22nd Nov 2005 07:01
ICAP PLC22 November 2005 ICAP Interim Results for six months ended 30 September 2005 ICAP plc, the world's largest voice and electronic interdealer broker, todayannounced Interim Results for the six months ended 30 September 2005. Highlights: 6 months 6 months Increase 30/09/05 30/09/04 £m £m(3) %Revenue 443.9 395.8 12Operating expenses 354.7 321.0 11Profit 1 98.2 83.3 18 EPS (basic) 10.2p 8.6pEPS (adjusted) 10.6p 9.0pInterim dividend 2 2.5p 1.85p • Revenue rose by 12% to £443.9 million. Revenue in electronic broking rose 24% to £49.3 million • Operating expenses rose by 11%: the Group operating profit margin4 increased to 21% • Profit1 rose to £98.2 million (2004: £83.3 million) • Statutory profit before tax was £95.4 million (2004: £77.3 million). Michael Spencer, Group Chief Executive Officer, said:"I am pleased to announce that ICAP's electronic and voice broking business hasshown excellent growth compared with the same period last year. The very strongperformance of our electronic broking business has continued with revenue risingby 24% to £49.3 million. In addition, voice broking benefited from more activemarkets and revenue rose by 11% to £381.8 million. We will drive ICAP's organic growth by establishing leadership in the morerapidly growing markets, exploiting new products and markets and migrating themore liquid, commoditised markets to electronic broking. We aim to harness thisorganic growth, together with selective acquisitions, to increase our share ofthe combined voice and electronic market to 35% within a few years. There will be an analyst's briefing at 9:30 am GMT on Tuesday 22 November 2005at 2 Broadgate, London EC2M 7UR. An audiocast of the presentation made toanalysts at 9:30 am GMT on 22 November 2005 will be available on the web site,www.icap.com at 1:00 pm GMT on 22 November 2005. It will remain on the web sitefor six months. 22 November 2005 Notes1 Profit is defined as pre-tax profit before amortisation and impairment ofintangibles and exceptional items.2 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.3 At reported exchange rates and restated on an IFRS basis4 Group operating profit before amortisation and impairment of intangibles andexceptional items as a percentage of revenue EnquiriesICAP plcMichael Spencer Group Chief Executive (44) 20 7050 7400Mike Sheard Director of Corporate Affairs (44) 20 7050 7103 The Maitland ConsultancyNeil Bennett (44) 20 7379 5151 About ICAP ICAP is the world's largest voice and electronic interdealer broker with a dailyaverage transaction volume in excess of $1 trillion, 50% of which is electronic.The Group is active in the wholesale market for OTC derivatives, fixed incomesecurities, money market products, foreign exchange, energy, credit and equityderivatives. Please go to www.icap.com for more information. ICAP plc Interim Results for six months ended 30 September 2005 Operating review ICAP's electronic and voice broking business has shown excellent growth comparedwith the same period last year. Activity levels in the wholesale financialmarkets in fixed income securities and OTC derivatives during the first threemonths of our financial year were noticeably higher ahead of the traditionalseasonal slowdown during the summer. We have further advanced our market sharein both electronic and voice broking. Profit (before tax, amortisation and impairment of intangibles and exceptionalitems) was £98.2 million compared to £83.3 million. Profit before tax on astatutory basis was £95.4 million compared to £77.3 million. We have continuedto keep our costs under tight control. Both voice and electronic broking increased revenue and profit. The very strongperformance of our electronic broking businesses has continued with revenuerising by 24% to £49.3 million. Electronic broking profit* rose 65% from £9.4million to £15.5 million, a margin of 31%. In addition, voice broking benefitedfrom more active markets and revenue rose by 11% to £381.8 million with profit*increasing by 12% to £71.6 million from £63.9 million in the previous period. The most profitable region was the Americas with revenue of £203.8 milliongenerating profit* of £50.4 million (2004 - £40.5 million), a margin of 25%.Revenue in Europe was £195.0 million, generating profit* of £40.0 million (2004- £34.2 million), a margin of 21%. Electronic broking made a significantcontribution to the improvement in the margin in both the Americas and Europe. Asia Pacific revenue grew to £45.1 million (2004 - £42.3 million), with profit*of £4.0 million and a margin of 9%. Several centres in the Asia Pacific regionhave been disrupted by the movement of large numbers of staff with associatedcosts. The new regional CEO and his team have recruited new staff andstrengthened the business. This is a competitive environment but the markets aregrowing and we are in a strong position to build our business from a solid base.We are aiming to conclude a joint venture agreement with a partner in China. Electronic BrokingWe now have five years experience of managing a combined voice and electronicbroking business and are reaping the benefits of having two strong parallelbusinesses. ICAP is the leading electronic interdealer broker; electronic volumeincreased by 32% over the previous year to average US$540 billion/day in thefirst half of the financial year. We estimate that our average combined voiceand electronic market share overall in US Treasury products exceeded 58% duringthe same period. ICAP is also firmly established as market leader in theEuropean and US$ repo markets where average electronic broking volumes in firsthalf of the financial year grew significantly to reach US$179 billion/day inEurope and US$185 billion in North America. Issuance to fund rising deficits and the growth of "black-box" automated tradingsystems fuelled volumes in the government bond markets. Average daily USTreasury volumes grew to $473 billion/day in the third quarter of 2005, 6.0%below the previous quarter but 11.2% above the same period in the previous year. * Group operating profit before amortisation and impairment of intangibles andexceptional items. We continue to believe that this measure better reflects theGroup's performance and it is reconciled to statutory group operating profit inthe segmental analysis shown in note 2. We are beginning to make some progress in accessing the Italian government bondmarkets following the agreement with Monte Titoli S.p.A. to give BrokerTecdirect access to their systems for the clearing and settlement of Italiangovernment bonds and repo. We now expect to gain access to the centralcounterparties (Cassa di Compensazione e Garanzia and LCH-Clearnet) in early2006. To complete the process we are hopeful that the Dipartimento del Tesoromay revise the current Primary Dealer assessment process and consider volumestraded on any platform including our own. Investment in our technology platforms continues. On BrokerTec the migration toa new technology is now underway and will incur additional costs in the shortterm but will deliver lower costs and greater scalability in the longer term. Toprepare for the longer term potential of cross market trading we are continuingto invest in i-Connect which will interconnect several broking platforms andcustomer interfaces. On the BrokerTec platform Credit Default Swaps and Indices in London