icap securities limited summary annual report 2009 for the year ended 31 March 2009

Transcription

1 icap securities limited summary annual report 2009 for the year ended 31 March 2009

2 ICAP Securities Limited Summary Annual Report 2009 Half Year Accounts 2008/9 01 About ICAP 02 Business review Financial statements 06 Income statement 07 Balance sheet 08 Cash flow statement 09 Notes to the summary financial statements 13 Independant Auditors statement

3 01 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement about icap ICAP is the world s premier voice and electronic interdealer broker and provider of post-trade services. It is the source of global market information and commentary for professionals in the international financial markets. It provides specialist intermediary broking services to trading professionals in the wholesale over-thecounter (OTC) markets. ICAP uses voice broking or electronic networks to facilitate price discovery and liquidity, receiving a commission when a transaction is completed. ICAP has an average daily transaction volume in excess of US$2.3 trillion, more than 40% of which is electronic. ICAP plc was added to the FTSE 100 Index on 30 June For more information go to About ICAP Securities Limited and its subsidiaries (ISL Group) ICAP Securities Limited (ISL) is a subsidiary of ICAP plc. The ICAP Securities Limited Group (ISL Group) is active in the wholesale markets in interest rates, credit, commodities, foreign exchange, equities and equity derivatives and emerging markets, transacting on both a voice and an electronic basis. Revenue for the ISL Group comprises commission from name give-up transactions and brokerage from matched principal transactions. It does not engage in proprietary transactions. In name give-up transactions it brings together buyers and sellers and, where appropriate, assists in the negotiation of the price and other material terms of the transaction in return for a commission. In matched principal transactions ISL Group companies act as a counterparty for identified buyers and sellers in matching, in whole or in part, reciprocal back-toback trades. The following companies are the principal subsidiaries of ICAP Securities Limited*: ICAP Energy Limited ICAP Europe Limited ICAP WCLK Limited The Link Asset & Securities Company Limited ICAP Electronic Broking Limited My Treasury Limited *All of the above companies are owned indirectly by ICAP Securities Limited.

4 ICAP Securities Limited Summary Annual Report Business review The financial statements on pages 6-12 represent the results of ICAP Securities Limited (ISL) on a standalone basis. During the year to 31 March 2009, the UK regulated trading operations of the ICAP Group were restructured under ISL. The business review therefore includes additional information about ISL and its subsidiaries (ISL Group) together with a proforma income statement on a consolidated basis. ICAP Securities Limited In the year ended 31 March 2009, ISL acquired ICAP Holdings (UK) Limited which owns a number of UK regulated trading operations, for 297.8m. As a result, the net assets of ISL at 31 March 2009 increased to 360.5m ( m). ISL continues to be highly cash generative to support its continuing programme of investments and benefits from a strong balance sheet. Although excess cash generated is passed up to ICAP plc, ISL maintains sufficient cash balances and funding facilities to ensure it can finance its ongoing operation at all times. In the year ended 31 March 2009, ISL recorded a pre-tax profit of 94.1m ( m) which included dividends received from subsidiaries of 54.0m ( nil).

5 03 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement The ICAP Securities Limited Group The table below shows the proforma consolidated income statement for the ISL Group. The table presents this year s results, along with the corresponding comparatives, as if all of the subsidiaries had been combined for the full financial year. The Link Asset and Securities Company Limited (Link) is included from the date it was acquired by the ICAP Group on 7 April Proforma year ended 31 March 2009 m Proforma year ended 31 March 2008 m Revenue Operating expenses (442) (330) Exceptional items - (13) Other income 11 4 Operating profit Net finance costs 4 5 Profit before tax The above results show very strong growth in the ISL Group s operations. The ISL Group has continued to benefit from generally high levels of volatility in the wholesale financial markets. On a proforma consolidated basis, the ISL Group had strong revenue growth of 27% from the comparative year, as the dislocations in global financial markets and extreme volatility made the price discovery mechanism and the depth of the liquidity pools provided by our voice brokers more valuable. The ISL Group profit increased by 23%, whilst the operating profit margin remained static at 26%. Review of ICAP Securities Limited Group s operations In recent months there has been a structural shift in the markets back to basics, with the focus of global trading moving to simple plain vanilla products. ISL Group s voice broking businesses benefited strongly from this shift, the traditional flow businesses - interest rate swaps, options, government bonds, FX and commodities - were the primary drivers of growth. The interest rate markets have been affected by historically low short-term interest rates, steep yield curves and a substantial increase in corporate and government bond issuance. Longer maturity interest rate products, such as swaps, have seen particularly strong growth and spreads in general widened. Corporate bonds reported a strong performance as market uncertainty about companies credit positions continued and spreads widened, which offset weaker volumes in the credit derivative market. During this year the ISL Group has made significant investments focused on the Group s strategic priorities. In equity derivatives, the acquisition of Link was completed. The development of the cash equities business has made significant progress and is expected to continue to grow. During the year to 31 March 2009 the London Metal Exchange approved ISL s application for Category Two membership.

