Beruflich Dokumente
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Annual Report
2010
for the year ended 31 March 2010
ICAP plc
2 Broadgate
London EC2M 7UR
United Kingdom
Telephone +44 20 7000 5000
Facsimile +44 20 7000 5975
Email investors@icap.com
Website www.icap.com
Company number 3611426
Inside this report
01 ICAP in ten
17 Business review
18 Group Chief Executive Officer’s review
24 Business review
30 Risk and control environment
43 Governance
44 Directors’ profiles
46 Chairman’s statement
47 Directors’ report
50 Corporate governance
55 Remuneration report
63 Independent auditors’ report
65 Financial statements
66 Financial statements
75 Notes to the financial statements
140 Index to the financial statements
141 Shareholder information
141 Information for shareholders
142 Definitions
01
01 – 15
ICAP in ten
17 – 41
Business review
Welcome to
43 – 63
Governance
ICAP in
65 – 140
Financial statements
02 ICAP in ten
03
01 – 15
ICAP in ten
Continuing operations £m £m %
Revenue 1,605 1,585 1
Operating expenses1 (1,270) (1,243) (2)
Other income 19 23 (17)
Operating profit1 354 365 (3)
Net finance costs (28) (24) (17)
Associates (net of tax)1 7 9 (22)
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Business review
Profit before tax1 333 350 (5)
Profit before tax
Financial – statutory3 247 285 (13)
Variance
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Governance
9 Read more
on page 38
total operations
Basic 18.0 27.6 (35)
Adjusted basic 32.3 34.1 (5)
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Financial statements
Variance
Total operations £m £m %
Net assets 1,215 1,140 7
Free cash flow4 219 296 (26)
Net debt5 (148) (126) (17)
Group revenue from continuing operations remained stable at
£1,605 million and operating profit1 declined to £354 million,
primarily as a result of investment in new businesses. However,
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Information for shareholders
04 ICAP in ten
What we do
9 Read more
on page 24
Customer A Dealer 1
Customer A is interested in Dealer 1 places a sell
selling certain securities order with ICAP
and contracts to dealer 1
ICAP plc Annual Report 2010
Electronic and 05
voice broking
An interdealer broker draws together willingness to buy
and sell in wholesale markets. ICAP uses voice broking
or electronic networks to bring these buyers and sellers
01 – 15
ICAP in ten
together, facilitating price discovery and receiving a
commission when a transaction is entered into. In many
of the markets where ICAP operates, voice brokers help
to create liquidity and facilitate the price discovery process.
This is particularly important in non-standardised, bespoke
markets where the number of parties willing to enter
certain transactions may be limited. In more standardised
markets with higher and more frequent participation,
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Business review
such as spot FX and government bonds, ICAP operates
electronic broking platforms. ICAP’s combined solution
offers access to markets across all asset classes and
levels of liquidity.
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Governance
Voice broking
Dealer 2 Customer B
The dealer who buys the Customer B buys the
securities will in turn sell securities from dealer 2
Electronic them on to a customer
broking
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Financial statements
Post trade
risk
06 ICAP in ten
Our divisions
Our business is managed across the following divisions:
R core voice broking (by geographic region)
R electronic broking
R post trade risk and information
R new businesses
Diversity of
bringing together buyers and sellers, creating liquidity and easing
the price discovery process. This is particularly important in
non-standardised, bespoke markets as well as innovative new
our business markets where there may be less liquidity. In challenging market
conditions voice brokers offer a very valuable service to the
dealer community.
Electronic broking
When markets are more liquid and products more standardised,
9 Read more about
Voice broking
they are most efficiently traded on electronic broking platforms.
ICAP offers a number of electronic broking platforms, the
on page 24 largest of which are the EBS platform for spot FX and the
BrokerTec platform for fixed income products. ICAP also offers
platforms for electronic broking of interest rate and credit
9 Read more about
Electronic broking
default swaps. In addition to efficiency benefits for customers,
electronic broking has many transparency and audit benefits,
on page 25 which are of particular interest to regulators. ICAP’s electronic
broking networks are often integrated with our customers’ post
trade networks.
9 Read more about
Post trade risk and Post trade risk and information
information on page 26 Post trade risk and information services help customers reduce
operational and systemic risk in their markets. This includes
services such as portfolio reconciliation and compression,
9 Read more about
New businesses
netting and aggregation services and information data services
that offer regulators and market participants greater insight into
on page 27 the markets.
New businesses
The breadth and diversity of ICAP’s business is one of the key
drivers of its success. ICAP continues to expand and diversify
through a series of investments, despite sometimes challenging
conditions in many of these markets. This segment includes
businesses that have been acquired or set up within the past
two years. Examples of these businesses are shipping, equity
derivatives, base metals and our investment in Brazil.
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
Emerging markets Credit Commodities support this growth include:
R instability in currencies, interest rate and credit markets
2005/06 2009/10 leading to price volatility and forming the basis for
9% 11% further growth in interest rate and credit derivatives,
FX, commodities and listed financial markets;
14% 13%
R demand for improved operational and capital efficiency
11% 9% for bank and hedge fund traders in these markets;
use of derivatives to manage efficiently and hedge risk
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Business review
6% 10% R
8% 18%
exposure to changes in interest rates and FX, commodity
52% and other price fluctuations;
39%
R continuing high levels of government and corporate bond
issuance as structural change reducing bank lending to
corporates;
R reallocation of capital to commoditised “flow” markets and
the structural shift away from complex structured products;
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Governance
100% = £919m 100% = £1,605m
R continuing regulatory pressure on financial market
participants to overhaul OTC market infrastructure, reducing
systemic and operational risk by improving back office
procedures and reducing systemic and counterparty risk;
R clearing of OTC derivatives trades to reduce risk, improve
market efficiency and reduce costs;
R increased political pressure for new regulations requiring more
electronic trading, improved transparency and higher capital
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Financial statements
requirements for OTC trades that are not cleared; and
R continued liberalisation of emerging markets. Economic
growth and increasing sophistication are driving growth in
onshore and offshore interest rate, FX and credit markets
in these countries.
08 ICAP in ten
goals R
R
the expansion of our leading voice broking business;
the growth of our global electronic broking business both
through increasing volumes of existing products and by
developing new markets; and
9 Read more
on page 19 R the development of our post trade risk and information
businesses to provide innovative services that enable
our customers to reduce their costs and risks and to
increase their efficiency, return on capital and capacity
to process trades.
ICAP plc Annual Report 2010
09
01 – 15
ICAP in ten
indicators which ICAP uses to measure the progress we are
making towards our financial and strategic goals.
The breadth of ICAP’s business is a key driver of its success.
We believe that the percentage of our revenue derived from
businesses acquired or started during the previous two years
is an important indicator of our commitment to new initiatives
to diversify and grow the business. In our core voice broking
division we consider revenue per voice broker a key performance
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Business review
indicator of our productivity. Technology spend as a percentage
of revenue is a measure of our commitment to building and
progress
2008 20%-22%
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Governance
2009 21%-23%
2010 22%-24%
Operating profit*
Voice Electronic Post trade risk and information
9 Read more
on page 29 2008 61% 26% 13%
2009 59% 24% 17%
2010 52% 29% 19%
New business**
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Financial statements
2008 17%
2009 14%
2010 10%
10 ICAP in ten
01 – 15
ICAP in ten
In March 2010 we completed the acquisition of the 61.78%
of the share capital of market infrastructure provider, TriOptima,
Electronic broking we did not already own. TriOptima, whose services are aimed
£252m at reducing risk and helping financial institutions to manage their
OTC derivative portfolios more efficiently, is performing well.
ICAP information collects data from ICAP’s global voice
Post trade risk and information and electronic broking operations covering more than 32
countries from 50 locations in the three trading zones, EMEA,
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Business review
£142m the Americas and Asia Pacific. This business has seen strong
revenue and profit growth, driven by increased demand for
independent trading data for regulatory purposes and the rise
New businesses in algorithmic trading.
£175m New businesses
ICAP continues to expand and diversify its business through a
series of investments. For 2009/10 the new business segment
includes the Group’s investment in a number of new initiatives
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Governance
which have been started or acquired over the past two years.
Despite recording an operating loss in 2009/10, many of
these new businesses are expected to be profitable in the
coming years. During the year the Group announced its decision
to discontinue its European and Asia Pacific integrated full
service agency cash equities business.
Market conditions in equity derivatives were more difficult
than in recent years, but Link continued to hold its position as
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Financial statements
the leading global equity derivatives broker and the business
continued to make a material profit contribution.
ICAP’s expansion into Brazil continues apace and has yielded
good initial results in its first year of operation, despite showing
an operating loss. Brazil is now ICAP’s third largest wholly-
owned office by head count with more than 250 brokers and
support staff.
In Shipping, the business made a small operating loss due to
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Information for shareholders
12 ICAP in ten
risk the Group does not aim to take proprietary risk positions in
any of its businesses and is not, by the nature of its activities,
exposed to significant market or credit risk.
The principal risks that the Group faces have not changed
9 Read more
on page 30
during the year.
The Group continues to classify its exposures into eight risk
categories: operational, regulatory and compliance, credit,
liquidity, reputational, market, financial and strategic of which
we consider the first two to be our principal risks.
ICAP’s risk management framework is built on four complementary
pillars – risk governance, risk management, risk measurement
and risk infrastructure. The Group is committed to building on
its already strong control environment, both geographically and
across product lines.
ICAP plc Annual Report 2010
13
01 – 15
ICAP in ten
aligned with the interests of shareholders. Performance-related
pay is the main component of overall remuneration.
The principles of the directors’ remuneration policy have been
developed over a number of years to recognise and reward
the substantial growth of the Group. The charts set out
the performance-related and the share-based elements of
the remuneration of the four executive directors.
17 – 41
Business review
How we are Performance-related pay
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Governance
9 Read more
on page 56
John Nixon Chief Executive Officer ICAP Electronic Broking
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Financial statements
Share-based remuneration
Michael Spencer Group Chief Executive Officer
14 ICAP in ten
resources
with relevant skills and experience for the current environment.
ICAP has built a very strong competitive position with a very
capable management team, led by the Global Executive
Management Group. This group consists of the four executive
directors of ICAP and six members of senior management.
Board
Non-executive directors
Charles Gregson (Chairman)
James McNulty
William Nabarro
John Sievwright
Executive directors
Michael Spencer
Matthew Lester
John Nixon
9 Read more
on page 44
Mark Yallop
Global Executive
Management Group
Senior management
David Casterton
Gil Mandelzis
Stephen McDermott
Doug Rhoten
Kim Rosenkilde
9 Read more
on page 22 David Rutter
ICAP plc Annual Report 2010
Staff
ICAP employs approximately 4,500 people worldwide.
15
Of this number, more than 2,500 are brokers, sales and
customer support staff and over 800 are employed in IT
and the development of our electronic broking platforms.
As the Group has expanded and grown, ICAP has attracted
people with a broader range of skills in both technology and
01 – 15
ICAP in ten
in the original broking businesses.
Our brokers and their managers comprise the largest group of
our staff. They are highly entrepreneurial, dynamic, team spirited
individuals with extremely strong networking and interpersonal
skills. Our technology professionals, sales, marketing and
support staff also contribute greatly to our overall success.
Technology
ICAP’s various businesses are leaders in the use of technology.
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Business review
During the year we spent 11% of our revenue from continuing
operations on technology and our advances are key to the
success, efficiency and responsiveness of our operating
businesses.
We continue to achieve significant economies of scale by
leveraging internally developed and externally acquired
trading platforms in a global IT network of more than 800 IT
professionals based in EMEA, the Americas and Asia Pacific.
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Governance
ICAP’s strong technological capability ensures that not only can
we meet the needs of our customers but also that we are able
to anticipate their requirements in a rapidly changing business
and regulatory environment.
Suppliers
We rely on a number of key suppliers to help us carry out
our business. We have put in place procedures to ensure that
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Financial statements
purchasing decisions balance cost against other factors including
service quality, global reach and resilience.
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Information for shareholders
16
17
01 – 15
ICAP in ten
Business review
In this section we describe the main
trends underlying the performance
of the business and the principal risks
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Business review
and uncertainties facing the Group.
18 Group Chief Executive Officer’s review
22 G
lobal Executive Management Group
24 Business review
24 Results for 2010
24 Divisional performance
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Governance
28 Technology
29 Key performance indicators
30 Risk and control environment
36 Corporate and social responsibility
38 Financial review
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Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
As a result of investments
made over a long period our
overall business is in good shape.
By following a clear growth and
diversification strategy for several
years ICAP is well positioned to
take advantage of any changes
in the structure and regulation
of the financial services industry.
We are concentrating this year on
growing our business organically
and working with our customers
to expand the use of the market
infrastructure our investment has
developed. We have made a good
start to the new financial year,
with volatile conditions creating
more active markets.
Michael Spencer
ICAP Group Chief Executive Officer
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
derivatives in the US.
There are three components to our strategy:
the expansion of our leading voice broking business;
R Strategic priorities for 2010/11
the growth of our global electronic broking business both
R R continue investing in our target markets;
through increasing volumes of existing products and by
developing new markets; and R increase returns in voice broking;
the development of our post trade risk and information
R R further expansion of post trade risk;
businesses to provide innovative services that enable our R extend the new product coverage on our electronic
customers to reduce their costs and risks and to increase their broking platforms; and
efficiency, return on capital and capacity to process trades.
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Business review
R generate superior EPS growth for our investors.
ICAP’s businesses are based fundamentally on networks that we
develop and operate globally for the wholesale financial markets.
We have successfully developed a business providing value added
services to customers and then charging them when they complete
their transactions using these networks. Building physical, global growth. ICAP’s intellectual property business, Ocean Tomo, will help
networks is technically challenging, time consuming and requires us build a leading position in the global and intellectual property
considerable customer co-operation. However, once a network is broking market.
established there are significant economies of scale. In the broking Almost half of ICAP’s operating profit* is now derived from
businesses, as the number of buyers and sellers on a network electronic broking and post trade risk and information.
increases, liquidity increases as prices tighten making the network
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Governance
more attractive to new users. In turn the network becomes more Electronic volumes returned to more normal levels during 2009/10
valuable as transaction volumes increase and new customers and but in the last quarter, driven primarily by greater customer risk
products are added. tolerance, average daily volumes on our electronic broking
networks, BrokerTec and EBS, increased by 24% compared with the
Delivering on our strategy previous year. Total average daily volumes in fixed income products
We have consolidated our position as a leading global intermediary on the BrokerTec platform (US Treasury products, US repo and EU
in the wholesale financial markets by a clear margin. The Group has repo) were $539 billion, an increase of 33% on the same period in
a good track record of building and growing our business over many 2009. Average daily volumes in spot FX on the EBS platform were
years and we continue to believe that we can expand our businesses $154 billion single count during the last quarter of 2009/10.
in emerging markets, credit, equity derivatives and commodities, ICAP’s post trade risk and information businesses continue to
including shipping markets. They present considerable structural and perform strongly. The information business saw a healthy
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Financial statements
market share growth potential over the next three to five years. improvement in profit in 2009/10 driven by a continuing increase
In the core voice broking businesses the interest rate derivatives in demand for independent trading data to meet the enhanced risk
markets have been active on both sides of the Atlantic albeit at management needs of our customers.
lower levels than the exceptionally busy markets during the previous Traiana’s Harmony network FX processing service handled an
year. The commodities markets have, in most instances, maintained average of 354,000 tickets per day in the last quarter of
the steady growth that we have seen for a number of years. In the 2009/10, compared to 187,000 tickets per day in the
credit markets, cash continued to be more active than derivatives. corresponding quarter a year earlier. Traiana and State Street
Most of the emerging markets in the Americas, Asia Pacific and Bank have announced recently an agreement to combine State
Europe had an active end to the financial year. Street’s Global Trading Support Services (GTSS) with Traiana’s
Our investment in new voice broking businesses provided mixed Harmony post trade services to create the comprehensive
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Information for shareholders
performances this year. The expansion into full service agency end-to-end post trade pre-settlement solution. The partnership
cash equities in Europe and Asia Pacific failed to deliver the necessary increases Traiana’s Harmony network with the addition of over 200
returns. After a thorough review conducted in early 2010 we asset managers, hedge funds and other institutional clients as well
announced in March our decision to withdraw this full service offering. as custodian banks. We continue to invest most of the profit from
This was a very disappointing outcome and an important lesson. this business into the development of additional applications for the
Harmony network.
Although our shipping business continues to make small losses
we believe it is well positioned for the upturn in the shipping cycle. ReMatch, the bulk risk mitigation service for credit derivative
Our Brazilian businesses are continuing to increase revenue and portfolios, has made a good start. The basis risk management
market share and we expect them overall to reach break-even business, Reset saw slower markets due to the stability in short-
within the next financial year. We believe our equity derivatives term interest rates but the business and its prospects are sound.
businesses maintained market share in more difficult markets and
our London Metal Exchange business continued to show steady
* From continuing operations excluding amortisation and impairment of intangibles
arising on consolidation and exceptional items.
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
12.44p per share will be paid on 20 August 2010 to shareholders
have continued to make substantial progress in the past year. on the register on 23 July 2010.
Competitive environment Under the terms of the scrip dividend scheme that was introduced
We continue to benefit from greater scale and broader diversity in 2009, shareholders will be offered the opportunity to elect to
than our competitors. When assessing our available market size receive their cash dividend in shares. Further details will be
we include interdealer broking markets in interest rates, credit, announced on 28 July 2010.
commodities (including shipping), FX, equity derivatives and
emerging markets – together with markets such as post trade Looking ahead
risk. Markets such as global cash equities and financial futures ICAP continues to benefit significantly from the investments made
remain separate from this broader definition, although ICAP does in previous years. We have learned some valuable lessons this past
act as an executing broker in listed futures markets. By our year but are very focused on building and developing the business,
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Business review
estimates, overall industry revenue declined in 2009/10 by 12% to employing an even more disciplined approach to our new initiatives,
$11 billion. On this basis ICAP currently estimates its share of this a sound control environment and robust risk management.
market has grown to 22%–24%. Our strategy remains to increase
this share to 35%. Our overall business is in good shape and is more broadly based than
it has ever been. By following a clear growth and diversification
In voice broking markets, competitive strength is a function of strategy our business is well positioned to take advantage of any
longstanding customer relationships, coherent asset class changes in the structure and regulation of the financial services
coverage, excellent communications and, increasingly, the speed industry. We will concentrate this year on growing our business
and efficiency of straight-through-processing that is normally organically and will work with our customers to expand the use of
provided or facilitated by ICAP as a free ancillary service in the market infrastructure our investment has developed. We have
conjunction with voice broking. made a good start to the new financial year, with volatile conditions
creating more active markets.
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Governance
In electronic broking markets, our key competitive advantages are:
depth of available liquidity, breadth of our electronic network and
established customer connectivity. Our networks are also highly
scalable, offering scope for functional enhancement and delivery
of new innovative products.
Our competitors in post trade risk are widely dispersed and there
are no other businesses with the combination of scale, technology
or network connectivity covering the segments in which we
operate. The Group’s post trade risk operations have significant
growth capacity and can be leveraged across different asset
classes to reduce further risk and improve operational efficiency
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Financial statements
in the wholesale financial markets.
Our people
ICAP has a strong and successful culture which has a big impact
on our ability to recruit and retain the highest quality staff. We have
successfully expanded the business and once again we have seen
a substantial growth in the number of ICAP staff. In fact during the
past 10 years we have more than doubled our headcount to more
than 4,500 while at the same time tripling our revenue. I would like
to thank each of them for their contribution to ICAP’s continuing
development during the past year. The combined efforts of our
staff, our executive management team and my fellow directors
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Information for shareholders
22 Global Executive
Management Group (GEMG)
23
01 – 15
ICAP in ten
David Casterton Gil Mandelzis Stephen McDermott
Chief Executive Officer Chief Executive Officer Chief Operating Officer
ICAP London and EMEA Traiana ICAP Americas
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Business review
Aged 51 Aged 42 Aged 53
David is responsible for all voice broking, Gil co-founded Traiana in April 2000. Prior Stephen was, until March 2008, an executive
technology and support functions in London to Traiana, he worked in the M & A group director of ICAP plc. In 2006 he oversaw
and EMEA including ICAP Shipping. Between at Deutsche Bank Alex Brown (formerly BT the integration with EBS. He was appointed
1997 and 2008, he was responsible for ICAP’s Wolfensohn) in New York, where Gil advised a director of the US operations in December
interest rate business in London. Before joining companies in the financial and technology 1995 having joined the foreign exchange
ICAP in 1995 David was with MW Marshall and sectors. Gil holds an MBA from INSEAD. business of Garban in 1986. Stephen is also
Guy Butler International. a board member of Columbia University’s
Executive Masters of Science and Technology
Management.
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Governance
65 – 140
Financial statements
Douglas Rhoten Kim Rosenkilde David Rutter
Chief Executive Officer Chief Executive Officer Deputy Chief Executive Officer
ICAP Americas ICAP Asia Pacific ICAP Electronic Broking
Aged 55 Aged 44 Aged 47
Doug has over 29 years’ experience in the Kim is responsible for all voice broking, David was appointed to his current role in
broking industry. He joined ICAP in 1977 technology and support functions in Asia 2006 and is responsible for the day-to-day
and was appointed Chief Executive Officer Pacific. Prior to joining ICAP, he held a number management of ICAP’s Electronic Broking’s
for ICAP Americas in 2001 and is responsible of positions at ABN Amro, most recently as global business. Prior to joining ICAP in 2003,
for all voice broking technology and support Chief Executive Officer and country executive, David was a significant shareholder in Prebon.
functions in the US, the operations in Latin Japan and head of global markets, North His tenure at Prebon began in 1988 and he
America, including Brazil, and ICAP’s intellectual America. Kim has 23 years’ experience in served in various capacities including Global
property business. He is a founding member fixed income and currency trading and risk Chief Executive Officer of Prebon Energy and
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Information for shareholders
of The Green Exchange and former member of management. Managing Director of the Americas. David has
the US Federal Reserve Bank Foreign Exchange served on several corporate boards of entities
Committee. in the e-commerce field.
ICAP plc Annual Report 2010
24 Business review
Credit In Asia Pacific, after a subdued year, volumes traded through our
In EMEA and the Americas, revenue growth continued to be driven joint venture in China with CFETS (China Foreign Exchange Trading 25
by corporate bond trading, offsetting slower activity levels in the System) have started to increase, particularly in the fixed income
credit default swap (CDS) market. Persistent uncertainty about and forward FX businesses.
the implementation and potential impact of proposed regulatory
changes, including the introduction of central clearing, continued In Latin America, SIF ICAP Chile, our new joint venture, is developing
to weigh on the CDS market. However this accounts for a relatively well. ICAP continues to seek out opportunities for investment in
small part of ICAP’s business. Argentina, Chile, Colombia and Ecuador.
After two very active years, however, the corporate bond market FX
01 – 15
ICAP in ten
is also returning to more normal, stable trading conditions. In 2009/10 volatility began to return to the FX market, particularly
This market benefited from the high levels of corporate bond in emerging market currencies. Turkish lira experienced notably
issuance of the past year although reduced volatility and narrower high turnover and there were also increased volumes traded in the
spreads have slowed growth from the exceptionally high levels of Russian rouble, Hungarian forint, Polish zloty, Gulf Co-operation
2008/09. In both the CDS and corporate bond market the focus has Council currencies and the South African rand. Other African
shifted from high yield to high grade credit as volatility decreased. currencies are also developing well, with an upturn in business in
Volumes in emerging market credit products have increased Kenya and Ghana.
considerably as these markets recover from the financial crisis. Electronic broking
Commodities Headline Underlying
The commodities division generated another year of good revenue growth growth*
£m % %
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Business review
growth in both EMEA and the Americas, driven primarily by
oil, electricity, natural gas and coal. This division has generated Revenue* 252 – (11)
positive revenue growth in each of the past four years. Increased Operating profit* 100 14 (13)
confidence in economic recovery led to record trading volumes
in natural gas and coal on both sides of the Atlantic. Electricity Electronic broking had a resilient year in terms of revenue* and its
volumes were resilient in both North America and continental operating profit* benefited from strong cost control.
Europe. The emissions market had a stable year, although the lack
After extraordinary growth followed by a very cautious trading
of regulatory consensus at the 2009 United Nations Climate
environment post the recent financial crisis, our electronic broking
Change Conference and uncertainty about the market post 2012
volumes are returning to more normal levels. We have seen
weighed on volumes in the second half of the year.
recovery in the electronic fixed income markets and, more recently,
ICAP continues to develop within the nascent iron ore sector. in the spot FX markets. Customer activity has increased and
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Governance
Although this business is at a very early stage, iron ore broking traditional market players that were adversely affected by the
fits in well with ICAP’s existing coal and freight businesses, and dislocations in the markets are re-establishing themselves, joined
leverages the extensive research strengths of ICAP Shipping. by new market participants.
The expected changes to the annual benchmark pricing system
Average daily electronic broking volumes for the EBS spot FX
for iron ore producers, and the move to a spot market, is likely
platform and the BrokerTec fixed income platform for the 12
to drive growth in this new marketplace. Soft commodities also
months ended 31 March 2010 were $629.5 billion, down 12%
performed well.
from the previous 12 months. However, volumes reached
In February 2010, ICAP Energy announced the introduction, $715.3 billion in March 2010, the highest levels since October
subject to regulatory approvals, of a combined voice-electronic 2008, with volumes showing a reasonably consistent rise over
broking service for OTC crude and fuel oil and middle distillate the past 12 months.
swaps. ICAP TrueQuote will offer OTC oil swap clients an innovative
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Financial statements
Fixed income
screen-supported voice hybrid service with execution and
Fixed income trading on the BrokerTec platform has rebounded
straight-through-processing to clearing.
strongly and total average daily volumes in US Treasury products,
Emerging markets US repo and EU repo, in the last quarter of 2009/10 were
After two years of difficult conditions, emerging markets are $539 billion, up 33% on the comparative period in 2009.
benefiting from the increased risk appetite in the global markets US Treasury products continued to benefit from the high levels
and are showing signs of a recovery. Trading volumes in emerging of issuance and US repo trading was stable. In November 2009,
market interest rate and FX products have increased considerably ICAP entered into a strategic partnership with Gre Tai Securities to
over the past year in both Europe and Latin America, particularly provide onshore access to US government bond trading in Taiwan
at the short end of the yield curve. Emerging market CDS are also for the first time.
showing signs of nascent recovery.
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Information for shareholders
26 Business review
continued
In March 2010 ICAP completed the acquisition of the 61.78% of New businesses
the share capital it did not already own in market infrastructure 27
provider TriOptima for an initial cash consideration of Swedish 2010 2009
krona (SEK) 1,288 million (£119 million), inclusive of a deferred £m £m
consideration payment of SEK 72 million (£7 million), financed from Revenue 175 170
ICAP’s existing debt facilities. The acquisition of TriOptima at the Operating profit* (11) 7
end of the financial year will significantly increase the scale of these
businesses in 2010/11. ICAP continues to expand and diversify its business through a
TriOptima’s services, aimed at reducing risk and helping financial series of investments despite a challenging year in some of these
01 – 15
ICAP in ten
institutions to manage their OTC derivative portfolios more markets. For 2009/10 the new business segment included the
efficiently, are performing well. In 2009, TriOptima’s portfolio Group’s investment in a number of new initiatives which have been
reconciliation service triResolve included 5.8 million trades across started or acquired over the past two years. These include Link
all asset classes and product structures, representing over 75% (equity derivatives), Arkhe (emerging markets), ICAP Shipping,
of all non-cleared OTC derivative transactions globally. triReduce, LME (base metals) and Ocean Tomo (intellectual property).
TriOptima’s portfolio compression service, eliminated $14.5 trillion This segment is reviewed at the start of each year and comparatives
of outstanding credit default swap and $25.8 trillion of interest restated to reflect any reclassifications. It is anticipated that Link
rate swap notional value. and ICAP Shipping, both of which have been owned by the Group
In October 2009, TriOptima was selected by the International for two years, will be reported in the core voice segment from
Swaps and Derivatives Association (ISDA) to operate the first 2010/11. TriOptima, a business in which the Group has owned a
38.22% shareholding for a number of years, will be reported in post
17 – 41
Business review
central trade repository for interest rate swaps, collecting data
initially from the G-14** financial institutions for all their interest trade risk and information in 2010/11.
rate swap trades. This service went live on 15 January 2010 Equity derivatives
providing relevant banking supervisors with the information In equity derivatives, the combination of low market volatility,
submitted by the G-14** financial institutions. falling commission rates and increased competition created difficult
In February 2010, ICAP also acquired a minority interest in the market conditions. In spite of these factors, ICAP, through its
automated collateral management service provider AcadiaSoft. subsidiary Link, continued to hold its position as the leading equity
derivatives broker and the business continued to make a material
Information profit contribution. We saw some confidence returning to single
ICAP information collects data from ICAP’s global voice and stock and emerging market equity derivatives towards the end of
electronic broking operations covering more than 32 countries the financial year.
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Governance
from 50 locations in the three key trading zones. This part of the
post trade risk and information division has seen strong revenue Emerging markets
and profit growth, driven by increased demand for independent ICAP’s expansion into Brazil was driven by the structural shift in
trading data for regulatory purposes and the rise in algorithmic the Brazilian financial markets and increased onshore trading of
trading. The business packages and distributes real-time, end-of- domestic products. We anticipate that the combination of further
day and historical data and has distribution relationships globally bank consolidation and the increasing internationalisation of Brazilian
with risk management, analytics and global data vendors. ICAP has banking will lead to more mature markets. This expansion continues
been a significant driving force behind reference data for key OTC apace and has yielded good initial results in its first year of operation,
markets. In 2009, ICAP launched ICAP FIX, a comprehensive data despite showing an operating loss.
service providing accurate and verifiable marks across an extensive ICAP’s broking activity on BM&F Bovespa has grown in market share
range of ICAP market data. ICAP FIX can be used as reference and and rank, with increasing participation from local and international
validation data for product and credit control, risk management
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Financial statements
market participants expected to drive further growth in this market.
and mark-to-market of positions. BMF Spot FX and swap volumes in particular have been strong and
local bond trading in the region has also exceeded expectations.
ICAP’s Bovespa broking continues to increase revenue and market
share. In the Brazilian equity market, we experienced sharp and
robust growth, despite very competitive market conditions, resulting
in a top 20 market position out of a total competitive field of 90
broking organisations in less than one year. ICAP’s retail offering for
Brazilian equities, MYCAP, continues to gain traction, with almost
6,000 new accounts.
Following the acquisition of Arkhe, the leading independent broker in
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Information for shareholders
28 Business review
continued
Shipping Technology
The year was marked by a 40% fall in the Baltic Dry Index,
a 50% drop in rates for crude oil tankers and a 61% reduction in ICAP’s various businesses are leaders in the use of technology.
investment in new vessels and, as a result, the business made a During 2009/10 we spent 11% of our revenue on technology and
small operating loss. However, ICAP Shipping is well positioned for our advances are key to the success, efficiency and responsiveness
the upturn in the shipping cycle. We believe that China and India of our operating businesses.
will continue to drive demand for shipping services. This belief was For our electronic broking business, our technology group not only
reinforced in the latter part of the financial year, resulting in provides fixed income and FX matching engines but maintains
improved brokerage rates. extensive networks connecting us to our customer firms and to
Base metals individual traders worldwide.
ICAP’s London Metal Exchange base metals broking business In voice broking, we also make significant investment in technology
continued to show steady growth and has expanded during the to support efficient interaction with our customers. We use
past year. technology for the distribution of prices both internally and to our
Intellectual property customers; for hybrid trading systems; for straight-through-
In June 2009 we acquired the transactions division of Ocean processing; for risk management; and for clearing and settlement.
Tomo LLC, the leading Intellectual Capital Merchant Banc® company Similarly, technology is the basis of our post trade risk and
for an initial consideration of $10 million at closing, comprising information business. Each business has its own independent
$5 million in cash and $5 million of restricted ICAP plc shares. development teams that are at the heart of the diverse range
The combination of ICAP’s existing successful patent brokerage of services provided to their customers.
business and the Ocean Tomo brand will help us build a leading
position in the global patent and intellectual property broking market. We continue to achieve significant economies of scale by
leveraging internally developed and externally acquired trading
platforms in a global IT network of more than 800 IT professionals
based in EMEA, the Americas and Asia Pacific.
ICAP’s strong technological capability ensures that not only can
we meet the needs of our customers but also that we are able to
anticipate their requirements in a rapidly changing business and
regulatory environment.
ICAP plc Annual Report 2010
Key performance indicators In the past financial year, ICAP estimates its share of its overall
available market, excluding global cash and equities and listed 29
This section describes the key performance indicators futures and including shipping, post trade risk and information,
we use to measure the progress we are making towards increased to 22%-24% from 21%-23% in the previous year. By our
estimates, the size of ICAP’s total available market was $11 billion.
our financial and strategic goals. We aim to be the
leading global intermediary and the leading post trade ICAP aims to have a split of operating profit* that is evenly
risk provider in our markets, with operating profit* that distributed between its voice broking, electronic broking and post
trade risk and information businesses. In 2009/10, 52% was
is evenly distributed between voice broking, electronic derived from voice broking, 29% from electronic broking and
01 – 15
ICAP in ten
broking and post trade risk and information. In prior 19% from post trade risk and information.
years, ICAP aimed to generate 50% of its profit from
Innovation is a key driver of ICAP’s success. In order to measure our
electronic broking. This change of strategic goal reflects performance in this area, we previously measured the percentage
the increasing importance of post trade risk and of our revenue derived from businesses acquired or started during
information to our business, driven by increased the previous three years. However, for 2009/10 we measured
regulatory demand for such services. performance over the past two years to more closely align the
metric with our new business segment. As anticipated, in 2009/10
this key performance indicator showed a marked decline from
14% to 10%, as EBS no longer fell into this category. We expect
Share of the global financial market
this key performance indicator to decline further in 2010/11
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Business review
2008 20%-22% despite growth in new business initiatives, as it is anticipated that
2009 21%-23% Link and ICAP Shipping, both of which have been owned by the
Group for two years, will be reported in the core voice broking
2010 22%-24%
segment from 2010/11.
Operating profit* For 2009/10 the key performance indicator for voice revenue per
Voice Electronic Post trade risk and information voice broker was flat compared to the previous year as a result of
the investment in new businesses, in particular Brazil. As the new
2008 61% 26% 13% businesses develop we expect to see a material improvement
2009 59% 24% 17% in this performance indicator.
2010 52% 29% 19% Overall staff compensation as a proportion of revenue remained
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Governance
flat at 59%. The increase in the proportion of non-voice broking
New business** business reduces this percentage. However, in 2009/10, this has
2008 17% been offset by the impact of investment in new voice business
where, initially, staff compensation is a higher percentage of revenue.
2009 14%
2010 10% ICAP is a network business and, as a provider of some of the
world’s leading electronic broking platforms, our investment in
Voice revenue per voice broker* technology is crucial to our ability to anticipate and meet our
customers’ needs. To monitor our progress in this area ICAP
2008 £498,000
measures the percentage of revenue spent on technology which
2009 £542,000 at 11% remained unchanged from the previous year.
2010 544,000
65 – 140
Financial statements
Staff compensation as percentage of revenue*
2008 56%
2009 59%
2010 59%
2010 11%
30 Business review
continued
The risk function reports to the Group Chief Operating Officer Operational risk
and is accountable for managing the risk framework of the Group Operational risk comprises a diverse range of risk events including 31
across all ICAP’s entities and geographies. both direct and indirect losses from inadequate or failed internal
processes, actions or omissions by people, systems failure and
During the year regional risk committees have been established losses caused by external events. It represents a significant source
in EMEA, the Americas and Asia Pacific. These committees are of potential unexpected losses for the Group. Examples of such
responsible for supervising overall risk levels in their respective losses include:
regions and act as the interface between front office management
and the group risk function. R significant and extended failure of IT systems and applications;
01 – 15
ICAP in ten
Risk appetite R breakdown of information security, including network intrusion,
Risk appetite is the overall broad-based amount of risk that the breach of network gateways or security systems failure;
Group is willing to accept in pursuit of its strategic and financial R project risk in relation to critical IT development;
objectives.
R the loss of key members of staff;
The over-arching risk appetite of the Group is set in terms of four
objectives: to maintain at all times an investment grade debt credit R broker errors;
rating at the corporate level; to maintain at all times a liquidity R failure of external settlement/clearing systems;
cushion of at least $250 million; to maintain at all times capital in R failure or disruption of operational or businesses process flow;
excess of the minimum regulatory requirements at the subsidiary
level; and to operate the business within pre-agreed loss R natural or man-made business disruptions; and
constraints.
17– 41
Business review
R the introduction of new products and markets and their related
At an operational level, each business head is required to operate tax, legal, accounting, regulatory, settlement and technology
within credit and liquidity limits and is held accountable for issues.
managing overall risk within his business area at levels which in
aggregate reflect the Group’s overall risk appetite. Significant operational risks and their controls are continually
reviewed and assessed using a variety of tools including risk control
The Group regularly examines events that could seriously reduce self assessments, key risk indicators and operational process maps.
earnings, impair its liquidity position or create legal, regulatory or Through these measures, corrective steps are taken to reduce the
reputational damage and takes appropriate actions to mitigate risk probability of operational risks occurring and to mitigate their
where the scenario is likely to result in an outcome which is impact in the event they do occur.
incompatible with the Group’s appetite for risk.
Many of the Group’s activities are dependent on the integrity and
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Governance
Risk management robustness of its information technology and operational systems
Front line management and assurance and significant resources are devoted to protecting the resilience
Across the Group, front office management is responsible for of these systems. This includes formal business continuity plans
all control-related business issues and have full accountability and appropriate remote data back-up and disaster recovery facilities
for the management of the risks in their businesses, within limits for each of our key locations. Business continuity for our core
and the control environment set by the Group. Staff and managers activities is tested periodically to maintain effectiveness.
at all levels are required to take a prudent approach to risk taking
and to continuously review their control environment. Regulatory and compliance risk
This category of risk covers changes in the regulatory
The Group’s independent control functions (risk, compliance, legal environment that impact the Group’s strategic objectives
and internal audit) are responsible for ensuring that the control or business methodology and the risk of failure by the Group
environment is able to identify and escalate independently to to comply with all applicable regulations.
65 – 140
Financial statements
senior management the Group’s key risks and that risk mitigating
steps are taken where appropriate.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
32 Business review
continued
Credit risk related to the Group’s treasury activities (cash Reputational risk
investments and derivative financial instruments) is limited by ICAP relies on a reputation for the highest integrity in all its 33
the Group’s policy of requiring its treasury transactions to be activities both in order to maintain its existing business and to
undertaken with financial institutions which have been approved pursue its strategies for growth and new business development.
by the group risk committee and which are investment grade rated. A number of initiatives are dedicated to the avoidance of
reputational damage by ensuring ethical and transparent corporate
Liquidity risk behaviour, fair and consistent conduct of business and corporate
Liquidity risk is the risk that the Group is unable to make payments and social responsibility. These initiatives include policies and
on the dates that they fall due. procedures for the management of conflicts of interest,
01 – 15
ICAP in ten
As a result of providing settlement services to its customers for anti-money laundering and data security. These processes are
matched principal transactions and execution (and some limited embedded in the day-to-day management of the Group through
instances of clearing) in exchange traded products, the Group is education, training and Group policies and delegated authorities.
required to hold a core level of liquidity in order to provide collateral Inevitably, despite these specific steps taken by the Group, ICAP
and margin to the clearing houses of which it is a direct member remains exposed to the general perception of the financial industry.
and to those third party clearing providers who act on the Group’s In times of market and regulatory uncertainty, a single large
behalf. On top of this “core” liquidity requirement, the Group is also negative event in the wholesale financial markets may be widely
exposed to temporary movements in margin requirements as a advertised and commented on and, as a result, create through
result of changes in the volume and mix of the transactions “reputational contagion” the impression of wider operational
undertaken by its customers. It is difficult accurately to predict the or organisational deficiencies in the industry. ICAP is well aware
timing and amount of these temporary movements, which are of this situation, routinely monitors events at other companies
17 – 41
Business review
often only required intra-day. As a result the Group requires access and regularly upgrades its preparedness.
to significant short-term liquidity, which is addressed through a
combination of holding significant short-term cash balances and Market risk
having access to same day borrowings under a swing-line credit ICAP aims not to be exposed to any transaction-related market
facility. In May 2010, the Group refinanced its existing revolving risk. As a result, however, of providing its clients with matched
credit facility and increased the amount of swing-line from principal brokerage, it can become exposed to a variety of market
$94 million to $200 million. These changes will increase the risks including price, interest rates and FX.
Group’s operational flexibility in terms of meeting margin calls.
The Group’s matched principal brokerage business involves
To assist with managing liquidity, the Group seeks to diversify its ICAP acting as counterparty for identified buyers and sellers
funding sources and maintains an investment grade rating from by matching, in whole or in part, reciprocal back-to-back trades.
Moody’s and Fitch. The improvement in market conditions enabled In order to facilitate customer transactions and provide liquidity,
43 – 63
Governance
ICAP to launch its debut €300 million bond in July 2009, the Group may, however, participate in certain marketplaces by
commence issuance of euro commercial paper and to refinance posting quotations. The act of posting quotations in pursuit of
its core revolving credit facility in May 2010 with the result that, customer orders can result in ICAP becoming principal to an
at 12 May 2010, its debt facilities had an average maturity of unmatched trade. In such situations, or where one or both
44 months and provided access to £273 million of un-drawn counterparties in an OTC matched principal transaction fail to
committed headroom. While the Group has no facilities falling fulfil their obligations (for example an unsettled transaction) or
due within the next 24 months, its liquidity position could be through trade mismatches or errors, ICAP is exposed to market
impaired due to circumstances beyond its control, such as a risk. In these circumstances, ICAP’s policies and procedures require
worsening of credit markets or a perception that ICAP or similar the liquidation or hedging and liquidation of these principal
market participants are subject to greater uncertainties. Details positions as soon as reasonably practicable.
of ICAP’s borrowing arrangements are set out in note 22 to the
A similar risk exists for exchange traded transactions in which ICAP
65 – 140
Financial statements
financial statements.
facilitates client orders. While trades are normally taken up by the
With the exception of small, local cash management balances, underlying clients’ clearing brokers within a few minutes, if take-up
surplus cash is invested with financial institutions which have an is delayed or ultimately does not happen, ICAP is left with a position
equivalent credit rating of A or better. The Group invests cash facing the exchange and is exposed to short-term price
balances in a range of instruments including money market movements in the underlying asset temporarily held by the Group.
deposits, AAA liquidity funds, government bonds and other more Policies and procedures are in place to reduce the likelihood of such
structured, capital protected instruments. When investing its cash trade mismatches or failed give-ups and, in the event that they
balances, the Group considers the protection of principal, liquidity arise, the Group’s policy is to liquidate these principal positions as
characteristics and bank counterparty risk, as well as the soon as reasonably practicable.
optimisation of return.
In certain parts of its businesses, the Group, acting in its interdealer
141 – 143
Information for shareholders
Counterparty limits for cash investment are set and monitored by broker capacity, occasionally engages in complex (and sometimes
the group risk committee and, through the recent financial market very substantial) structured matched principal transactions in
turmoil, a number of changes have been made to reduce further order to execute orders placed by its highly-rated counterparties.
the Group’s exposure to institutions perceived as higher risk. The Group undertakes significant tax, legal and regulatory due
diligence before entering these transactions.
ICAP plc Annual Report 2010
34 Business review
continued
The risk team monitors an array of qualitative and quantitative In parallel to developing its staff, the Group has continued to invest
measures to ensure that the business risks remain within in its systems and is in the process of rolling out a new consolidation 35
acceptable parameters. More emphasis is given to the relevance tool to improve further the robustness of the management and
of these measures than to their mathematical sophistication. statutory reporting processes. This work will continue in 2010/11
Metrics that are robust, easy to explain to the businesses and as TriOptima is integrated and will also further standardise,
directly related to their risk profiles are preferred. Examples include automate and streamline processes.
key risk indicators, scenario analysis and credit exposure metrics.
Using these measures, the Group produces a number of market, External reporting, which includes the half and full year reports
credit and operational risk and intelligence reports which are together with the interim management statements, uses data
produced by the regional teams and relies on systems and
01 – 15
ICAP in ten
disseminated widely among the Group’s managers and up to
executive management level and the board. processes functioning correctly. To minimise the risk of error
the Group Finance Director requires the business chief executive
Internal control system and internal audit officers and chief financial officers to provide their assessment
The day-to-day business of the Group is subject to a system of of the financial control environment as part of a filing assurance
internal controls which incorporates financial, operational and review process before the half year and full year report is
compliance controls and risk management systems. recommended by the audit and risk committee to the board
for external release.
The effectiveness of the internal control system is reviewed
regularly by the independent internal audit function. Internal audit
reports to the audit and risk committee of the board (and
functionally to the Group Finance Director) and provides assurance
17 – 41
Business review
to executive management and the board that the system of
internal control achieves its objectives and highlights gaps and
areas for improvement. The internal audit function is outsourced
to Ernst & Young. Internal audit establishes an annual plan of desks
and functions to be examined based on discussions with
management and the perception of the level of risk in the
Group’s activities.
Following audits, internal audit provides management and the audit
and risk committee with conclusions of their analysis.
The Group has investments in a number of joint ventures and
43 – 63
Governance
associates. Where the Group is not directly involved in the
management of the investment it can influence, through board
representation, but not control the internal control systems
present in those entities. The board’s review of the effectiveness
of the system of internal controls in those entities is consequently
less comprehensive than in its directly-owned subsidiaries.
Financial reporting
The Group’s finance function is organised on a regional basis under
the leadership of the Group Finance Director whose direct reports
include the regional chief financial officer of each of EMEA, the
Americas and Asia Pacific, the chief financial officer electronic
65 – 140
Financial statements
broking, the group treasurer, the group financial controller and
the group tax director.
This group meets on a monthly basis and is responsible for both
the day-to-day management and strategic development of the
Group’s finance infrastructure together with ensuring that Group
policies have been adopted and appropriate controls put in place
to enable accurate and timely reporting of consolidated financial
information for management, regulatory and statutory purposes.
Over the course of the past 12 months, the Group has continued
to upgrade the quality of its finance team through selective
141 – 143
Information for shareholders
36 Business review
continued
Corporate and social responsibility ICAP’s role as an interdealer broker is to facilitate trading in the
wholesale financial markets, thereby helping to ensure the smooth
ICAP aims to conduct its business in a socially functioning of the global financial markets. These markets are
responsible manner, to contribute to the communities critical to the global financial system. The vast majority of financial
asset classes exist only in the OTC environment and, consequently,
in which it operates and to respect the needs of its the efficient functioning of these markets is essential for the free
customers, employees, investors, regulators, suppliers flow and availability of capital, the mitigation of risk and issuer and
and other stakeholders. investor choice. These markets play a major role in global economic
development and are the hub of developments that benefit savers,
investors, businesses and governments.
ICAP Charity Day – 17 years of making a difference
£11.5m
We facilitate trading by using our voice brokers and electronic
broking platforms to match buyers and sellers and create liquidity
in the OTC markets, enabling our customers to achieve their
business objectives and to hedge their risk exposures to numerous
markets, including interest rates, FX and energy. We have spent
many years facilitating the flow of trades to clearing houses on
£11.0m
2009
behalf of our customers and aim to improve the overall resilience of
the financial system. In addition we offer a wide range of post trade
services, which help our customers reduce the overall level of risk.
£9.2m The past twelve months have seen increased focus by regulators and
politicians on these markets and proposals continue to be debated by
£7.1m
governments across the world. There is no doubt that an overhaul of
some areas of the regulatory framework supporting the OTC
markets is necessary and ICAP continues to consult extensively with
£5.2m both politicians and regulators as part of this process.
£4.2m We believe that our role as a key participant in the OTC markets
best positions us to contribute to society, while maximising
£4.0m shareholder returns over the long term.
£3.3m Staff
£2.6m As the Group has expanded and grown, ICAP has attracted people
£2.0m
£2.2m with a broader range of skills in both technology and in the original
£1.3m broking businesses. The brokers and their managers comprise
£540k the largest group of the overall staff and they are required to have
£500k
£460k very specific skills. They are highly entrepreneurial, dynamic,
£320k team-spirited individuals with extremely strong networking and
1993 £288k
interpersonal skills and the ability to excel in a pressurised
environment. ICAP’s ability to attract and retain the highest quality
staff and leverage their intellectual capital is one of the key factors
driving the success of our business.
Management is committed to the advancement and training
of talented individuals and to providing an environment that is
intellectually challenging, motivating and supportive. This year there
has been a greater investment in staff through training, in particular
on management and supervisory skills and on providing market
knowledge and product training to the business support functions.
The latter is designed to enhance the ability of the business support
functions to support the broking functions more effectively.
The use of e-learning has been a particular feature, especially in
areas of risk management and compliance policy awareness and
training. This is an excellent way of monitoring effective delivery
of training and employees’ acknowledgement of their awareness
of relevant policies and their agreement to be bound by them.
ICAP employs approximately 4,500 people worldwide. Of this
number, more than 2,500 are brokers, sales and customer support
staff and over 800 are employed in IT and product development
of our electronic broking platforms.
ICAP plc Annual Report 2010
ICAP is a global business reflecting the global nature of the markets life assurance, pension provision and access to an employee
in which we operate. Geographic mobility of the workforce has assistance programme. Incentive and share ownership schemes are 37
always been a feature of ICAP’s business model. also run for the benefit of employees. Further information on these
schemes can be found in note 27 to the financial statements.
In order to ensure a continuing flow of intellectual capital into our
business, ICAP is committed to maintaining and developing further Employee wellbeing
an active graduate recruitment programme, even in these more As well as providing medical insurance ICAP promotes a number
difficult market conditions. First launched in 2006, ICAP’s global of initiatives to support employee health and wellbeing which,
graduate recruitment programme aims to provide a steady flow of in addition to encouraging more healthy lifestyles, also helps to
young, developing talent into the business. Since its launch, a total control medical insurance costs. These initiatives include in-house
01 – 15
ICAP in ten
of 120 graduates have joined ICAP, with 39 graduates joining in the health screening sessions, free or subsidised health assessments,
past year. The programme has always had an internship element subsidised or discounted gym memberships and sponsorship of
focused on 2nd year undergraduates, the best of whom are ICAP staff sports teams.
encouraged to apply for a graduate trainee role. This has been
expanded to include a short internship element aimed at 1st year Equal opportunity and diversity policy
undergraduates and long placement roles lasting between six and ICAP is committed to employment policies that provide and
12 months. promote equal employment and advancement opportunities and
to providing an environment that ensures tolerance and respect
The graduate recruitment programme has also expanded in terms for all employees. ICAP’s policy is that no employee, contract or
of the business areas it recruits for and in geographic scope. temporary worker will be treated less favourably, victimised or
Traditionally focused on voice and electronic broking graduate harassed on the grounds of their disability, gender, marital or civil
17 – 41
Business review
trainees, with a small intake of trainee accountants recruited for partnership status, race, nationality, colour, ethnicity, religion or
ICAP’s finance function, graduate trainees are also recruited for similar philosophical belief, sexual orientation, age, or any other
shipbroking, shipping research, risk management, operations and IT. class protected by applicable law.
The programme has also expanded significantly in Asia Pacific and, in
addition, now operates an internship programme for Traiana in Israel. In a number of locations, for example the UK and the US, there
has been increasingly active promotion of diversity initiatives.
While the recent financial market crisis has provided opportunities These include an active Diversity Council in the US, which has
to recruit highly skilled individuals, ICAP continues to monitor staff arranged presentations by prominent people from minority groups,
efficiency and productivity closely. Broker compensation is directly and the launch of ICAP Mutual Interest Networks which is the
linked to commission which varies from desk to desk. Profit per umbrella framework in the UK for a range of affinity networks such
broker will depend on the mix of business undertaken. Commission as Women’s ICAP Network and Family and Dependants Network.
arrangements are structured to ensure no risk remains outstanding These groups also arrange presentations and information sessions
43 – 63
Governance
at the time of payment. As a result, there is no requirement for on subjects of interest to the network membership with the overall
deferral conditions to be attached to commission payments. aim of encouraging a more diverse and inclusive environment in ICAP.
While the Group, in common with other similar organisations, is Health and safety
exposed to the risk of brokers moving to other companies, ICAP ICAP has a health and safety policy which is approved by the board
seeks to minimise this risk by offering competitive remuneration and owned by the Group Chief Operating Officer. Regional health
structures linked to both individual and desk performance. In and safety committees oversee structures for policy compliance.
addition, as far as possible, ICAP uses minimum term contracts All managers have a responsibility for ensuring a healthy and safe
which are normally staggered across a desk to avoid the risk of working environment. The great majority of ICAP employees work
key staff failing to renew, non-compete clauses, gardening leave in an office environment and, as such, there are no significant areas
provisions and restrictions on hiring colleagues. of risk to report.
65 – 140
Financial statements
In many emerging markets it is not possible to restrict staff’s Charity Day
freedom to leave to join a competitor. In these markets ICAP Corporate philanthropy and charitable giving have always been
provides staff with the ability to buy themselves out of their an important part of ICAP’s corporate culture and ICAP’s annual
contract which forms an economic disincentive to leave or, in the Charity Day has played a special role in employee motivation since
worst case, financial protection while ICAP rebuilds its platform. its inception in 1993. Charity Day is an annual event held each
December when the Group donates a whole day’s revenue to a
Employee involvement and employment practices selection of charities worldwide. There is significant staff, customer
ICAP is committed to achieving and maintaining the highest and supplier involvement in Charity Day and the charities are
standards in the workplace. This commitment is underpinned by selected by ICAP’s staff in each region in which it operates.
policies on equal opportunities, harassment and discrimination, to
which all employees are required to adhere and which are regularly This revenue would otherwise contribute directly to the broker
monitored and enforced. The Group undertakes diversity training commission pool and, as such, our staff contribute directly to these
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Information for shareholders
38 Business review
continued
Environment Staff costs represent the single largest expense of the Group and
ICAP’s environment policy is approved by the board and owned by are variable, in part, with performance in core voice broking and,
the Group Finance Director. to a lesser extent, electronic broking and post trade risk and
information. For 2009/10, staff costs remained flat at 59% of
As a financial institution, the nature of ICAP’s operations means revenue which reflects a change of revenue mix within our core
that its environmental impact is relatively low and is limited to the businesses and the impact of new business initiatives, where it
emission of greenhouse gases through running offices and takes time for margins to reach target levels.
corporate travel. ICAP seeks to reduce emissions by purchasing
electricity from renewable sources where possible, minimising air The Group estimates that approximately 50% of its cost base
travel and recycling waste. ICAP has worked with Carbon Neutral varies with revenue, which is in line with the prior year.
Limited, an environmental consultancy, to estimate the residual
emissions of the Group in terms of carbon dioxide equivalents. Operating profit* margin
Worldwide, the Group is estimated to emit the equivalent of The Group’s operating profit* margin generated from its continuing
15.3 thousand tonnes** of carbon dioxide or 3.5 tonnes (2009 operations for the year ended 31 March 2010 was 22%, down 1%
– 3.8 tonnes) per employee per annum. ICAP continues to on the prior year as a result of a shift to lower margin businesses
monitor electricity output and overall emissions output. ICAP will within core voice broking and investment in new businesses being
endeavour to reduce further this footprint, although the expansion partially offset by the £23 million of annualised cost savings noted
of our global office network is likely to impact our footprint in the in last year’s Annual Report.
medium term. Where it is not possible to reduce this footprint, During the year ended 31 March 2010, the operating profit*
ICAP purchases Certificates of Emission Reduction (CER) under the margin generated by the core voice broking business fell by 1%
United Nations’ sponsored Clean Development Mechanism. to 19%, primarily as a result of a change in the business mix within
Furthermore, one of ICAP’s business divisions is involved in the EMEA region where an increased percentage of revenue was
helping to reduce emissions output by offering broking services in generated from business with higher commission rates. The EMEA
emissions credits as part of the EU Emissions Trading Scheme and voice broking margin fell by 3% to 23% during the period. As a
United Nations Certified Emission Reduction Credits. ICAP has a result of cost control management, the Americas region maintained
leading market share of OTC brokered European Union Allowances its margin at 18% and Asia Pacific, despite challenging market
and has a prominent position in the rapidly developing carbon conditions, improved its operating profit* margin from (2)% to 1%.
options market. ICAP is also active in the nascent emissions trading Through a continued focus on costs and our new businesses
markets in the US. reaching operational maturity we would expect to see the
operating profit* margin for the voice business to show a modest
Financial review improvement. However, the combination of competitive pressure
Cost management and an ongoing need to invest in our people, systems and
The Group considers the efficient and effective management processes will limit our ability to improve voice margins significantly
of its operating expenses as a key component of its operational in the near term.
strategy and continually evaluates opportunities to reduce these. Revenue from our electronic broking business of £252 million was
During the year, net operating expenses related to the continuing flat compared to the prior year. However, as a result of the actions
business increased by 3% to £1,251 million due to the impact of taken in the prior year to manage costs, the operating profit*
FX (£68 million) and the investment in new businesses principally margin improved from 35% to 40%.
in Brazil (£44 million). This was largely offset by a reduction in The post trade risk and information business continued to perform
performance related commissions and annualised cost savings strongly with the 2009/10 year performance delivering an
of £23 million. operating profit* margin of 49% in line with the prior year.
Exceptional items and discontinued operations
The Group’s policy is to separately disclose items in its income
statement as exceptional which are non-recurring and, in terms
of both size and nature, material.
On 18 December 2009, the Group announced that one of its US
subsidiaries, ICAP Securities USA LLC, had reached a settlement
with the SEC in regard to a multi-year, industry-wide investigation
into the markets in certain fixed income securities, without
admitting or denying allegations of any wrongdoing.
** Based on World Business Council for Sustainable Development and the World
Resources Institute Protocols, relevant Scope 3 activities (mainly business travel
and commuting) have been included as recommended by these organisations.
Using only Scope 1 and 2 emissions (minimum recommended reporting level)
would reduce ICAP’s reported emissions by approximately 80%. The total figure is
after excluding 8.1 tonnes ( 2009 – 7.0 tonnes) of electricity produced from * From continuing operations excluding amortisation and impairment of intangibles
renewable sources. arising on consolidation and exceptional items.
ICAP plc Annual Report 2010
The investigation concerned alleged activities on certain of ICAP Earnings and earnings per share (EPS)
Securities USA LLC’s interdealer voice broking securities desks We believe that the most appropriate EPS measurement ratio for 39
between 2005 and 2008. ICAP suspended two individuals on the the Group is adjusted basic EPS as this measure better reflects the
mortgage backed securities desk in June 2008 and subsequently Group’s underlying cash earnings. For the year ended 31 March
terminated their employment for violation of ICAP’s policies. 2010 we have also presented adjusted EPS from continuing
operations so that the impact of the losses arising from the
ICAP Securities USA LLC has made substantial enhancements discontinuance of the full service agency cash equities business
to the quality of its control environment over the period. These in Europe and Asia Pacific can be identified.
include greater formalisation of its broking practices, enhanced
operational, risk and compliance controls, improved training and Adjusted basic EPS from continuing operations excludes the impact
01 – 15
ICAP in ten
monitoring programmes, revised policies and procedures, and of the performance of discontinued operations, amortisation and
the recruitment of additional experienced managers in various impairment of intangibles arising on consolidation and exceptional
control roles. items. The calculation of EPS is set out in note 13 to the financial
statements.
The Group has recognised an exceptional charge of £21 million
in respect of this settlement representing penalties and costs Adjusted basic EPS from continuing operations increased by 1% to
related to the settlement of this matter. 35.1p. The Group’s basic EPS from continuing operations decreased
from 28.2p to 25.5p and total basic EPS, including discontinued
The second exceptional item of £46 million (pre-tax) relates to operations, decreased from 27.6p to 18.0p.
our cash equities business. The expansion into full service agency
cash equities in Europe and Asia Pacific failed to deliver the As detailed in note 2 to the financial statements, the Group is
necessary returns. After a thorough review conducted in early adopting IFRS3 (revised) with effect from 1 April 2010. This will
17– 41
Business review
2010 we announced in March our decision to withdraw this full result in a number of future acquisition related costs, including
service offering. This exceptional item includes restructuring and transaction fees and changes to the estimated amount of
closure costs related to redundancy, the write-off of fixed assets contingent deferred consideration, impacting the income
and the termination of third-party contracts. statement. For acquisitions which closed prior to 31 March 2010,
these costs are accounted for on the balance sheet as a movement
The closure of the European and Asia Pacific cash equities in goodwill and, as they do not impact on the Group’s ability to
businesses in March represents a change of strategy for the Group, generate cash flow, it is planned to amend the definition of
as these businesses were previously positioned alongside post adjusted EPS used in future reporting periods to remove the
trade risk and emerging markets as an engine for growth and, as impact of these adjustments from earnings.
such, received significant prominence over the past 18 months in
management presentations, press and analyst coverage. In order Dividend
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Governance
to enable relevant comparison of future performance, we believe For the past three years, the Group has paid a dividend equal
it is important to identify the impact that these businesses have to 50% of adjusted basic EPS which reflects the board’s desire
had on the Group’s results and, as such, have separately disclosed to balance distributions to shareholders against the wider capital
them as a discontinued operation in the financial statements. demands of the Group.
The Group is continuing to negotiate with the impacted staff For the current year we propose, subject to shareholder approval,
and suppliers to mitigate the closure costs and to find alternative to continue to apply the same multiple but to exclude the impact
uses for the fixed assets. of the discontinued business from the definition of adjusted
EPS which results in a final dividend of 12.44p being proposed.
No exceptional charges were recognised in the comparative This compares to 12.35p in the prior year and, when taken in
financial statements for the 12 months to 31 March 2009. conjunction with the interim dividend of 5.11p per share, results
Further details on the discontinued business and exceptional in a full-year dividend of 17.55p which is an increase of 3% on the
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Financial statements
items are set out in notes 4 and 6 to the financial statements. prior year.
Tax At the annual general meeting in July 2009, the introduction of a
The overall objective continues to be to plan and manage the tax scrip dividend scheme was approved in order to give shareholders
affairs of the Group efficiently within the various local tax greater flexibility and the opportunity to elect to receive new
jurisdictions of the world to achieve the lowest tax cash cost and ordinary shares in ICAP as an alternative to any cash dividend
effective tax rate while complying with local tax regulations. As a declared by the Company. 4,567,807 shares were issued in order
result of this management the Group’s effective tax rate, excluding to satisfy elections in respect of last year’s final dividend with no
amortisation, impairment of intangibles arising on consolidation, shares issued in respect of the interim dividend distribution in
exceptional items and discontinued operations, has reduced to 32% February 2010. It is proposed to continue to offer a scrip dividend
(2009 – 33%). alternative for 2010/11. Further details will be announced on
A tax credit of £20 million (2009 – £22 million) has been 28 July 2010.
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Information for shareholders
recognised in the income statement column entitled “amortisation Interim dividends are calculated as 30% of the previous year’s
and impairment of intangibles arising on consolidation” to reflect full-year dividend. This approach will continue for the 2010/11
the impact on deferred tax of amortising intangible assets. financial year.
The Group’s tax charge is affected by the varying tax rates in
different jurisdictions applied to taxable profits; the mix of those
profits; and the rules impacting deductibility of certain costs.
The Group continues to take a prudent approach to the management
of its tax affairs and provisions are set to cover tax exposures.
Losses on discontinued operations of £18 million are shown net
of a tax credit of £7 million and related reorganisation costs of
£41 million net of a tax credit of £11 million.
ICAP plc Annual Report 2010
40 Business review
continued
Operating profit*/cash conversion as a result of writing down the carrying value of a number of
The Group’s consolidated cash flow statement is set out on page customer relationships which have been impacted by the credit
71 of the financial statements. crisis, a further £4 million (2009 – £7 million) impairment to First
Brokers and £1 million of other impairments.
The Group continues to generate substantial free cash flow and in
2009/10 once again saw its post-tax profits, excluding the impact Matched principal gross-up
of exceptional items and the amortisation and impairment of Certain Group companies are involved as a matched principal in
intangibles arising on consolidation, convert into cash. the process of broking securities between third parties. Such
trades are complete only when both sides of the deal are settled
Year ended Year ended and so the Group is exposed to risk in the event that one side of
31 March 31 March
2010 2009
the transaction remains unsettled. Substantially all the transactions
Free cash flow £m £m settle within a short period of time and, as such, the settlement
Cash generated by operations 345 455 risk is considered to be minimal.
Interest and tax (69) (101) All amounts due to and payable by counterparties in respect of
Cash flow from operating activities 276 354 matched principal business are shown gross, except where a legally
enforceable netting agreement exists and the asset and liability are
Capital expenditure (66) (63)
either settled net or simultaneously. At 31 March 2010 matched
Dividends from associates and principal business resulted in the balance sheet being grossed up
investments 9 5 by £60 billion.
Free cash flow 219 296
Contingent deferred consideration and deferred consideration
Cash generated from operations decreased by £110 million in A number of the Group’s recent acquisitions have been structured
2009/10, reflecting the impact of lower trading revenues to include an element of deferred consideration that is contingent
(£15 million), the settlement of the SEC claim and related costs on the business performance. These arrangements take a variety
(£21 million), the impact of initially unsettled trades (£13 million), of forms and may involve part of the purchase consideration being
and the maintenance of the one-off benefit seen in the prior year deferred and linked to future performance or the vendors retaining
from enhancing our working capital practices. a minority interest which they may have the right to put and ICAP
call after a pre-agreed period.
Net payments in respect of interest and tax have decreased by
£32 million to £69 million, reflecting the combined impact of lower Overall, the objective of these arrangements is to reduce the risk
profits in the year together with timing differences. inherent in acquiring smaller owner-managed businesses and to
align the vendors, many of whom remain with ICAP, to both
The Group distributed £92 million of its free cash flow to
integrate and develop the business further. At 31 March 2010,
shareholders through its dividend. In total, £149 million was
the present value of these obligations was £19 million which
invested in a number of acquisitions during the year, including
represents a decrease of £29 million when compared to the prior
£122 million to acquire the remaining shares in Reset and
year, as a result of the payment of £14 million of deferred
TriOptima and £14 million as deferred consideration for Link.
consideration in respect of Link, the removal of the obligation in
Balance sheet – net assets respect of full service agency cash equities and a rebasing of the
Net assets have increased from £1,140 million to £1,215 million expected amount due for ICAP Shipping.
which include the recognition of intangible assets in respect of our
An amount of £7 million deferred consideration was recognised
previous shareholding of 38.22% in TriOptima.
as a liability at 31 March 2010 which was paid in May 2010 to
Intangible assets arising on consolidation TriOptima.
The Group accounts for those assets and liabilities which arise
Further details of these arrangements are set out in note 14 of the
on acquisition at fair value and recognises goodwill and other
financial statements.
intangible assets on consolidation. At 31 March 2010, intangible
assets arising on consolidation stood at £1,489 million, up Net debt and cash
£85 million on the prior year as a result of the amortisation charge The Group aims to ensure that it has constant access, even in
related to those assets with a finite useful life, such as customer periods of corporate or market turmoil, to an appropriate level of
relationships, revaluation of dollar denominated assets, principally cash, other forms of marketable securities and committed funding
EBS, Traiana and Reset being more than offset by the assets arising lines to enable it to finance its ongoing operations, proposed
on the acquisition of Arkhe and TriOptima. acquisitions and other reasonable unanticipated events on
cost-effective and attractive terms. During the past 12 months
The Group is required to consider the carrying value of these
ICAP’s risk function has reviewed the liquidity risks facing the
assets on an annual basis against their value in use and, if
Group and confirmed that $250 million remains as an appropriate
appropriate, to impair the carrying value. Details of the approach
level of liquidity headroom to mitigate the operational risks including
adopted to review the assets are set out in note 15 to the financial
margin and collateral requirements inherent in our business.
statements and resulted in a £5 million (2009 – £nil) charge
The Group has traditionally financed itself through a combination In general, higher levels of market volatility result in increased
of retained profits, short-term committed and uncommitted bank demand for the Group’s brokerage and post trade risk and 41
facilities, equity, and US private placement loan notes and, as set information services. From a regulatory capital perspective, however,
out in last year’s Annual Report, has taken steps through obtaining the impact is significantly dampened by the fact that much of this
investment grade credit ratings and putting in place a Global incremental business occurs in markets which operate on a name
Medium Term Note programme (GMTN), to ensure that it is able to give-up basis or are cleared through a central counterparty.
take advantage of improving market conditions to diversify these We would, therefore, expect any increase in activity to have a
sources further. limited impact on the Group’s capital resource requirement and,
as such, absent a material acquisition, loss of the waiver or a change
During July 2009, the Group took advantage of stronger market
01 – 15
ICAP in ten
in the basis of computation, existing capital resources are viewed
conditions to significantly strengthen its balance sheet through the as sufficient to both operate and grow the business.
issuance of the GMTN programme of its debut bond, raising
€300 million of five-year term debt to repay the £135 million Contractual arrangements
bridge facility, which had been taken out in April 2008 to finance During 2009/10 the Group’s total cost base from continuing
the purchase of Link, and to create additional headroom under its operations was £1,270 million (2009 – £1,243 million) of which
core revolving credit facility. approximately 75% (2009 – 75%) was represented by staff costs
11% by technology costs (2009 – 10%) and 14% by other costs
The Group’s core £473 million revolving credit facility was due to (2009 – 15%) including premises, travel, entertainment and clearing.
mature in March 2011 and, in line with its objective of maintaining
appropriate levels of committed headroom for the 12 months ahead, The Group places reliance on a number of key suppliers to carry out
ICAP announced on 7 May 2010 that it had successfully refinanced its business effectively and has put in place procedures to ensure
17 – 41
Business review
this facility into a new $880 million committed revolving credit facility that purchasing decisions balance cost against other factors
which matures in May 2013, following which the average maturity including service quality, global reach and resilience.
of the Group’s debt facilities has been extended to 44 months.
The success of ICAP’s core voice broking business is reliant on its
The Group’s credit ratings remained unchanged throughout the ability to attract and retain highly qualified staff. A number of legal
period. At 12 May 2010, the Group was rated BBB+ by Fitch arrangements, including rolling contracts and non-compete
and Baa2 by Moody’s. Net debt was £148 million, an increase arrangements, are employed to mitigate the risk of key producers
of £22 million on the prior year as a result of the borrowings to being lost to competitors.
finance the acquisition of TriOptima being partially offset by strong
cash generation in the year. Further details of the Group’s net Information systems and communications are key to the delivery
debt, cash and cash equivalent and borrowings are set out in notes of both voice and electronic products and, in this area, the Group
33(c), 33(b) and 22 respectively of the financial statements. seeks to ensure that its systems have full redundancy and are
43 – 63
Governance
capable of operating from business continuity sites.
Capital structure and regulatory capital
ICAP is an international business which provides brokerage, post The settlement of matched principal and exchange traded
trade risk and information services in a wide range of products to businesses requires access to clearing houses either directly or
professional counterparties. The business is subject to consolidated through third party providers of clearing and settlement services.
supervision by the FSA under the terms of the CRD. In North America the Group is a member of the FICC and NSCC
through which it clears US Treasury products, agency, mortgage
In March 2007, ICAP obtained a waiver from the consolidated and equity trades for its client base. In Europe and Asia Pacific, with
capital adequacy tests which have the effect of excluding goodwill the exception of base metal clearing on LCH. Clearnet Group Ltd,
from the capital computation and, in so doing, allows the Group the majority of the Group’s clearing activities are outsourced to
to undertake acquisitions using debt rather than equity finance. third parties where ICAP seeks to partner with one of the leading
The terms of the waiver, which runs until the end of March 2012, clearing providers in each market.
65 – 140
Financial statements
limits our ability to incur market risk and, in effect, prohibits the
Group from undertaking proprietary trading activities. As more fully described in note 22, the Group relies on a small
number of international banks to provide it with access to liquidity.
The Group’s Pillar 1 regulatory capital surplus represents the No single bank provides the Group with more than 14% of its total
difference between the capital resources of the Company, on a committed credit facilities.
stand alone basis, and the regulatory capital requirements of the
Group calculated, in accordance with the requirements of the Events after the balance sheet date
waiver, on an aggregate basis. On 7 May 2010, the Group refinanced its existing £473 million
three-year unsecured revolving credit facility and $94 million
The Group’s Pillar 1 regulatory capital requirement calculated under swingline with a new $880 million revolving credit facility
the CRD waiver is relatively stable. However, as a result of timing incorporating an up to $200 million swingline facility, which
differences in the receipt of dividends from subsidiaries and the matures on 31 May 2013. This facility carries a floating interest
141 – 143
Information for shareholders
payment to ICAP’s shareholders, the Group’s regulatory capital, rate at LIBOR plus 2% with an additional 0.50% payable dependent
and consequently the Pillar 1 headroom, may fluctuate. At the year on the debt to earnings ratio.
end the Group had in excess of £500 million of Pillar 1 headroom.
Our business is in good shape and well positioned to take advantage
CRD requires ICAP, under Pillar 2, to evaluate the risks facing the of improving market conditions and regulatory change. We have
business and to determine whether the Pillar 1 capital is sufficient learnt valuable lessons from our expansion into the full service
to cover any expected losses. The Group has developed a scenario- agency cash equities business and adopted new processes, used the
based model which utilises data provided by the business to assess financial crisis to strengthen our voice franchise, continued to invest
the economic capital required to cover the expected risks and, at in our electronic broking platforms and, through Reset, Traiana,
31 March 2010, viewed the Pillar 1 capital as sufficient to cover TriOptima and ReMatch, to operate some of the key post trade risk
the identified risks. The analysis of economic capital is documented solutions used by our clients. The business continues to exhibit low
in the Group’s Internal Capital Adequacy Assessment Process levels of market risk, remains highly cash generative and has a
(ICAAP) which is required by the FSA, regularly updated and strong balance sheet and, as such, we believe is well positioned to
formally approved by the board annually. respond to future market challenges.
42
43
01 – 15
ICAP in ten
Governance
44 Directors’ profiles
46 Chairman’s statement
47 Directors’ report
50 Corporate governance
17 – 41
Business review
55 Remuneration report
63 Independent auditors’ report
43 – 63
Governance
65 – 140
Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
44 Directors’ profiles
45
01 – 15
ICAP in ten
Mark Yallop James McNulty AR, N, R
Group Chief Operating Officer Senior independent non-executive
Aged 50 director
17 – 41
Business review
Mark was appointed Group Chief Operating Aged 59
Officer in 2005 and is chairman of the group James was appointed a non-executive director
risk committee and is responsible for the post in 2004 and is chairman of the remuneration
trade risk division. He had previously been committee. He has 30 years’ experience in
Group Chief Operating Officer of Deutsche the global financial markets, including futures,
Bank Group, following many years’ involvement securities, derivatives and foreign exchange.
in trading in the derivatives, foreign exchange He is a director of NYSE Euronext. He was
and cash markets. Mark was also a director of President and Chief Executive Officer of
ISDA from 1996 to 1998. Chicago Mercantile Exchange Holdings Inc
Mark was last re-elected by shareholders from its formation in August 2001 and Chicago
at the annual general meeting in 2009. Mercantile Exchange Inc from February
2000 until 1 January 2004. Before this he
was managing director and co-head of the
43 – 63
Governance
Corporate Analysis and Structuring Team in the
Corporate Finance division of the investment
banking firm now known as UBS.
James was last re-elected by shareholders
at the annual general meeting in 2007 and is
standing for re-election at the annual general
meeting in July 2010.
65 – 140
Financial statements
William Nabarro AR, N, R John Sievwright AR, R
Independent non-executive director Independent non-executive director
Aged 54 Aged 55
William was appointed as a non-executive John was appointed as a non-executive
director in 1998 and is chairman of the director in July 2009 and is chairman of the
nomination committee. He was appointed audit and risk committee. Prior to joining ICAP
Executive Chairman of JLT Employee Benefits he was Chief Operating Officer, International,
141 – 143
Information for shareholders
in January 2006 and joined the board of Jardine for Merrill Lynch, based in New York, Tokyo
Lloyd Thompson Group plc as Commercial and London. He has also held a number of
Director in April 2006. He was Vice Chairman senior positions at Merrill Lynch, including
of KPMG Corporate Finance between July Chief Operating Officer, Global Markets
1999 and July 2003. Before joining KPMG and Investment Banking; Head of Global
he was a managing director of SG Hambros Futures and Options and Chief Administrative
Corporate Finance. He joined Hambros Bank in Officer for the Debt Markets and Global
1978 and was head of its Corporate Finance Equity Derivatives Divisions. He is also a
Division from 1997 to 1999. non-executive director of FirstGroup plc
William was last re-elected by shareholders and chairman of their audit committee.
at the annual general meeting in 2008. John will be offering himself for election
at the annual general meeting in July 2010.
ICAP plc Annual Report 2010
46 Chairman’s statement
In preparing the Annual Report we have taken into account recent income securities, without admitting or denying any allegations of
changes and recommendations on corporate governance that any wrongdoing. The investigation concerned activities on certain
were contained in the final Walker report and others such as the of ICAP Securities USA LLC’s interdealer voice broking securities
Turnbull Guidance on Internal Control and the best practice desks between 2004 and 2008. ICAP suspended two individuals
guidance set out in the Higgs report. The corporate governance on the mortgage backed securities desk in June 2008 and
section, together with the remuneration report, details how the subsequently terminated their employment for violation of
Company has applied the principles set out in Section 1 of the ICAP policies.
Combined Code and includes additional and explanatory
disclosures as to how the Company has complied. ICAP Securities USA LLC has made substantial enhancements
to the quality of its control environment over the period.
I am satisfied with ICAP’s overall corporate governance structure These include greater formalisation of its broking practices,
and would like to comment on some changes we have made enhanced operational, risk and compliance controls, improved
this year. training and monitoring programmes, revised policies and
procedures, and the recruitment of additional experienced
In addition to the scheduled board meetings, we have increased managers in various support roles. We are working to further
the frequency of interim meetings. The board has met on a strengthen our compliance and risk functions on a worldwide basis.
number of occasions to consider current issues such as trading
performance, the SEC investigation and settlement and During the year we made important revisions to the remit and
acquisitions. The additional board meetings were sometimes structure of the audit committee. It was renamed the audit
called at short notice and any director who was unable to attend and risk committee and its agenda, role and responsibilities were
a meeting was briefed separately on the matters for discussion broadened to more actively deal with matters of business control
at the meeting and their views were sought and considered. and oversight and regulation. The frequency of meetings has
These interim meetings have undoubtedly improved communication increased to six a year. I regularly attend both the audit and risk
between board members and enabled full and detailed consideration and the remuneration committee meetings.
of high priority issues.
During the period under review, a thorough board evaluation
The nomination committee, together with the rest of the board, was undertaken to review the effectiveness of the board and
has been considering the succession of a number of long-serving the committees. The results of the evaluation were supportive
non-executive directors who are coincidentally retiring this year. of the decision making and board processes and endorsed the
In addition to the appointment of John Sievwright during the year, changes being undertaken in the remit of the audit and risk
the board is now seeking to appoint three new independent committee. James McNulty, as the senior independent director,
non-executive directors. This creates an opportunity to refresh undertook, in consultation with other directors, an evaluation
the board with relevant skills and experience for the current of my performance as Chairman.
environment.
The responsibilities and time commitment of the non-executive
The board discussed and agreed the skills, knowledge and directors has increased very substantially and, after consultation
experience that each appointee would ideally have. Experience with an external adviser, their fees have been adjusted, with effect
of the markets in which ICAP operates is a requirement but such from 1 May 2010, to reflect this additional time commitment.
experience could be derived from a number of other related
financial services sectors. The board has appointed a prominent In view of my length of service, I will be standing for re-election
leadership advisory firm to undertake a thorough search on an at the forthcoming annual general meeting. Matthew Lester and
international basis and the process is well underway. Candidates are James McNulty will also be standing for re-election and John
now being evaluated and we expect to appoint new non-executive Sievwright will be standing for re-appointment as he was
directors in the second quarter of the financial year 2010/11. appointed a director since the last annual general meeting.
This will keep the period when we are non-compliant with the Nick Cosh, who retired at the end of the financial year, was
Combined Code as short as possible. previously chairman of our audit committee and gave ten years
The Group is lead-supervised by the FSA and is required to meet of dedicated and very valuable service during a period when
the systems and control requirements of the CRD. It regularly the Group grew dramatically and the issues it faced became
reviews these and, where necessary, takes action to ensure increasingly complex. Another long standing and much valued
compliance. In its 2010/11 business plan, the FSA has announced director, William Nabarro, who has been a member of the board
plans to adopt a more outcomes-focused approach to supervision since the inception of ICAP, has also decided to retire from the
of all financial services firms and will achieve this in various ways, City and will not be seeking re-election at the forthcoming annual
including more intensive reviews of prudential returns and control general meeting. I would like to thank them both for their wise
systems as well as more frequent visits and meetings with senior counsel over many years and through many changes.
management. The board recognises that we have to continuously
review and enhance the Group procedures to ensure compliance
with all the FSA’s and other regulators’ requirements.
Charles Gregson
In the US, the Group’s activities are primarily regulated by FINRA Chairman
and the SEC. In December 2009 the Group announced that it had
reached agreement with the SEC to settle in respect of a multi- 19 May 2010
year, industry-wide investigation into the markets in certain fixed
ICAP plc Annual Report 2010
Directors’ report 47
The directors present their report and the audited financial John Sievwright was appointed a director on 15 July 2009 and will
01 – 15
ICAP in ten
statements of the Group for the year ended 31 March 2010. stand for election at the annual general meeting on 14 July 2010.
Activities, business review, future developments Charles Gregson has agreed to stand for annual re-election having
and risk management been in office for over nine years. The Company’s articles of
A review of business activities, future developments and a association and the Combined Code require a director to stand for
description of the principal risks and uncertainties facing the re-election once every three years. Accordingly, Matthew Lester
Company, including risk management and financial risk and James McNulty will stand for re-election at the forthcoming
management, is given in the following sections of the annual general meeting.
Annual Report:
The interests of the directors in the Company’s ordinary shares of
–
ICAP in ten on pages 1 to 15, 10p each are shown below as at 31 March 2010 and at 31 March
2009 (or as at date of appointment). The interests of directors in
17 – 41
Business review
–
key performance indicators on page 29,
options over the Company’s shares are shown on pages 61 and 62
–
the business review on pages 18 to 41, and within the remuneration report.
–
note 24 to the financial statements which contains information As at As at
on risk management and financial risk management. 31 March 31 March
2010 2009
All these sections are incorporated into the directors’ report Charles Gregson – Chairman 217,283 213,424
by reference.
Michael Spencer 113,902,090 138,076,836
Results and dividends Matthew Lester 202,587 150,742
The results of the Group for the year are set out in the
consolidated income statement on page 66. The directors John Nixon – –
recommend a final dividend of 12.44p per share which, together Mark Yallop 1,217,361 1,027,702
43 – 63
Governance
with the interim dividend of 5.11p per share already declared and Nicholas Cosh 30,000 30,000
paid, makes a total for the year ended 31 March 2010 of 17.55p
James McNulty 20,000 20,000
per share (2009 – 17.05p). Details of the interim dividend
payment are set out in note 12 to the financial statements. Subject William Nabarro 48,580 48,580
to approval at the annual general meeting, the final dividend will be John Sievwright – –
paid on 20 August 2010 to shareholders on the register on 23 July
2010 (ex-dividend date being 21 July 2010). Notes
1 Details of Michael Spencer’s shareholding are set out in a note to the substantial
Under the terms of the scrip dividend scheme approved at last shareholdings section of the directors’ report.
year’s annual general meeting, shareholders will be offered the 2 Directors’ interests shown in the table above represent shares beneficially held by
each director together with shares held by their connected persons. They include
opportunity to elect to receive their cash dividend in shares. ordinary shares held on behalf of Michael Spencer by the trustees of the ICAP
65 – 140
Financial statements
Further details will be announced on 28 July 2010 and will be Trust in respect of his basic awards and any vested, unexercised matching awards
available on the ICAP website. under the BSMP.
3 Between 31 March 2010 and 12 May 2010 there were no changes to the above
Related party transactions interests.
Details of related party transactions are set out in note 32 to
Share capital
the financial statements.
All changes in share capital are detailed in note 26 to the financial
Events after the balance sheet date statements. The Company has one class of share in issue, ordinary
Details of events after the balance sheet date are set out in the shares of 10p each, all of which are fully paid. Each ordinary share
business review on page 41 and in note 35 to the financial in issue carries equal rights including one vote per share on a poll
statements. at general meetings of the Company, subject to the Company’s
articles of association and law. The shares issued to Ocean Tomo
Directors and directors’ interests
141 – 143
Information for shareholders
LLC under the asset and purchase agreement dated 15 June 2009
Profiles of the directors who held office at the end of the year are subject to a restriction on transfer. This restriction will lapse on
are given on pages 44 and 45. Details of the service contracts 15 June 2010. There are no other restrictions on the transfer of
for those directors holding office during the year are shown in ordinary shares. Shares held in treasury carry no voting rights for
the remuneration report on page 59. as long as they are held as Treasury Shares. Votes may be exercised
David Puth resigned as a director of the Company on by shareholders attending or otherwise duly represented at general
15 September 2009 and Nicholas Cosh retired at the end of meetings. The ICAP and Garban Trusts hold ordinary shares which
the financial year. may be used to satisfy options and awards granted under the
Company’s share plans. The voting rights of ordinary shares held
in the ICAP and Garban Trusts are exercisable by the trustees
in accordance with their fiduciary duties. The right to receive
dividends has been waived in respect of the shares held in the ICAP
and Garban Trusts and no dividend is payable on Treasury Shares.
ICAP plc Annual Report 2010
48 Directors’ report
continued
As at 31 March 2010, options existed over 14,294,040 of the Company’s ordinary shares of 10p each in relation to employee share
option schemes. Of this figure, 7,302,825 are options and awards over existing shares which are held in employee share trusts.
The remainder are expected to be satisfied by either new issues of shares or by Treasury Shares. Changes in options and awards under
the various schemes are detailed in note 27 to the financial statements.
The Company holds 2,034,739 Treasury Shares at 31 March 2010 (2009 – 2,034,739) which represents 0.31% of the issued share
capital. The Company has not acquired or disposed of any interests in its own shares during the period under review. As at the date of
this report, the Company had an unexpired authority to repurchase shares up to a maximum of 64,773,593 ordinary shares of 10p each.
The rules of the Company’s share plans contain provisions which may cause options and awards granted to employees under the schemes
to vest on a change of control.
Substantial shareholdings
As at 12 May 2010, the Company had been notified of the following interests of 3% or more in its issued ordinary share capital:
Auditors and the disclosure of information to auditors The directors are also required by the Disclosure and Transparency
So far as each person who was a director at the date of approving Rules of the FSA to include a management report containing a fair 49
this report is aware, there is no relevant audit information, being review of the business and a description of the principal risks and
information needed by the auditors in connection with preparing uncertainties facing the Company and the Group.
their report, of which the auditors are unaware. Each director has
taken all the steps that he is obliged to take as a director in order to Directors’ statement pursuant to the Disclosure and
make him aware of any relevant audit information and to establish Transparency Rules
that the auditors are aware of that information. Each of the directors, whose name and function is listed in the
directors’ profiles, confirms that, to the best of his knowledge
PricewaterhouseCoopers LLP were re-appointed auditors and belief:
01 – 15
ICAP in ten
to the Company on 15 July 2009. Resolutions to re-appoint
PricewaterhouseCoopers LLP and to authorise the directors to –
the financial statements, prepared in accordance with IFRSs
set their remuneration will be proposed at the forthcoming annual as adopted by the EU, give a true and fair view of the assets,
general meeting. Note 9 to the financial statements sets out details liabilities, financial position and profit or loss of the Company and
of the auditors’ remuneration. the undertakings included in the consolidation taken as a whole;
and
Statement of directors’ responsibilities for the Annual Report –
the management report contained in the business review
The directors are responsible for preparing the Annual Report, the includes a fair review of the development and performance
remuneration report and the financial statements in accordance of the business and the position of the Company and
with applicable law and regulations. the undertakings included in the consolidation taken as a
Company law requires the directors to prepare financial statements whole, together with a description of the principal risks and
17 – 41
Business review
for each financial year. Under that law the directors have elected uncertainties that they face.
to prepare the Company and Group financial statements in Going concern
accordance with International Financial Reporting Standards (IFRSs) The Group’s business activities, together with the factors likely to
as adopted by the EU. Under company law the directors must not affect its future development, performance and position are set
approve the financial statements unless they are satisfied that they out in the business review. The financial position of the Group, its
give a true and fair view of the state of affairs of the Company and cash flow, liquidity position, facilities and borrowing position are
the Group and of the profit or loss of the Group for that period. described in the business review and notes 22 and 24 to the
In preparing these financial statements, the directors are required to: financial statements provide further detail on the Group’s
borrowings and management of financial risks. The business review
–
select suitable accounting policies and then apply them includes an analysis of the key risks facing the Group and the
consistently; Group’s approach to risk management.
43 – 63
Governance
–
make judgements and accounting estimates that are reasonable After reviewing the Group’s annual budget, liquidity requirements,
and prudent; plans and financing arrangements, the directors are satisfied that
–
state whether applicable IFRSs as adopted by the EU have been the Company and the Group have adequate resources to continue
followed, subject to any material departures disclosed and to operate for the foreseeable future and confirm that the
explained in the financial statements; Company and the Group are going concerns. For this reason they
–
prepare the financial statements on the going concern basis continue to adopt the going concern basis in preparing these
unless it is inappropriate to presume that the Company and the financial statements.
Group will continue in business. By order of the board
The directors are responsible for keeping adequate accounting Deborah Abrehart
65 – 140
Financial statements
records that are sufficient to show and explain the Company’s and Group Company Secretary
the Group’s transactions and disclose with reasonable accuracy ICAP plc
at any time the financial position of the Company and the Group 2 Broadgate
and enable them to ensure that the financial statements and the London EC2M 7UR
remuneration report comply with the Companies Act 2006 and, Company number 3611426
as regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets of 19 May 2010
the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the UK governing the
141 – 143
Information for shareholders
50 Corporate governance
The corporate governance section, together with the remuneration report, details how the Company has applied the principles set out
in Section 1 of the Combined Code and includes additional disclosures as to how the Company has complied with the detailed provisions
of the Code.
The directors believe that during the year they have complied in full with the provisions of the Combined Code. The Combined Code is
publicly available at www.frc.co.uk.
Directors
Composition of the board
During the year ended 31 March 2010 the Group was headed by an experienced board of directors consisting of a non-executive
Chairman, four executive directors, including the Group Chief Executive Officer, and four independent non-executive directors. As from
1 April 2010, following the retirement of Nicholas Cosh at the end of the financial year, the board has three independent non-executive
directors.
The current members of the board, together with their biographical details, are shown on pages 44 and 45.
The nomination committee and the board have been considering succession planning for some time, particularly as a number of long-serving
non-executive directors would be retiring at similar times. In addition to the appointment of John Sievwright during the year, the board is
seeking to appoint three new independent non-executive directors during the year ending 31 March 2011.
The board discussed and agreed the skills, knowledge and experience that each appointee would ideally have. Experience of the markets
in which ICAP operates is a requirement but such experience could be derived from a number of other related financial services sectors.
The board recognises that the recruitment of three non-executive directors creates an opportunity to provide input to the board from
a greater variety of relevant perspectives than would normally be possible.
Following a selection process, the board appointed leadership advisory firm Heidrick & Struggles to undertake this search on an international
basis and the process is well underway with a short list of possible candidates for the first appointment at the selection stage.
Board meetings
The board has six board meetings scheduled each year with one meeting focussing on the strategic review. In addition to the scheduled
meetings, the board has met on a number of additional occasions to consider other issues including trading performance, the SEC
investigation and settlement, acquisitions, approval of share allotments in respect of the scrip dividend scheme and the Company’s
various option schemes. The additional board meetings were sometimes called at short notice and any director who was unable to attend
a meeting was briefed separately on the discussions at the meeting and their views were sought and considered.
The following table sets out the number of meetings of the board and its committees during the year ended 31 March 2010 and
attendance by directors at those meetings:
Board scheduled Board additional Audit and risk Remuneration Nomination
meetings meetings committee committee committee
Total number of meetings 6 11 6 7 1
Charles Gregson 6/6 11/11 – – 0/1
Michael Spencer 6/6 10/11 – – 0/1
Matthew Lester 6/6 11/11 – – –
John Nixon 5/6 9/11 – – –
Mark Yallop 5/6 10/11 – – –
Nicholas Cosh 6/6 7/11 6/6 6/7 1/1
James McNulty 6/6 10/11 6/6 7/7 1/1
William Nabarro 6/6 9/11 6/6 7/7 1/1
John Sievwright (appointed 15 July 2009) 5/5 8/9 4/4 6/6 –
Former director
David Puth (resigned 15 September 2009) 2/2 2/3 2/2 1/1 –
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
–
any interim dividend and recommendation of the final dividend; three years.
–
the annual operating and capital expenditure budgets; Conflicts of interest
–
any changes to the Company’s capital structure or its status as In line with the Companies Act 2006, the articles of association
a listed company; were amended at the 2008 annual general meeting to allow the
–
risk management strategy; and board to authorise potential conflicts of interest that may arise and
to impose such limits or conditions as it thinks fit. The decision to
–
treasury policy. authorise a conflict of interest can be made only by independent
Information is provided in a timely and regular manner to directors directors (those who have no interest in the matter being
for all meetings to enable them to exercise their judgement in considered). In making such a decision the directors must act in
the discharge of their duties. In addition other senior executives a way they consider in good faith will be most likely to promote
17 – 41
Business review
attend certain board meetings to make presentations on potential the Company’s success. A process has been established whereby
acquisitions and to discuss the results and strategies of their actual and potential conflicts are regularly reviewed and for the
businesses. appropriate authorisation to be sought prior to the appointment
of any new director or if a new conflict arises. During 2009/10
All directors have access to the advice and services of the Group this procedure operated effectively.
Company Secretary who is responsible for ensuring that board
procedures and applicable rules are observed. There is a procedure Induction and continuing professional development
to enable the directors to obtain independent professional advice New directors to the board are provided with appropriate training
in respect of their duties at the Company’s expense. This facility and briefings which take into account their individual qualifications
extends to the members of the audit and risk, remuneration and and experience. All directors receive, during their term of office,
nomination committees. The Company maintains liability insurance regular briefings on changes and developments in the Group’s
for its directors and officers. business and on any legislative and regulatory changes which
43 – 63
Governance
are relevant to the Group.
There is a clear division between the roles and responsibilities of
the Chairman and the Group Chief Executive Officer. The Chairman Board evaluation
is responsible for leadership of the board and ensuring effective During the year the board evaluated its performance and that
communication with shareholders. The Group Chief Executive of its committees and individual directors. This was done by
Officer is responsible for leading and managing the business. way of a questionnaire which was completed by each director
to evaluate effectiveness and accountability and by individual
To support the principles of good corporate governance, the meetings with the Chairman. The collective results were then
board manages the Group through board meetings and a number discussed by the board with actions agreed.
of committees, each of which has terms of reference and
meets regularly. The terms of reference of the audit and risk, The Chairman’s evaluation was undertaken by James McNulty as
remuneration and nomination committees are available on the the senior independent director in consultation with other directors.
65 – 140
Financial statements
Group’s website, www.icap.com. The minutes of each of the The board has considered and agreed that each of Charles
committees are made available to all directors and the board Gregson, Matthew Lester and James McNulty, who are standing
receives an update from each of the committee’s chairman for re-election at the annual general meeting, continue to perform
following each committee meeting. effectively and to demonstrate commitment to their roles.
Senior independent director Audit and risk committee
James McNulty is the senior independent director and provides The following directors served on the committee during the year:
an additional contact point for shareholders if the normal contact
channels are inappropriate. John Sievwright (chairman) (appointed as chairman
on 1 December 2009)
Nicholas Cosh (retired 31 March 2010)
James McNulty
141 – 143
Information for shareholders
William Nabarro
David Puth (resigned 15 September 2009)
John Sievwright, a chartered accountant and member of the audit
and risk committee from 15 July 2009, took over the chair of the
audit and risk committee on 1 December 2009 from Nicholas
Cosh who had announced his decision to retire as a director of ICAP
plc with effect from the end of the financial year. David Puth was a
member of the committee during the year until his resignation on
15 September 2009.
ICAP plc Annual Report 2010
52 Corporate governance
continued
–
to review the Group’s internal financial controls and risk –
reports on the activities of the internal audit function, including
management systems; the results of internal audits;
–
to assess the independence, objectivity and effectiveness of –
the annual internal audit plan;
the external auditors; –
the annual external audit plan;
–
to develop and implement policies on the engagement of the –
presentations from the global head of risk;
external auditors for the supply of non-audit services; –
distributable reserve and regulatory capital planning;
–
to make recommendations for the appointment, re‑appointment –
post acquisition reviews; and
and removal of the external auditors and approve their
remuneration and terms of engagement; –
the whistleblowing arrangements.
–
to monitor and review the effectiveness of the Group’s internal
audit function;
–
to approve the appointment or dismissal of the head of
internal audit;
–
to review arrangements by which staff may, in confidence, raise
concerns about possible improprieties in matters of financial
reporting or other matters;
–
to review the quality and effectiveness of the Group’s risk
management framework, in particular to ensure that the key
risks of the Group (including emerging threats) are properly
assessed and mitigated;
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
LLP was one of the main providers of external advice but their roles of Chairman, Group Chief Executive Officer, executive and
work was limited to specific areas and the services of other non-executive directors.
firms were used on an ongoing basis. Any proposed non-audit Much of this committee’s activities concerning the appointment
assignments, with fees in excess of £50,000, are subject to the of new non-executive directors has been undertaken by the
committee chairman’s prior approval and the subsequent approval full board.
of the committee.
During the year the committee considered the succession planning
As part of its consideration of the annual financial statements, for the board with a particular focus during the first half of the year
the committee has reviewed and is satisfied that the auditors have on the appointment of a non-executive director to chair the audit
remained independent of the Group during the financial year and and risk committee following Nicholas Cosh’s decision to retire at
continued to do so to the date of this report. The committee also the end of the financial year. As a result of an extensive search,
17 – 41
Business review
received details from PricewaterhouseCoopers LLP of its own undertaken by the global executive search firm Spencer Stuart,
independence procedures and confirmation that, in its opinion, John Sievwright was appointed as a non-executive director.
it remained independent throughout the year.
Executive committees
The assessment of the effectiveness of the external audit process In addition to the board committees, the corporate governance
for 2008/09 was undertaken following the completion of the framework includes three executive committees – the global
2008/09 audit. The results of this assessment were reviewed by executive management group, group risk and finance.
the audit and risk committee in November 2009. The assessment
of the effectiveness of the external audit process for 2009/10 will Global Executive Management Group (GEMG)
be conducted in June 2010. The GEMG consists of the four executive directors of ICAP
and six members of senior management. It is the main strategic
PricewaterhouseCoopers LLP, and its predecessor organisations, development forum for ICAP and meets six times a year to
43 – 63
Governance
has been the Company’s auditor since it was formed from the review business operations and performance. New business
merger of Garban and Intercapital in 1999. The committee initiatives are approved by the GEMG which then reviews them
considers that the relationship with the external auditors is working on a regular basis.
well and remains satisfied with their effectiveness. Accordingly,
it has not considered it necessary to require the firm to tender Group risk committee
for the audit work although this is always kept under review. The committee is an executive committee chaired by the Group
The external auditors are required to rotate the lead audit partner Chief Operating Officer and comprises non-revenue earning senior
responsible for the Group and subsidiary audits every five years. managers of the Group.
There are no contractual obligations restricting the Company’s The committee meets at least six times a year. The minutes of
choice of external auditor. the meetings are circulated together with the committee papers
Internal control to members of the board.
65 – 140
Financial statements
Management is responsible for maintaining an effective system The committee is responsible for ensuring that the Group’s risk
of internal control with the board being responsible for reviewing management framework, risk appetite, risk strategy and policies
its effectiveness. Details of the steps taken by the committee to are appropriate to the activities of the Group. The committee
review the effectiveness of the Group’s system of internal control, reviews the Group’s risk exposures and ensures adherence to
including its control over financial reporting, are set out in the Group risk policy (particularly in relation to credit, market and
business review on page 35. operational risk).
Remuneration committee It is the board’s responsibility to determine the Group’s risk
The remuneration report is set out on pages 55 to 62. appetite and identify, monitor and assess the significant risks
the Group may be exposed to. The committee is responsible
for developing procedures for managing risk in line with board
141 – 143
Information for shareholders
54 Corporate governance
continued
Finance committee
The committee is an executive committee chaired by the Group
Finance Director and includes the Group Chief Operating Officer.
The terms of reference are approved by the board and the
committee meets at least six times a year. The minutes of the
meetings are circulated to all members of the board.
The committee is responsible for reviewing and making
recommendations to the board in relation to matters affecting the
structure, financing, tax and treasury aspects of the Group and to
ensure compliance with board approved financing, treasury and
tax policies.
Relations and dialogue with shareholders
The board is accountable to the Company’s shareholders for the
performance and activities of the Group and is very much aware of
the importance of maintaining good relations and communications
with all its shareholders. The annual and half-year financial
statements, together with the interim management statements
and Stock Exchange announcements, are published on the investor
relations section of the Group’s website, www.icap.com, as soon as
they are released. Major shareholder and analysts’ presentations
are also made available. The board recognises that the annual
general meeting provides shareholders with an opportunity to
receive information on the Group’s business performance and
to question senior management on any business matter. All the
directors attended the 2009 annual general meeting.
The Group has established a programme of communication
with its institutional investors and analysts. At the time of the
announcement of the full and half-year results, presentations are
made to analysts, the press and institutional investors. In addition,
there are regular meetings during the year (subject to relevant
regulatory constraints) with analysts and investors to update them
on developments in the Group’s strategy and performance.
Annual general meeting
The notice of the annual general meeting is sent to shareholders
at least 20 working days before the meeting and details of
proxy votes for and against each resolution, together with votes
withheld, are made available after the vote has been dealt with
on a show of hands.
Accountability and audit
The directors’ statement regarding their responsibility for
preparing the Annual Report is set out in the directors’ report on
page 49 and the independent auditors’ report regarding their
reporting responsibility is detailed on page 63.
By order of the board
Deborah Abrehart
Group Company Secretary
ICAP plc Annual Report 2010
Remuneration report 55
This report sets out the Group’s remuneration policy and Activities
01 – 15
ICAP in ten
details the remuneration of each of the directors for the During the year the committee considered:
financial year ended 31 March 2010 and, as far as practicable,
for subsequent years. –
the approval of the 2009/10 performance bonus payments;
–
the executive directors‘ objectives for the year ended
The remuneration committee is responsible for making 31 March 2010;
recommendations to the board on the Company’s remuneration
policy and, within the terms of the agreed policy, determining the –
awards under the Company’s share and share option plans;
total individual remuneration packages of the executive directors. –
the acceleration of the vesting of BSMP basic awards for UK tax
Unaudited information resident participants and the consideration of the performance
Remuneration committee condition for the 2007 matching award;
The following directors served on the committee during the year: – broker compensation packages above a certain size and/or
17 – 41
Business review
James McNulty (chairman) term; and
Nicholas Cosh (retired 31 March 2010) –
the regulatory and market developments and guidelines
William Nabarro published in respect of remuneration practices.
David Puth (resigned 15 September 2009)
John Sievwright (appointed 30 September 2009) Remuneration policy
All the remuneration committee members are independent Principles
non-executive directors. The principles of the remuneration policy have been developed
over a number of years to recognise and reward the rapid and
The remuneration committee does not determine the fees payable substantial growth of the Group. The principles are designed
to the non-executive directors, which are considered and approved to ensure that the structure and level of the executive directors’
43 – 63
Governance
by the executive directors and the Chairman of the board. remuneration are:
The committee consults the Chairman of the board and the Group –
appropriate in light of remuneration arrangements among senior
Chief Executive Officer about its proposals relating to the executives and managers employed by competitors and other
remuneration of the executive directors. participants in the markets in which ICAP is active;
Details of the number of meetings and attendance at committee –
compatible with the remuneration of senior brokers and
meetings during the year are set out in the table on page 50. managers employed within the Group who are not directors
of ICAP plc;
Advice
During the year the remuneration committee received advice from –
structured directly to take account of the absence of committed
the following consultants: future revenue in the Group’s businesses, which means that the
major part of revenue has to be secured in the year in which it
65 – 140
Financial statements
–
Towers Watson provided advice on aspects of the calculation is earned;
of the bonus pool;
–
structured to reflect Group profit, with low fixed-base salaries
–
Ashurst LLP provided advice on share and share option schemes, and negligible pension and other benefits;
in particular on the acceleration of awards;
–
simple, with the amounts to which executive directors are
–
Deloitte LLP provided advice on the Long Term Incentive Plan, entitled capable of being calculated by reference to the
in particular on the acceleration of awards. published financial statements of the Group;
Towers Watson does not have any other connection with the Group. –
integrated, so that executive directors, other than John Nixon
Ashurst LLP provided advice on a broad range of legal issues to the for 2009/10, participate in a single comprehensive bonus and
Group and Deloitte LLP provided tax and UK regulatory advice to incentive structure rather than participating in several different
the Group during the year ended 31 March 2010. schemes;
141 – 143
Information for shareholders
–
structured rather than discretionary: remuneration is primarily
determined arithmetically by reference to the published financial
performance of the Group, with the non-arithmetic element
(which will be smaller, other than in exceptional circumstances)
determined by reference to progress towards specific
management objectives agreed at the start of the relevant
financial year;
–
structured to maximise the likelihood of retaining a proven
and stable senior management team; and
–
structured to align executive directors’ interests with those
of ICAP’s shareholders.
ICAP plc Annual Report 2010
56 Remuneration report
continued
In determining the remuneration policy and the size of the awards, the remuneration committee takes account of structures and levels
of remuneration for executive directors in other substantial companies that it regards as appropriate comparators and of such companies’
stated remuneration policies. The comparator companies, selected because their and the Group’s activities are in broadly comparable areas
of the financial services sector, include Chicago Mercantile Exchange, Collins Stewart, Tullett Prebon, Deutsche Borse, BGC Partners,
Euronext, GFI, Jardine Lloyd Thompson, London Stock Exchange and Man Group.
Components of executive remuneration
The executive directors’ remuneration comprises:
–
basic salary;
–
performance-related bonus;
–
participation in the BSMP;
–
pension contribution;
–
life assurance; and
–
medical insurance.
John Nixon’s remuneration for 2009/10 is based on his executive responsibilities as Chief Executive Officer of ICAP Electronic Broking,
for the information business, strategic development and as an executive director of ICAP plc. His performance-related bonus comprises
a bonus based on profitability of ICAP Electronic Broking and participation (on a limited basis) in the bonus arrangements of the other
executive directors. John Nixon’s participation in the BSMP is based on his bonus payment under the executive directors’ arrangements.
A significant portion of his benefits comprises the Federal Insurance Contributions Act tax, which is required to be paid by the Company
on his behalf.
Salaries and benefits
The remuneration committee used its discretion and the bonus pool was adjusted downwards to reflect the SEC fine and the losses in
the cash equities businesses. In addition, the remuneration committee considered the achievements of the executive directors against
previously agreed specified agreed priorities and objectives for the year ended 31 March 2010. While the agreed priorities and objectives
were substantially met, the FX adjusted profit fell 10% short of the 2009/10 target. The committee identified a range of possible
bonus payouts based on levels of profitability below target and used its discretion during March 2010 to arrive at a total bonus payout
(excluding John Nixon’s ICAP Electronic Broking bonus) of £7.3 million of which £6.8 million was allocated in this year and £500,000 will
be carried forward to the bonus pool for 2010/11.
Set out below are the salaries and benefits received by the executive directors in (or, in the case of bonuses, in respect of) 2009/10.
Year ended Year ended
31 March 31 March
Pension Bonus in lieu BSMP 2010 2009
Executive Salary contribution Benefits of dividend Cash bonus basic award Total Total Variable
director £ £ £ £ £ £ £ £ %
Michael Spencer 360,000 18,000 5,092 663,842 1,500,000 1,500,000 4,046,934 6,746,359 74
Matthew Lester 250,000 11,082 4,241 64,684 500,000 500,000 1,330,007 1,397,503 75
John Nixon 315,418 – 67,324 15,556 2,918,919 250,000 3,567,217 3,385,510 89
Mark Yallop 225,000 9,973 4,241 369,502 1,150,000 1,150,000 2,908,716 3,532,926 79
Remuneration of the non-executive directors Calculation of the executive directors’ variable remuneration
The remuneration of the non-executive directors is considered The structure put in place by the remuneration committee, by 57
and approved by the executive directors. The basic remuneration which executive directors’ variable remuneration is determined,
for Nicholas Cosh, James McNulty, William Nabarro, David Puth comprises three elements. A bonus pool is created representing a
(who resigned on 15 September 2009) and John Sievwright fixed percentage of profit before tax, amortisation and impairment
(who was appointed on 15 July 2009) was £60,000 per annum of intangibles arising on consolidation and exceptional items and
(pro-rated for the appropriate period of service within the year after all remuneration costs.
ended 31 March 2010).
It has been agreed that, with effect from 1 April 2010, John Nixon’s
Nicholas Cosh as chairman of the audit and risk committee (until his remuneration will be structured so as to align with the other
01 – 15
ICAP in ten
resignation as chairman on 30 November 2009), John Sievwright executive directors as a result of changes to his responsibilities
(on his appointment as chairman of the audit and risk committee which now include all of ICAP’s activities in the Americas.
on 1 December 2009), James McNulty as chairman of the The importance of these capital markets to the Group merits
remuneration committee and William Nabarro as chairman of the an executive board member to co-ordinate our activities and
nomination committee received an additional £20,000 (pro-rated operations in this region.
for the appropriate period of service), £10,000 and £5,000 per
annum respectively for those functions. To enable John Nixon to receive his compensation in the same
manner as the other executive directors, the remuneration
The Chairman, Charles Gregson, received a fee of £200,000 per committee has discussed and agreed revisions to the fixed
annum. percentages of the bonus pool which are detailed in the bonus
arrangements for the year ending 31 March 2011 on page 58.
With effect from 1 May 2010, the following increases have been
17 – 41
Business review
The cost to the Company will be offset to a large extent by
approved: eliminating the cost of John Nixon’s bonus from the ICAP
– non-executive director from £60,000 to £80,000 per annum; Electronic Broking’s bonus accrual.
– Chairman from £200,000 to £250,000. Of the bonus pool:
There are no changes to the additional fees for the chairing of (i) half is paid in cash;
committees. (ii) the other half is used to purchase shares of the Company
Total shareholder return held by the ICAP Trust and over which the executive directors are
The graph below shows, for the five financial years to 31 March granted awards (the basic award) but which are not released to the
2010, the total shareholder return on a holding of the Company’s respective executive directors until the end of three years unless
ordinary shares compared with the FTSE 100 and the FTSE they cease employment earlier; and matching awards of shares
43 – 63
Governance
All Share indices. ICAP plc has been a constituent of the FTSE are granted to executive directors equal in total to the number
100 index since 30 June 2006. purchased as the basic award, to be secured through market
purchase or by the use of Treasury Shares. An award will usually
Performance graph – value of £100 invested be released after three years only if the executive director to
Five financial years ended 31 March 2010 whom the particular award was made is still employed and has not
disposed of his basic award and, for matching awards in respect of
250 2003/04 onwards, provided performance-related criteria are met.
The performance-related criteria for the release of the matching
awards granted under the BSMP for the year ended 31 March 2004
200 and subsequent years is that adjusted basic EPS must have grown
65 – 140
Financial statements
by at least 9% over RPI over the three years from the date of grant.
The structure is designed to result in two-thirds of each executive
director’s variable remuneration in respect of each year being locked
150 into the Company’s shares for the subsequent three years, its value
varying in direct relation to the price of the Company’s shares.
The matching award is then usually released after three years if
the executive director is still employed and has not disposed of
100
his basic award and if the financial performance of the Company is
such that the performance-related criteria have been met during
the subsequent three-year period.
141 – 143
Information for shareholders
58 Remuneration report
continued
01 – 15
ICAP in ten
Executive directors
Michael Spencer 09.09.99 30.09.98 1 year Rolling Note 1
Matthew Lester 06.09.06 24.05.06 1 year Rolling Note 2
John Nixon 15.05.08 31.12.02 1 year Rolling Note 2
Mark Yallop 13.07.05 23.05.05 1 year Rolling Note 2
Non-executive directors
Charles Gregson (Chairman) 06.08.98 14.05.10 No notice 01.11.10 Note 3
Nicholas Cosh 05.12.00 08.05.07 3 months’ notice 31.03.10
on change of control Note 4
17 – 41
Business review
James McNulty 30.03.04 14.05.10 3 months’ notice 30.09.10
on change of control Note 4
William Nabarro 28.10.98 14.05.10 3 months’ notice 14.07.10
on change of control Note 4
John Sievwright 15.07.09 15.06.09 3 months’ notice 15.07.11
on change of control Note 4
Former director
David Puth 15.11.07 24.10.07 3 months’ notice on 15.09.09
change of control
43 – 63
Governance
Notes
1 The contract of Michael Spencer, dated 30 September 1998 as amended on 22 July 1999, may be terminated by the Company with no notice in which case the Company
is obliged to make a payment of salary and contractual benefits (excluding any bonus) for 12 months.
2 The contracts of Matthew Lester, John Nixon and Mark Yallop may be terminated by the Company with no notice in which case the Company is obliged to make a payment
of salary and contractual benefits (excluding any bonus) for 12 months.
3 The Chairman does not have a contract with the Company and no notice is required to be given by the Company on termination.
4 The non-executive directors, Nicholas Cosh, James McNulty, William Nabarro and John Sievwright, do not have contracts with the Company and no notice is required to be
given by the Company on termination except on change of control.
65 – 140
Financial statements
employees to sacrifice bonus into the Plan. The Plan is administered by Standard Life Assurance Limited.
The Group also administers a number of historical pension arrangements (including the Group Personal Pension Scheme) for existing
employees.
Various 401k plans are run in the US. These are retirement savings schemes with a choice of investment funds and US federal tax law sets
savings limits for employees.
The Group operates defined benefit pension schemes in the US, Germany and Indonesia. Further information can be found in note 30 to
the financial statements.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
60 Remuneration report
continued
Audited information
Directors’ remuneration
The remuneration of the directors of the Company for the year ended 31 March 2010 was as follows:
Bonus in Amounts
lieu of over which Year ended Year ended
dividend on basic awards 31 March 31 March
the BSMP will be granted 2010 2009
Salaries/ Benefits awards under BSMP Total Total
Note fees £ £ Cash bonus £ £ £
Executive directors
Michael Spencer 1,2,4 360,000 5,092 663,842 1,500,000 1,500,000 4,028,934 6,728,359
Matthew Lester 1,2,4 250,000 4,241 64,684 500,000 500,000 1,318,925 1,386,421
John Nixon 1,2,3 315,418 67,324 15,556 2,918,919 250,000 3,567,217 3,382,610
Mark Yallop 1,2,4 225,000 4,241 369,502 1,150,000 1,150,000 2,898,743 3,522,953
Non-executive directors
Charles Gregson – Chairman 200,000 200,000 200,000
Nicholas Cosh 73,333 73,333 80,000
James McNulty 70,000 70,000 70,000
William Nabarro 65,000 65,000 65,000
John Sievwright 49,667 49,667 -
Former director
David Puth 27,538 27,538 60,000
Total 12,299,357 15,495,343
Notes
The remuneration shown above represents amounts payable in respect of services provided by the directors to the Company and its subsidiaries during the year in which they
held office as directors of the Company.
1 In addition to the basic award an equivalent matching award will be granted under the BSMP. Matching awards may, in normal circumstances, be exercised only if the
directors still hold office in three years’ time and retain their basic awards. Exercise of matching awards is also subject to the performance criteria attached to the award
being satisfied.
2 Benefits may include car allowance, premiums for private medical insurance, permanent health insurance, disability insurance and mobile telephone. In the case of
John Nixon, a significant portion of his benefits comprises the Federal Insurance Contributions Act tax which is required to be paid by the Company on his behalf.
3 The elements of John Nixon’s remuneration that are paid in dollars have been converted to sterling using the average exchange rate for the year of $1.5852/£
(2009 – $1.7238/£).
4 A bonus in lieu of dividend on the BSMP was received on the basic awards granted in 2006, 2007, 2008 and 2009 and on the vested matching awards granted in 2005
and 2006 which were unexercised during the year.
5 The figures stated above exclude pension contributions to defined contribution schemes which are shown under salaries and benefits for each executive director on page 56.
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
Grant date Market price on date of grant Performance year ended
16 July 2003 248.7p
4 June 2004 283.5p 31 March 2004
10 June 2005 292.5p 31 March 2005
22 June 2006 482.8p 31 March 2006
24 May 2007 523.8p 31 March 2007
29 May 2008 610.0p 31 March 2008
28 May 2009 394.5p 31 March 2009
17 – 41
Business review
The exercise price for a basic award is £1 and the exercise price for a matching award is £1.
The table below sets out the shares awarded as part of the executive directors’ variable remuneration.
Options Total options
under the under the
BSMP held Basic Matching Value of BSMP held
at 1 April award award exercise at 31 March
Notes 2009 Grant date options options Exercised £ 2010
Michael Spencer 1 16.07.03 766,300 766,300 1,532,600 6.0m
2 04.06.04 810,153 810,153 1,620,306 6.3m
3 10.06.05 701,712 701,712 1,403,424 5.4m
43 – 63
Governance
4 22.06.06 525,959 525,959 1,051,918 4.1m
5 24.05.07 541,985 541,985 –
6 29.05.08 631,973 631,973 –
7 7,956,164 28.05.09 607,543 607,543 – 3,563,002
Matthew Lester 5,8 24.05.07 51,932 51,932 103,864 0.4m
6,8 29.05.08 98,810 98,810 98,810 0.4m
7,8 301,484 28.05.09 140,694 140,694 140,694 0.5m 239,504
Mark Yallop 4 22.06.06 177,056 177,056 354,112 1.3m
5,8 24.05.07 212,450 212,450 424,900 1.6m
65 – 140
Financial statements
6,8 29.05.08 288,196 288,196 288,196 1.1m
7,8 1,355,404 28.05.09 402,897 402,897 402,897 1.5m 691,093
No options lapsed during the year. All option figures shown as at 31 March 2010 remained unchanged as at 12 May 2010.
Notes
1 Exercise period 28 May 2006 – 27 May 2011.
2 Exercise period 23 May 2007 – 22 May 2012.
3 Exercise period 20 May 2008 – 19 May 2013.
4 Exercise period 19 May 2009 – 18 May 2014.
5 Exercise period 19 May 2010 – 18 May 2015.
6 Exercise period commences on the day of the announcement of the Company’s annual results for the financial year ending 31 March 2011 and will last for five years.
141 – 143
Information for shareholders
7 Exercise period commences on the day of the announcement of the Company’s annual results for the financial year ending 31 March 2012 and will last for five years.
8 The vesting of basic awards for 2007, 2008 and 2009 was accelerated for UK tax resident participants; the vesting of the 2007 matching award was accelerated when
the remuneration committee had agreed that the performance condition for the award had been met. The remaining matching awards will become exercisable in
accordance with the original terms but the participant must retain the balance of the basic award (following any sale of shares to meet income tax and national insurance
contributions) in order to exercise the equivalent matching award.
9 John Nixon was given a promise on 28 May 2009 to receive 63,951 basic award shares and 63,951 matching award shares. The market price on 28 May 2009 was
394.5p. No promises have lapsed.
ICAP plc Annual Report 2010
62 Remuneration report
continued
No options were exercised during the year. All option figures shown as at 31 March 2010 remained unchanged as at 12 May 2010.
At the close of business on 31 March 2010 the market price of the Company’s ordinary shares was 373.80p per share and during the
year fluctuated in the range 294.00p–467.20p per share.
By order of the board
James McNulty
Chairman of the Remuneration Committee
ICAP plc Annual Report 2010
We have audited the financial statements of ICAP plc for the year Opinion on other matters prescribed by the
01 – 15
ICAP in ten
ended 31 March 2010 which comprise the consolidated income Companies Act 2006
statement, the consolidated statement of comprehensive income, In our opinion:
the consolidated balance sheet, the consolidated statement of
changes in equity, the consolidated statement of cash flows, –
the part of the directors’ remuneration report to be audited
the Company balance sheet, the Company statement of changes has been properly prepared in accordance with the Companies
in equity, the Company statement of comprehensive income, Act 2006;
the Company statement of cash flows and the related notes. –
the information given in the directors’ report for the financial
The financial reporting framework that has been applied in their year for which the financial statements are prepared is
preparation is applicable law and International Financial Reporting consistent with the financial statements; and
Standards (IFRSs) as adopted by the EU and, as regards the parent –
the information given in the corporate governance statement
company financial statements, as applied in accordance with the with respect to internal control and risk management systems
17 – 41
Business review
provisions of the Companies Act 2006. and about share capital structures is consistent with the financial
Respective responsibilities of directors and auditors statements.
As explained more fully in the statement of directors’
responsibilities, included in the directors’ report, the directors are Matters on which we are required to report by exception
responsible for the preparation of the financial statements and for We have nothing to report in respect of the following:
being satisfied that they give a true and fair view. Our responsibility Under the Companies Act 2006 we are required to report to
is to audit the financial statements in accordance with applicable you if, in our opinion:
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices –
adequate accounting records have not been kept by the
Board’s Ethical Standards for Auditors. Company, or returns adequate for our audit have not been
received from branches not visited by us; or
43 – 63
Governance
This report, including the opinions, has been prepared for and only
for the Company’s members as a body in accordance with Chapter –
t
he Company financial statements and the part of the
3 of Part 16 of the Companies Act 2006 and for no other purpose. directors’ remuneration report to be audited are not in
We do not, in giving these opinions, accept or assume responsibility agreement with the accounting records and returns; or
for any other purpose or to any other person to whom this report –
certain disclosures of directors’ remuneration specified by
is shown or into whose hands it may come save where expressly law are not made; or
agreed by our prior consent in writing.
–
we have not received all the information and explanations
Scope of the audit of the financial statements we require for our audit; or
An audit involves obtaining evidence about the amounts and –
a corporate governance statement has not been prepared
disclosures in the financial statements sufficient to give reasonable by the Company.
assurance that the financial statements are free from material
65 – 140
Financial statements
misstatement, whether caused by fraud or error. This includes an Under the Listing Rules we are required to review:
assessment of: whether the accounting policies are appropriate –
the directors’ statement, included in the directors’ report,
to the Group’s and the Company’s circumstances and have been in relation to going concern; and
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the –
the parts of the corporate governance statement relating
overall presentation of the financial statements. to the Company’s compliance with the nine provisions of
the June 2008 Combined Code specified for our review.
Opinion on financial statements
In our opinion: Christopher Jones
–
the financial statements give a true and fair view of the (Senior Statutory Auditor)
state of the Group’s and of the Company’s affairs for and on behalf of PricewaterhouseCoopers LLP
141 – 143
Information for shareholders
as at 31 March 2010 and of the Group’s profit and the Group’s Chartered Accountants and Statutory Auditors
and Company’s cash flows for the year then ended; London
–
the Group’s financial statements have been properly prepared 19 May 2010
in accordance with IFRSs as adopted by the EU;
–
the Company financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
–
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the lAS Regulation.
64
65
01 – 15
ICAP in ten
Financial
statements
63 Independent auditors’ report
66 Consolidated income statement
17 – 41
Business review
68 Consolidated statement of comprehensive income
69 Consolidated balance sheet
70 Consolidated statement of changes in equity
71 Consolidated statement of cash flows
72 Company balance sheet
73 Company statement of changes in equity
73 Company statement of comprehensive income
43 – 63
Governance
74 Company statement of cash flows
75 Notes to the financial statements
140 Index to the financial statements
65 – 140
Financial statements
141 – 143
Shareholder information
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
arising on impairment of
consolidation and intangibles arising Exceptional items
exceptional items* on consolidation* (note 6) Total*
Note £m £m £m £m
Continuing operations
Revenue 3 1,585 – – 1,585
Operating expenses 9 (1,243) (63) – (1,306)
Other income 5 23 – – 23
Operating profit 3 365 (63) – 302
Finance income 7 19 – – 19
Finance costs 8 (43) – – (43)
17 – 41
Business review
Share of profit of associates after tax 3 9 (2) – 7
Profit before tax from continuing operations 350 (65) – 285
Tax 11 (117) 22 – (95)
Profit for the year from continuing operations 233 (43) – 190
Loss for the year from discontinued operations 4 (4) – – (4)
Profit for the year 229 (43) – 186
Attributable to:
Owners of the Company 216 (41) – 175
Minority interests 13 (2) – 11
43 – 63
Governance
229 (43) – 186
Earnings per ordinary share from continuing
operations
− basic 13 28.2p
− diluted 13 27.5p
Earnings per ordinary share from total
operations
− basic 13 27.6p
− diluted 13 26.9p
*The comparative results have been re-presented to disclose separately the results of the discontinued operations (see note 1(a)).
65 – 140
Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
As at As at
31 March 31 March
2010 2009
Note £m £m
01 – 15
ICAP in ten
Assets
Non-current assets
Intangible assets arising on consolidation 15(a) 1,489 1,404
Intangible assets arising from development expenditure 15(b) 72 54
Property and equipment 16 68 77
Investment in associates 17 30 38
Deferred tax assets 21 34 40
Trade and other receivables 19 35 14
Available-for-sale investments 18 27 36
1,755 1,663
17 – 41
Business review
Current assets
Trade and other receivables 19 60,101 31,739
Available-for-sale investments 18 1 5
Cash and cash equivalents 33(b) 504 433
60,606 32,177
Total assets 62,361 33,840
Liabilities
Current liabilities
Trade and other payables 20 (60,098) (31,807)
43 – 63
Governance
Short-term borrowings and overdrafts 22 (257) (289)
Tax payable (100) (85)
Short-term provisions 23 (36) (20)
(60,491) (32,201)
Non-current liabilities
Trade and other payables 20 (30) (57)
Long-term borrowings 22 (395) (270)
Deferred tax liabilities 21 (174) (164)
Retirement benefit obligations 30 (1) (2)
Tax payable – (4)
65 – 140
Financial statements
Long-term provisions 23 (55) (2)
(655) (499)
Total liabilities (61,146) (32,700)
Net assets 1,215 1,140
Equity
Capital and reserves
Called up share capital 26 66 65
Share premium account 425 398
Other reserves 71 (18)
141 – 143
Information for shareholders
Approved by the board on 19 May 2010 and signed on its behalf by:
Other Attributable to
Share Share reserves Retained owners of the Minority
capital premium (note 28(a)) earnings Company interests Total
£m £m £m £m £m £m £m
Balance at 1 April 2008 65 398 12 368 843 13 856
Comprehensive income
Profit for the year – – – 175 175 11 186
Other comprehensive income
Revaluation of available-for-sale investments – – – (1) (1) – (1)
Net movement on cash flow hedges – – (30) 4 (26) – (26)
Net exchange adjustments on investments in
overseas subsidiaries – – – 213 213 8 221
Actuarial losses on retirement benefit obligations – – – (1) (1) – (1)
Revaluation gains realised in the year – – – (3) (3) – (3)
Net current tax recognised in other
comprehensive income – – – 43 43 – 43
Net deferred tax recognised in other
comprehensive income – – – (3) (3) – (3)
Total comprehensive income for the year – – (30) 427 397 19 416
Own shares acquired for employee trusts – – – (10) (10) – (10)
Treasury shares acquired in the year – – – (9) (9) – (9)
Shares issued from Treasury in the year – – – 2 2 – 2
Share-based payments in the year – – – 8 8 – 8
Other movements in minority interests – – – – – (1) (1)
Dividends paid in the year (note 12) – – – (106) (106) (16) (122)
Balance at 31 March 2009 65 398 (18) 680 1,125 15 1,140
Comprehensive income
Profit for the year – – – 116 116 – 116
Other comprehensive income
Net movement on cash flow hedges – – 44 – 44 – 44
Net exchange adjustments on investments in
overseas subsidiaries – – – (41) (41) – (41)
Revaluation gains realised in the year – – 45 – 45 – 45
Associate investment transferred to equity on
acquisition of subsidiary – – – (10) (10) – (10)
Net current tax recognised in other
comprehensive income – – – (5) (5) – (5)
Net deferred tax recognised in other
comprehensive income – – – (1) (1) – (1)
Total comprehensive income for the year – – 89 59 148 – 148
Own shares acquired for employee trusts – – – (1) (1) – (1)
Ordinary shares issued (note 26) – 8 – – 8 – 8
Share-based payments in the year – – – 10 10 – 10
Other movements in minority interests – – – – – 2 2
Dividends paid in the year (note 12) 1 19 – (112) (92) – (92)
Balance at 31 March 2010 66 425 71 636 1,198 17 1,215
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
Cash flows from operating activities 33(a) 276 354
Cash flows from investing activities
Dividends received from associates 7 4
Other equity dividends received 2 1
Payments to acquire property and equipment (17) (36)
Intangible development expenditure (49) (28)
Receipts from sale of property and equipment – 1
Net receipts on disposal of available-for-sale investments 14 4
Acquisition of interests in businesses net of cash acquired (147) (197)
Acquisition of associates and joint ventures (2) (3)
17 – 41
Business review
Net cash flows from investing activities (192) (254)
Cash flows from financing activities
Dividends paid to minority interests – (16)
Dividends paid to owners of the Company (92) (106)
Payments to acquire Treasury Shares – (9)
Payments to acquire own shares for employee share trusts* (2) (10)
Proceeds from issue of ordinary shares – 1
Payments in relation to net investment hedges 24(d) – (32)
Repayment of borrowings (488) (144)
Funds received from borrowing, net of fees 591 264
43 – 63
Governance
Net cash flows from financing activities 9 (52)
Exchange adjustments (8) 6
Net increase in cash and cash equivalents 85 54
Net cash and cash equivalents at beginning of the year 419 365
Net cash and cash equivalents at end of the year 33(b) 504 419
Net cash and cash equivalents consists of:
Cash and cash equivalents 504 433
Bank overdrafts 22 – (14)
Net cash and cash equivalents at end of the year 33(b) 504 419
65 – 140
Financial statements
*Payments to acquire own shares for employee share trusts is shown net of £5m (2009 – £12m) of contributions received from participants in the trusts.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
As at As at
31 March 31 March
2010 2009
Note £m £m
Assets
Non-current assets
Investment in subsidiaries 36(a) 1,989 1,955
Investment in joint ventures 36(c) 1 1
1,990 1,956
Current assets
Other receivables 19 36 37
Tax receivable – 32
36 69
Total assets 2,026 2,025
Liabilities
Current liabilities
Other payables 20 (660) (614)
Short-term borrowings 22 (40) –
(700) (614)
Non-current liabilities
Other payables 20 (140) (140)
(140) (140)
Total liabilities (840) (754)
Net assets 1,186 1,271
Equity
Capital and reserves
Called up share capital 26 66 65
Share premium account 425 398
Capital redemption reserve 1 1
Retained earnings 694 807
Total equity 1,186 1,271
ICAP plc Annual Report 2010
01 – 15
ICAP in ten
As at 1 April 2008 65 398 1 388 852
Comprehensive income
Profit for the year – – – 532 532
Dividends paid in the year (note 12) – – – (106) (106)
Net Treasury Shares acquired in year – – – (7) (7)
Balance as at 31 March 2009 65 398 1 807 1,271
Profit for the year – – – (1) (1)
Total comprehensive income – – – (1) (1)
Ordinary shares issued – 8 – – 8
17 – 41
Business review
Dividends paid in the year (note 12) 1 19 – (112) (92)
Balance as at 31 March 2010 66 425 1 694 1,186
43 – 63
Governance
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Profit for the year (1) 532
Total comprehensive income (1) 532
65 – 140
Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
1 Basis of preparation
(a) Basis of preparation – Group and Company
The financial statements have been prepared in accordance with IFRS adopted by the EU, IFRIC interpretations and with those
01 – 15
ICAP in ten
parts of the Companies Act 2006 applicable to companies reporting under IFRS and therefore comply with Article 4 of the EU
IAS Regulation. The financial statements have also been prepared under the historical cost convention, as modified to include
the fair value of certain financial instruments in accordance with IFRS. The financial statements are prepared in pound sterling,
which is the functional currency of the Company and presented in millions.
The Group maintains a columnar format for the presentation of its consolidated income statement. This enables the Group to
continue its practice of improving the understanding of its results by presenting profit for the year before amortisation and
impairment of intangibles arising on consolidation and exceptional items. This is the profit measure used to calculate adjusted
EPS and is considered to be the most appropriate as it better reflects the Group’s underlying cash earnings. Profit before
amortisation and impairment of intangibles arising on consolidation and exceptional items is reconciled to profit before tax on
the face of the consolidated income statement.
17 – 41
Business review
Intangible assets arising on consolidation represent goodwill and other separately identifiable intangible assets on business
combinations since 1 April 2004. The amortisation of separately identifiable intangible assets and any impairment of goodwill
together with the unwind of related deferred tax liabilities are included in the consolidated income statement within the
column “amortisation and impairment of intangibles arising on consolidation”.
Items which are of a non-recurring nature and material, when considering both size and nature, are disclosed separately to
give a clearer presentation of the Group’s results. These are shown as “exceptional items” on the face of the consolidated
income statement.
The Group has presented its results from the discontinued operations post-tax (note 4) below profit for the year from
continuing operations. The prior year results have been re-presented to disclose separately the results of the discontinued
operations. This has had no impact on the results of the Group.
43 – 63
Governance
On the face of the consolidated income statement, basic and diluted EPS from continuing operations have also been disclosed.
This enables the Group to provide clarity of the EPS of the continuing core businesses. The prior year basic and adjusted EPS
has been re-presented to reflect the EPS of the continuing operations of the Group and to provide comparative information.
The Company has taken advantage of section 408 of the Companies Act 2006 not to present its own income statement.
(b) Basis of consolidation – Group
The Group’s consolidated financial statements include the results and net assets of the Company, its subsidiaries and the
Group’s share of joint ventures and associates.
An entity is regarded as a subsidiary if the Group has control over its strategic, operating and financial policies and intends to
hold the investment on a long-term basis for the purpose of securing a contribution to the Group’s activities.
65 – 140
Financial statements
The results of companies acquired during the year are included in the Group’s results from the effective date of acquisition.
The results of companies disposed of during the year are included up to the effective date of disposal.
The Group adopts the parent model of accounting for minority interests. Purchases from minority interests result in goodwill
being recognised, represented by the difference between any consideration paid and the relevant share of the carrying value of
net assets acquired.
Where the Group has a put option over shares held by a minority, the Group derecognises the minority interest and instead
recognises a contingent deferred consideration liability for the estimated amount likely to be paid to the minority on exercise
of those options. The residual amount, representing the difference between any consideration paid/payable and the minority’s
share of net assets, is recognised as goodwill. Movements in the estimated liability after initial recognition are recognised as
either goodwill or within the consolidated income statement, depending on whether the contract was written as part of a
141 – 143
Information for shareholders
business combination. Where the Group has a call option over shares held by a minority, the Group continues to recognise the
minority until it is certain that the option will be called. At that point the accounting treatment is the same as for a put option.