haveestablished a good market position and customer access to bonds and Credit Repoon the same display will improve our competitive position further. In theAmericas, Mortgage Backed Securities have been relaunched and we have had asuccessful start in recent weeks in Canadian Government Bonds. On the other platforms: •i-Forwards - ICAP's electronic broking system for forward foreign exchange is now being used by 51 banks in Europe and the US. The rollout to banks in Asia has begun. •i-Swap - ICAP's system for interest rate derivatives has an installed base of 45 banks in Europe. In the overnight indexed swaps market, 27 banks are live and16 banks have agreed to come on to the system. In medium term interest rate swaps the system is expected to be launched in early 2006 with at least 14 market participants. Derivatives and money brokingAlthough yield curves have continued to flatten interest rate markets haveremained active, particularly in medium and longer term dollar interest rateswaps. Interest rate options performed particularly well. ICAP's revenue inderivatives and money markets rose from £156.0 million to £172.7 million,generating profit* of £38.1 million (2004 - £35.2 million). Securities brokingFor a time lower yields in US Treasuries helped the mortgage market but activitylevels have fallen as rates rose. In the credit markets, credit derivatives havebeen particularly busy but tight credit spreads kept trading volumes low in manycorporate bond sectors. The overall effect of changes in market activity wasincreased revenue of £174.8 million, generating a profit* of £26.7 million (2004- £25.7 million). EnergyOur energy businesses have experienced a substantial increase in activity,particularly in the oil markets and ICAP Energy's revenue rose to £34.3 millionfrom £23.7 million in 2004. Profit* rose to £6.8 million. In early October wecompleted the acquisition of the majority of the assets of United FuelsInternational, Inc. and its Affiliates (United). United has a strong presence inUS oil, oil related markets, emissions and coal which is a great addition to ourcore strength in US power and gas. It is also an excellent fit with ICAP'sleading position in the energy markets in Europe and Asia particularly theLondon and Singapore based businesses in oil and refined products. The totalcost of the acquisition, paid in cash, was $27.2 million. Information servicesThe sale of financial information remains very competitive. We have concentratedon creating longer term agreements like our new five-year agreement with Reuterswhich replaces and significantly extends both Telerate's and Reuters previousagreements with ICAP. Profit* from information services was £7.3 million. International Financial Reporting Standards (IFRS) These are the first results presented under IFRS and contain a brief summary ofthe reconciling items between UK GAAP and IFRS. A detailed explanation of thereconciling items was provided in the IFRS Transition Report published in July2005. 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 2.5 pence per share (2004: 1.85 pence)covering the six-month period to 30 September 2005 will be paid on 24 February2006 to shareholders on the register on 27 January 2006. Outlook In recent years underlying revenue growth in our markets has been in the 3 - 5%range. We expect the markets to continue to grow at least at this rate given theincreasing commitment of capital to our markets by banks and hedge funds, growthin debt issuance by governments, corporates and financial institutions andeconomic imbalances around the world. It is clear that some key market sectorsshould grow much faster than this, including: •credit derivatives: growth to be more like 20-25%, driven by the increasing hedging needs of banks, the rapid pace of product development by the leading players, new players attracted by a commoditised, liquid product (iTraxx indices) and the likely emergence of Futures contracts early in 2006. •OTC equity derivatives: growth to be more like 12-15%, driven by the surge in assets under management at hedge funds, both banks and investors seeking ways to enhance yield using OTC equity derivatives, yields that are not available on exchange traded products in low volatility environments. •energy markets: growth to be more like 19-22%, driven by continuing political tensions in the producing regions, limited production capability, increased focus on reducing emissions and continuing commitment of capital from a broadening customer base. For ICAP, these factors will combine with the improved efficiency of electronicbroking and increased integration with our customers' trading systems. There isalso continuing consolidation within the interdealer broking community as ourcustomers are choosing to use fewer brokers who can offer deeper liquidity andhave the ability to invest in technological improvements. We will drive ICAP's organic growth by establishing leadership in the morerapidly growing markets, exploiting new products and markets and migrating themore liquid, commoditised markets to electronic broking. We aim to harness thisorganic growth, together with selective acquisitions, to increase our share ofthe combined voice and electronic market to 35% within a few years. 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 tax, exceptional items and amortisationand impairment of intangibles) for the financial year ended 31 March 2006 isanticipated to be in line with current analysts forecasts. Consolidated Income Statement Unaudited 6 months Unaudited 6 months ended 30 September 2005 ended 30 September 2004 -------------------------------------------------- ---------------------------- Before Amortisation Exceptional Total Before Amortisation amortisation & impairment items Amortisation & impairment & impairment of & impairment of of intangibles intangibles of intangibles intangibles & exceptional & exceptional items items ----- ------------- ------------ ---------- ------ ------------- ------------ Note £m £m £m £m £m £m ----- ------------- ------------ ---------- ------ ------------- ------------Revenue 2 443.9 - - 443.9 395.8 - Operating expenses (354.7) (2.8) - (357.5) (321.0) -Other income 5.2 - - 5.2 5.8 - ----- ------------- ------------ ---------- ------ ------------- ------------Group operating profit 2 94.4 (2.8) - 91.6 80.6 - Finance income 4.9 - - 4.9 3.5 -Finance costs (2.9) - - (2.9) (1.2) - Share of profit/(loss) of associates(after tax) 1.8 - - 1.8 0.4 - ----- ------------- ------------ ---------- ------ ------------- ------------Profit before tax 98.2 (2.8) - 95.4 83.3 - Taxation 3 (33.5) - - (33.5) (28.4) - ----- ------------- ------------ ---------- ------ ------------- ------------Profit for 64.7 (2.8) - 61.9 54.9 -the period ----- ------------- ------------ ---------- ------ ------------- ------------Attributable to:Equity holders of the parent 63.5 (2.8) - 60.7 54.1 -Minority interests 1.2 - - 1.2 0.8 - ----- ------------- ------------ ---------- ------ ------------- ------------ 64.7 (2.8) - 61.9 54.9 - ----- ------------- ------------ ---------- ------ ------------- ------------Earnings per ordinary share- basic 4 10.2p- diluted 4 9.9p ----- ------------- ------------ ---------- ------ ------------- ------------ ----- ------------- ------------ ---------- ------ ------------- ------------ Consolidated Income Statement Unaudited 