6 ICAP Securities Limited Summary Annual Report business review continued Commodities had a record performance, particularly in the oil, natural gas and carbon emissions markets. Our market position in electronic broking remains very strong although volumes did begin to slow in the year from the very high levels of the prior year. Repos reported a strong performance, particularly benefiting from a flight to quality in Government Bond Repo and deleveraging following the Lehman default. Government bond trading also performed well despite difficult market conditions. Euro Government Bonds had an improved year and we have now gained recognition as a designated platform in Belgium, Holland, France and Finland and continue to press other Debt Management Offices around Europe for approval in their markets. ICAP Electronic Broking is dedicated to supporting its customers and continuing to invest in the expansion and development of its electronic broking platforms. ICAP Securities Limited Group and the changing landscape We believe the ISL Group is well positioned to take advantage of the trends emerging from the recent financial crises. Very low short-term interest rates and capital rebuilding by the banks will, in due course, restore confidence in the financial markets. However, the period of turbulence, as banks and other financial institutions restructure to reduce costs and reduce leverage, is likely to continue through the rest of this year. In their recent results, the major banks have demonstrated that the high volume flow markets have provided strong revenues. Furthermore, banks and their customers continue to use derivatives as the most efficient way to manage their risks. It is these flow and derivatives markets that form the core of the ISL Group s business. Our continued investment in both the voice business and electronic broking platforms is designed to capture the benefits of this trend.

7 05 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement Risk The directors believe that robust risk management is a fundamental part of ISL Group s business. The significant risks of the ISL Group are continually monitored, assessed and managed at the relevant level. As a broker intermediating flow between trading counterparties, the ISL Group does not take proprietary risk positions and is therefore not structurally exposed to either significant market, or related credit risk. The principal risks which it identified, and for which it prepared, have indeed proven to be the ones it faced during the worst dislocation of financial markets in recent years. The effective management of these risks resulted in the ISL Group suffering no significant loss during this exceptional period. Outlook We entered this period of financial instability with a very clear strategy and are well positioned to take advantage of the significant restructuring of the financial services industry that is taking place and the changes that will happen in our customers business models. We are keeping our focus on costs and are taking advantage of a number of opportunities to reduce overheads. These savings will partially offset our continuing investment in opportunities to build our business, both by attracting high quality people and acquiring some assets at attractive prices. The ISL Group continues to be highly cash generative to support these investments and benefits from a strong balance sheet. While the ISL Group s approach to risk has been proven over the past 18 months, it nevertheless constantly seeks to improve the maturity, robustness and sustainability of its risk management framework and to promote enhanced risk management discipline across all businesses and supporting functions. The ISL Group has classified its exposures into eight risk types: Operational Credit Market Liquidity Financial Regulatory Reputational, and Strategic

8 ICAP Securities Limited Summary Annual Report income statement Note Audited year ended 31 March 2009 Audited year ended 31 March 2008 Revenue 189, ,413 Operating expenses (154,808) (124,751) Exceptional items 2 - (12,700) Other income 3,519 2,840 Operating profit 38,181 32,802 Investment income 54,000 - Finance income 2,050 2,918 Finance costs (174) (465) Profit before tax 94,057 35,255 Tax (11,924) (12,907) Profit for the year 7 82,133 22,348

9 07 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement balance sheet Assets Non-current assets Note Audited as at 31 March 2009 Audited as at 31 March 2008 Investment in subsidiaries 5 297,831 - Available-for-sale investments 1, ,640 - Current assets Trade and other receivables 4 5,103,681 6,774,618 Cash and cash equivalents 8(b) 57,447 61,061 5,161,128 6,835,679 Total assets 5,460,768 6,835,679 Liabilities Current liabilities Trade and other payables 4 (5,076,428) (6,742,491) Short-term borrowings and overdrafts 8(b) (13,558) (19,461) Tax payable (10,267) (15,576) Total liabilities (5,100,253) (6,777,528) Net assets 360,515 58,151 Equity Capital and reserves Called up share capital 351,331 53,500 Retained earnings 9,184 4,651 Total equity 7 360,515 58,151 Approved by the board on 24 June 2009 and signed on its behalf by: David Casterton Director Tim Kidd Director

