - 2.4 0.7 3.1 ------------------------------------------------------- ------- ------- ------- ------- Profit before taxation 47.2 53.6 3.3 104.1 ------------------------------------------------------- ------- ------- ------- ------- Included in revenue is £12.0m in respect of joint ventures (Americas £4.9m, Europe £5.4m, Asia Pacific £1.7m). Included in operating profit is £3.4m in respect of joint ventures (Americas £1.4m, Europe £1.6m, Asia Pacific £0.4m). 6 months ended 30 September 2005 Asia Americas Europe Pacific Total £m £m £m £m ------------------------------------------------------- ------- ------- ------- ------- Revenue 203.8 195.0 45.1 443.9 ------------------------------------------------------- ------- ------- ------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 50.4 40.0 4.0 94.4 Amortisation and impairment of intangibles arising on consolidation (1.1) (1.6) (0.1) (2.8) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 49.3 38.4 3.9 91.6 Net finance income 1.4 0.5 0.1 2.0 Share of profits of associates (after tax) - 1.3 0.5 1.8 ------------------------------------------------------- ------- ------- ------- ------- Profit before taxation 50.7 40.2 4.5 95.4 ------------------------------------------------------- ------- ------- ------- ------- Included in revenue is £12.2m in respect of joint ventures (Americas £5.5m, Europe £3.7m, Asia Pacific £3.0m). Included in operating profit is £2.9m in respect of joint ventures (Americas £1.4m, Europe £0.8m, Asia Pacific £0.7m). Year ended 31 March 2006 Asia Americas Europe 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) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 100.9 78.6 6.1 185.6 Net finance income 3.8 0.6 0.4 4.8 Share of profits of associates (after tax) - 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). (b) Secondary segment - Business activity 6 months ended 30 September 2006 Voice Electronic Information division division division Total £m £m £m £m ------------------------------------------------------- ------- ------- ------- ------- Revenue 438.4 86.2 18.2 542.8 ------------------------------------------------------- ------- ------- ------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 85.9 22.8 10.4 119.1 Amortisation and impairment of intangibles arising on consolidation (1.7) (10.6) (1.1) (13.4) Exceptional items - (2.5) - (2.5) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 84.2 9.7 9.3 103.2 ------------------------------------------------------- ------- ------- ------- ------- Revenue of £12.0m and operating profit of £3.4m in respect of joint ventures is all included in the voice division. 6 months ended 30 September 2005 - restated Voice Electronic Information division division division Total £m £m £m £m ------------------------------------------------------- ------- ------- ------- ------- Revenue 381.8 49.3 12.8 443.9 ------------------------------------------------------- ------- ------- ------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 71.6 15.5 7.3 94.4 Amortisation and impairment of intangibles arising on consolidation (1.7) - (1.1) (2.8) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 69.9 15.5 6.2 91.6 ------------------------------------------------------- ------- ------- ------- ------- Revenue of £12.2m and operating profit of £2.9m in respect of joint ventures is all included in the voice division. Year ended 31 March 2006 - restated Voice Electronic Information division division division Total £m £m £m £m ------------------------------------------------------- ------- ------- ------- ------- Revenue 795.0 98.3 25.9 919.2 ------------------------------------------------------- ------- ------- ------- ------- Operating profit before amortisation and impairment of intangibles arising on consolidation and exceptional items 152.5 29.6 14.2 196.3 Amortisation and impairment of intangibles arising on consolidation (3.5) (5.0) (2.2) (10.7) ------------------------------------------------------- ------- ------- ------- ------- Operating profit 149.0 24.6 12.0 185.6 ------------------------------------------------------- ------- ------- ------- ------- Revenue of £24.7m and operating profit of £6.3m in respect of joint ventures is all included in the voice division. 