ANNUAL RESULTS PRESENTATION 25 MAY 2004
INTRODUCTION • The fourth year in succession that turnover, profit, EPS (on adjusted basis) and dividend per share have increased substantially. • Costs continue to be effectively controlled and margins are now 20% • Underlying turnover growth 12% • Market growth 7% 2
TIMETABLE • Results for the year ended 31 March 2004 - Michael Spencer - Jim Pettigrew • Asia Pacific Region - David Gelber • London and Europe - George Macdonald • Update on Electronic Broking - Garry Jones 3
RECORD RESULTS Profit before tax - adjusted Turnover (£m) 1000 175 150 800 125 600 100 75 400 50 200 25 0 0 £m 2001 2002 2003 2004 2001 2002 2003 2004 £m Earnings per share - Dividends per share adjusted 20 8 15 6 10 4 5 2 0 0 2001 2002 2003 2004 Pence 2001 2002 2003 2004 Pence 4
PROFIT & LOSS Year Year Variance ended ended* Against Prior Year 31/03/04 31/03/03 £’m £’m £’m % Turnover 801.4 664.3 137.1 21 Expenses (641.1) (550.8) (90.3) (16) Group operating profit 160.3 113.5 46.8 41 JVs & Associates 8.3 7.1 1.2 17 Total operating profit 168.6 120.6 48.0 40 Net interest 1.6 3.1 (1.5) (48) Pre tax profit** 170.2 123.7 46.5 38 *At reported exchange rates. **Excludes goodwill amortisation and exceptional items. 5
UNDERLYING GROWTH Variance against prior year Turnover Expenses £m % £m % Headline 137.1 21 (90.3) (16) Acquisitions - BrokerTec (58.2) 41.3 - APB (8.8) 7.7 - Nittan (13.3) 9.1 - First Brokers (5.0) 4.0 - Intercontinental Energy (2.7) 2.4 Fx movements 23.7 (20.8) Other - (3.7) Bonuses - 39.0 Underlying 72.8 12 (11.3) 3 Notes: 1. Consolidated from: BrokerTec-May 03, APB-Oct 02, Nittan-Nov 02, First Brokers-May 02 and Intercontinental Energy-June 03. 2. Excess of US BEIP grant over increased US costs following move from WTC to Harborside shown in “Other” as an add-back for the purpose of calculating underlying cost increase. 6 3. Intercontinental Energy numbers are estimated as business has been integrated.
EXPENSES Classification as a % of turnover Broker remuneration fixed/variable % of Turnover 100 90 80 70 60 50 02/03 03/04 Broker Rem. 51 54 40 T&E 4 30 4 5 20 Telecoms 6 10 5 4 Other 0 15 15 Overheads 03/04 02/03 20 17 Profit* Fixed Variable * Group operating profit. 7
GROUP OPERATING MARGIN 25 %* 20% 20 17% 15% 14% 15 10 7% 5 0 ** 99/00 00/01 01/02 02/03 03/04 *Group operating profit margin. ** Pro forma 15 months, all others based on 12 months reported results. 8
PROFIT & MARGINS BY REGION 19% Americas 14% 24% Europe 22% Asia 9% 8% 2003 2004 Pacific £’m 0 10 20 30 40 50 60 70 80 90 Notes : profit is defined as pre-tax profit before goodwill amortisation, exceptional items, interest, and excludes share of profit (losses) for JVs and associates. : bar represents profit, % is margin. 9
PROFIT AND MARGINS BY ACTIVITY Securities 18% broking 16% Derivatives 22% and money 20% broking Energy 13% broking 15% Electronic 8% -75% broking Information 65% 2003 2004 services 64% £’m -20 -10 0 10 20 30 40 50 60 70 80 Notes : profit is defined as pre-tax profit before goodwill amortisation, exceptional items, interest, and excludes share of profit (losses) for JVs and associates. : bar represents profit, % is margin. 10
EARNINGS Year ended Year ended* 31/03/04 31/03/03 £’m £’m Pre-tax profit 170.2 123.7 Goodwill amortisation (38.8) (17.0) Exceptional items (0.9) 10.8 Taxation (42.8) (38.1) Minority interests (3.2) (2.6) Profit for the financial period 84.5 76.8 Earnings per share – basic 15.1p 15.4p Earnings per share – adjusted 18.4p 15.5p Interim dividend per share 1.7p 1.4p Proposed final dividend per share 5.7p 4.6p *At reported exchange rates. 11 EPS & dividend per share reflects the 5 for 1 share split.