10 ICAP Securities Limited Summary Annual Report cash flow statement Note Audited year ended 31 March 2009 Audited year ended 31 March 2008 Cash flows from operating activities 8 (a) 25,822 1,833 Cash flows from investing activities Dividends received 54,000 - Interest received 2,050 2,918 Acquisition of investment in subsidiaries (297,831) - Acquisition of available-for-sale investments (1,809) - Net cash flows from investing activities (243,590) 2,918 Cash flows from financing activities Equity dividend paid (77,600) - Interest paid (174) (68) Proceeds from issue of ordinary shares 297,831 - Net cash flows from financing activities 220,057 (68) Net increase in cash and cash equivalents 2,289 4,683 Net cash and cash equivalents at beginning of year 41,600 36,917 Net cash and cash equivalents at end of year 8 (b) 43,889 41,600

11 09 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement notes to the summary financial statements 1 Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, the Companies Act 1985 and under the historical cost convention as modified by the revaluation of certain financial instruments. The Company has exercised its entitlement not to produce consolidated financial statements since consolidated financial statements have been prepared by its ultimate parent undertaking, ICAP plc. These summary financial statements consist of the primary statements and selected notes which have been extracted from the audited Annual Report of the Company for the year ended 31 March Accounting policies Full details of accounting policies applied in these summary financial statements are included in the audited financial statements, copies of which can be obtained from the Company Secretary, ICAP Securities Limited, 2 Broadgate, London, EC2M 7UR. 2 Exceptional items In the prior year ended 31 March 2008 a sub-custodian made a post settlement adjustment debiting ISL s account for a total of 22.5m without notice or our consent. As a result of the need to resort to litigation to recover the debt relating to the post settlement adjustment described above, ISL fully provided against this debt ( 12.7m after offsetting cost recoveries). 3 Dividends Amounts recognised as distributions to equity holders in the year: Year ended 31 March 2009 Year ended 31 March 2008 First interim dividend for the year ended 31 March 2009 of 2.02p per share 4,600 30,500 Second interim dividend for the year ended 31 March 2009 of 5.41p per share 19,000 - Third interim dividend for the year ended 31 March 2009 of 6.55p per share 23,000 - Fourth interim dividend for the year ended 31 March 2009 of 5.98p per share 21,000 - Fifth interim dividend for the year ended 31 March 2009 of 0.71p per share 2,500 - Sixth interim dividend for the year ended 31 March 2009 of 2.13p per share 7,500-77,600 30,500 During the prior year interim dividends of 57.01p per share were paid. On 27 April 2009 the Company declared and paid a dividend of 9.5m (2.70p per share) to its immediate parent undertaking, ICAP Group Holdings Limited. On 30 April 2009 the Company declared and paid a dividend of 8.5m (2.42p per share) to its immediate parent undertaking, ICAP Group Holdings Limited.

12 ICAP Securities Limited Summary Annual Report notes to the summary financial statements continued 4 Matched principal transactions The Company is involved as principal in the purchase and simultaneous commitment to sell securities and other financial instruments between third parties. Such trades are complete only when both sides of the transaction are settled and therefore the Company is exposed to risk in the event that one side of the transaction remains unsettled. Substantially all the transactions settle within a short period of time on a delivery versus payment basis and, as such, the settlement risk is considered to be low. All amounts due to and payable by counterparties in respect of matched principal business are shown gross as matched principal trade receivables and matched principal trade payables, except where a netting agreement, which is legally enforceable at all times, exists and the asset and liability are either settled net or simultaneously. The gross amount of matched principal transactions included in both trade and other receivables and trade and other payables is 5,072.9m (31 March ,733.2m). 5 Investments in subsidiaries Subsidiaries On 13 May 2008 ISL completed the acquisition of ICAP Holdings (UK) Limited for a total consideration of 173.9m, funded by cash. The following companies, which are incorporated in England, are the principal subsidiaries of ICAP Holdings (UK) Limited: Name Date of acquisition % held Principal activity ICAP WCLK Limited 13 May % Matched principal interdealer broker ICAP Europe Limited 13 May % Money broker dealer ICAP Energy Limited 13 May % Agency broker in commodity derivatives market ICAP Electronic Broking Limited 13 May % Electronic interdealer broker My Treasury Limited 13 May % Provider of electronic cash management solutions The Link Asset and Securities Company Limited 29 August % Equity derivatives broker The ICAP Group acquired The Link Asset and Securities Company Limited on 7 April 2008 and on 29 August 2008 it was transferred to ICAP Holdings (UK) Limited for a total consideration of 123.9m.