3 Exceptional items The exceptional charge of £2.5m for the period ended 30 September 2006 relates to reorganisation and rationalisation costs following the acquisition of EBS. 4 Taxation 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m -------------------------------------------------- ------- ------- ------- Current taxation UK Corporation Tax at 30.0% - Current period 17.7 13.0 27.6 - Double tax relief (0.1) - (0.1) - Adjustment to prior periods 0.1 (2.0) (5.5) Overseas taxation - Current period 22.6 20.3 47.4 - Adjustment to prior periods 0.8 0.1 (0.2) -------------------------------------------------- ------- ------- ------- 41.1 31.4 69.2 Deferred tax 2.4 2.1 3.0 -------------------------------------------------- ------- ------- ------- 43.5 33.5 72.2 -------------------------------------------------- ------- ------- ------- The Group's share of profit of associates in the income statement is shown net of tax of £2.4m (30 September 2005 - £1.1m; 31 March 2006 - £2.3m). 5 Dividends 6 months 6 months ended ended Year ended 30 September 30 September 31 March Amounts recognised as distributions to 2006 2005 2006 equity holders in the period: £m £m £m -------------------------------------------------- ------- ------- ------- Final dividend for the year ended 31 March 2006 of 7.5p (2005 - 6.4p) per share 47.6 38.2 38.2 Interim dividend for the year ended 31 March 2006 of 2.5p per share - - 14.9 -------------------------------------------------- ------- ------- ------- 47.6 38.2 53.1 -------------------------------------------------- ------- ------- ------- On 16 November 2006 the Board approved an interim dividend for the year ended 31 March 2007 of 3.0p per share. 6 Earnings per ordinary share The Group continues to calculate an adjusted EPS measurement ratio in the notes to the financial statements as it believes that it is the most appropriate measurement, since it better reflects the business's underlying cash earnings. 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m -------------------------------------------------- ------- ------- ------- Earnings attributable to equity holders of the parent 59.9 60.7 117.2 Amortisation and impairment of intangibles arising on consolidation 14.2 2.8 11.3 Exceptional items 2.5 - - Taxation on exceptional items (1.4) - - -------------------------------------------------- ------- ------- ------- Adjusted 75.2 63.5 128.5 -------------------------------------------------- ------- ------- ------- Shares Shares Shares millions millions millions -------------------------------------------------- ------- ------- ------- Weighted average number of shares Basic 622.6 596.7 597.5 Dilutive effect of contingent share capital 0.5 1.6 1.3 -------------------------------------------------- ------- ------- ------- Adjusted 623.1 598.3 598.8 -------------------------------------------------- ------- ------- ------- Dilutive effect of share options 17.6 15.0 16.4 -------------------------------------------------- ------- ------- ------- Diluted 640.7 613.3 615.2 -------------------------------------------------- ------- ------- ------- Pence Pence Pence -------------------------------------------------- ------- ------- ------- Earnings per share Basic 9.6 10.2 19.6 Diluted 9.3 9.9 19.1 Adjusted 12.1 10.6 21.5 -------------------------------------------------- ------- ------- ------- 7 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. All amounts due to and payable by counterparties in respect of matched principal business are shown gross, except where a legally enforceable netting agreement exists and the asset and liability are either settled net or simultaneously. As a consequence of a review of its clearing and settlement arrangements, the Group has determined that certain transactions settled through clearing corporations in America are not required to be recognised on the balance sheet. Comparative amounts in the prior periods have been restated. The impact on the financial statements to 31 March 2006 is a reduction in matched principal trade debtors and matched principal trade creditors of £100,297.0m. The impact on the Interim Report to 30 September 2005 is a reduction in matched principal trade debtors and matched principal trade creditors of £103,022.1m. The change has no impact on the income statement, net assets or the cash flow statement of the Group. The gross amount of matched principal transactions included in both trade and other receivables and trade and other payables is £52,501.7m (September 2005 - £41,343.0m, March 2006 - £42,470.1m). Certain Group companies are involved in collateralised stock lending transactions as an intermediary between counterparties. The gross amount of these transactions included within trade and other receivables and trade and other payables is £1,087.4m (September 2005 - £1,064.9m, March 2006 - £1,409.2m). 8 Acquisitions Subsidiaries EBS Group Limited and subsidiary companies (EBS) On 5 June 2006 the Group completed the acquisition of EBS, a provider of foreign exchange trading and market data solutions to the professional spot foreign exchange community. The total consideration of £458.6m ($854.3m) including costs, was financed by the issue of 36,100,234 ICAP plc ordinary shares of 10p each with a total market value of £172.3m ($322.2m) and cash consideration of £286.3m ($532.1m). The provisional fair value adjustments include the recognition of an intangible asset arising on consolidation of £224.0m in respect of customer relationships. The fair value has been independently valued using the discounted cash flow method and is being amortised over ten years. Residual goodwill of £197.2m arises on consolidation and the Group considers this to be a fair value. No further intangible assets could be separately identified. In the period from acquisition to 30 September, EBS contributed £38.2m to revenue and £12.0m to pre-tax profit (before amortisation of intangibles arising on consolidation and exceptional items). On a similar basis, had the acquisition occurred on 1 April 2006, the estimated revenue would have been £59.7m with profit of £17.0m. Other acquisitions On 5 April 2006, the Group acquired Electronic Traveller Limited (ETL), a company incorporated in the British Virgin Islands, together with control of Reset Pte Limited, a company incorporated in Singapore for initial cash consideration of £6.6m. Further deferred contingent consideration is due in January 2007, 2008 and 2009 and is estimated to have a net present value of £37.5m at 30 September 2006 of which £36.2m is included as a non-current liability within non-current trade and other payables. The provisional fair value adjustment of £19.6m principally relates to customer relationships and is being amortised over five years. ETL and Reset are involved in the electronic matching of interest rate swaps. Other acquisitions in the period include a net payment of £1.1m for a 50.1% stake in Altex-ATS Limited, a UK company involved in the development and operation of an electronic system for financial order matching. The Group also acquired 88.94% of SIF Garban Colombia, SA and 100% of Gesmosa GBI Colombia, SA for £1.2m. Both companies operate as voice broking companies in Colombia. In the period from acquisition to 30 September 2006, other acquisitions contributed £4.6m to revenue and £2.4m to pre-tax profit (before amortisation of intangibles arising on consolidation and exceptional items). The estimated revenue and profit would not be materially different had the acquisitions occurred on 1 April 2006. The fair value of the assets acquired compared with their book values is given below: EBS Other Total Provisional Provisional Provisional Book fair Book fair Book fair value value value value value value £m £m £m £m £m £m -------------------------------------------- ------- ------- ------- ------- ------- ------- Intangible assets arising on consolidation - 224.0 - 19.6 - 243.6 Intangible assets arising from development expenditure 3.9 3.9 - - 3.9 3.9 Property, plant and equipment 15.1 15.1 0.2 0.2 15.3 15.3 Cash and cash equivalents 30.1 30.1 0.6 0.6 30.7 30.7 Trade and other receivables 34.5 34.5 0.1 0.1 34.6 34.6 Trade and other payables (33.1) (33.1) (0.4) (0.4) (33.5) (33.5) Tax payable (13.1) (13.1) - - (13.1) (13.1) -------------------------------------------- ------- ------- ------- ------- ------- ------- Net assets acquired 37.4 261.4 0.5 20.1 37.9 281.5 Goodwill 197.2 26.3 223.5 -------------------------------------------- ------- ------- ------- ------- ------- ------- Consideration 458.6 46.4 505.0 -------------------------------------------- ------- ------- ------- ------- ------- ------- Satisfied by: Cash 286.3 8.9 295.2 Shares 172.3 - 172.3 Deferred consideration - 37.5 37.5 -------------------------------------------- ------- ------- ------- ------- ------- ------- 458.6 46.4 505.0 -------------------------------------------- ------- ------- ------- ------- ------- ------- During the period additional payments for acquisitions of £9.9m were made which included a final payment of £8.2m in respect of the deferred contingent consideration of ICAP Energy LLC. Associates and joint ventures During the period the Group increased its stake in its associate, TriOptima AB, from 28.8% to 39.99% for consideration of £3.6m. The Group also invested £1.3m in Shanghai CFETS-ICAP International Money Broking Co. Ltd., a new joint venture based in Shanghai. 9 Long-term borrowings As at As at As at 30 September 30 September 31 March 2006 2005 2006 £m £m £m ------------------------------------------------- ------- ------- ------- Subordinated loan notes repayable 2015 119.7 126.1 128.7 Bank loans 175.4 - - ------------------------------------------------- ------- ------- ------- 295.1 126.1 128.7 ------------------------------------------------- ------- ------- ------- The subordinated loan notes represent $225m of ten-year loan notes issued in June 2005 following a private placement. The borrowing includes $193m of fixed rate debt at 5.84% which the Group has the option to repay after five years and a $32m floating rate component that can be repaid after two years. In May 2006 a credit facility was signed in advance of the completion of the acquisition of EBS (note 8). The five year facility consists of a dollar term loan of £175.4m ($327.8m) included within long-term borrowings above and a £125m revolving credit facility of which £33.0m was drawdown as at 30 September 2006 (included within short-term borrowings and overdrafts). 10 Reconciliation of total equity 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m ------------------------------------------------- ------- ------- ------- Equity attributable to equity holders of the parent As at beginning of period 603.8 508.6 508.6 Total recognised income and expenses for the period 29.5 76.4 145.5 Ordinary shares issued 179.0 0.9 2.4 Increase in investment in own shares (2.8) (3.7) (4.0) Dividends paid in the period (47.6) (38.2) (53.1) Share-based payments in the period 1.3 2.2 4.4 ------------------------------------------------- ------- ------- ------- As at end of period 763.2 546.2 603.8 Minority interests - equity 14.5 12.8 16.0 ------------------------------------------------- ------- ------- ------- Total equity 777.7 559.0 619.8 ------------------------------------------------- ------- ------- ------- 11 Cash flow (a) Reconciliation of profit before taxation to net cash flow from operating activities 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m ------------------------------------------------- ------- ------- ------- Profit before taxation 104.1 95.4 193.0 Operating exceptional items 2.5 - - Share of profits of associates (after tax) (3.9) (1.8) (3.2) Amortisation and impairment of intangible assets arising on consolidation 14.2 2.8 11.3 Amortisation of intangible assets arising from development expenditure 4.6 0.4 6.3 Depreciation of property, plant and equipment 10.5 11.4 16.0 Other amortisation and impairments 0.1 - 0.2 Share-based payments 2.5 2.2 4.4 Profit on sale of property, plant and equipment - 0.1 - Net finance costs/(income) 2.2 (2.0) (4.8) ------------------------------------------------- ------- ------- ------- Operating cash flows before movements in working capital 136.8 108.5 223.2 Increase in trade and other receivables* (24.1) (67.6) (84.7) Increase in trade and other payables* 6.0 40.3 25.1 Net receipts/(payments) in respect of financial assets held at fair value 2.6 (3.5) (7.0) ------------------------------------------------- ------- ------- ------- Cash generated by operations before exceptional items 121.3 77.7 156.6 Operating exceptional items paid (2.5) (6.3) (6.3) ------------------------------------------------- ------- ------- ------- Cash generated by operations 118.8 71.4 150.3 Interest received 8.6 4.7 11.6 Interest paid (9.0) (2.0) (7.2) Taxation (52.2) (23.3) (61.7) ------------------------------------------------- ------- ------- ------- Net cash flow from operating activities 66.2 50.8 93.0 ------------------------------------------------- ------- ------- ------- \* The movement in trade and other receivables and trade and other payables excludes the impact of the gross up of matched principal trades as permitted by IAS7 "Cash Flow Statements". Trade and other receivables includes £34.3m (March 2006 - £44.0m, September 2005 - £13.1m) relating to an unsettled matched principal transaction (see (b) below). (b) Net cash and cash equivalents Net cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Net cash and cash equivalents comprise the following amounts: 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2006 2005 2006 £m £m £m ------------------------------------------------- ------- ------- ------- Cash and cash equivalents included in current assets 292.6 350.0 339.9 Short-term borrowings and overdrafts (67.9) (0.5) (0.1) ------------------------------------------------- ------- ------- ------- Net cash and cash equivalents 224.7 349.5 339.8 ------------------------------------------------- ------- ------- ------- Short-term borrowings and overdrafts include a bank overdraft of £34.3m in respect of a matched principal transaction where only one side settled on the last working day of the period, with the corresponding stock included within trade and other receivables. The trade subsequently settled on the following working day. 12 Contingent Liabilities (a) In July 2003, it was announced that two of the Group's subsidiary undertakings and the Company were among those being sued in connection with an alleged infringement of patent number 6,560,580 (580 Patent) in the United States of America. 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. This matter is pending on appeal. 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. (b) ICAP plc has received correspondence from National Australia Bank (NAB) alleging that revaluation data, supplied by an individual within one of ICAP's Singapore subsidiaries (a member of the TFS-ICAP joint venture), helped mask trading losses in NAB's foreign exchange (FX) options business. On 27 January 2004 NAB announced that it incurred FX 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 (APRA) in March 2004 and indicated that NAB incurred these FX trading losses between April 2003 and January 2004. The PwC report includes descriptions of how certain NAB dealers concealed losses by processing false spot FX and false FX option transactions, booking one-sided internal FX option transactions and using incorrect dealing rates for genuine transactions. The reports analyse the cause of these trading losses, including the methods of concealment 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 the ICAP Group nor TFS-ICAP accept any responsibility for these NAB FX trading losses and intend to vigorously contest any claim which may be made against them in this matter. ICAP has been informed that a similar allegation has been asserted by NAB against another inter-dealer broker, which is not a party to the joint venture, in respect of these NAB FX trading losses. It is not possible at this stage to predict the outcome with certainty or to determine the extent of liability, if any, of the Group. No provision has been made in the Financial Statements. (c) From time to time the Group is engaged in litigation on employee related and other matters. It is not possible to quantify the extent of such liabilities but they are not expected to have a material, adverse effect on the Group's results or net assets. 13 Exchange Rates The principal exchange rates which affect the Group, expressed in currency per £1, are shown below: Average Average Average Closing Closing Closing rate rate rate rate rate rate 6 months 6 months year as at 30 as at 30 as at 31 ended 30 ended 30 ended 31 September September March September September March 2006 2005 2006 2006 2005 2006 ------------------------ ------- ------- ------- ------- ------- ------- US dollar 1.87 1.77 1.73 1.84 1.82 1.79 Euro 1.47 1.47 1.43 1.46 1.47 1.46 Yen 220.54 200.51 204.66 212.96 199.33 202.05 ------------------------ ------- ------- ------- ------- ------- ------- INDEPENDENT REVIEW REPORT TO ICAP plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 September 2006 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, the consolidated balance sheet, the consolidated cash flow statement and the relatednotes. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The Interim Report, including the financial information contained therein is the responsibility of, and has been approved by, the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts, except where any changes and the reasons for them, are disclosed. This Interim Report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financialdata and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six monthsended 30 September 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon20 November 2006 Notes: a) The maintenance and integrity of the ICAP website is the responsibility of the directors; the work carried out by the auditors does not involveconsideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since they were initially presented on the website. b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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