Icap (IAP.L), the world's premier interdealer broker, is making this Interim Management Statement in relation to the period from 1 April 2009 to 30 June 2009 and the outlook for Icap's financial year ending 31 March 2010.
It will be delivered to shareholders attending ICAP's Annual General Meeting today.
Group revenue grew by over 10% in the quarter ended 30 June 2009 compared with the same period in the previous year which featured high levels of activity in our markets at a time when sterling exchange rates were very strong.
Commenting on the first quarter and outlook, Michael Spencer, Chief Executive of ICAP, said "This has been a solid start to the year across many markets, assisted by low short-term interest rates, steep yield curves and a substantial increase in corporate and government bond issuance. Commodities markets have continued to be active. Both credit and equity derivatives experienced more difficult conditions. Electronic broking has performed well in quieter markets and the post trade service businesses are reporting higher volumes.
ICAP has a broadly diversified revenue base and our investment in new organic initiatives in our focus areas is continuing. These are already benefiting revenues and will support the long-term growth of the business. Although these investments and the increase in voice broking's portion of the overall business will impact overall margins in this financial year, the current environment presents an excellent opportunity to accelerate the development of our business. The Group continues to be highly cash generative to support these investments and benefits from a strong balance sheet.
We continue to focus on costs and are benefiting from the reductions that we made last year which will bring costs down by £23 million in 2009/10. These savings partially offset the investment in our focus areas, many of which are still in their development phase.
We are well positioned to take advantage of the proposed changes in the OTC derivatives markets and demand for improvements in the market infrastructure will continue to provide opportunities for our post trade business."
At this early stage in the year we estimate that ICAP's profit before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items for the financial year ending 31 March 2010 will be in line with the current average of analysts' forecasts, assuming that exchange rates remain at today's levels for the remainder of the financial year.
We welcome the recently announced plans to strengthen financial regulation, supervision and market infrastructure and ensure efficient, safe and sound OTC derivatives markets. These markets, which play such a crucial role in the global economy, can be made more transparent and robust by further extending regulated electronic trade execution and by improving the quality of post-trade infrastructure, particularly by the introduction of clearing for standardised trades.
There is a clear recognition by both the US and European authorities that competition between different trading venues in the OTC derivatives markets increases market efficiency. We have always operated in competitive markets; both OTC and exchange traded, and believe that the co-existence of both markets is beneficial for all market participants. We have invested in building transparent, electronic market platforms for a number of years and believe this investment will deliver significant benefits in this new regulatory environment.
The benefits of clearing standardised OTC products through independent regulated clearing houses are already recognised; reducing both individual counterparty credit risk and overall systemic risk as well as increasing capital efficiency. For clearing to be effective, and to avoid the needless creation of harmful monopolies, there should be non-discriminatory access by all trading venues to clearing facilities.
There will be continuing demand for bilateral clearing of those many OTC derivatives that are not suitable for CCP clearing. A clear strategy is needed to build resilience in these markets and ICAP supports the development of automated collateral management networks to streamline the process for both banks and their customers; reducing cost and mitigating risk.
During the quarter we acquired the transactions division of Ocean Tomo LLC, the leading intellectual property broking firm for an initial consideration of US$10 million at closing, comprising $5 million in cash and $5 million of restricted ICAP plc stock. The combination of ICAP's existing successful patent brokerage business and the Ocean Tomo brand will help us build a leadership position in the global patent and intellectual property broking market.
The expansion of our businesses in Brazil is continuing, following the approval by the Banco Central do Brasil in June we expect to complete the acquisition of Arkhe soon.
ICAP launched a new broking service for global iron ore derivatives, offering market participants the ability to offset risk exposures in one of the world's leading base metal asset classes. The new service builds on ICAP's existing presence in both base and precious metals.
We announced a new joint venture with CLS Group using technology provided by our subsidiary Traiana Inc, through its Harmony Network. The new business addresses the back office strains created by the rapid increase of trading volumes in FX by a widening group of hedge funds, algorithmic traders, retail and institutional market participants. It will provide trade aggregation services to reduce operational risk, rationalise and consolidate legacy post-trade processes and reduce post-trade costs.
ICAP's average daily electronic broking volumes (covering US Treasury products, spot FX, US dollar and euro Repo) in the quarter ended 30 June 2009 reduced by 31 percent over the corresponding period in 2008 to US$582.6 billion. Average daily spot FX volumes on the EBS platform in the quarter ended 30 June 2009 were $134.5 billion, 37 percent lower than the corresponding period in 2008 when the markets experienced very high levels of activity.
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 12 equity analysts. The range of those forecasts for the year to March 2010 is from £302 million to £355 million with an average of £337 million. This compares with the results for the year to March 2009 when ICAP plc's profit increased by 5% to £346 million. The source of these forecasts is Bloomberg, Reuters and the analysts.
2. This document contains forward-looking statements with respect to the financial condition, results and business of ICAP plc. By their nature, forward looking statements involve risk and uncertainty and there may be subsequent variations to estimates. ICAP plc's actual future results may differ materially from the results expressed or implied in these forward-looking statements.