ICAP plc Annual Report 2010
77
01 – 15
ICAP in ten
schemes, whereby the cancellations of share options by employees are treated in the same way as a cancellation by the
Group. This amendment has not had a material effect on the results and net assets of the Group.
• Amendments to IFRS7, “Financial instruments: Disclosures”, which requires enhanced disclosure about fair value measurement
and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by a level of a fair value
hierarchy. The amendment has had no impact on the results of the Group. The Group has chosen to take the exemption not
to present the comparative assets and liabilities held at fair value by level of a fair value hierarchy.
• IFRIC16, “Hedges of a net investment in a foreign operation”, applies to accounting periods beginning after 1 October 2008
and the Group has adopted these changes from 1 April 2009. This interpretation provides detailed guidance on the
accounting for a hedge of a net investment in a foreign operation in an entities consolidated financial statements.
17 – 41
Business review
There has been no impact on the results or net assets of the Group as a result of this adoption.
A number of other interpretations and amendments to existing standards have been made by the IASB and IFRIC but are not
considered relevant to the Group’s operations.
The following new standards and amendments to standards and interpretations have been issued, but are not effective for the
financial year beginning 1 April 2009 and have not been early adopted, but are considered relevant to the Group:
• IFRS3 (revised), “Business combinations” and consequential amendments to IAS27, “Consolidated and separate financial
statements”, IAS28, “Investments in associates”, and IAS31, “Interests in joint ventures”, apply prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or
after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations, with some
significant changes. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with
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contingent payments classed as debt subsequently re-measured through the consolidated income statement. There is a
choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value
or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition related costs should be
expensed. The Group will apply IFRS3 (revised) to all business combinations completed after 1 April 2010. The Group expects
that this will have no effect on the current results and net assets of the Group, but that prospectively it will depend on the
nature of transactions undertaken by the Group.
For the financial year commencing 1 April 2010 it is the intention of the Group to expand the items under “amortisation and
impairment of intangibles arising on consolidation” to include the impact to the consolidated income statement resulting from
the adoption of IFRS3 (revised) “Business Combinations” effective 1 April 2010. The Group also intends to move the impact
of the unwind of deferred consideration and any gains or losses on disposal to the column “amortisation and impairment of
intangibles arising on consolidation” which will be redefined as “acquisition and disposal costs”. These items will also be
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Financial statements
excluded from the calculation of adjusted EPS. The Group believes this change will help to improve users of the financial
statements understanding of the underlying results. Upon adoption, the Group plans to restate the prior year comparatives
for the impact of the change in presentation. Had the Group adopted the change in the current year, the amount recognised
would have increased from £40m to £42m in the consolidated income statement.
The Group has significant influence over a number of investments and the ability to move to a position of control through the
exercise of call options. The gains and losses for such options over the exercise price are included within the column
“amortisation and impairment of intangible arising on consolidation”.
• IFRIC17, “Distributions of non-cash assets to owners”, effective for annual periods beginning on or after 1 July 2009.
This interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than
cash as dividends to its shareholders. This is not currently applicable to the Group and is not expected to have a material
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Information for shareholders
79
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(i) Goodwill
Goodwill arises on the acquisition of subsidiaries, joint ventures and associates and represents the cost of the acquisition in
excess of the fair value of the Group’s share of the net assets acquired. Fair values are determined based on an assessment of
the value of the individual assets and liabilities acquired, including reference to market prices, discounting expected future cash
flows to present value or using replacement cost as appropriate.
Goodwill is initially recognised at cost and is subsequently held at cost less any provision for impairment. Goodwill is not subject
to amortisation but is tested annually for impairment.
Goodwill acquired since 2004 is held in the currency of the underlying assets of the business and is revalued at the closing rate
at each end of the reporting period. Goodwill acquired before 2004 is held in pound sterling and is not revalued.
Goodwill acquired prior to 1998 was immediately eliminated against reserves and was not reinstated on transition to IFRS.
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Goodwill held on the statement of financial position on transition to IFRS in 2004 has been recognised at its book value at the
date of transition and is no longer amortised but is tested annually for impairment.
Goodwill arising on the acquisition of subsidiaries and joint ventures is shown within non-current assets. Goodwill arising on the
acquisition of associates is included within their carrying value.
On disposal of a subsidiary, joint venture or associate, the attributable goodwill is included in the calculation of the profit or loss
on disposal, except for goodwill written off to reserves prior to 1998, which remains eliminated.
(ii) Separately identifiable intangible assets
The Group has recognised separately identified intangible assets on acquisitions where appropriate. These generally include
customer contracts and customer relationships. Intangible assets acquired by the Group are stated initially at fair value and
adjusted subsequently for amortisation and any impairment. Amortisation and impairment of intangibles arising on consolidation
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are recognised in the second column of the consolidated income statement. Where an impairment has taken place, the asset is
reviewed annually for any reversal of the impairment. Any reversals of impairments are credited to the consolidated income
statement. All intangible assets have a finite life.
Amortisation of separately identifiable intangible assets is charged to the consolidated income statement on a straight-line basis
over their estimated useful lives as follows:
Customer relationships 2–10 years
Customer contracts Period of contract
Other intangible assets Period of contract
A deferred tax liability is recognised against the asset where the amortisation is non-tax deductible. The liability unwinds over
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Financial statements
the same period as the asset is amortised.
(iii) Impairment
Goodwill is not amortised but is tested for impairment at least annually. The recoverable amount of a Cash Generating Unit
(CGU) is determined based on value-in-use calculations. These calculations use cash flow projections which extend forward to
perpetuity using a terminal value calculation and which take account of the approved budget for the coming year. The Group
applies a suitable discount factor to the future cash flows based on its pre-tax weighted average cost of capital. Growth rates
are applied conservatively and do not exceed the expected growth in the local economy after the fifth year. Where the carrying
value of the asset exceeds its value-in-use, an impairment charge is recognised immediately in the consolidated income
statement, and the asset is impaired to its value-in-use. For goodwill, impairment charges previously recognised are not
reversed and impaired intangible assets are reviewed annually for reversal of previously recognised impairment.
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81
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Impairment of financial assets: financial instruments not held at fair value are impaired where there is objective evidence that
the value may be impaired. The consolidated amount of the impairment is calculated as the difference between the carrying
value and the present value of any expected future cash flows, with any impairment being recognised in the consolidated
income statement. Subsequent recovery of amounts previously impaired are credited to the consolidated income statement.
Long-term borrowings: long-term borrowings are recognised initially at fair value, being their issue proceeds net of transaction
costs incurred. At subsequent reporting dates long-term borrowings are held at amortised cost using the effective interest rate
method, with changes in value recognised through profit or loss. Transaction costs are recognised in the consolidated income
statement over the period of the borrowings using the effective interest rate method.
(j) Matched principal business
Certain Group companies are involved as principal in the purchase and sale of securities and other financial instruments between
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our customers. Such trades are complete when all transactions are settled. 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 (notes 19 and 20), except where a netting agreement, which is legally enforceable at all times, exists and the asset
and liability are either settled net or simultaneously.
If, during the course of trading (e.g. as a result of an error), any unmatched trades remain outstanding, the asset or liability is
held within matched principal trade receivables or payables as appropriate and fair valued through the consolidated income
statement until the trade is completed.
(k) Matched stock lending business
Certain Group companies are involved in collateralised stock lending transactions as an intermediary between counterparties.
Such trades are complete only when both the collateral and stock for each side of the transaction is returned. The gross
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amounts of collateral due and receivable are disclosed in the balance sheet as deposits paid for securities borrowed and deposits
received for securities loaned (notes 19 and 20).
(l) Derivative financial instruments and hedge accounting
The Group uses various financial instruments as hedges to reduce exposure to FX and interest rate movements. These can
include forward FX contracts, currency options and cross currency swaps. All derivative financial instruments are initially
recognised on the balance sheet at their fair value, adjusted for transaction costs. Where derivative financial instruments do not
qualify for hedge accounting, changes in the fair value are recognised immediately in the consolidated income statement, along
with transaction costs. Where they do qualify, gains and losses are recognised according to the nature of the hedge relationship
and the item being hedged. Hedges are either classified as fair value hedges, cash flow hedges or net investment hedges.
The fair values of derivative financial instruments are determined by reference to quoted prices in an active market. Where no
such active market exists, the fair value is determined using appropriate valuation techniques from observable data, including
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Financial statements
discounted cash flow analysis and the Black-Scholes option pricing model.
The method of recognising the movements in the fair value of a derivative depends on whether an instrument has been
designated as a hedging instrument and, if so, the nature of the exposure being hedged. To qualify for hedge accounting, the
terms of the hedge must be documented clearly at inception and there must be an expectation that the derivative will be highly
effective in offsetting changes in the fair value or cash flows attributable to the hedged risk. Hedge effectiveness is tested
throughout the life of the hedge and, if at any point it is concluded that the relationship can no longer be expected to remain
highly effective in achieving its objective, the hedge relationship is terminated.
Fair value hedges: derivative financial instruments are classified as fair value hedges when they hedge an exposure to changes in
fair value of a recognised asset or liability that is attributable to a particular risk that could affect the consolidated income
statement. The hedging instrument is recorded at fair value on the balance sheet, with changes in fair value being taken through
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the consolidated income statement. Where the hedged item is measured at cost, and for periods in which the hedge is shown to
be effective, the gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item
and is recognised in the consolidated income statement.
Cash flow hedges: derivative financial instruments are classified as cash flow hedges when they hedge the Group’s exposure to
changes in cash flows attributable to a particular asset or liability or a highly probable forecast transaction. Gains or losses on
designated cash flow hedges are recognised directly in other comprehensive income, to the extent that they are determined to
be effective. Any remaining ineffective portion of the gain or loss is recognised immediately in the consolidated income
statement. On recognition of the hedged asset or liability, any gains or losses relating to the hedging instrument that had
previously been recognised directly in other comprehensive income are included in the initial measurement of the fair value of
the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss in equity remains there and is recognised in the consolidated income statement when
the forecast transaction is ultimately recognised. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in other comprehensive income is transferred immediately to the consolidated income statement.
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the rates of exchange prevailing on the dates of the transactions. At each end of the reporting period, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period.
Exchange differences are recognised in the consolidated income statement, except for exchange differences arising on non-
monetary assets and liabilities where these form part of the net investment of an overseas business or are designated as hedges
of a net investment or cash flow and, therefore, the changes in value are recognised directly in other comprehensive income.
Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined.
On consolidation, the results of businesses with non-pound sterling functional currencies are translated into the presentational
currency of the Group at the average exchange rates for the period where these approximate to the rate at the date of the
transactions. Assets and liabilities of overseas businesses are translated into the presentational currency of the Group at the
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exchange rate prevailing at the end of the reporting period. Exchange differences arising are recognised within other
comprehensive income. Cumulative translation differences arising after the transition to IFRS are taken to the consolidated
income statement on disposal of the net investment.
Goodwill and fair value adjustments arising on the acquisition of a non-sterling entity are treated as assets and liabilities of that
entity and translated into the presentational currency of the Group at the closing rate. Where applicable, the Group has elected
to treat goodwill and fair value adjustments arising before the date of transition to IFRS as denominated in the presentational
currency of the Group.
In the statement of cash flows, cash flows denominated in foreign currencies are translated into the presentational currency of
the Group at the average exchange rate for the year or at the rate prevailing at the time of the transaction where more
appropriate.
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(r) Treasury Shares and share ownership trusts
Treasury Shares are recognised in equity and are measured at cost. Consideration received for the sale of such shares is also
recognised in equity, with any difference between the proceeds from the sale and original cost being taken to retained earnings.
Company shares held in connection with the Group’s employee share schemes are held in trust and are deducted from
consolidated shareholders’ equity. Purchases, sales and transfers of the Company’s shares are disclosed as changes in
consolidated shareholders’ equity. The assets and liabilities of the trusts are consolidated in full into the Group’s consolidated
financial statements.
(s) Provisions
A provision is recognised where there is a present obligation, either legal or constructive, as a result of a past event for which it
is probable there will be a transfer of economic benefits to settle the obligation.
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Financial statements
Property provisions are recognised where office space is surplus to requirements at the cost of fulfilling the lease obligations
less any expected rental income from sub-letting the property. The provision is discounted when such discount is material.
(t) Earnings per ordinary share
The Group presents basic and diluted EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during
the period, adjusted for own shares held. The Group also calculates adjusted EPS from the adjusted profit which is defined as
profit from operations before the effect of amortisation and impairment of intangibles arising on consolidation and exceptional
items. The Group believes that this is the most appropriate measurement since it better reflects the business’s underlying cash
earnings.
Diluted EPS is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average
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Information for shareholders
number of ordinary shares outstanding, adjusted for own shares held as Treasury Shares, for the effects of all dilutive potential
ordinary shares, which comprise those owned by employee share trusts and share options granted to employees outstanding
under the Company’s employee share schemes.
(u) Accounting estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results
reported in future periods may be based on amounts which differ from those estimates. Estimates, judgements and
assumptions are continuously evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in
the period in which the estimate is revised and in any future periods affected.
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new businesses, which represent a diversification of ICAP’s existing business, joining the segment on acquisition or at inception.
These businesses will normally be reported within this segment for two financial years while the business is integrated within
ICAP or, in the case of start-up businesses, move towards operational maturity. The segment will be reviewed at the start of
each year and the comparatives restated to reflect any reclassifications between the core and new business segments. For the
period commencing 1 April 2010, it is anticipated that Link and ICAP Shipping, both of which have been owned for two years,
will be reported in the core voice segment, with comparatives restated to show impact and TriOptima, a business in which the
Group has had a 38.22% shareholding, will be reported within post trade risk and information. The now discontinued cash
equities business had previously been disclosed within the new business segment at the interim reporting period.
The Group continues to disclose an operating segment for the voice business in Asia Pacific even though this segment does not
meet the quantitative thresholds to be mandatory under IFRS8, “Operating Segments”. This is to reflect the importance of the
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Business review
Asia Pacific region to the Group and the way the Group is managed.
Year ended 31 March 2010
Core voice broking Post trade risk
Asia Electronic and New
EMEA Americas Pacific broking information businesses Total
£m £m £m £m £m £m £m
Continuing operations
Revenue 506 434 96 252 142 175 1,605
Operating profit before amortisation
and impairment of intangibles
arising on consolidation and
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exceptional items 115 80 1 100 69 (11) 354
Reconciliation to the consolidated
income statement:
Amortisation and impairment of intangibles
arising on consolidation (61)
Exceptional items (26)
Operating profit 267
Finance income 7
Finance costs (35)
Share of profit of associates after tax 8
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Financial statements
Details of total gross debt and total net cash reviewed by the CODM can be found in notes 22 and 33(b) respectively.
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ICAP plc Annual Report 2010
The Group did not earn more than 10% of its total revenue from any individual customer.
The Group earned revenue of £581m (2009 – £615m) from entities in the UK. The remainder of £1,024m (2009 – £970m)
came from entities outside the UK.
The amortisation and impairment of intangible assets arising from development expenditure recognised by the Group on a
segmental basis is as follows: core voice broking EMEA £6m (2009 – £5m), core voice broking Americas £13m (2009 – £7m),
core voice broking Asia Pacific £nil (2009 – £nil), electronic broking £1m (2009 – £4m), post trade risk and information £2m
(2009 – £2m) and new businesses £1m (2009 – £nil).
The depreciation of property and equipment recognised by the Group on a segmental basis is as follows: core voice broking
EMEA £7m (2009 – £7m), core voice broking Americas £8m (2009 – £9m), core voice broking Asia Pacific £2m (2009 –
£2m), electronic broking £3m (2009 – £4m), post trade risk and information £1m (2009 – £nil) and new businesses £1m
(2009 – £1m).
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87
4 Discontinued operations
The income statement and cash flows related to the European and Asia Pacific cash equities business are presented as
discontinued operations following the decision of the Company’s board on 22 March 2010 to close the European and Asia
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Pacific integrated full service agency cash equities businesses. These businesses were closed as at the balance sheet date.
(a) Results of discontinued operations
An analysis of the results of discontinued operations presented within the consolidated income statement is as follows:
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Revenue 24 16
Operating expenses (49) (20)
Tax 7 −
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Business review
Loss after tax of discontinued operations before exceptional items (18) (4)
Exceptional items (41) −
Tax 11 −
Loss after tax of discontinued operations (48) (4)
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Investing cash flows – (12)
Financing cash flows – 28
Total cash flows (5) 5
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ICAP plc Annual Report 2010
5 Other income
Income from government grants includes amounts relating to a BEIP grant receivable in the US from the state of New Jersey.
This grant is receivable until 2014 by the Group provided it maintains its operations in the state of New Jersey until 2019 and is
based on the amount of employee tax paid over to the state authorities.
6 Exceptional items
On 18 December 2009 ICAP Securities USA LLC, a US subsidiary of the Company, announced that it had agreed to a settlement
with the SEC, with regard to a multi-year industry wide investigation into the markets in certain fixed income securities,
without admitting or denying allegations of any wrongdoing. An exceptional item of £21m has been recognised in 2009/10 to
cover the SEC settlement together with related costs.
On 15 February 2010 the Group announced that it was undertaking a strategic review of its cash equities business and, on
22 March 2010, announced that it was going to discontinue its European and Asia Pacific integrated full service agency cash
equities business. An exceptional charge of £46m has been recognised in respect of the estimated cost of the reorganisation,
which covers personnel costs, write off of assets and provisions against onerous contracts. Exceptional items related to the
cash equities strategic review have been split between continuing and discontinued business. The European and Asia Pacific full
service agency cash equities businesses were closed at the balance sheet date.
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89
7 Finance income
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31 March 31 March
2010 2009
£m £m
Interest receivable and similar income
Bank deposits 2 10
Other interest receivable 1 5
3 15
Other finance income
Fair value gains on derivative financial instruments (note 22) 11 2
Fair value of hedged item (note 22) (9) −
Expected return on retirement plan assets – 1
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Business review
Dividends received on equity investments 2 1
4 4
Total finance income 7 19
As described in note 24, the Group converted €200m of its €300m fixed euro-denominated notes from euros to pound
sterling, and the coupon from fixed to floating. The fixed to floating swaps have been treated as a fair value hedge, with the
mark-to-market of £11m included within fair value gains on derivative financial instruments in other finance income. The
corresponding fair value adjustment of £9m to the €200m of the euro-denominated notes, which is comprised of £2m relating
to interest rates and £7m to FX, is included within fair value of hedged item in other finance income.
8 Finance costs
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Year ended Year ended
31 March 31 March
2010 2009
£m £m
Interest payable and similar charges
Bank loans and overdrafts 28 33
Unwinding of discount on contingent deferred consideration (note 14(c)) 2 6
30 39
Other finance costs
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Financial statements
Fair value losses on derivative financial instruments – 3
Impairment of loans to associates (note 19) 5 −
Interest on retirement plan liabilities – 1
5 4
Total finance costs 35 43
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ICAP plc Annual Report 2010
9 Operating expenses
10 Employee information
(a) Analysis of employee costs
Year ended Year ended
31 March 31 March
2010 2009
£m £m*
Continuing operations
Salaries (including bonuses) 879 859
Social security costs 54 57
Share-based payments 10 8
Defined contribution pension costs 7 7
950 931
*The 2009 employee costs have been re-presented to exclude employees of the discontinued cash equities business.
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Discontinued operations
Salaries (including bonuses) 27 12
Social security costs 3 1
Share-based payments – −
Defined contribution pension costs – −
30 13
ICAP plc Annual Report 2010
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Average Year end
Year ended Year ended As at As at
31 March 31 March 31 March 31 March
2010 2009* 2010 2009*
Core voice broking:
– EMEA 1,309 1,288 1,238 1,255
– Americas 1,201 1,223 1,218 1,253
– Asia Pacific 619 639 629 632
Electronic broking 456 470 466 453
Post trade risk and information 232 182 310 205
New businesses 580 394 627 465
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Business review
4,397 4,196 4,488 4,263
*The 2009 employee numbers have been re-presented to exclude employees of the discontinued cash equities business.
Discontinued operations
Average Year end
Year ended Year ended As at As at
31 March 31 March 31 March 31 March
2010 2009 2010 2009
Discontinued cash equities business 105 36 116 71
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(c) Key management remuneration
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Aggregate emoluments 28 29
Share-based payments 6 5
Defined contribution pension costs – −
34 34
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Financial statements
Key management consists of the members of the GEMG and the executive directors of the board. The executive directors’
remuneration is disclosed separately in the remuneration report. The aggregate remuneration for key management includes
amounts paid as variable bonuses. For the year ended 31 March 2010 this amounted to 61% (2009 – 79%) of the aggregate
remuneration. Key management remuneration is wholly attributable to continuing operations.
Key management received £33m in the year (2009 – £9m) in aggregate gains on the exercise of stock options.
Retirement benefits are accruing to five (2009 – five) members of the GEMG under defined contribution schemes.
The Company has no employees.
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Information for shareholders
ICAP plc Annual Report 2010
11 Tax
Tax charged to the consolidated income statement in the year
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Current tax
UK Corporation Tax at 28% (2009 − 28%)
− current year 30 43
− double tax relief (1) (1)
− adjustment to prior years (1) −
Overseas tax
− current year 68 52
− adjustment to prior years (4) (10)
92 84
Deferred tax (note 21) (9) 11
Total tax charged to consolidated income statement – continuing operations 83 95
Tax credited to the consolidated income statement for discontinued operations can be analysed
as follows:
Tax credit on discontinued operations, excluding exceptional items (7) −
Tax credit on exceptional items – discontinued operations (11) −
Total tax credit to the consolidated income statement – discontinued operations (18) −
Total tax charged to the consolidated income statement 65 95
Tax charged to the consolidated income statement for continuing operations can be analysed
as follows:
Total tax charged to the consolidated income statement – continuing operations 83 95
Tax credit on amortisation and impairment of intangible assets arising on consolidation 20 22
Tax credit on exceptional items – continuing operations 4 −
Tax on profit before amortisation, impairment of intangible assets arising on consolidation and
exceptional items 107 117
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11 Tax continued
Tax charged/(credited) to other comprehensive income in the year
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Year ended Year ended
31 March 31 March
2010 2009
£m £m
Current tax credit on share-based payments (9) (5)
Current tax charge/(credit) on exchange adjustments 2 (20)
Current tax charge/(credit) on hedging instruments 12 (18)
Net current tax on items recognised in other comprehensive income 5 (43)
Deferred tax credit on revaluation of available-for-sale investments – (1)
Deferred tax charge on share-based payments 1 4
Net deferred tax on items recognised in other comprehensive income 1 3
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Business review
The Group’s tax charge exceeds the UK statutory rate and can be reconciled as follows:
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Profit before tax from continuing operations 247 285
Tax on profit at the standard rate of Corporation Tax in the UK of 28% (2009 − 28%) 69 80
Expenses not deductible for tax purposes 12 11
Adjustments to deferred tax in respect of prior years (1) 1
Adjustments in respect of foreign tax rates 10 15
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Adjustments to current tax in respect of prior years (5) (10)
Adjustments in respect of associates (2) (2)
Tax charge from continuing operations 83 95
12 Dividends
Final dividend for the year ended 31 March 2009 of 12.35p per ordinary share (2008 − 11.95p) 79 76
Interim dividend for the year ended 31 March 2010 of 5.11p per ordinary share (2009 − 4.7p) 33 30
Total dividend recognised in year 112 106
The directors have proposed a final dividend of 12.44p per share for the year ended 31 March 2010. This has not been
recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number
of shares in issue at the year end, the total amount payable would be £81m.
The right to receive dividends has been waived in respect of the shares held in employee share trusts and no dividend is payable
on Treasury Shares.
The final dividend for the year ended 31 March 2009 was satisfied with a cash payment of £59m and a scrip dividend of
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Information for shareholders
4,567,807 ICAP plc ordinary shares of 10p each issued at £4.333 (value £20m).
ICAP plc Annual Report 2010
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Year ended 31 March 2010 Year ended 31 March 2009
Earnings Earnings
Earnings Shares per share Earnings Shares per share
Basic and diluted £m millions pence £m millions pence
Basic 164 643 25.5 179 634 28.2
Dilutive effect of share options – 11 (0.4) − 16 (0.7)
Diluted basic 164 654 25.1 179 650 27.5
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Business review
Earnings Shares per share Earnings Shares per share
Adjusted basic and diluted £m millions pence £m millions pence
Basic 164 643 25.5 179 634 28.2
Amortisation and impairment
of intangibles arising on
consolidation net of tax
and minority interest 40 – 6.2 41 – 6.5
Exceptional items net of tax
(note 6) 22 – 3.4 − − −
Adjusted basic 226 643 35.1 220 634 34.7
Dilutive effect of share options – 11 (0.5) − 16 (0.9)
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Adjusted diluted 226 654 34.6 220 650 33.8
(note 6) 30 – 4.7 − − −
Adjusted basic (18) 643 (2.8) (4) 634 (0.6)
Dilutive effect of share options – 11 – – 16 −
Adjusted diluted (18) 654 (2.8) (4) 650 (0.6)
ICAP plc Annual Report 2010
14 Acquisitions
Subsidiaries
(a) Subsidiaries − current year
TriOptima AB (TriOptima)
On 24 March 2010, the Group acquired the remaining 61.78% of the share capital of TriOptima, a supplier of post trade
processing services, for an initial cash consideration of Swedish krona (SEK)1,288m (£119m), inclusive of a deferred
consideration payment of £7m. At the close of the acquisition SEK1,216m (£112m) was paid with SEK72m (£7m) paid on
10 May 2010 following approval of the 2009 financial statements.
Contingent deferred consideration is payable, in two tranches, following the approval of the TriOptima 2010 and 2012 financial
statements and is conditional on the business achieving a minimum pre-tax profit margin and revenue target. The Group has set
stretching revenue and profit targets and therefore does not currently expect to pay any deferred consideration. Total deferred
consideration is capped at €293m and can be settled at ICAP’s discretion in cash, ICAP plc ordinary shares or a combination
thereof.
The fair value adjustments include the recognition of intangible assets arising on consolidation of €81m (£73m) represented by
customer relationships of €58m (£52m), trademarks of €9m (£8m) and software of €14m (£13m) which will be amortised
over five years, and a deferred tax liability of €21m (£19m). The Group’s share of the identifiable assets and liabilities acquired
in previous transactions has been revalued with the credit of €50m (£45m) recognised in other comprehensive income.
The Group has considered the financial profile of the business and, in accordance with IAS 21 “The Effects of Changes in Foreign
Exchange Rates”, considers the functional currency to be the euro and, as such, has recorded the goodwill and intangibles in
euros. Goodwill of €57m (£50m) has been recognised in respect of assets which are not separately identifiable, principally the
assembled work force and potential future growth of the business.
In the period from acquisition to 31 March 2010, TriOptima contributed £1m to revenue and was break-even before tax,
amortisation of intangibles arising on consolidation and exceptional items. If the acquisition had occurred on the first day of the
financial year, the contribution would have been £60m of revenue and £27m profit before tax.
During the period 1 April 2009 to 24 March 2010 the Group recognised profit on a post-tax basis of £7m as associate income
based on its 38.22% shareholding.
Arkhe Distribuidora De Títulose e Valores Mobiliários S.A. (Arkhe)
On 13 July 2009, the Group completed the acquisition of 100% of the share capital of Arkhe, a leading independent broker
in Brazil, for an initial consideration of real (R)$20m (£6m). Contingent deferred consideration, based on the average operating
profit of Arkhe and certain complementary ICAP businesses for the three years from 1 July 2009 to 30 June 2012, will be paid
in August 2012. Total consideration is capped at US$55m (£33m) (equivalent to R$107m at year end exchange rates).
The fair value adjustments include the recognition of intangible assets arising on consolidation of R$22m (£7m) represented by
customer relationships of R$20m (£6m) and the brand value of R$2m (£1m) which are being amortised over seven years, and
other provisions R$122m (£38m). Other provisions are for contingent liabilities that existed at acquisition, but were not
previously recognised by Arkhe.
The initial consideration and any future contingent deferred consideration will be held in escrow together with the proceeds
earned by the vendors by selling certain assets, for a period of up to six years and may be used to settle any of the contingent
liabilities. The Group has recognised an asset of R$20m (£6m) which represents the cash currently held in escrow.
Goodwill of R$96m (£29m) has been recognised in respect of assets which are not separately identifiable, principally the
assembled workforce and potential future growth of the business.
In the period from the acquisition to 31 March 2010, the Arkhe business has been integrated with certain complementary
Group businesses and the results of the acquired business are no longer distinguishable from the combined business.
ICAP plc Annual Report 2010
97
14 Acquisitions continued
(a) Subsidiaries – current year continued
Others
01 – 15
ICAP in ten
On 15 June 2009, the Group acquired the assets and business of the transactions division of Ocean Tomo LLC (Ocean Tomo),
the leading Intellectual Capital Merchant Banc® company, a business based in the US which offers patent brokerage services.
Ocean Tomo services include live multi-lot IP auctions and private sales where revenue may be unpredictable in terms of
timings and amounts. Consideration of $10m (£6m) has been recognised consisting of $5m (£3m) in cash and 692,226 ICAP
shares issued at £4.4395 (value $5m (£3m)). Costs of $0.3m (£0.2m) have also been recognised as consideration.
The fair value adjustments include the recognition of separately identifiable intangible assets arising on consolidation of $3m
(£2m) for the Ocean Tomo brand to which the Group has rights for ten years. The asset will be amortised over the ten years.
Goodwill of $7m (£5m) has been recognised in respect of assets which are not separately identifiable, principally the assembled
workforce and future growth potential of the business.
In the period from the acquisition to 31 March 2010, Ocean Tomo has contributed £3m of revenue and was break-even before
17 – 41
Business review
tax, before amortisation of intangibles arising on consolidation. If the acquisition had occurred on the first day of the financial
year the contribution would have been similar.
On 6 May 2009, ICAP acquired an initial 75% shareholding in an electronic interdealer broking business for £1m. The minority
shareholders, under the terms of the shareholder agreement, have the right to put and ICAP has the ability to call the remaining
shares, using a pre-agreed pricing formulae, from 1 July 2011. At the opening balance sheet date the exit price was estimated
to be £7m with a net present value of £6m and is capped at £116m. Goodwill of £5m has been recognised in respect of assets
which are not separately identifiable, principally the potential future growth of the business.
In the period from the acquisition to 31 March 2010, the business has contributed £1.1m of revenues and £0.8m profit before
tax, before amortisation of intangibles arising on consolidation. If the acquisition had occurred on the first day of the financial
year, the contributions would have been similar.
43 – 63
Governance
TriOptima Arkhe Others Total
Provisional Provisional
Book value fair value Book value Fair value Book value Fair value Book value fair value
£m £m £m £m £m £m £m £m
Net assets acquired
Intangible assets arising on consolidation 73 – 7 – 2 – 82
Tangible assets 1 1 – – – – 1 1
Cash and cash equivalents 11 11 2 2 – – 13 13
Trade and other receivables 11 11 22 28 – – 33 39
Trade and other payables (7) (7) (18) (54) – – (25) (61)
Deferred tax liability – (19) – – – – – (19)
65 – 140
Financial statements
16 70 6 (17) – 2 22 55
Goodwill 50 29 10 89
Consideration 120 12 12 144
Satisfied by:
– cash 112 6 3 121
– acquisition costs capitalised 1 1 – 2
– shares issued – – 3 3
– deferred consideration 7 – – 7
– contingent deferred consideration – 5 6 11
141 – 143
Information for shareholders
120 12 12 144
14 Acquisitions continued
(c) Contingent deferred consideration
A number of acquisitions made by the Group are satisfied in part by contingent deferred consideration. The Group has re-
estimated the amounts due as contingent deferred consideration where necessary, with any corresponding adjustments being
made to goodwill where the transaction is regarded as a business combination.
Included within contingent deferred consideration are amounts which are exercisable at certain dates in the future on put
options over shares held by minorities where the Group considers it highly likely that these options will be exercised.
Year ended 31 March 2010
ICAP ICAP
Link Shipping Equities Arkhe Other Total
£m £m £m £m £m £m
Contingent deferred consideration outstanding
as at 1 April 2009 25 8 13 – 2 48
Acquisitions in the year (note 14(a)) – – – 5 6 11
Cash consideration paid in the year (14) (1) (1) – – (16)
Unwinding of discount (note 8) 1 – – 1 – 2
Re-estimation of provisions which arose on acquisition 9 – – – – 9
Adjustments to goodwill during the year
(note 15(a)) (8) (7) (12) (5) (3) (35)
Contingent deferred consideration outstanding
as at 31 March 2010 13 – – 1 5 19
The Group has £5m worth of contingent deferred consideration related to other acquisitions.
Year ended 31 March 2009
ICAP ICAP
Reset Link Shipping Equities Other Total
£m £m £m £m £m £m
Contingent deferred consideration outstanding
as at 1 April 2008 41 − 9 − − 50
Acquisitions in the year − 23 − − 1 24
Amount recognised for options over minority interests − − 3 12 1 16
Cash consideration paid in the year (66) − (3) − − (69)
Unwinding of discount (note 8) 2 2 1 1 − 6
Adjustments to goodwill during the year (note 15(a)) 7 − (2) − − 5
Exchange adjustments 16 − − − − 16
Contingent deferred consideration outstanding
as at 31 March 2009 − 25 8 13 2 48
99
01 – 15
ICAP in ten
relationships, brands and customer contracts that arose on business combinations since 1 April 2004. The amortisation and any
impairment is included in the consolidated income statement within the column “amortisation and impairment of intangibles
arising on consolidation”.
Goodwill Other Total
£m £m £m
Cost
As at 1 April 2009 1,035 525 1,560
Additions (note 14) 89 82 171
Transfer of goodwill from associates (note 17) 2 – 2
Revaluation of intangibles (note 17) 12 45 57
17 – 41
Business review
Adjustments relating to contingent deferred consideration (note 14(c)) (35) – (35)
Exchange adjustments (30) (19) (49)
As at 31 March 2010 1,073 633 1,706
Amortisation and impairment
As at 1 April 2009 31 125 156
Amortisation charge for the year – 51 51
Impairment in the year 5 5 10
As at 31 March 2010 36 181 217
Net book value
43 – 63
Governance
As at 31 March 2010 1,037 452 1,489
Cost
As at 1 April 2008 725 327 1,052
Additions 140 110 250
Adjustments relating to deferred consideration (note 14(c)) 5 − 5
Exchange adjustments 165 88 253
As at 31 March 2009 1,035 525 1,560
Amortisation and impairment
As at 1 April 2008 24 69 93
Amortisation charge for the year − 56 56
65 – 140
Financial statements
Goodwill is not amortised but is tested for impairment at least annually. The recoverable amount of a CGU is determined based
on value-in-use calculations. These calculations use cash flow projections which extend forward to a terminal value and which
take account of the approved budget for the year ending 31 March 2011 together with assumptions surrounding the expected
life of the asset, management’s view of the trading cycles and growth profile facing each CGU and any adjustments required to
the discount factor to take account of country or business risk.
The value-in-use calculations are sensitive to changes in these assumptions and, in particular, long-term growth rates. With the
exception of Traiana, ICAP Shipping and First Brokers, which each exhibited different trading characteristics to those seen in
ICAP’s wider brokerage business, the base model assumes that the budgeted cash flows for 2011 will grow at 2% per annum to
a terminal value in year ten and when discounted this shows significant headroom. The base case was then stress tested using a
zero growth assumption and continued to show no impairment. The board view these assumptions as conservative and do not
believe that any reasonable change in the assumptions would cause the carrying value of these CGU’s to exceed the recoverable
amount.
It is anticipated that intangible assets arising on the acquisition of voice broking businesses have a finite life. The Group reviews
the performance of the businesses and reassesses the likely period over which the acquired intangible asset is likely to continue
to generate cash flows that exceed the recoverable amount. As a result some businesses will have no impairment in a particular
year while others will.
First Brokers is dependent on a few key brokers and continues to operate as a stand-alone business. The business is expected to
see a decline in projected cash flows resulting from the shorter time remaining on key employees fixed contracts. As a result,
the Group has booked an impairment in the year of £4m (2009 – £7m).
ICAP plc Annual Report 2010
101
01 – 15
ICAP in ten
integrated to create a global platform operating across tankers (wet) and dry chartering, sale and purchase and derivative
freight forward agreement.
The performance of the shipping industry is influenced by a combination of factors including global trade volumes, which are a
function of world GDP and imbalances in the world fleet. It is deeply cyclical in nature and typically exhibits trading peaks and
troughs every three to four years. Our business is no exception to this general rule and as such we have seen our profits in
2008 convert into modest losses in 2009 and 2010 as the industry suffers from a combination of over capacity and lower
global trade.
Predicting the exact shape of future cycles is difficult, however, we believe the business will benefit from the increased number
of ships needing to be brokered and an improving macro environment, where a recovery in levels of OECD trade and increased
appetite by China and India to import raw materials should drive improved freight rates.
17 – 41
Business review
The outlook in the near term, however, remains uncertain. We have, therefore, adopted a conservative approach when
assessing the business prospects, limiting growth in volumes to world GDP rather than the higher rate of growth of the world
fleet (the potential market) and assumed that the next peak in the cycle is delayed until 2015 when tanker rates get back to
2008 levels and dry cargo rates to 50% of 2008 levels. We assume that the cycle then replicates with the next peak in 2019.
The resultant cash flows have been discounted using a rate of 11% which includes a 2% premium to reflect the higher level of
cyclicality inherent in the shipping business which results in a recoverable amount in excess of the carrying value of the CGU and
consequently no impairment. We have also stress tested the model by assuming that the peak operating profit margin is limited
to 75% of that seen in 2008 and, under this scenario, would achieve a position with a further 5% fall in volume or freight rates
where the carrying value of the CGU equates to the recoverable amount.
The Group acquired Traiana, a leading provider of automated post trade processing services, in December 2007. In early 2009
43 – 63
Governance
the Group employed external consultants to validate the business priorities and determine the expected growth trajectory for
the next five years. The findings of this report were used to assess the risk of impairment at 31 March 2009 and concluded
that the recoverable amount would exceed the CGU’s carrying value.
Traiana’s TRM and Harmony platforms are embedded into its clients systems and represent a key component of the way in
which these organisations manage the work flow for the settlement of FX and as such, once installed tend to provide a
relatively stable and growing source of revenue.
During the twelve months to 31 March 2010, the business performed ahead of plan and has made significant strategic
advances in terms of deploying the Harmony platform to support the joint venture with CLS Group in FX aggregation and to
move closer to being able to provide services to equity and futures market participants in 2011.
For the purposes of assessing impairment risk, we have considered the cash flows which will be generated by the established
65 – 140
Financial statements
FX business and the expansion into equities and futures separately. We have projected revenue growth for each of the products
on a bottom up basis using market based growth assumptions out to 2015 and, thereafter, conservatively assumed no further
growth and have applied a premium of 5% over ICAP’s pre-tax cost of capital to the FX business to reflect the fact that the
business while offering a proven technological solution, remains relatively small and represents a diversification of ICAP’s core
brokerage business and, in the case of the new businesses, a 11% premium reflecting the higher risk inherent in any new
product launch. Under these assumptions, the carrying value of the CGU exceeds the recoverable amount.
The recent financial crisis resulted in the loss and/or consolidation of a number of the customers which existed when we
acquired the business in December 2007. Now that market conditions have stabilised and we understand how the successor
organisations are planning to use the TRM and Harmony platforms, we have considered the value attributed to the customer
relationship in respect of both platforms and, to the extent that the relationships are no longer generating platform revenue,
the asset has been impaired resulting in the net carrying value being reduced by $8m (£5m) (2009 – nil).
141 – 143
Information for shareholders
The Group has also taken an impairment of £1m in respect of smaller investments in Latin America.
ICAP plc Annual Report 2010
103
Short
01 – 15
ICAP in ten
leasehold Furniture,
property fixtures and Motor
improvements equipment vehicles Total
£m £m £m £m
Cost
As at 1 April 2009 20 206 1 227
Additions on acquisition of subsidiaries (note 14(a)) – 1 – 1
Additions 3 15 – 18
Disposals – (8) – (8)
Exchange adjustments – (5) – (5)
As at 31 March 2010 23 209 1 233
17 – 41
Business review
Depreciation
As at 1 April 2009 9 140 1 150
Charge for the year 2 20 – 22
Disposals – (7) – (7)
Exchange adjustments – – – –
As at 31 March 2010 11 153 1 165
Net book value
As at 31 March 2010 12 56 – 68
No assets are held under finance leases. Leasehold property includes £3m of property held as freehold.
43 – 63
Governance
Short
leasehold Furniture,
property fixtures and Motor
improvements equipment vehicles Total
£m £m £m £m
Cost
As at 1 April 2008 17 135 1 153
Additions on acquisition of subsidiaries − 1 − 1
Additions 2 34 − 36
Disposals (1) (1) − (2)
Exchange adjustments 2 37 − 39
65 – 140
Financial statements
17 Investment in associates
Additions
During the year the Group invested a total of $1.9m (£1.2m), including costs of $0.3m (£0.2m), to acquire a 19.9% interest
in Walker Street Securities Holdings LP (Walker St Securities), a US investment partnership, and its subsidiary companies,
including Ticonderoga Securities LLC (Ticonderoga), a US company involved in securities broking. The Group also acquired an
option for $25,000 to acquire a further 55.1% in Walker St Securities. The agreed cost to exercise this option is $2.7m
(£1.8m). The option is recognised as a financial derivative current asset within other receivables, at its fair value. At 31 March
2010 the Group considered the fair value of this option to be £nil.
The Group’s partners in Walker St Securities have a put option on the remaining 25% of the shares that allows them to require
the Group to acquire their shares at an agreed price of six times profit after tax at any time from June 2012 to June 2016,
capped at 4.99% of the value of the Group. The Group also has a call option over these shares exercisable for the same period
at eight times profit after tax. In line with Group accounting policies, the put option is regarded as a financial derivative and
the amount due recognised as a non-current liability in other payables, which represents the net present value of the amount
which the Group expects to pay when the put is exercised. At 31 March 2010 the Group considered the fair value of this put
to be £nil.
A non-current asset, representing the value of the shares which will be acquired as a result of the put being exercised, has been
established in other receivables. As at 31 March 2010 the fair value of the asset is regarded as £nil.
In addition to the equity investment, the Group has made an initial interest-free loan to Walker St Securities of $2.7m (£1.8m),
which is repayable on exercise of the Group’s option for the same amount. This loan is treated as an investment in an associate.
During the year to 31 March 2010 Ticonderoga suffered a loss of $8.8m (£5.5m) of which the Group’s share of $1.8m
(£1.1m) has been recognised in the Group’s consolidated income statement. In addition an impairment of $2.7m (£1.8m) has
been recognised against the investment in respect of the loan.
ICAP plc Annual Report 2010
105
01 – 15
ICAP in ten
(Amias Berman), a fixed income brokerage business based in Singapore, with operations in the UK and Hong Kong, for an initial
consideration of £1,000.
In the period to 31 March 2010, Amias Berman suffered a trading loss of which the Group’s share was £1.3m. The trading loss
has been offset against the Group’s investment in Amias Berman reducing the carrying value to £nil and the Group has
recognised a loss of £0.3m in the consolidated income statement.
The Group has also acquired a call option for a nominal value of $1. Although the Group has no plans to exercise this call, it
provides the Group with the right to acquire a further 31.12% equity interest after two years. In the event that such a decision
is taken, on exercise, the remaining shareholders will have the right thereafter to put and ICAP the right to call their shares at a
price determined in accordance with a pre-agreed formula linked to the business’s performance.
17 – 41
Business review
The call option is recognised as a financial instrument in non-current trade and other receivables and was initially recorded at its
fair value of $1. The option has been revalued as at 31 March 2010 to a fair value of £4.5m. The revaluation change has been
recognised in the second column, “amortisation and impairment of intangibles arising on consolidation”, of the consolidated
income statement on the “share of profits of associates” line.
On 31 December 2009 the Group invested $0.5m for a 49% interest in CLS Aggregation Services LLC, a US limited liability
partnership. The partnership is to provide post trade services to the FX market. The Group is responsible for providing all
technical and product services for a fixed fee and is entitled to royalty income of 49% of net revenue.
Transfer from available-for-sale
As of 1 April 2009, the Group has a significant influence over the financial and operating policies of Amanah Butler Malaysia
Sdn Bhd (Amanah Butler) and, accordingly, had transferred its investment in this business from available-for-sale investments
to investment in associates at its book value of £0.5m. Amanah Butler operates a voice money broker in Malaysia and the
43 – 63
Governance
Group owns 32.1% of the equity.
Transfer to subsidiary
On 24 March 2010, the Group completed the acquisition of the 61.78% of TriOptima which it did not previously own.
TriOptima is now regarded as a subsidiary company and accordingly the investment in associate has been transferred to
investment in subsidiaries (note 14). The previously recognised profit of £10m, accounted for under the equity method,
has been reversed through other comprehensive income. The assets and liabilities of TriOptima have been removed from
the analysis of assets and liabilities of associates, in the table below, and fully consolidated within the Group’s balance sheet.
The acquisition of the remaining interest has resulted in the Group’s share of the identifiable assets and liabilities acquired in
the previous transaction being revalued with the adjustment of £45m recognised in other comprehensive income.
The Group has recognised its share of the profit after tax for the period to 24 March 2010 in the “share of profits of associates
65 – 140
Financial statements
after tax” line. Profits after 24 March 2010 have been fully consolidated within the Group’s consolidated income statement.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
107
18 Available-for-sale investments
01 – 15
ICAP in ten
31 March 31 March
2010 2009
£m £m
As at 1 April 41 34
Additions 1 21
Transfer to associates (note 17) (1) −
Disposals (15) (21)
Revaluation to fair value in the year recognised in other comprehensive income – (1)
Exchange adjustments 2 8
As at 31 March 28 41
17 – 41
Business review
Non-current
− listed 1 1
− unlisted 26 35
27 36
Current
− listed 1 1
− unlisted – 4
1 5
Total 28 41
43 – 63
Governance
Available-for-sale investments include the following:
Listed securities
Equities listed in the US 1 1
Equities listed in the rest of the world 1 1
Total listed securities 2 2
Unlisted securities
Cash related instruments 2 15
Equity investments 22 22
65 – 140
Financial statements
Other 2 2
Total unlisted securities 26 39
Total 28 41
As at 31 March 2009 8 6 13 1 13 41
The fair value of unlisted securities is based on cost less any provision for impairment.
The Group owns 40.0% of the ordinary share capital of KAF-Astley & Pearce Sdn Bhd, a voice broking company based in
Malaysia. This investment is not regarded as an associate as the Group does not exert significant influence on the investment,
and it is included within unlisted investments above.
The interest rate profile of the Group’s financial assets together with discussion of risk management are included in note 24.
ICAP plc Annual Report 2010
Matched principal transactions are those where the Group acts in a non-advisory capacity as principal in the commitment to
purchase and sell securities and other financial instruments through two or more transactions between our customers. Such
trades have no contractual settlement date and are complete only when all sides of the transaction are settled, and therefore an
aged analysis of matched principal trade receivables is not appropriate. Substantially all matched principal receivables and
payables settle within a short period of time, usually within three days of trade date. Any unsettled trades that have gone
beyond their normal settlement date remain in matched principal receivables or payables as appropriate.
Deposits paid for securities borrowed represents the cash paid as collateral in a stock lending transaction. The Group acts as an
intermediary between our customers for collateralised stock lending transactions. Such trades are complete only when both the
collateral and stock for each side of the transaction are returned. The gross amounts of collateral due and receivable are
disclosed on the balance sheet (notes 20 and 24).
Financial assets held at fair value through profit or loss relate to the Group’s investment in the Pronous fund which is currently
in the process of being wound up in an orderly manner. The Group expects this liquidation to be completed in the coming year.
As at 31 March 2010 and 31 March 2009, the fair value of trade and other receivables is not materially different from their
book values.
Amounts owed by associates includes an interest free loan of £7m to Amias Berman, a $19.5m (£13m) investment in the
redeemable preference shares issued by Ticonderoga, a subsidiary of Walker St Securities, and £5m of other loans to
associates. An adjustment of £5m has been made in respect of the recovery of these amounts.
Other trade receivables represent amounts receivable in respect of agency business and information services. As at 31 March
2010 the following other trade receivables were past their normal settlement date but had not been impaired.
As at As at
31 March 31 March
2010 2009
£m £m
Over 30 days, but less than 90 days 48 44
Over 90 days, but less than 180 days 8 11
Over 180 days 4 5
60 60
ICAP plc Annual Report 2010
109
01 – 15
ICAP in ten
Year ended Year ended
31 March 31 March
2010 2009
£m £m
As at 1 April 4 1
Charged to the consolidated income statement in the year 1 4
Released to the consolidated income statement in the year (1) (1)
As at 31 March 4 4
The table below gives an indication of the concentration of the Group’s trade receivables by currency:
17 – 41
Business review
As at 31 March 2010
Trade receivables
Other
Pound sterling Dollar Euro Yen currencies Total
£m £m £m £m £m £m
Matched principal trade
receivables 3,317 42,772 6,112 5,071 1,360 58,632
Deposits paid for securities
borrowed – 1,034 – – – 1,034
Other trade receivables (net) 40 115 31 4 15 205
3,357 43,921 6,143 5,075 1,375 59,871
43 – 63
Governance
As at 31 March 2009
Trade receivables
Other
Pound sterling Dollar Euro Yen currencies Total
£m £m £m £m £m £m
Matched principal trade receivables 1,637 19,661 3,627 4,091 1,460 30,476
Deposits paid for securities borrowed − 880 − − − 880
Other trade receivables (net) 40 117 30 5 20 212
1,677 20,658 3,657 4,096 1,480 31,568
65 – 140
Financial statements
The interest rate profile of the Group’s financial assets together with discussion of risk management are included in note 24.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
As at 31 March 2010 and 2009, the fair value of trade and other payables is not materially different from their book values.
The interest rate and maturity profiles of the Group’s financial liabilities together with discussion of risk management are
included in note 24.
Matched principal trade payables and deposits received for securities loaned are described in note 19.
ICAP plc Annual Report 2010
111
21 Deferred tax
The movement in the deferred tax balance is as follows:
01 – 15
ICAP in ten
Year ended Year ended
31 March 31 March
2010 2009
£m £m
As at 1 April (124) (48)
17 – 41
Business review
Amounts recognised on share-based payments (1) (4)
On acquisition of subsidiaries (31) (30)
Exchange adjustments 7 (32)
As at 31 March (140) (124)
The net deferred tax balance is represented by:
Deferred tax assets 34 ( 40)
Deferred tax liabilities (174) (164)
As at 31 March (140) (124)
Deferred tax assets and liabilities comprise:
43 – 63
Governance
Accelerated capital allowances 8 7
Other timing differences − assets 26 33
Other timing differences − liabilities (30) (25)
Liabilities on intangible assets arising on consolidation (144) (139)
(140) A( )
(124)
65 – 140
Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
22 Borrowings
Long-term borrowings
Group Group Company Company
year ended year ended year ended year ended
31 March 31 March 31 March 31 March
2010 2009 2010 2009
£m £m £m £m
As at 1 April 270 97 – –
New long-term borrowings 257 285 – 285
Issue costs capitalised (3) − – −
Amortisation of issue costs 1 − – −
Repaid in the year (135) (150) – (285)
Exchange adjustment 3 38 – −
Fair value hedging adjustment 2 − – −
As at 31 March 395 270 – −
Analysis of long-term borrowings
Subordinated loan notes repayable 2015 127 135 – −
Five year senior notes 268 − – −
Amortising term loan – 135 – −
As at 31 March 395 270 – −
In June 2005, the Group issued $225m of guaranteed subordinated loan notes repayable in 2015. The issue consisted of $32m
floating rate notes and a further $193m of notes with a fixed coupon of 5.84% for the first five years and LIBOR plus 1.95%
thereafter. In June 2007 the Group redeemed the floating rate notes at par. The carrying value of the loan notes of £270m
includes a fair value hedging adjustment of £2m relating to the mark-to-market of the interest rate portion of the notes. The
balance of £268m is net of fees of £2m.
In April 2008, the Group entered into a 364-day, £150m term loan with The Royal Bank of Scotland plc to finance the
acquisition of Link. The Group subsequently restructured the loan into a £135m amortising term loan on 17 November 2008.
The restructured term loan was priced at LIBOR plus 3.0% and was repaid on 28 July 2009. The weighted average effective
interest rate for the year was 3.8% (31 March 2009 − 6.0%).
On 28 July 2009, the Group issued €300m of five-year senior notes (the “Notes”) with a coupon of 7.5% under its Global
Medium Term Note programme. The Notes were issued at a price of €99.496, accounted for using the effective interest rate
base and shown net of both this discount and fees of £2m directly attributable to the issue. The Notes rank as senior obligations
of the issuer and provide the investors, following a change of control in the Company, with the right to put the Notes at par in
the event that the rating assigned to the Notes falls below investment grade. The Notes are listed and traded on the London
Stock Exchange’s regulated market. At 31 March 2010 the Notes were rated BBB+ by Fitch and Baa2 by Moody’s. In the event
that either of these ratings fall below investment grade the coupon payable on the Notes will increase by 1.25% until such time
as an investment grade rating is restored.
To enable the Group to manage the translational exposure which arises as a result of the Notes being denominated in euros and
to meet its risk management objective of minimising both interest cost and the impact of interest volatility on its consolidated
income statement, the Group entered into a number of cross-currency swaps to convert its obligations over the life of the
Notes from euros to pound sterling. The first €100m of the Notes have been swapped from a fixed euro-denominated coupon
of 7.5% to a fixed pound sterling denominated coupon of 8.58% and the remaining €200m from a fixed euro-denominated
coupon of 7.5% to a floating pound sterling denominated coupon of six month LIBOR+ 4.92%. The fixed to fixed swaps have
been accounted for as a cash flow hedge and at 31 March 2010 have a fair market value of £2m (2009 – nil). These swaps
offset the effect of FX on the Notes, which resulted in a nil charge being recognised in the consolidated income statement and
£3m in other comprehensive income during the year. The fixed to floating swaps have been treated as a fair value hedge, have
a fair market value of £11m (2009 – nil) at 31 March 2010 and resulted in a net £2m gain being recognised in the
consolidated income statement during the year.
