Michael Spencer, ICAP

ICAP reports solid progress in difficult markets

ICAP, an interdealer broker and provider of post trade risk and information services, has announced its results for the six months ended 30 September 2012, a period which group chief executive Michael Spencer describes as “one of the toughest” of his career.

During the period group revenue fell to GBP746m, a 14 per cent decrease, while profit before tax of GBP137m was down 26 per cent.

Electronic, post trade risk and information contributed 67 per cent of operating profit, while the company is on target to realise cost savings of more than GBP50m in the current financial year and at least GBP60m of annualised cost savings by the year end in addition to the GBP20m achieved in the prior year.

The group’s operating profit margin was 19 per cent (30 September 2011 – 22 per cent), while EPS (adjusted basic) reduced by 21 per cent to 15.4p; EPS (basic) reduced from 15.4p to 7.8p. 

ICAP’s ongoing free cash flow is GBP108m (30 September 2011 - GBP105m) with free cash flow conversion of 109 per cent (30 September 2011 – 82 per cent).

The interim dividend payment to shareholders was 6.60p per share (30 September 2011 – 6.00p per share).

Spencer (pictured) says: "This has been one of the toughest periods in my 36 year career in the wholesale financial markets. Trading volumes this year have fallen significantly across nearly all asset classes and geographies whether equities, futures, FX, commodities, fixed income and also OTC. This has been caused by a combination of factors: global economic weakness, the continuing Eurozone crisis, bank recapitalisation and deleveraging, uncertainty over regulatory reform, quantitative easing and near zero rates, to name the main ones. I do not believe this negative environment will continue indefinitely but equally I do not expect it to improve imminently. It has been a time to weather a hard storm and prepare thoroughly for financial regulatory reform.

"Against this adverse backdrop we have focused strongly on cutting fixed costs and compensation, slimming the firm to a lower expense base at the same time as focusing on how US and European regulatory reform will create big changes and big opportunities within our sector. We believe we have delivered a creditable performance in a challenging half year. The profits from our electronic division have also exceeded voice profits for the first time.

"Our cost reduction programme continues apace and we remain on track to deliver in excess of GBP50m of savings this year in addition to the GBP20m achieved last year.

"Importantly we have seen a very significant increase in activity on our i-Swap Euro platform as the dealers prepare for the new regulatory environment with an eight fold increase in monthly volumes since the summer low point.  We intend to launch in US dollars in early 2013. We also recently launched ISDX, The ICAP Securities and Derivatives Exchange (formerly Plus Stock Exchange). Likewise the improvements in our electronic platforms and post trade services are bearing more fruit. We have seen an increase in BrokerTec’s market share since the major technology upgrade earlier this year. And although it is still early days, we are pleased that the changes we have recently made at EBS have been well received by our customers.  Our post trade businesses continue to grow as we help our customers reduce risk and costs.”

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