IFRS BRIEFING 8 March 2005 1
AGENDA Overview. Implementation timeline. IFRS impact on ICAP: First time adoption exemptions Technical changes that effect ICAP Net assets as at 1 April 2004 Interim results to 30 September 2004. Presentational and disclosure issues. Concluding remarks. 2
OVERVIEW ICAP will fully adopt IFRS on 1 April 2005. Planning for IFRS has been ongoing since January 2004 and remains on track. Training in major centres has been completed and the necessary system changes implemented. IFRS will not have any significant impact on ICAP s reported results*. There will be detailed presentational and disclosure changes. (The most significant is the gross-up of matched principal debtors and creditors). *Profit before tax, goodwill and exceptionals 3
IMPLEMENTATION TIMELINE Announcement of UK GAAP interim results for 6 months ended 30 September 2004 IFRS Analysts' Briefing Announcement of UK GAAP re sults for financial year ended 31 March 2005 AGM and presentation of IFRS results for financial year ended 31 March 2005 Announcement of IFRS results (with comparatives) for 6 months ended 30 September 2005 Announcement of IFRS re sults (w ith comparatives) for the financial year ended 31 March 2006 Nov-04 Mar-05 May-05 Jul-05 Nov-05 May-06 4
IMPACT ON INTERIM RESULTS TO 30 SEPTEMBER 2004 Profit before tax, goodwill & exceptionals Profit before tax m m UK GAAP Profit 83.7 58.9 Reversal of goodwill amortisation - 18.8 Share option charge (0.6) (0.6) Holiday pay provision 0.7 0.7 Tax on share of associates (0.5) (0.5) IFRS Profit 83.3 77.3 5
IMPACT ON INTERIM RESULTS TO 30 SEPTEMBER 2004 - EPS Adjusted eps* Basic eps UK GAAP 9.0p 6.3p IFRS 9.0p 8.6p *Adjusted eps is calculated on earnings before goodwill and exceptionals (and their tax effects) and takes into account contingent share capital. It is intended to continue to present an adjusted eps calculation within the notes to the IFRS financial statements. 6
IFRS IMPACT ON ICAP: FIRST-TIME ADOPTION EXEMPTIONS IFRS1 First time Adoption of IFRS allows limited exemptions from applying some standards retrospectively at the date of adoption. ICAP has applied the following exemptions: IFRS3 Business Combinations will be applied to all acquisitions after 1 April 2004. IAS19 Employee Benefits" cumulative actuarial gains and losses on pension schemes will be recognised on the balance sheet as at 1 April 2004. IFRS2 Share-based Payment profit and loss charges will be applied to employee share options granted after 7 November 2002. IAS32 and IAS39 Financial Instruments will be applied in full prospectively from 1 April 2005. 7
IFRS IMPACT ON ICAP: IFRS3 BUSINESS COMBINATIONS Goodwill no longer amortised. Annual impairment reviews to be undertaken. Impairment to be charged through the profit and loss account. Future acquisitions require separate recognition of intangible assets (e.g. customer lists, technology). Intangible assets continue to be amortised over a fixed period. Future goodwill carried in the currency of the underlying assets acquired (current goodwill held in sterling). 8
IFRS IMPACT ON ICAP: IFRS3 BUSINESS COMBINATIONS Effect on net assets/results of ICAP: Balance sheet as at 1 April 2004 no effect. 6 months to 30 September 2004 Profit before tax increased by 18.8m as amortisation reversed Deferred tax charge of 5.6m. Balance sheet as at 30 September 2004 increase of 13.2m ( 18.8m amortisation reversal less deferred tax impact of 5.6m). 9
IFRS IMPACT ON ICAP: IFRS2 SHARE-BASED PAYMENTS Fair value of share options granted calculated using option-pricing model. Cost of options to be charged to profit and loss account over vesting period. Charges apply to options granted since 7 November 2002. 10
IFRS IMPACT ON ICAP: IFRS2 SHARE-BASED PAYMENTS Effect on net assets/results of ICAP: Balance sheet as at 1 April 2004 no impact. 6 months to 30 September 2004 additional pre-tax expense of 0.6m. Balance sheet as at 30 September 2004 no impact as offset within reserves. 11
IFRS IMPACT ON ICAP: IAS19 EMPLOYEE BENEFITS Defined benefit pension fund s assets/liabilities recognised on the balance sheet in full. Corridor approach adopted for recognising actuarial gains/losses. Full provisioning required for outstanding holiday pay. 12
IFRS IMPACT ON ICAP: IAS19 EMPLOYEE BENEFITS Effect on net assets/results of ICAP: Balance sheet as at 1 April 2004 Recognition of pension liabilities of 4.6m before tax (pension fund liabilities of 3.0m and a reversal of UK GAAP asset of 1.6m). Recognition of outstanding holiday pay provision pre-tax reduction of 1.2m. 6 months to 30 September 2004 No additional charges for the pension fund under the corridor approach. Release of holiday pay provision credit of 0.7m. Balance sheet as at 30 September 2004 Recognition of pension liabilities of 4.6m before tax. Recognition of outstanding holiday pay provision pre-tax reduction of 0.5m. 13
IFRS IMPACT ON ICAP: IAS10 POST BALANCE SHEET EVENTS Proposed final dividends only recognised as a liability when approved by shareholders. Interim dividends only recognised after approval by the Board. 14
IFRS IMPACT ON ICAP: IAS10 POST BALANCE SHEET EVENTS Effect on net assets/results of ICAP: Balance sheet as at 1 April 2004 increase of 32.5m as 2004 final dividend is not recognised on the balance sheet. 6 months to 30 September 2004 recognition of 2004 final dividend and reversal of interim dividend do not affect profit. Balance sheet as at 30 September 2004 increase of 11.0m as interim dividend is not recognised. 15
IFRS IMPACT ON ICAP: IAS12 INCOME TAXES No impact on current taxation. IFRS adjustments giving rise to changes in deferred tax: Balance sheet as at 1 April 2004 increase of 2.3m in net deferred tax assets. 6 months to 30 September 2004 additional deferred tax charge of 5.7m (of which 5.6m is due to reversal of goodwill amortisation). Balance sheet as at 30 September 2004 decrease in net deferred tax assets of 3.4m. 16
IFRS IMPACT ON ICAP: OTHER STANDARDS IAS28 Investments in Associates Share of profits is recognised after tax a reduction of 0.5m in the profit before tax in the interim results. No impact on the earnings line. IAS31 Investments in Joint Ventures Results to be proportionately consolidated no overall effect. IAS32 and IAS39 Financial Instruments Apply from 1 April 2005 no change to current year results. Fair valuing of financial assets and liabilities expect limited effect on future profit and loss account. 17
IMPACT ON NET ASSETS AS AT 1 APRIL 2004 m m Net Assets under UK GAAP 478.9 Recognition of pension liability (4.6) Recognition of holiday pay provision (1.2) Reversal of proposed 03/04 final dividend 32.5 Deferred tax on above changes 2.3 29.0 Net Assets under IFRS 507.9 18
IMPACT ON INTERIM RESULTS TO 30 SEPTEMBER 2004 Profit before tax, goodwill & exceptionals Profit before tax m m UK GAAP Profit 83.7 58.9 Reversal of goodwill amortisation - 18.8 Share option charge (0.6) (0.6) Holiday pay provision 0.7 0.7 Tax on share of associates (0.5) (0.5) IFRS Profit 83.3 77.3 19
IMPACT ON NET ASSETS AS AT 30 SEPTEMBER 2004 m m Net Assets under UK GAAP 458.7 Reversal of goodwill amortisation for the period 18.8 Recognition of pension liability (4.6) Recognition of holiday pay provision (0.5) Reversal of proposed interim dividend 11.0 Deferred tax on above changes (3.4) 21.3 Net Assets under IFRS 480.0 20
IFRS: PRESENTATIONAL AND DISCLOSURE ISSUES Sterling will remain the Group s presentational currency. Grossing up of matched principal debtors and creditors is required*. Primary segmental analysis will be geographical supplemented by business activity segmental analysis. Work is ongoing to ensure clarity of presentation of IFRS financial statements and the related detailed disclosures. *Total matched principal debtors and creditors as at 31 March 2004 disclosed in the financial statements were 94.8bn. 21
CONCLUDING REMARKS IFRS has no fundamental impact on ICAP s: Economic profile Cashflow Dividend policy Regulatory capital headroom Bank covenants and facilities. ICAP s pre-tax profit before goodwill amortisation and exceptionals, and adjusted eps, will be largely unchanged by IFRS. The evolutionary nature of IFRS will continue over the next few years. 22
FORWARD LOOKING STATEMENTS These materials do not constitute an offer to sell or the solicitation of an offer to purchase any security. These materials contain "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current Company expectations and are subject to risks and uncertainties, which could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to: fluctuations in interest rates and foreign currency exchange rates; market acceptance of new trading technologies; global and regional economic conditions and legislative, regulatory and political developments; and domestic and international competition in the Company's global markets. Additional information regarding these and other factors is available in the Company's reports available on request from the Company. This document may not be distributed where to do so would be unlawful. This document may not be distributed in the UK except to persons falling within article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. 23