Icap (IAP.L), the world's premier interdealer broker, is making this Interim Management Statement in accordance with the new EU Transparency Directive and FSA requirements.
This statement relates to the three month period from 1 April 2007 to 30 June 2007 and will be delivered to those attending ICAP's Annual General Meeting today.
Performance during the period
ICAP's markets display strong, long-term structural growth with underlying annual growth rate of industry revenues, in the medium term, estimated to be between 7% and 9% per annum. This underlying rate embraces periods when volatility and volumes in the wholesale financial markets can be very high and also quieter periods when these markets are more subdued. The first quarter began with lower than average levels of volatility and ended with very high levels. As a result ICAP's underlying revenue*, as expected, is ahead of last year.
Commenting on the first quarter and outlook, Michael Spencer, Group Chief Executive of ICAP, said "Our positive outlook for the business remains positive. ICAP continues to perform well and has made another successful start to the year. Over the quarter as a whole volatility in interest rates, foreign exchange, energy and credit markets ensured that both electronic and voice broking volumes increased, boosting ICAP's revenues. Activity in the emerging markets, where ICAP enjoys a very strong position, continues to grow much more rapidly than other markets. The energy markets too have enjoyed a busy period and the new acquisition in ship broking and freight derivatives, ICAP Hyde, is performing strongly."
- The combination of increased electronic activity with the delivery of incremental EBS synergies has driven very strong profit growth in our electronic business.
- The very active conditions in global financial markets in June led to a significant increase in volumes (single count) on ICAP's electronic broking platforms.
- Average daily electronic broking volumes in June were USD $842 billion, the highest level ever and an increase of 32 percent over the same month in the previous year. Daily electronic broking voluolume exceeded $1 trillion ($1,000 billion) twice during June.
- U.S Treasury products saw particularly strong trading with an average daily volume of $168 billion in June.
- Electronic broking volumes on ICAP's BrokerTec platform in the European repo market reached a record level of €261 billion a day at the end of May.
- Increased activity in the global FX markets also pushed average daily volumes on ICAP's spot foreign exchange platform EBS to $167 billion during the month. The comparative period of the previous financial year was also particularly active for EBS
- ICAP has further expanded its suite of electronically traded currency pairs on the EBS platform with the introduction of sterling/yen and Australian dollar/New Zealand dollar trading. ICAP currently offers trading in 26 currencies and precious metals across 34 currency pairs on the EBS platform.
- Voice broking volumes also rose significantly in June on the back of the market volatility. Notably, ICAP's average daily voice broking volumes in the global interest rate swap market in June increased by 82% compared with June the previous year. Voice and electronic broking activity in both single name credit default swap (CDS) and index products also increased to its highest level since March 2007.
The Group began the year with a net cash position of £19.5 million and is a highly cash generative business that has produced consistently high profit to cash conversion.
ICAP's strategy is to grow, both organically and by selective acquisition. There are an increasing number of expansion opportunities for the Group, both large and small, as the world's financial markets grow and the current levels of financial innovation continue. ICAP is well placed to make further acquisitions and fund the development of the Group using both its existing financial resources and if necessary by raising additional debt financing. As a result of a waiver from its consolidated regulatory capital requirements ICAP is able to make acquisitions using debt without affecting its regulatory capital headroom.
In the medium term, if ICAP does not require its financial resources to continue the expansion of the business, then it will identify the best method of returning excess cash to shareholders.
* Underlying revenue excludes the impact of foreign exchange, acquisitions, disposals and discontinued businesses. For the year ended 31 March 2007, ICAP's effective dollar/sterling exchange rate was $1.89. Assuming current exchange rates prevail ($2.04) the effective exchange rate for the year ended 31 March 2008 would be $2.03.