PRE-TAX EXCEPTIONAL ITEMS Year ended 31/03/04 £’m WTC insurance proceeds 4.4 BrokerTec integration (5.6) Other 0.3 (0.9) 12
TAXATION Pre-Tax Tax Effective Profit Rate £’m £’m % Subsidiaries 161.9 (54.6) 34 JVs & Associates 8.3 (3.0) 36 170.2 (57.6) 34 Exceptional items (0.9) 2.8 Goodwill amortisation (38.8) 12.0 130.5 (42.8) 33 13
PROFIT*/CASH CONVERSION 114% £m 180 125% Group operating 160 profit 140 Cash inflow 120 from operating activities (FRS1) 103% 100 80 60 40 20 0 2002 2003 2004 * Operating profit before goodwill amortisation and exceptional items. 14
CASHFLOW Year ended Year ended 31/03/04 31/03/03 £’m £’m Pre-tax profit 170.2 123.7 JVs & associates (4.7) (3.2) Depreciation 26.9 15.8 Net capital expenditure* (28.0) (16.0) Exchange adjustments (21.7) (6.5) Working capital and other 0.9 17.8 Tax (49.7) (35.7) 93.9 95.9 Acquisitions/investments (13.0) (36.4) Dividends (37.1) (26.5) Exceptional items (1.2) (14.1) Change in net funds 42.6 18.9 * Excludes £4.4m (2003:£15.4m) of insurance proceeds which are shown as exceptional items, net of a £5.6m (2003: £8.3m) 15 exceptional costs outflow , 2003 exceptional items also include £21.2m of US build out related capex,.
BALANCE SHEET Year Year ended ended 31/03/04 31/03/03 £’m £’m Goodwill 269.0 118.8 Other fixed assets 81.2 65.9* Net funds 227.2 184.6 Net creditors (98.5) (108.3) Net assets 478.9 261.0* * Restated to adopt the provisions of UITF 38 ‘Accounting for ESOP Trusts’ (reduction of £2.2 m). 16
CAPITAL RESERVES £’m Shareholders’ funds at 1/4/03 254.8 Share capital issued during the year 120.0 Net increase in contingent share capital 85.2 Profit for the financial period 84.5 Dividend (44.9) Exchange adjustments (27.5) UITF 38 adjustment (3.9) Shareholders’ funds at 31/3/04 468.2 Minority interest 10.7 Net assets 478.9 17
EXCHANGE RATE SENSITIVITY Pre hedging impact on pre-tax profit US$ +/- 10 cents £7m* Euro +/- 10 cents £4m** * £2.5m transactional, £4m-£5m translational. ** Almost entirely transactional. 18
UK TRANSACTIONAL FOREX HEDGING Year to 31/03/05 Currency Exposure (m) Indicative Cover US$ 69 100% @ 1.72* Euro 115 61% @ 1.45* Year to 31/03/06 Currency Exposure (m) Cover US$ 69 4% @ 1.74 Euro 115 _ * Worse case rate as rate for certain fx contracts is dependent upon spot rate at maturity. 19
INTERNATIONAL ACCOUNTING STANDARDS • On track with implementation plans • Main areas that will effect ICAP - goodwill amortisation - share options - disclosures • 2004/2005 interims will include an IFRS update 20
BROKERTEC • Revenue and profit performance has exceeded expectations • 2003/2004 cost saving target bettered • Exceptional costs in 2003/2004 of £5.6m • Integration will continue and will deliver further cost efficiencies and synergies • Possibility of some exceptional costs in 2004/2005 • Leverage potential 21
BROKERTEC Cost Profile £m 50 Actual 7/5/03 to 45 31/3/04 40 £’m 35 30 25 Turnover 58 20 Costs 41 15 10 Profit before tax 17 5 Margin 29% 0 Fixed Variable Notes: The above figures exclude the Group’s original electronic broking operations (ETC) which increased their turnover in 2003/2004 compared to 2002/2003 by £3.7m. For the year to 31/12/02, BrokerTec’s acquired operations recorded a profit of $20.5m (£12.1m at a 1.70 rate). 22
FUTURE GROWTH • Continued expansion through both organic growth and acquisitions • Underlying cost base remains stable • Market conditions: - demand for significant deficit financing in many of the G7 countries - increased issuance in the corporate bond and mortgage backed securities markets - volatility in medium term interest rates - increased allocation of capital for trading and position taking by the banks and hedge funds - shifts in foreign exchange rates - increased use by banks and other financial institutions of the derivatives market to unbundle and redistribute a range of financial risks including credit, interest rate and exchange rate risks - changes in the demand for commodities such as oil, coal and gas 23
INTERNATIONAL BONDS AND NOTES AMOUNTS OUTSTANDING (US$ billions) 12000 10000 8000 6000 4000 2000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: BIS 24
MARKET GROWTH INTEREST RATE SWAPS OUTSTANDING 120 100 80 Amount $ Trillions 60 40 20 0 D D D D D D D D D D D D D D e e e e e e e e e e e e e e c c c c c c c c c c c c c c - - - - - - - - - - - - - - 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 25 *Figures supplied by BIS
ICAP/BROKERTEC COMBINATION • Key strategic objective • Bank dealers now have both voice and electronic access to a combined liquidity pool covering both benchmark and off the run issues • Technology project to bring dealers access to the combined liquidity on BrokerTecs and ICAP electronic platforms in the US Treasury markets completed in September 2003 • Extensive electronic broking footprint • Significant economies of scale 26
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