6 months Audited year ended ended 30 September 2004 31 March 2005 ----------------------- ------------------------------------------------ Exceptional Total Before Amortisation Exceptional Total items amortisation & impairment items & impairment of of intangibles intangibles & exceptional items ----- ----------- ------ -------------- ------------ ---------- ------ Note £m £m £m £m £m £m ----- ----------- ------ -------------- ------------ ---------- ------Revenue 2 - 395.8 812.7 - - 812.7 Operating expenses (6.0) (327.0) (651.0) (0.7) (9.1) (660.8)Other income - 5.8 12.3 - - 12.3 ----- ----------- ------ -------------- ------------ ---------- ------Group operating profit 2 (6.0) 74.6 174.0 (0.7) (9.1) 164.2 Finance income - 3.5 6.9 - - 6.9Finance costs - (1.2) (2.3) - - (2.3)Share of profit/(loss) of associates(after tax) - 0.4 (1.9) (0.1) - (2.0) ----- ----------- ------ -------------- ------------ ---------- ------Profit before tax (6.0) 77.3 176.7 (0.8) (9.1) 166.8Taxation 3 1.8 (26.6) (58.4) - 1.2 (57.2) ----- ----------- ------ -------------- ------------ ---------- ------Profit for the period (4.2) 50.7 118.3 (0.8) (7.9) 109.6 ----- ----------- ------ -------------- ------------ ---------- ------Attributable to:Equity holders of the parent (4.2) 49.9 116.2 (0.8) (7.9) 107.5Minority interests - 0.8 2.1 - - 2.1 ----- ----------- ------ -------------- ------------ ---------- ------ (4.2) 50.7 118.3 (0.8) (7.9) 109.6 ----- ----------- ------ -------------- ------------ ---------- ------Earnings per ordinary share- basic 4 8.6p 18.3p- diluted 4 8.1p 17.5p ----- ----------- ------ -------------- ------------ ---------- ------ ----- ----------- ------ -------------- ------------ ---------- ------ Consolidated Statement of Recognised Income and Expense Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 30 31 March September September 2005 2004 2005 £m £m £m------------------------------- ----- ----------- ------------ -----------Profit for the period 61.9 50.7 109.6Actuarial losses on postretirement employeebenefits - - (0.6)Currency translationdifferences 12.8 4.2 (7.0)---------------------------------- ----------- ------------ -----------Total recognised income andexpense for the period 74.7 54.9 102.0---------------------------------- ----------- ------------ ----------- Consolidated Balance Sheet Unaudited Unaudited Audited as at as at as at 30 30 31 March September September 2005 2004 2005 Note £m £m £m------------------------------- ----- ----------- ------------ -----------ASSETSNon-current assetsGoodwill 257.3 249.8 253.7Other intangibleassets 2.3 - 2.8Property, plant andequipment 67.9 76.8 67.2Investments inassociates 12.3 10.6 8.9Deferred taxassets 42.8 35.5 42.9Trade and otherreceivables 5.4 2.4 4.4Other investments 18.9 7.8 7.5------------------------------- ------ ----------- ------------ ----------- 406.9 382.9 387.4------------------------------- ------ ----------- ------------ -----------Current assetsTrade and otherreceivables 5 145,675.9 734.5 680.6Other investments 11.5 15.6 16.2Cash and cashequivalents 350.0 172.7 231.3------------------------------- ------ ----------- ------------ ----------- 146,037.4 922.8 928.1------------------------------- ------ ----------- ------------ -----------Total assets 146,444.3 1,305.7 1,315.5------------------------------- ------ ----------- ------------ -----------LIABILITIESCurrent liabilitiesTrade and other payables 5 (145,665.9) (740.8) (708.3)Short-term borrowings and overdrafts (0.5) (5.2) (0.6)Short-term provisions (2.7) (6.4) (7.5)Tax payable (46.9) (32.3) (38.0)Obligations under finance leases (0.2) (1.3) (0.7)------------------------------- ------ ----------- ------------ ----------- (145,716.2) (786.0) (755.1)------------------------------- ------ ----------- ------------ -----------Non-current liabilitiesTrade and other payables (10.3) (9.4) (11.1)Long-term borrowings 6 (126.1) - -Retirement benefitobligations (2.7) (3.0) (2.7)Tax payable (7.5) (7.9) (9.8)Deferred tax liabilities (15.5) (10.2) (12.7)Long-term provisions (6.7) (8.5) (3.8)Obligations under finance leases (0.3) (0.6) (0.3)------------------------------- ------ ----------- ------------ ----------- (169.1) (39.6) (40.4)------------------------------- ------ ----------- ------------ -----------Total liabilities (145,885.3) (825.6) (795.5)------------------------------- ------ ----------- ------------ -----------Net assets 559.0 480.1 520.0------------------------------- ------ ----------- ------------ -----------EQUITYCapital and reservesCalled up share capital 8 60.7 60.5 60.6Contingent share capital 8 - 5.6 7.0Share premium account 8 216.0 215.0 215.2Other reserves 8 40.7 29.1 28.8Retained earnings 8 228.8 160.4 197.9------------------------------- ------ ----------- ------------ -----------Equity attributableto equity holders of the parent 546.2 470.6 509.5Minority interests -equity 8 12.8 9.5 10.5------------------------------- ------ ----------- ------------ ----------- 559.0 480.1 520.0------------------------------- ------ ----------- ------------ ----------- Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 30 31 March September September 2005 2004 2005 Note £m £m £m------------------------------- ------ ----------- ------------ -----------Cash flows from operatingactivities 9 (a) 51.6 49.4 133.0 Cash flows from investingactivitiesDividends received fromassociates 0.8 0.4 0.9Interest received fromthird parties 4.7 3.5 6.8Payments to acquiretangible fixed assets (9.9) (25.6) (26.9)Receipts from sale oftangible fixed assets - - 0.3Net payments to acquireother investments (3.5) (4.0) (5.2)Acquisition of interests in businesses net of cashacquired (11.4) (11.7) (16.0)Acquisition of associates (0.2) (4.1) (5.1)------------------------------- ------ ----------- ------------ -----------Net cash used in investing (19.5) (41.5) (45.2)------------------------------- ------ ----------- ------------ -----------Cash flows from financingactivitiesInterest element of finance lease payments (0.1) (0.1) (0.1)Interest paid to thirdparties (1.9) (1.4) (1.8)Dividends paid to minorityinterests (1.1) (1.7) (2.1)Equity dividend paid (38.2) (34.0) (45.0)Share capital purchased for cancellation - (17.3) (17.3)Payments to acquire ownshares (3.7) (3.8) (3.8)Receipts from sale of ownshares - - 1.1Proceeds from issue ofordinary shares 0.9 0.4 0.8Net proceeds fromshort-term borrowings - 5.0 -Capital element offinance lease payments (0.5) (0.7) (1.5)Private placement funds received net of fees 122.4 - -------------------------------- ------ ----------- ------------ -----------Net cash used in financingactivities 77.8 (53.6) (69.7)------------------------------- ------ ----------- ------------ -----------Exchange adjustments 8.9 0.9 (4.7)Net increase /(decrease) incash and cash equivalents 118.8 (44.8) 13.4Net cash and cash equivalents at beginning of period 9 (b) 230.7 217.3 217.3------------------------------- ------ ----------- ------------ ----------- Net cash and cash equivalents at end of period 9 (b) 349.5 172.5 230.7------------------------------- ------ ----------- ------------ ----------- Notes to the IFRS Financial Information 1 Basis of preparation and first time adoption of IFRS (a) Basis of preparation The Group is required to adopt International Financial Reporting Standards ("IFRS") with effect from 1 April 2005. Accordingly, the