13 11 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement 6 Liquidity risk management The Company seeks to ensure that it has constant access, even in periods of market turmoil, to an appropriate level of cash, other forms of marketable securities and committed funding lines to enable it to finance its ongoing operations, proposed acquisitions and other reasonable unanticipated events on cost effective and attractive terms. The Company retains sufficient cash balances to meet regulatory and working capital requirements. Excess cash is passed up to ICAP plc by way of dividend or loan. At 31 March 2009 the Company had net cash and cash equivalents of 43.9m (31 March m). In addition the Company has access to a number of clearing facilities in its own name. In order to formalise the financing facilities available, the Company has entered into a 100.0m intercompany revolving credit facility with ICAP Group Holdings Limited providing it with access to same day funding. 7 Reconciliation of total equity Equity attributable to equity holders of the parent Year ended 31 March 2009 Year ended 31 March 2008 As at beginning of year 58,151 66,303 Issue of ordinary shares 297,831 - Dividends paid in the year (77,600) (30,500) Profit for the year 82,133 22,348 Total equity 360,515 58,151 On 13 May 2008 ICAP plc acquired the share capital of the Company from a fellow Group Company at book value of 53.5m. On the same day the authorised share capital of the Company was increased by 192,500,000 ordinary shares of 1 each and 173,850,104 ordinary shares were allotted at par as fully paid up to ICAP plc. On 30 September 2008 the authorised share capital was increased by a further 250,000,000 ordinary shares of 1 each and 123,981,000 ordinary shares were allotted at par as fully paid up to ICAP plc. On 22 December 2008 ICAP Group Holdings Limited acquired the share capital of the Company from ICAP plc at book value of 351.3m.

14 ICAP Securities Limited Summary Annual Report notes to the summary financial statements continued 8 Cash flow (a) Reconciliation of profit before tax to net cash flow from operating activities Year ended 31 March 2009 Year ended 31 March 2008 Profit before tax 94,057 35,255 Dividend income (54,000) - Net finance income (1,876) (2,453) Operating cash flows before movements in working capital 38,181 32,802 Decrease in trade and other receivables 1,653,705 7,050,159 Decrease in trade and other payables (1,666,063) (7,081,128) Net cash flow from operating activities 25,822 1,833 (b) Net cash and cash equivalents Net cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Net cash and cash equivalents comprise the following amounts: Year ended 31 March 2009 Year ended 31 March 2008 Cash and cash equivalents included in current assets 57,447 61,061 Short-term clearing overdrafts (13,558) (19,461) Net cash and cash equivalents 43,889 41,600

15 13 ICAP Securities Limited Summary Annual Report 2009 About ICAP Business review Financial statements Independent Auditors statement INDEPENDENT AUDITORS STATEMENT TO THE MEMBERS OF ICAP SECURITIES LIMITED We have examined the summary financial statements which comprise the summary income statement, summary balance sheet and summary cash flow statement and related notes as set out on pages Respective responsibilities of directors and auditors The directors are responsible for preparing the summarised annual report in accordance with United Kingdom law. Our responsibility is to report to you our opinion on the consistency of the summary financial statements within the ICAP Securities Limited Summary Annual Report 2009 with the full annual financial statements and its compliance with the relevant requirements of section 251 of the Companies Act 1985 and the regulations made thereunder. We also read the other information contained in the ICAP Securities Limited Summary Annual Report 2009 and consider the implications for our statement if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement. This statement, including our opinion, has been prepared for and only for the Company s members as a body in accordance with section 251 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Basis of opinion We conducted our work in accordance with Bulletin 1999/6, The auditors statement on the summary financial statement issued by the Auditing Practices Board. Our report on the Company s full annual financial statements describes the basis of our audit opinion on those financial statements. An unqualified audit opinion was rendered on the full annual financial statements of ICAP Securities Limited for the year ended 31 March Opinion In our opinion the summary financial statement is consistent with the full annual financial statements of ICAP Securities Limited for the year ended 31 March 2009 and complies with the applicable requirements of section 251 of the Companies Act 1985, and the regulations made thereunder. PricewaterhouseCoopers LLP Chartered Accountants London 24 June 2009 Design and production by glow-design.com The document is printed on Era Silk, which is produced from 50% genuine waste pulp, the balance being ECF pulp from well-managed/certified forests. The paper is also FSC certified. FSC Forest Stewardship Council. This ensures there is an audited chain of custody from the tree in the wall-managed forest through to the finished document in the printing factory.

16 ICAP Securities Limited 2 Broadgate London EC2M 7UR United Kingdom Telephone: Facsimile: investors@icap.com Website: ICAP Securities Limited Company number: