IAP.L Regulatory News (IAP)

29 Sep 2008 07:00



Press Release

ICAP plc Trading Statement 

London - 29 September 2008. ICAP plc (IAP.L), the world's premier interdealer broker, announces the following trading update ahead of the close period following its financial half year ended 30 September 2008. ICAP expects to announce its interim results for the half year ending 30 September 2008 on 18 November 2008. 

Group revenue in the half year ended 30 September 2008 is expected to be some 20% ahead of the same period in the previous year. ICAP has a broadly diversified revenue base and in a number of markets during this half year the Group benefited from higher than average levels of volatility. This has more than offset those businesses that have been adversely affected by events in the credit markets.

Commenting on the first half of the financial year and outlook, Michael Spencer, Chief Executive of ICAP, said: "ICAP continues to benefit from the generally high levels of volatility in the wholesale financial markets. Having had a busy first quarter, markets quietened during the summer period, following the normal seasonal pattern - in contrast with the same period in the previous year which was unusually busy. During the past few weeks, the extraordinary events in financial markets have again generated very high trading volumes in many markets as participants reassess their credit exposure and the flight to quality and liquidity resumes.

The outlook for the business remains positive. ICAP has invested significantly in the development of its voice, electronic and post-trade businesses. We believe that the current market turmoil will create more opportunities for the profitable development of our business despite parts of our customer base consolidating and continued deleveraging."

The increase in electronic broking revenue was particularly strong, especially in foreign exchange. Our post-trade services have also grown rapidly. Interest rate derivatives, especially in Europe, have been buoyant. The new equity businesses are off to a good start and Link, our recent equity derivatives acquisition, is well ahead of the previous year. Activity levels in the energy markets continued to be high during this period. The credit markets have continued to be subdued and mortgage backed securities have not been as active as the previous year. Banks are using the secured money markets (repo) and short-dated swaps as the interbank markets have continued to be illiquid. Emerging market revenues are slightly down on the very strong growth in the previous year.

We have pursued our planned further investment in the growth of the business, taking advantage of the opportunities to attract talented people and acquire businesses. Some of ICAP's newer business activities are already making a significant contribution to revenues. 

In voice broking, we have continued to develop our "focus" areas i.e. commodities, credit, equities and emerging markets. These include new equity broking teams in London and New York. We strengthened our equity derivatives operation with the acquisition of Link in April 2008 and have completed its integration. Our position in shipbroking and freight derivatives was strengthened by the acquisition of Capital Shipbrokers. The London Metal Exchange approved ICAP's application for Category 2 membership and an additional team of brokers has been recruited. Our insurance derivatives business ICAP-JLT is also making good initial progress. 

We continue to invest in the expansion and development of the Group's electronic systems to handle future demand generated by both manual and algorithmic trading and to add more electronic trading customers. 

There is significant demand both within and beyond ICAP's existing customer base to improve the efficiency of post-trade processing and to reduce the capital allocated to existing positions. We are investing to further develop a third leg to ICAP's business - post-trade services. Revenue growth in post-trade services has been very rapid. Traiana, the business we acquired in December 2007, continues to perform in line with our high growth expectations.

A significant part of ICAP's business in the OTC trading markets is already cleared through a range of clearing houses and we expect that clearing of OTC products will become more prevalent in future. ICAP is building a range of other post-trade processing, portfolio compression and reconciliation and risk management services. These, together with OTC clearing, should bring material benefits to these markets. They will reduce counterparty, market and operational risk; increase capacity and lower costs for our customers and other market participants.

The recent collapse of Lehman Brothers and the actions of governments and regulators to stabilise the financial markets and its institutions led to significant activity in the OTC markets. As a result of intensive preparation and successful coordination by regulators, central banks, banks, clearing houses and brokers, the OTC market structures functioned very successfully during this exceptionally busy period. Total volume in voice-broked interest rate swaps and options in London and New York together on September 15 and 16 was 35 percent and 95 percent higher than the 12 month average. Electronic broking in U.S Treasury products was more than 31 percent higher than the 12 month average. Similar conditions were seen in the OTC spot FX and US Treasury markets. Spot FX trading on both September 15 and 16 was more than 60 percent higher than the 12 month average (to the end of August) of $212.5bn.

ICAP's increasingly diversified business services an extensive customer base in which no single customer accounts for more than 5% of Group revenues. ICAP's exposure to the cessation of Lehman Brothers' operations is restricted to unpaid brokerage fees and is not material. 

In summary, current conditions make forecasting market activity during the balance of the year much more difficult than usual. However, after investing significantly in the future growth of the business, profit before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items for the financial year ending 31 March 2009 is anticipated to be ahead of the year to March 2008 when ICAP plc's profit was £330 million. If market developments and exchange rates are favourable, then the increase in profit could be well ahead of this figure.

Notes:

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 and granular data about activity levels in the global OTC financial markets in which ICAP has a significant market share. The September 2008 data will be published in the first few days of October 2008. 

There will be a conference call briefing for analysts and investors at 09:30 BST on Monday 29 September 2008. A further conference call will be held at 13:30 BST/08:30 EST for investors and analysts based in North America. 

For dial in details please contact Maitland on +44 (0) 20 7379 5151. 

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Contacts: 

About ICAP: ICAP is the world's premier voice and electronic interdealer broker, delivering specialist intermediary broking services to trading professionals in the wholesale financial markets. The group covers a very broad range of OTC (over-the-counter) financial products and services in commodities, foreign exchange, interest rates, credit and equity markets, as well as data, commentary and indices. ICAP's daily average transaction volume is in excess of $1.5 trillion, more than 60% of which is electronic. ICAP plc was added to the FTSE 100 Index on 30 June 2006. For more information go to www.icap.com