Interim Report for the 6 months to 30 September 2005 has been prepared in accordance with IFRS accounting policies. At the time of the preparation of the Interim Report, not all standards have been endorsed by the European Commission. It is therefore possible that further changes will be required to the comparative financial information restated in accordance with IFRS, as well as the financial information for the 6 months to 30 September 2005, before the first IFRS Annual Report for the year ending 31 March 2006 is published. The Interim Report has therefore been prepared in accordance with IFRS accounting policies consistent with those that the Group expects to apply in the Annual Report for the year ending 31 March 2006. In particular, the Directors have anticipated that the European Commission will endorse the amendment to IAS19 "Employee Benefits" in time to be applicable to the Annual Report. The accounting policies followed in the Interim Report are the same as those published in the IFRS Transition Report on 13 July 2005 and are available on the Group's website at www.icap.com, except for those relating to IAS32 "Financial Instruments: Disclosure and Presentation" and IAS39 "Financial Instruments: Recognition and Measurement" which apply from 1 April 2005. The Group has adopted the exemption available in IFRS1 "First-time Adoption of IFRS" to apply IAS32 and IAS39 prospectively and not to retrospectively restate prior period comparatives. A restatement of the Group's opening balance sheet as at 1 April 2005 and details of the adjustments required under these standards is provided in note 12. The Interim Report for the 6 months to 30 September 2005 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 on page 25. The comparative financial information for the year ended 31 March 2005 and the 6 months to 30 September 2004 has been extracted from the IFRS Transition Report. The statutory accounts for the year ended 31 March 2005, prepared in accordance with UK GAAP, 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. (b) Income statement Under IFRS the Group will maintain the columnar format for the presentation of its income statement. This will enable 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 and exceptional items. This is the profit measure used in the adjusted EPS calculation (note 4) 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 and exceptional items is reconciled to profit before tax 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. There were no items of an exceptional nature in the 6 months to 30 September 2005. Exceptional items in the year ended 31 March 2005 of £9.1m (6 months to 30 September 2004 - £6.0m) principally related to property and move related expenses and legal and employee related matters. Amortisation and impairment of intangible assets arising from the application of IFRS3 "Business Combinations" is shown on the face of the income statement. The charge for the period of £2.8m includes £1.1m in respect of an impairment during the period. Notes to the Financial Statements 2 Segment reporting (a) Primary segment - Geographical In accordance with IAS14 "Segment Reporting" the Group has defined the primary segment as geographical as this is the basis on which it manages its operations. Period ended 30 September 2005 --------------------------------------------------- ------------------------------------------------ Americas Europe Asia Total Pacific £m £m £m £m--------------------------------------------------- ---------- ---------- -------- ---------Revenue 203.8 195.0 45.1 443.9--------------------------------------------------- ---------- ---------- -------- ---------Group operating profit before amortisation andimpairment of intangibles and exceptional items 50.4 40.0 4.0 94.4Amortisation and impairment of intangibles (1.1) (1.6) (0.1) (2.8)Exceptional items - - - ---------------------------------------------------- ---------- ---------- -------- ---------Group operating profit 49.3 38.4 3.9 91.6Net finance income 1.4 0.5 0.1 2.0Share of profit of associates(after tax) - 1.3 0.5 1.8--------------------------------------------------- ---------- ---------- -------- ---------Profit before tax 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 Group operating profit is £2.9m in respect of joint ventures (Americas £1.4m, Europe £0.8m, Asia Pacific £0.7m). Period ended 30 September 2004--------------------------------------------------- ------------------------------------------------ Americas Europe Asia Total Pacific £m £m £m £m--------------------------------------------------- ---------- ---------- -------- ---------Revenue 184.8 168.7 42.3 395.8--------------------------------------------------- ---------- ---------- -------- ---------Group operating profit before amortisation andimpairment of intangibles and exceptional items 40.5 34.2 5.9 80.6Amortisation and impairment of intangibles - - - -Exceptional items - (6.0) - (6.0)--------------------------------------------------- ---------- ---------- -------- ---------Group operating profit 40.5 28.2 5.9 74.6Net finance income/(expense) 0.5 1.9 (0.1) 2.3Share of profit of associates(after tax) - - 0.4 0.4--------------------------------------------------- ---------- ---------- -------- ---------Profit before tax 41.0 30.1 6.2 77.3--------------------------------------------------- ---------- ---------- -------- --------- Included in revenue is £8.9m in respect of joint ventures (Americas £5.1m, Europe £2.5m, Asia Pacific £1.3m). Included in Group operating profit is £2.9m in respect of joint ventures (Americas £1.5m, Europe £0.6m, Asia Pacific £0.8m). Year ended 31 March 2005--------------------------------------------------- ------------------------------------------------ Americas Europe Asia Total Pacific £m £m £m £m--------------------------------------------------- ---------- ---------- -------- ---------Revenue 374.0 354.5 84.2 812.7--------------------------------------------------- ---------- ---------- -------- ---------Group operating profit before amortisation andimpairment of intangibles and exceptional items 88.2 76.4 9.4 174.0Amortisation and impairment of intangibles (0.5) (0.2) - (0.7)Exceptional items 0.3 (7.0) (2.4) (9.1) --------------------------------------------------- ---------- ---------- -------- ---------Group operating profit 88.0 69.2 7.0 164.2Net finance income/(expense) 1.3 3.4 (0.1) 4.6Share of (loss)/profit ofassociates (after tax) - (2.7) 0.7 (2.0)--------------------------------------------------- ---------- ---------- -------- ---------Profit before tax 89.3 69.9 7.6 166.8--------------------------------------------------- ---------- ---------- -------- --------- Included in revenue is £18.7m in respect of joint ventures (Americas £10.2m, Europe £5.8m, Asia Pacific £2.7m). Included in Group operating profit is £6.0m in respect of joint ventures (Americas £2.9m, Europe £1.6m, Asia Pacific £1.5m). (b) Secondary segment - Business activity Period ended 30 September 2005---------------------------------- --------------------------------------------------------------------------- Securities Derivatives Energy Electronic Information Total broking and money broking broking services broking £m £m £m £m £m £m ---------- ----------- ------- ---------- ----------- -------Revenue 174.8 172.7 34.3 49.3 12.8 443.9 ---------- ----------- ------- ---------- ----------- -------Group operating profit before amortisation and impairment of intangibles and exceptional items 26.7 38.1 6.8 15.5 7.3 94.4Amortisation and impairmentof intangibles (1.7) - - - (1.1) (2.8)Exceptional items - - - - - - ---------- ----------- ------- ---------- ----------- -------Group operating profit 25.0 38.1 6.8 15.5 6.2 91.6 ---------- ----------- ------- ---------- ----------- ------- Included in revenue is £12.2m in respect of joint ventures (derivatives and money broking £10.7m, securities broking £1.5m). Included in Group operating profit is £2.9m in respect of joint ventures (derivatives and money broking £3.0m, securities broking £(0.1)m). Period ended 30 September 2004---------------------------------- --------------------------------------------------------------------------- Securities Derivatives Energy Electronic Information Total broking and money broking broking services broking £m £m £m £m £m £m ---------- ----------- ------- ---------- ----------- -------Revenue 164.4 156.0 23.7 39.9 11.8 395.8 ---------- ----------- ------- ---------- ----------- -------Group operating profit before amortisation and impairment of intangibles and exceptional items 25.7 35.2 3.0 9.4 7.3 80.6Amortisation and impairment of intangibles - - - - - -Exceptional items (2.3) (3.3) (0.5) 0.1 - (6.0) ---------- ----------- ------- ---------- ----------- -------Group operating profit 23.4 31.9 2.5 9.5 7.3 74.6 ---------- ----------- ------- ---------- ----------- ------- Included in revenue is £8.9m in respect of joint ventures (derivatives and money broking £7.3m, securities broking £1.6m). Included in Group operating profit is £2.9m in respect of joint ventures (derivatives and money broking £2.8m, securities broking £0.1m). Year ended 31 March 2005---------------------------------- --------------------------------------------------------------------------- Securities Derivatives Energy Electronic Information Total broking and money broking broking services broking £m £m £m £m £m £m ---------- ----------- ------- ---------- ----------- -------Revenue 324.6 328.4 50.9 83.8 25.0 812.7 ---------- ----------- ------- ---------- ----------- -------Group operating profit before amortisation and impairment of intangibles and exceptional items 52.0 75.7 7.5 23.7 15.1 174.0Amortisation and impairmentof intangibles - (0.2) - - (0.5) (0.7)Exceptional items (2.2) (6.7) (0.3) 0.1 - (9.1) ---------- ----------- ------- ---------- ----------- -------Group operating profit 49.8 68.8 7.2 23.8 14.6 164.2 ---------- ----------- ------- ---------- ----------- ------- Included in revenue is £18.7m in respect of joint ventures (derivatives and money broking £15.8m, securities broking £2.9m). Included in Group operating profit is £6.0m in respect of joint ventures (derivatives and money broking £5.9m, securities broking £0.1m). 3 Taxation 6 months 6 months Year ended ended ended 30 30 31 March September September 2005 2004 2005 £m £m £m----------------------------------- --------- --------- ---------Current taxationUK Corporation Tax at 30.0%- Current period 13.0 10.1 29.5- Double tax relief - (3.0) (5.7)- Adjustment to prior periods (2.0) (0.8) (2.7)Overseas taxation- Current period 20.3 17.6 41.1- Adjustment to prior periods 0.1 (0.4) (2.9)----------------------------------- --------- --------- --------- 31.4 23.5 59.3Deferred taxation 2.1 3.1 (2.1)----------------------------------- --------- --------- --------- 33.5 26.6 57.2----------------------------------- --------- --------- --------- The Group's share of profit of associates in the income statement is shown net of tax of £1.1m (30 September 2004 - £0.5m; 31 March 2005 - £0.9m). 4 Earnings per ordinary share Under IFRS the Group is required to disclose basic and diluted EPS on the face of the income statement. The Group will continue 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 Year ended ended ended 30 30 31 March September September 2005 2004 2005 £m £m £m----------------------------------- --------- --------- ---------Earnings attributable to equityholders of the parent 60.7 49.9 107.5Amortisation and impairment ofintangibles 2.8 - 0.8Exceptional items - 6.0 9.1Taxation on exceptional items - (1.8) (1.2)----------------------------------- --------- --------- ---------Adjusted 63.5 54.1 116.2----------------------------------- --------- --------- --------- Shares Shares Shares millions millions millions----------------------------------- --------- --------- ---------Weighted average number of sharesBasic 596.7 579.0 586.9Dilutive effect of contingentshare capital 1.6 23.8 13.1----------------------------------- --------- --------- ---------Adjusted 598.3 602.8 600.0----------------------------------- --------- --------- ---------Dilutive effect of share options 15.0 14.7 13.8----------------------------------- --------- --------- ---------Diluted 613.3 617.5 613.8----------------------------------- --------- --------- --------- Pence Pence Pence----------------------------------- --------- --------- ---------Earnings per shareBasic 10.2 8.6 18.3Diluted 9.9 8.1 17.5Adjusted 10.6 9.0 19.4----------------------------------- --------- --------- --------- 5 Matched principal transactions Certain Group companies are involved as principal in the purchase and simultaneous commitment to sell securities between third parties. Such trades are complete only when both sides of the deal are settled, and so the Group is exposed to risk in the event that one side of the transaction remains unsettled. Substantially all the transactions settle within a short period of time and the settlement risk is considered to be minimal. The Group has adopted IAS32 and IAS39 prospectively from 1 April 2005. Hence matched principal transactions in the Interim Report at 30 September 2004 and 31 March 2005 are accounted for in accordance with UK GAAP. Under UK GAAP, the amounts due to and payable by counterparties in respect of matched principal business expected to settle in the normal course of trading are offset and the net amount is included in trade and other receivables. Only outstanding transactions which have gone beyond settlement date and where neither side of the transaction has settled are shown gross. The gross amount included in both trade and other receivables and trade and other payables is £569.0m at 30 September 2004 and £509.9m at 31 March 2005. Under IFRS, all amounts due to and payable by counterparties in respect of matched principal business are shown gross. The gross amount included in both trade and other receivables and trade and other payables is £144,372.2m at 30 September 2005. Certain Group companies are involved in collaterised stock lending transactions as an intermediary between counterparties. Under UK GAAP, the net amount is included in trade and other payables (30 September 2004 - £0.1m; 31 March 2005 - £0.3m). Under IFRS such amounts are shown gross with £1,064.9m included in trade and other receivables at 30 September 2005 and £1,067.1m included in trade and other payables. 6 Long-term borrowings Long-term borrowings represent a $225m subordinated debt private placement, net of issue costs, completed by the Group in June 2005. The borrowing includes $193m of fixed rate debt at 5.84% with a 10-year maturity which the Group has the option to repay after five years and a $32m floating rate component that can be repaid after two years. 7 Dividends 6 months 6 months Year ended ended ended 30 30 31 March September SeptemberAmounts recognised as distributions to 2005 2004 2005equity holders in the period: £m £m £m----------------------------------- --------- --------- ---------Final dividend for the year ended31 March 2005 of 6.4p (2004 -5.7p) per share 38.2 34.0 34.0Interim dividend for the year ended31 March 2005 of 1.85p per share - - 11.0----------------------------------- --------- --------- --------- 38.2 34.0 45.0----------------------------------- --------- --------- --------- On 17 November 2005 the Board approved an interim dividend for the year ended 31 March 2006 of £14.9m (2.50p per share). 8 Reconciliation of total equity (a) 30 September 2005------------------- --------- ---------- -------- -------- -------- ------- -------- -------- Called up Contingent Share share share premium Other Retained Minority Total capital capital account reserves earnings Total interest equity £m £m £m £m £m £m £m £m------------------- --------- ---------- -------- -------- -------- ------- -------- --------As at 1 April 2005 under IFRS 60.6 7.0 215.2 28.8 197.9 509.5 10.5 520.0Impact of adoptionof IAS32 and IAS39(note 12) - (7.0) - 9.0 (2.9) (0.9) - (0.9)------------------- --------- ---------- -------- -------- -------- ------- -------- -------- 60.6 - 215.2 37.8 195.0 508.6 10.5 519.1Increase in shares in employee trusts - - - - (3.7) (3.7) - (3.7)Employee shareoption charges - - - - 2.2 2.2 - 2.2Profit forthe period - - - - 60.7 60.7 1.2 61.9Dividends paid - - - - (38.2) (38.2) (1.1) (39.3)Exchange adjustmentson net investmentsin overseas entities - - - 0.2 12.8 13.0 - 13.0Ordinary shares issued 0.1 - 0.8 - - 0.9 - 0.9Net movement on cash flow hedges - - - (2.1) - (2.1) - (2.1)Revaluations ofavailable forsale assets - - - 4.8 - 4.8 - 4.8Other movements - - - - - - 2.2 2.2------------------- --------- ---------- -------- -------- -------- ------- -------- --------As at 30 September 2005 60.7 - 216.0 40.7 228.8 546.2 12.8 559.0------------------- --------- ---------- -------- -------- -------- ------- -------- -------- (b) 30 September 2004------------------- --------- ---------- -------- -------- -------- ------- -------- -------- Called up Contingent Share share share premium Other Retained Minority Total capital capital account reserves earnings Total interest equity £m £m £m £m £m £m £m £m------------------- --------- ---------- -------- -------- -------- ------- -------- --------As at 1 April 2004 under IFRS 57.8 108.1 143.7 28.0 159.7 497.3 10.7 508.0Cancellation ofcompany shares (0.8) - - 0.8 (17.3) (17.3) - (17.3)Contingent sharecapital issued 3.4 (96.1) 70.9 - - (21.8) - (21.8)Other movements in contingent share capital - (6.4) - - - (6.4) - (6.4)Increase in shares in employee trusts - - - - (2.7) (2.7) - (2.7)Share-based payments in the period - - - - 0.6 0.6 - 0.6Profit for the period - - - - 49.9 49.9 0.8 50.7Dividends paid - - - - (34.0) (34.0) (1.7) (35.7)Exchange adjustmentson net investments inoverseas entities - - - 0.3 4.2 4.5 (0.3) 4.2Other ordinaryshares issued 0.1 - 0.4 - - 0.5 - 0.5------------------- --------- ---------- -------- -------- -------- ------- -------- --------As at 30 September 2004 60.5 5.6 215.0 29.1 160.4 470.6 9.5 480.1------------------- --------- ---------- -------- -------- -------- ------- -------- -------- (c) 31 March 2005------------------- --------- ---------- -------- -------- -------- ------- -------- -------- Called up Contingent Share share share premium Other Retained Minority Total capital capital account reserves earnings Total interest equity £m £m £m £m £m £m £m £m------------------- --------- ---------- -------- -------- -------- ------- -------- --------As at 1 April 2004 under IFRS 57.8 108.1 143.7 28.0 159.7 497.3 10.7 508.0 Cancellation ofcompany shares (0.8) - - 0.8 (17.3) (17.3) - (17.3)Contingent sharecapital issued 3.4 (96.1) 70.9 - - (21.8) - (21.8)Other movements in contingent share capital - (5.0) - - - (5.0) - (5.0)Increase in shares inemployee trusts - - - - (0.7) (0.7) - (0.7)Share-based payments in the period - - - - 1.3 1.3 - 1.3Profit for the year - - - - 107.5 107.5 2.1 109.6Dividends paid - - - - (45.0) (45.0) (2.1) (47.1)Exchange adjustmentson net investmentsin overseas entities - - - - (7.0) (7.0) (0.2) (7.2)Other ordinaryshares issued 0.2 - 0.6 - - 0.8 - 0.8Actuarial losses for the year (net of tax) - - - - (0.6) (0.6) - (0.6)------------------- --------- ---------- -------- -------- -------- ------- -------- -------- As at 31 March 2005 60.6 7.0 215.2 28.8 197.9 509.5 10.5 520.0------------------- --------- ---------- -------- -------- -------- ------- -------- -------- 9 Cash flow 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2005 2004 2005 Unaudited Unaudited Audited £m £m £m------------------------------------ -------------- -------------- ----------Cash flows from operating activitiesProfit before tax 95.4 77.3 166.8Operating exceptional items - 6.0 9.1Depreciation of tangible fixedassets 11.4 11.8 21.7Amortisation of other intangible assets 2.8 - 0.8Amortisation of other investments 0.4 - 0.4Amortisation of cost of ownshares 2.2 1.2 2.0(Profit)/loss on sale of tangible fixed assets 0.1 0.2 (0.1)Profit on sale of current assetinvestments - - (0.9)Share of operating(profits)/losses of associates (1.8) (0.4) 1.9Net finance income (2.0) (2.3) (4.6)Taxation (23.3) (20.2) (46.8)------------------------------------ -------------- -------------- ---------- 85.2 73.6 150.3Increase in trade and otherreceivables* (67.6) (41.1) (30.2)Increase in trade and otherpayables* 40.3 17.5 17.7------------------------------------ -------------- -------------- ----------Cash inflow before operatingexceptionals 57.9 50.0 137.8Operating exceptional items paid (6.3) (0.6) (4.8)------------------------------------ -------------- -------------- ----------Net cash flow from continuingoperating activities 51.6 49.4 133.0 \* 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". (b) Net cash and cash equivalents For the purposes of the cash flow statement, 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. 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2005 2004 2005 Unaudited Unaudited Audited £m £m £m------------------------------------ -------------- -------------- ----------Cash and cash equivalentsincluded in current assets 350.0 172.7 231.3Bank overdrafts (0.5) (0.2) (0.6)------------------------------------ -------------- -------------- ----------Net cash and cash equivalents 349.5 172.5 230.7------------------------------------ -------------- -------------- ---------- (c) Changes to the Cash Flow Statement following adoption of IFRS 6 months ended Year ended 30 September 31 March 2004 2005 Unaudited Audited £m £m------------------------------------ -------------- ----------UK GAAP cash at bank and in hand 169.2 227.0Bank overdrafts (0.2) (0.6)Proportional consolidation of joint ventures 3.5 4.3------------------------------------ -------------- ----------Net cash and cash equivalents 172.5 230.7------------------------------------ -------------- ---------- Under UK GAAP certain short-term borrowings were treated as part of cash and cash equivalents. These have been excluded from the IFRS Cash Flow Statement as they do not meet the definition of cash and cash equivalents as set out in IAS7 "Cash Flow Statements". The balance outstanding in respect of these short-term borrowings as at 31 March 2005 was £nil and as at 30 September 2004 £5m. Under IFRS joint ventures are proportionally consolidated whereas under UK GAAP the equity method of consolidation was applied. Consequently the Group's share of joint venture cash and cash equivalent balances and their respective cash flow movements have been reflected on a line by line basis in the restated Cash Flow Statement. Joint venture cash balances as at 31 March 2005 were £4.3m and as at 30 September 2004 £3.5m. Under IFRS the net increase in net cash and cash equivalents is after taking account of exchange adjustments. On a UK GAAP basis exchange adjustments were not included in the increase in cash for the year, but shown within the reconciliation of net funds. Exchange adjustments as at 31 March 2005 were £4.7m and as at 30 September 2004 £0.9m. Under IFRS other reclassifications of £1.6m as at 30 September 2004 and £0.1m as at 31 March 2005 have also been made. 10 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 BrokerTec. 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 Garban GTN and on the Groups' counterclaim for judgment declaring that the Garban 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 Garban 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, which remain pending. The claimants have previously indicated an intention to appeal certain of the Court's rulings. 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, 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. 11 Exchange Rates The principal exchange rates which affect the Group, expressed in currency per £1, are shown below: Average Average Closing Closing Closing rate rate Average rate rate rate 6 months 6 months rate as at 30 as at 30 as at ended 30 ended 30 year ended September September 31 March September September 31 March 2005 2004 2005 2005 2004 2005--------------- --------- --------- -------- --------- --------- ----------US Dollar 1.77 1.81 1.89 1.82 1.81 1.85Euro 1.47 1.46 1.45 1.47 1.49 1.47Yen 200.51 199.44 202.11 199.33 198.14 197.91--------------- --------- --------- -------- --------- --------- ---------- 12 IFRS reconciliations Impact of the adoption of IAS32 and IAS39 as at 1 April 2005 The Group has adopted IAS32 and IAS39 prospectively from 1 April 2005. The following adjustments were made at 1 April 2005 to the Group's balance sheet at 31 March 2005 to reflect the adoption of IAS32 and IAS39. IFRS pre Other IFRS post adoption Matched Derivative IAS32 adoption of IAS32 principal financial and IAS39 of IAS32 and IAS39 at transactions instruments adjustments and IAS39 31 March (note 5) (note a) (notes b, c) at 1 April 2005 2005 £m £m £m £m £m--------------------------- ------------ ------------ ----------- ----------- ----------ASSETSNon-current assets 387.4 - 0.8 5.1 393.3Current assetsTrade and other receivables 680.6 175,310.8 3.3 3.1 175,997.8 Other investments 16.2 - - (4.1) 12.1Cash and cash equivalents 231.3 - - - 231.3--------------------------- ------------ ------------ ----------- ----------- ---------- 928.1 175,310.8 3.3 (1.0) 176,241.2--------------------------- ------------ ------------ ----------- ----------- ----------Total assets 1,315.5 175,310.8 4.1 4.1 176,634.5--------------------------- ------------ ------------ ----------- ----------- ---------- LIABILITIESCurrent liabilitiesTrade and other payables (708.3) (175,310.8) (1.6) (4.7) (176,025.4)Short-term borrowingsand overdrafts (0.6) - - - (0.6)Short-term provisions (7.5) - - - (7.5)Tax payable (38.0) - - - (38.0)Obligations underfinance leases (0.7) - - - (0.7)--------------------------- ------------ ------------ ----------- ----------- ---------- (755.1) (175,310.8) (1.6) (4.7) (176,072.2)--------------------------- ------------ ------------ ----------- ----------- ---------- Non-current liabilitiesTrade and other payables (11.1) - (0.5) (2.3) (13.9)Retirement benefit obligations (2.7) - - - (2.7)Tax payable (9.8) - - - (9.8)Deferred tax liabilities (12.7) - - - (12.7)Long-term provisions (3.8) - - - (3.8)Obligations underfinance leases (0.3) - - - (0.3)--------------------------- ------------ ------------ ----------- ----------- ---------- (40.4) - (0.5) (2.3) (43.2)--------------------------- ------------ ------------ ----------- ----------- ----------Total liabilities (795.5) (175,310.8) (2.1) (7.0) (176,115.4)--------------------------- ------------ ------------ ----------- ----------- ----------Net assets 520.0 - 2.0 (2.9) 519.1--------------------------- ------------ ------------ ----------- ----------- ----------EQUITYCapital and reservesCalled up share capital 60.6 - - - 60.6Contingent share capital 7.0 - - (7.0) -Share premium account 215.2 - - - 215.2Other reserves 28.8 - 4.7 4.3 37.8Retained earnings 197.9 - (2.7) (0.2) 195.0--------------------------- ------------ ------------ ----------- ----------- ----------Equity attributable to equity holders of the parent 509.5 - 2.0 (2.9) 508.6Minority interests - equity 10.5 - - - 10.5--------------------------- ------------ ------------ ----------- ----------- ---------- 520.0 - 2.0 (2.9) 519.1--------------------------- ------------ ------------ ----------- ----------- ---------- As described in note 5, under IFRS all matched principal transactions, including collaterised stock lending transactions, are shown gross in trade and other receivables and trade and other payables. The adjustment required on adoption of this policy on 1 April 2005 is to gross up trade and other receivables and trade and other payables by £175,310.8m. The impact of applying IAS32 and IAS39 in respect of derivative financial instruments as at 1 April 2005 is to increase net assets by £2.0m. The accounting policy in respect of derivative financial instruments is described in note (a) below. Other IAS32 and IAS39 adjustments as at 1 April 2005 result in a net decrease in net assets of £2.9m. These comprise an increase in net assets of £4.3m in respect of the revaluation of investments to market value as described in note (b) below, a decrease in net assets of £7.0m on the reclassification of contingent share capital (note (c) below), and a £0.2m decrease in net assets due to a change in the Group's debtor provisioning policy. (a) Derivative financial instruments The Group uses various financial instruments as hedges to reduce exposure to foreign exchange and interest rate risk. These include forward foreign exchange contracts, currency options, cross currency and interest rate swaps. Under UK GAAP, derivative financial instruments are not required to be recognised on the balance sheet at fair value where they are hedging a defined financial risk. Under IFRS, the requirements for defining a hedge relationship are stricter than under UK GAAP (the hedge relationship must be documented and tested for effectiveness) and all derivatives are measured at fair value. Where derivatives do not qualify for hedge accounting, any gains or losses on remeasurement are immediately recognised in the income statement. Where derivatives qualify for hedge accounting, the recognition of the resultant gain or loss depends on the nature of the hedge relationship and the item being hedged. Under IAS39 hedges are either classified as fair value hedges, cash flow hedges or net investment hedges. Fair value hedges: Derivative financial instruments are classified as fair value hedges when they hedge the Group's exposure to changes in the fair value of a recognised asset or liability. Under UK GAAP the hedged item is recorded at historic cost, with the hedging instrument typically being held off-balance sheet. Under IFRS, both the hedging instrument and hedged item are recorded at fair value on the balance sheet, with changes in fair value being taken through the income statement. Cash flow hedges: Derivative financial instruments are classified as cash flow hedges when they hedge the Group's exposure to changes in cash flows attributable to a particular asset or liability or a highly probable forecast transaction. Under UK GAAP, the hedged item is recorded at historical cost or is a forecasted cash flow, with the hedging instrument typically held off-balance sheet. Under IFRS, gains or losses on designated cash flow hedges are recognised directly in shareholders' equity, to the extent that they are determined to be effective. Any remaining portion of the gain or loss is recognised immediately in the income statement. On recognition of the hedged asset or liability, any gains or losses that had previously been recognised directly in shareholders' equity are included in the initial measurement of the fair value of the asset or liability. As at 1 April 2005 assets with an original carrying value of nil have been designated as cash flow hedges. The fair value of these assets was £4.7m Net investment hedges: Under both UK GAAP and IFRS, changes in the value of foreign denominated investments due to currency movements are recognised directly in shareholders' equity. Under UK GAAP, the related hedging instrument is held at fair value on the balance sheet, with gains or losses being recognised directly in shareholders' equity. Under IFRS, the accounting treatment for a net investment hedge is generally consistent with the treatment for a cash flow hedge. (b) Investments Under IFRS, the Group classifies its other investments as either available for sale, fair value through the income statement or loans and receivables. The classification of assets is determined at initial recognition and depends on the purpose for which the asset was acquired. Available for sale assets: These are usually equity investments that are not associates, joint ventures or subsidiary undertakings, that have been acquired for the long term or are assets that have not been designated to other categories. After initial recognition, they are held at fair value where this is readily available and movements in value are recognised in shareholders' equity. Where the fair value cannot be reliably measured, the assets are held at cost less any provision for impairment. As at 1 April 2005 assets with an original carrying value of £7.3m have been designated as available for sale. The fair value of these assets was £12.4m, of which £2.3m is included within associates. Assets held at fair value through the income statement: Assets designated as held at fair value through the income statement are initially recognised at cost, and then revalued to fair value on a regular basis. All movements in value are recognised immediately in the income statement. These assets are usually held for the short term or for trading purposes. As at 1 April 2005 assets with an original carrying value of £8.0m have been designated as assets held at fair value through the income statement. The fair value of these assets was £6.0m. Loans and receivables: These are non-derivative financial assets with fixed or determinable payments. After initial recognition at cost, these assets are valued at amortised cost using the effective interest rate method. The assets are not intended to be traded by the Group. (c) Contingent share capital In recent years, the Group has completed a number of acquisitions to be satisfied in part by deferred contingent consideration. The deferred contingent consideration includes amounts payable in either cash or shares at the Group's option. Under UK GAAP, such outstanding amounts have been included as contingent share capital. Under IFRS, where the contingent number of shares to be issued is dependent upon the market value of the shares at the date of issue, this is recognised as a liability. Where the contingent number of shares is fixed and does not depend upon the market value of the shares at the date of issue, it is recognised as contingent share capital. For UK GAAP to IFRS Reconciliations, please refer to the full announcement on; www.icap.com INDEPENDENT REVIEW REPORT TO ICAP plc Introduction We have been instructed by the company to review the financial informationfor the six months ended 30 September 2005 which comprises consolidatedbalance sheet as at 30 September 2005 and the related consolidated incomestatement, consolidated statement of recognised income and expense andconsolidated cash flow statement for the six months then ended and relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the interim report in accordance with theListing Rules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Groupwill be prepared in accordance with accounting standards adopted for use inthe European Union. This interim report has been prepared in accordance withthe basis set out in note 1. The accounting policies are consistent with those that the directors intendto use in the next annual financial statements. This interim financialinformation has been prepared in accordance with those IFRS standards andIFRIC interpretations expected to be issued and effective or issued and earlyadopted at 31 March 2006. The IFRS standards and IFRIC interpretations thatwill be applicable and adopted for use in the European Union at 31 March2006, are not known with certainty at the time of preparing this interimfinancial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom.A review consists principally of making enquiries of Group management andapplying analytical procedures to the financial information and underlyingfinancial data and, based thereon, assessing whether the disclosed accountingpolicies have been applied. A review excludes audit procedures such as testsof controls and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit and therefore provides a lowerlevel of assurance. Accordingly we do not express an audit opinion on thefinancial information. This report, including the conclusion, has beenprepared for and only for the company for the purpose of the Listing Rules ofthe Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purposeor to any other person to whom this report is shown or into whose hands itmay 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 modificationsthat should be made to the financial information as presented for the sixmonths ended 30 September 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon22 November 2005 Note:The maintenance and integrity of the ICAP website is the responsibility ofthe directors; the work carried out by the auditors does not involveconsideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the financialinformation since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and disseminationof financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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