Icap (IAP.L), the world's premier interdealer broker, is making this Interim Management Statement in relation to the period from 1 October 2007 to today's date and the outlook for ICAP's financial year ending 31 March 2008.
Performance during the period
ICAP's markets continue to display strong, long-term structural growth with an underlying, medium term industry revenue growth rate estimated to be at least 10% per annum. This structural growth rate covers both periods when volatility and volumes in the wholesale financial markets can be very high and also quieter periods when these markets are more subdued. Overall, the period from 1 October 2007 has had higher than average levels of volatility and consequently, ICAP's revenue for the year to date is significantly ahead of last year.
Commenting on the third quarter and outlook, Michael Spencer, Chief Executive of ICAP, said "ICAP has continued to perform very well and we remain very positive about the outlook for the business. As a result of continuing volatility in interest rates, foreign exchange, energy and parts of the credit markets over the period we saw increased volumes in both electronic and voice broking, boosting ICAP's revenues. Following the normal slowdown in December we have seen most of our markets return in January to the higher levels of activity we experienced between June and November 2007.
"We have continued to make significant investments in our electronic systems providing further service improvements to our customers and enabling us to handle record volumes.
"Steeper yield curves, volatility in foreign exchange and continuing activity in the credit markets suggest that this period of increased activity may continue for some time."
Trading across the group since September 2007 has been strong and profit (before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items) for the financial year ending 31 March 2008 is anticipated to be above the current consensus of analysts' forecasts.
- ICAP completed the acquisition of Traiana, Inc, the leading provider of automated post-trade processing services to financial institutions, on 4 December 2007. The acquisition, first announced in October 2007, marks a further expansion for ICAP into the post-trade processing business, following the very successful investments in TriOptima in 2001 and Reset in 2006. Post trade services is an area where technology innovation is creating exciting new business opportunities for ICAP and is an increasingly competitive necessity in growing market share in the interdealer broking business.
The consideration for 100% of the share capital of Traiana was US$238 million payable in cash and $9 million of ICAP shares that will vest within four years. The acquisition of Traiana will be initially financed using a new acquisition facility on similar terms to ICAP's existing £350 million facility.
Traiana provides global banks, broker/dealers, buy-side firms and e-trading platforms with straight through processing automation for post trade processes in the OTC markets. Traiana's Harmony network is used by over 50 of the world's leading financial market participants and has become the market standard for post-trade processing of foreign exchange transactions. The company has expanded its product offering beyond foreign exchange into other asset classes.
- Spot FX on ICAP's leading electronic currency platform EBS reached an average daily volume of $200 billion in the last quarter of 2007, an increase of 42 percent (2006: $141 billion), as volatility in the currency markets and increased algorithmic trading activity continued to drive the growth of foreign exchange as an asset class.
- Electronic trading of fixed income products via ICAP's BrokerTec platform also hit record levels. Average daily volume of transactions involving U.S. Treasury products, European repos and US repos was $610 billion in the last quarter of 2007, a 26 percent increase year-on-year.
- ICAP's joint venture with Jardine Lloyd Thompson Group plc ("JLT") brokered its first catastrophe swap transaction - a North American windstorm catastrophe swap. Catastrophe swaps are designed to cover a pure form of risk linked to a single catastrophic event, either windstorms or earthquakes in Europe, North America or Japan. These products are attractive as a hedge for the reinsurance industry or as a way for investors to gain access to a risk category which has low correlation with other asset classes. ICAP and JLT have been encouraged by the strong levels of interest from a broad and diverse potential customer base for these insurance derivatives.
1) The current forecasts for ICAP plc pre-tax profits referred to in this announcement are based on forecasts of profit before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items provided by 11 equity analysts. The consensus of those forecasts for the year to March 2008 is £307 million compared with the results for the year to March 2007 when ICAP plc's profit was £252 million. The source of these estimates was Bloomberg & Reuters.
2) ICAP introduced the publication of its market volume data in selected markets on its website at the beginning of September 2007. The aim is to provide more frequent, transparent, granular data about activity levels in the global OTC financial markets in which ICAP has a significant market share.