ICAP plc Annual Report 2010
113
22 Borrowings continued
Short-term borrowings and overdrafts
01 – 15
ICAP in ten
Group Group Company Company
as at as at as at as at
31 March 31 March 31 March 31 March
2010 2009 2010 2009
£m £m £m £m
Bank overdrafts – 14 – –
Revolving credit facility – net of fees 217 275 – –
European commercial paper 40 – 40 –
257 289 40 –
In March 2008, the Group entered into a three-year unsecured revolving credit facility of which £473m is available for general
corporate purposes including the financing of acquisitions, with the remaining $94m used as a swingline to meet margin calls.
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Business review
The drawings under the revolving credit facility as at 31 March 2010 of £217m (2009 – £277m) are net of capitalised fees of
£nil (2009 – £2m). To take advantage of lower short-term interest rates, the amounts drawn as at 31 March 2010 were for a
one-week period and have been included within short-term borrowings. The facility carries a floating interest rate of LIBOR plus
0.45% with an additional 0.10% payable dependent on the debt to earnings ratio. The weighted average effective interest rate
for the year was 1.0% (2009 – 3.5%).
On 7 May 2010, the Group refinanced its existing £473m three-year unsecured revolving credit facility and $94m swingline
with a new $880m revolving credit facility incorporating an up to $200m swingline facility, and matures on 31 May 2013.
The facility carries a floating interest rate at LIBOR plus 2% with an additional 0.50% payable dependent on the debt to
earnings ratio.
During March 2009, the Group put in place a €500m European commercial paper programme to provide access to short-term
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Governance
liquidity to provide an alternative mechanism to finance the Group’s working capital and margin requirements. At 31 March
2010 the Group had in issue €45m (£40m) (2009 – nil) from the programme which is due to be repaid by June 2010. The
weighted average effective interest rate was 1.0%.
Bank overdrafts are for short-term funding and are repayable on demand, and are generally being repaid within a very short
time period.
The Group’s bank facilities contain a number of customary financial and operational covenants. The Group remained in
compliance with the terms of these covenants throughout the year ended 31 March 2010.
Under the terms of the Group’s bank financings, the Company is required to remain as the ultimate holding company in the
Group. A change in ownership of the Company could result in the Group’s new three-year unsecured revolving credit facility
becoming repayable.
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Financial statements
The fair value of the short-term borrowings is not materially different from their book values.
Group Group
as at as at
31 March 31 March
2010 2009
Maturity of undrawn committed borrowing facilities £m £m
Within one year – –
Between one and two years 318 336
Between two and five years – –
As at 31 March 318 336
141 – 143
Information for shareholders
As at 31 March 2010, the Company was rated BBB+ by Fitch and Baa2 by Moody’s. There has been no changes in ratings since
31 March 2009.
The interest rate, currency and maturity profiles of borrowings together with discussion on risk management are included in
note 24.
ICAP plc Annual Report 2010
23 Provisions
As at As at
31 March 31 March
2010 2009
£m £m
Included in current liabilities 36 20
Included in non-current liabilities 55 2
91 22
Property provisions outstanding at 31 March 2010 relate to property dilapidations in London that are not expected to be
fully utilised until 2017. The provision for surplus property in London and Asia Pacific has been substantially utilised in the
current year.
The holiday pay provision represents the value of employees’ unused holiday entitlement at the end of the reporting period.
Legal provisions represents amounts for certain claims brought against subsidiaries of the Group in relation to certain tax
matters. The provisions were those that have been acquired by the Group on the acquisition of subsidiary undertakings.
At the present time the timing of any payment is uncertain and the matter is being reviewed by the Group on a regular basis.
In the directors’ opinion, after taking legal advice, the outcome of these legal claims will not give rise to any significant loss
beyond the amounts provided at 31 March 2010.
Other provisions include obligations for certain employee related costs, including those related to the discontinuance of the
European and Asia Pacific full service agency cash equities businesses (as set out in note 6), and pension arrangements in the
Group which are expected to be discharged over the next two years.
ICAP plc Annual Report 2010
115
01 – 15
ICAP in ten
rate and market price risk. The Group’s funding and exposure to interest rate and FX rate risk are managed by the Group’s
treasury function in accordance with a policy framework approved by the finance committee. The framework lays out
the Group’s appetite for risk and the steps to be taken to manage these risks. The finance committee receives bi-monthly
reports on the activities of the treasury function and is also responsible for approving significant transactions such as new
financing arrangements or changes to the Group’s hedging strategy. The group risk committee sets and monitors treasury’s
counterparty limits.
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance by using derivative instruments to lower funding costs, alter
interest rate exposures arising as a result of mismatches between assets and liabilities or to achieve greater certainty of future
costs. The use of derivatives forms part of the Group’s overall risk management framework as determined by the board through
17 – 41
Business review
the group risk and finance committees.
(a) Financial assets and liabilities
The carrying value less impairment of trade receivables and payables are assumed to approximate to their fair values due to
their short-term nature.
As at 31 March 2010 and 2009, the fair values of financial assets are not materially different from their book values.
Classification of financial assets as at 31 March 2010
Held for Hedging Designated as Available- Loans and
trading instrument fair value for-sale receivables Total
£m £m £m £m £m £m
Cash and cash equivalents – – – – 504 504
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Governance
Available-for-sale financial assets – – – 28 – 28
Matched principal trade receivables – – – – 58,632 58,632
Deposits paid for securities
borrowed – – – – 1,034 1,034
Other trade receivables (net) – – – – 205 205
Held at fair value through profit
or loss – – 1 – – 1
Derivative financial instruments 5 15 – – – 20
Amounts owed by associates – – – – 20 20
Other receivables – – – – 91 91
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Financial statements
5 15 1 28 60,486 60,535
Prepayments and certain items included within other receivables are not defined as financial assets under IAS39.
Assets classified as fair value through profit or loss in accordance with the accounting policy in note 2(i) have been analysed in
note 24(a) as held for trading and designated as fair value.
As at 31 March 2010 and 2009, the fair values of financial liabilities, with the exception of long-term borrowings, are not
materially different from their book values.
Classification of financial liabilities as at 31 March 2010
Held for Hedging Amortised
trading instruments cost Total
£m £m £m £m
Matched principal trade payables – – 58,626 58,626
Deposits received for securities loaned – – 1,034 1,034
Other trade payables – – 4 4
Derivative financial instruments 2 4 – 6
Amounts owed to associates – – 2 2
Other payables – – 25 25
Contingent deferred consideration – – 19 19
Deferred consideration – – 7 7
Accruals – – 363 363
Borrowings and overdrafts – – 652 652
Provisions – – 32 32
2 4 60,764 60,770
117
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ICAP in ten
As at As at
31 March 31 March
2010 2009
£m £m
Trade and other payables:
Current payables 60,098 31,807
Non-current payables 30 57
Borrowings and overdrafts (note 22) 652 559
Provisions (note 23) 91 22
Excluded:
Non-financial other provisions (59) (10)
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Business review
Non-financial other payables (3) −
Other tax and social security (25) (17)
Deferred income (14) (12)
60,770 32,406
Taxes payable, deferred income and certain provisions are not classified as financial liabilities under IAS39.
(b) Credit risk
The Group is exposed to credit risk in the event of non-performance by counterparties in respect of its agency, matched
principal, exchange trades and corporate treasury operations.
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Governance
The risk in respect of the agency, post trade risk and information businesses is limited to the collection of agency commission
and transaction fees and is managed proactively by the Group’s credit control function. The exposure to credit loss is limited to
the carrying value of the receivable. Concentration is limited since the customer base is both large and unrelated. No significant
concentrations of risk existed at any time during the year.
The matched principal business involves the Group acting as a counterparty on trades which may involve one or more financial
instruments and/or counterparties. The Group manages its credit risk in respect of these transactions by having policies and
procedures in place to ensure that the risks inherent in all trades are matched and that appropriate credit limits have been set
and are monitored at entity, company and country level to restrict the exposure to potential loss, transacting on a delivery
versus payment basis and settling the majority of trades through a central counterparty.
The credit risk on core cash and cash equivalents and derivative financial instruments is limited by the Group’s policy of requiring
its corporate treasury transactions to be undertaken with financial institutions which have been approved by the group risk
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Financial statements
committee and which are investment grade rated or better by one or more recognised credit rating agencies. There were no
significant concentrations of risk at the year end.
The Group does not have any significant credit risk exposure to any single counterparty. The Group’s gross counterparty
risk did not exceed 18% of Group capital at any time during the year. After taking into account the probability of default of
counterparties, the equivalent usage of capital was less than 1% of Group capital.
At least 85% of the Group’s counterparty risk is with institutions which have an internal rating of nine or higher – corresponding
to an external credit rating of investment grade or better (BBB–). The remaining counterparties are closely monitored and have
strict trading limits.
The maximum exposure to credit risk for the Group is represented by the total fair value of the financial assets plus other
141 – 143
Information for shareholders
119
01 – 15
ICAP in ten
Less than Three months One to Greater than
three months to one year five years five years Total
£m £m £m £m £m
Matched principal trade payables 30,446 − − − 30,446
Deposits received for securities loaned 865 − − − 865
Other trade payables 7 − − − 7
Derivative financial instruments 15 29 4 − 48
Amounts owed to associates 2 − − − 2
Other payables 64 1 − − 65
Contingent deferred consideration 17 − 31 − 48
Accruals 328 − 26 − 354
17 – 41
Business review
Borrowings and overdrafts 289 − 270 − 559
Provisions 3 7 2 − 12
32,036 37 333 − 32,406
The total financial liabilities payable is higher than the amount recognised in trade and other payables as the gross amounts
payable have been disclosed, rather than the net present value used in determining trade and other payables.
(d) Currency risk
The Group presents its consolidated financial statements in pound sterling and conducts business in a number of other
currencies, principally the dollar and euro. Consequently the Group is exposed to FX risk due to exchange rate movements
which affect the Group’s transactional revenues and the translation of the earnings and net assets of its non-pound sterling
43 – 63
Governance
operations.
(i) Transactional exposures
The Group’s policy is for subsidiaries with pound sterling functional currency to hedge their main transactional exposures,
which are the dollar and the euro, through a combination of forward FX contracts and options for up to two years forward.
A maximum of 100% of the forecast exposure is hedged for the first 12 months, 75% for the following six months and 25%
thereafter. The Group’s other transactional exposures are monitored and, where deemed appropriate, hedged for a period
of 12 months forward.
The Group aims to achieve hedge accounting wherever possible with any gain or loss on the hedge recognised in other
comprehensive income to the extent it is highly effective and recycled to the consolidated income statement at the same
time as the underlying hedged transaction affects the consolidated income statement. Any ineffectiveness is taken to the
65 – 140
Financial statements
consolidated income statement in accordance with IAS39. Where hedge accounting is not achieved, all fair value gains or
losses are immediately recognised in the consolidated income statement.
The Group has contracts in place, designated as cash flow hedges under IAS39 where appropriate, covering approximately 79%
of its forecast dollar transactional exposure for the year to 31 March 2011 at $1.51. Approximately 84% of the Group’s euro
exposure has been hedged for the year to 31 March 2011 at €1.14 and 25% of its exposure to 31 March 2012 at €1.12.
An analysis of the Group’s hedging instruments is given below.
(ii) Balance sheet translational exposure
The Group is exposed to balance sheet translational exposures at the local entity level where the local statement of financial
position may contain monetary assets or liabilities denominated in a currency other than the entity’s functional currency. It is
the Group’s policy to hedge up to 100% of these exposures using a mix of foreign currency swaps and forward FX contracts
141 – 143
Information for shareholders
The principal exchange rates which affect the Group, expressed in currency per pound sterling, are shown below:
Closing rate Closing rate Average rate Average rate
as at as at year ended year ended
31 March 31 March 31 March 31 March
2010 2009 2010 2009
Dollar 1.52 1.43 1.59 1.72
Euro 1.12 1.08 1.13 1.21
Yen 141.74 141.57 147.35 174.74
Cross currency swaps relate to hedging the interest rate and FX risks of the Group for the €300m of five-year senior notes
(note 22).
No amounts (2009 – £nil) were recognised in the consolidated income statement in the year as a result of ineffective hedges.
The fair value of financial instruments traded in active markets is based on quoted market prices on the balance sheet date.
ICAP plc Annual Report 2010
121
01 – 15
ICAP in ten
a combination of pound sterling and dollar debt drawn on fixed and floating rate terms. The Group’s objective is to minimise
interest cost and the impact of interest volatility on the Group’s consolidated income statement. In addition to debt, the Group’s
treasury policies also permit the use of derivatives including interest rate swaps, interest rate options, forward rate agreements
and cross currency swaps to meet these objectives. The details of the cross currency swaps are disclosed in note 22.
At 31 March 2010, after taking into account cross currency and FX swaps of the euro denominated five-year senior notes and
commercial paper, the Group had £156m of cash, £437m of floating rate debt and £90m of fixed rate debt denominated in
pound sterling, £232m of cash and £127m of fixed rate debt denominated in dollars (or currencies closely related to the dollar)
and £116m of cash denominated in other currencies. A 100 basis-points parallel movement in pound sterling LIBOR and LIBID
rates would impact profit after tax and other comprehensive income by £3m with a similar movement in dollar rates impacting
profit after tax and other comprehensive income by £2m. In the event that LIBOR and LIBID rates diverge, each 100 basis-
17 – 41
Business review
points movement (i.e. 50 basis-points movement in each) in pound sterling and dollar rates will impact profit after tax and
other comprehensive income by £3m and £1m respectively.
The details of the interest rate bearing financial liabilities are disclosed in note 22.
(f) Market price risk
The Group’s exposure to market price risk arises mainly through counterparties to matched principal and exchange traded
transactions failing to fulfil their obligations or through trade mismatches and other errors. The Group is also exposed to market
price risk in respect of its available-for-sale investments.
In matched principal transactions, the Group acts as an intermediary by serving as counterparty for identified buyers and sellers
in matching, in whole or in part, reciprocal back-to-back trades. In order to facilitate customer transactions and provide
liquidity, the Group may participate in certain marketplaces by posting quotations. On occasion, the act of posting quotations in
43 – 63
Governance
pursuit of customer orders can result in the Group becoming principal to unmatched trades.
In exchange traded transactions, the Group executes the trade as principal and then novates the contract to its client. A failure
by the client to accept the trade would result in the Group becoming exposed to market price risk.
The risk the Group faces in these situations is restricted to short-term price movements in the underlying instrument
temporarily held by the Group and movements in FX rates. Any such market price risk arising is identified, monitored and
reported to senior management on a daily basis and to the group risk committee. Policies and procedures are in place to reduce
the likelihood of such trade mismatches and, in the event that they arise, the Group’s policy is to liquidate or hedge and liquidate
these principal positions as soon as reasonably practicable.
The Group has limited exposure to market price risk on its available-for-sale financial assets as the majority of the Group’s
equity investments are not listed. The Group estimates that its sensitivity to movements in market price is not material.
65 – 140
Financial statements
£m £m £m £m
Assets
Available-for-sale investment 2 – 26 28
Financial assets at fair value through consolidated income statement – – 1 1
Derivative financial instruments – 15 5 20
Total assets 2 15 32 49
Liabilities
Derivative financial instruments – (6) – (6)
Total liabilities – (6) – (6)
ICAP plc Annual Report 2010
As at 31 March 2009
Dollar Euro Other Total
£m £m £m £m
Net financial liabilities 14 − − 14
The Company estimates that a 10 cent movement in the euro/pound sterling exchange rate would result in a translational
impact of £3m on the profit after tax of the Company.
(e) Interest rate risk
The Company is exposed to interest rate movements as a result of issuance under its commercial paper programme
(see below). It is estimated that the impact of a 100 basis-points movement in interest rates would not have a significant
impact on the profit after tax of the Company.
The table below gives an indication of the interest rate profile of the financial assets of the Company:
As at 31 March 2010
At fixed At floating
Non-interest interest interest
bearing rates rates Total
£m £m £m £m
Amounts owed by subsidiaries 36 – – 36
ICAP plc Annual Report 2010
123
01 – 15
ICAP in ten
As at 31 March 2009
At fixed At floating
Non-interest interest interest
bearing rates rates Total
£m £m £m £m
Amounts owed by subsidiaries 37 − − 37
The table below gives an indication of the interest rate profile of the financial liabilities of the Company:
As at 31 March 2010
At fixed At floating
Non-interest interest interest
bearing rates rates Total
17 – 41
Business review
£m £m £m £m
Amounts owed to subsidiaries 800 – – 800
European commercial paper – – 40 40
Net financial liabilities 800 – 40 840
As at 31 March 2009
At fixed At floating
Non-interest interest interest
bearing rates rates Total
£m £m £m £m
Amounts owed to subsidiaries 754 − − 754
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Governance
(f) Market price risk
The Company is not exposed to market price risk as it holds no listed investments.
25 Capital management
ICAP is an international business which provides brokerage, post trade risk and information services in a wide range of products
to professional counterparties. The business is subject to consolidated supervision by the FSA under the terms of the CRD.
In March 2007, ICAP obtained a waiver from the consolidated capital adequacy tests which have the effect of excluding
goodwill from the capital computation and, in so doing, allows the Group to undertake acquisitions using debt rather than equity
finance. The terms of the waiver, which runs until the end of March 2012, limits the Group’s ability to incur market risk and, in
65 – 140
Financial statements
sufficient to cover any expected losses. The Group has developed a scenario-based model which utilises data provided by
the business to assess the economic capital required to cover the expected risks and, at 31 March 2010, viewed the Pillar 1
capital as sufficient to cover the identified risks. The analysis of economic capital is documented in the Group’s Internal
Capital Adequacy Assessment Process (ICAAP) which is required by the FSA, regularly updated and formally approved by the
board annually.
ICAP plc Annual Report 2010
During the year 2,074,617 (2009 – 370,861) ordinary shares of 10p each were issued following the exercise of options held
under employee share schemes for a consideration of £4.8m (2009 – £0.4m). 692,226 ordinary shares of 10p each have
been issued during the year for the acquisition of Ocean Tomo for a consideration of £3m. 4,567,807 ordinary shares of 10p
each have been issued during the year for the purposes of a scrip dividend for which there were notional proceeds of £20m.
The number of ordinary shares of 10p each in issue at 31 March 2010 was 657,104,476 (2009 – 649,769,826) with
2,034,739 (2009 – 2,034,739) held as Treasury Shares and 6,527,547 (2009 – 14,510,959) held in employee share trusts.
The cost of Treasury Shares is deducted from retained earnings (note 28). The cost of shares held in employee share trusts is
loaned to the trusts by the Company and is treated as other receivables.
ICAP plc Annual Report 2010
125
01 – 15
ICAP in ten
Weighted Number of shares millions
average As at As at
exercise price Exercise period Exercise period 31 March 31 March
Year of grant pence from to 2010 2009
2000 42.4 30/09/02 29/09/09 – 0.1
2002 175.6 31/05/04 08/01/12 0.7 1.5
2003 188.5 31/05/05 19/01/13 0.1 0.2
2004 270.0 01/08/06 26/11/13 0.6 0.7
2005 239.6 28/06/07 08/12/14 0.3 0.3
2006 297.0 01/07/08 30/06/15 1.0 1.0
2007 486.0 01/06/09 06/09/16 1.6 2.5
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Business review
2008 419.0 01/08/10 31/01/11 0.1 0.3
2009 556.8 22/05/11 21/05/18 0.1 0.6
2010 323.0 01/08/12 31/03/13 2.5 −
Total potential issues of share capital 7.0 7.2
Shares that have been issued but are held in employee share trusts for employee share awards are not included in the above.
Full details of share option schemes are given in note 27.
(d) Shares held in trust for employee share schemes
The Company has established employee share trusts in respect of the SEEPP, BSMP, LTIP and Traiana Plan which are funded by
the Company and have the power to acquire shares in the open market to meet the Company’s future obligations under these
43 – 63
Governance
schemes. As at 31 March 2010, these trusts owned 6,527,547 ordinary 10p shares in the Company (2009 – 14,510,959)
with a market value of £24m (2009 – £45m).
Number of shares millions
Year ended Year ended
31 March 31 March
2010 2009
As at 1 April 15 12
Acquired during the year 2 4
Exercised by employees during the year (10) (1)
As at 31 March 7 15
65 – 140
Financial statements
27 Share awards
Employee share schemes
The total charge to the consolidated income statement in respect of employee share options in the year was £10m (2009 – £8m).
The fair value of options granted during the year was £9m (2009 – £10m).
At the close of business on 31 March 2010, the market price of the Company’s ordinary shares was 373.80p (2009 –
304.25p) per share and during the year fluctuated in the range 294.00p and 467.20p per share.
Options outstanding over the Company’s ordinary shares under the Company’s employee share schemes were as follows:
Weighted Weighted Weighted Weighted
As at average average average As at average
1 April exercise Granted exercise Exercised Lapsed exercise 31 March exercise
2009 price in year price in year in year price 2010 price
millions pence millions pence millions millions pence millions pence
UESOP 0.4 185.1 − − (0.1) − 46.2 0.3 239.6
2006 SAYE 0.9 388.0 − − (0.9) − 388.0 – –
2007 SAYE 0.3 419.0 − − − (0.2) 419.0 0.1 419.0
2008 SAYE 0.5 488.0 − − − (0.4) 488.0 0.1 488.0
2009 SAYE − − 2.7 323.0 − (0.2) 323.0 2.5 323.0
SEEPP UK 1.4 − − − (0.9) − − 0.5 –
SEEPP US 0.2 31.0 − − (0.2) − 29.3 – –
UCSOP 5.1 304.9 − − (1.1) − 125.4 4.0 352.6
BSMP* 9.7 − 2.4 − (7.4) − − 4.7 –
Traiana Plan 0.7 113.3 − − (0.2) − 61.0 0.5 139.0
LTIP 0.9 − 0.5 − (0.4) − − 1.0 –
20.1 5.6 (11.2) (0.8) 13.7
127
01 – 15
ICAP in ten
statement based on the fair value of each option is made each year. The fair value of each option is calculated using the
Black-Scholes option pricing model. The following assumptions have been applied when calculating the fair value of the
options granted in the year:
Weighted Weighted Probability
average Expected average Average of achieving
market share dividend risk free Expected performance Vesting
price volatility yield rate life conditions period
pence % % % years % years
2009 SAYE 403.8 55 4.22 2.85 3.1 100 3
BSMP 3.90 55 − − 4.0 90 3
LTIP 3.90 55 − − 3.0 100 3
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Business review
Estimated share volatility is a measure of the amount by which the Company’s shares are expected to fluctuate during the life
of an option. The expected volatility is estimated based on the historic volatility of the share price over the past three years to
the date of grant of the option.
On options where the employee receives a cash bonus in lieu of the dividend foregone the dividend yield is treated as nil and the
fair value of the option is equal to the market value of the share.
(i) Unapproved Share Option Plan (UESOP)
The UESOP is not approved by HMRC and is open to all executives. The grants of options have a maximum overall grant of four
times annual salary including bonuses. Options do not vest until the Group has achieved certain performance criteria (currently
growth in adjusted basic EPS in excess of growth in the RPI by an average of 3% per annum over a three-year period).
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Governance
UESOP options were outstanding over 312,500 (2009 – 435,029) ordinary shares at exercise prices ranging between
233.75p and 263.0p per share. Subject to the Group’s performance during the vesting period, these options are exercisable
between June 2007 and December 2014. There was no charge made to the consolidated income statement in the year (2009
– £nil) in respect of these options. These options are all equity settled.
(ii) Sharesave scheme (SAYE)
The Save-As-You-Earn (SAYE) scheme is approved by HMRC. The scheme enables directors and eligible employees to acquire
options over ordinary shares of the Company at a discount of up to 20% of their market price using the proceeds of a related
SAYE contract. All UK employees who have worked for the minimum qualifying period on an invitation date are eligible to join
the scheme. Options granted under the SAYE scheme are not subject to performance conditions. These options are all equity
settled.
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Financial statements
2006 SAYE
There were no SAYE options outstanding over ordinary shares (2009 – 945,544) for the 2006 three-year grant at an exercise
price of 388.0p per share. A credit of £0.1m (2009 – £0.5m charge) was made to the consolidated income statement in
respect of these options in the year.
2007 SAYE
SAYE options were outstanding over 88,576 (2009 – 272,266) ordinary shares for the 2007 three-year grant at an exercise
price of 419.0p per share. Subject to the participants remaining in the employment of the Group and making 36 monthly
contributions, these options will normally be exercisable between August 2010 and January 2011. A charge of £0.1m
(2009 – £0.2m) was made to the consolidated income statement in respect of these options in the year.
2008 SAYE
141 – 143
Information for shareholders
SAYE options were outstanding over 59,191 (2009 – 505,824) ordinary shares for the 2008 three-year grant at an exercise
price of 488.0p per share. Subject to the participants remaining in the employment of the Group and making 36 monthly
contributions, these options will normally be exercisable between August 2011 and January 2012. A charge of £0.6m
(2009 – £0.7m) was made to the consolidated income statement in respect of these options in the year.
2009 SAYE
SAYE options were granted over 2,745,053 ordinary shares on 17 June 2009 for the 2009 three-year grant at an exercise
price of 323.0p per share. Subject to the participants remaining in the employment of the Group and making 36 monthly
contributions, these options will normally be exercisable between August 2012 and January 2013. A charge of £1.2m was
made to the consolidated income statement in respect of these options in the year. As at 31 March 2010, options over
2,547,548 shares remained outstanding.
ICAP plc Annual Report 2010
129
01 – 15
ICAP in ten
(vii) Long Term Incentive Plan (LTIP)
The LTIP is not approved by HMRC. The LTIP is a long-term incentive plan where senior executives of the Group are invited to
waive 25% of their cash bonus in return for an award of the number of shares that can be purchased with the foregone bonus
at the market value of the Company’s shares on the date of grant (a basic award). Participants are also granted a provisional
allocation over an amount of additional shares equal to 20% of the basic award (a matching award). The basic award shares are
transferred to the employee in equal annual instalments over three years, with the matching award shares being transferred
with the final basic award, so long as the employee remains in the Group’s employment. These options are all equity settled.
LTIP options were outstanding over 1,011,420 (2009 – 913,020) ordinary shares. These awards vest between 29 May 2010
and 28 May 2012. A charge of £0.4m (2009 – £0.3m) been made to the consolidated income statement in respect of these
options in the year.
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Business review
During the year the Group converted the shares to a post-tax basis for UK participants. This had no impact on the consolidated
income statement charge.
28 Reserves
(a) Analysis of consolidated other reserves
Capital Total
Merger redemption Hedging Revaluation other
reserve reserve reserve reserve reserves
£m £m £m £m £m
As at 1 April 2009 28 1 (47) – (18)
Revaluation of intangible assets arising on
consolidation (note 17) – – – 45 45
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Governance
Unrealised revaluation in the year (note 24(a)) – – 24 – 24
Revaluation gains realised in the year (note 24(a)) – – 20 – 20
As at 31 March 2010 28 1 (3) 45 71
The merger reserve was created on the merger of Garban and Intercapital in 1999 and also includes goodwill arising before
1 January 1998 written off to reserves. This amount remains eliminated.
The capital redemption reserve was created as a result of shares cancelled in 1998 and 2005. The revaluation reserve
represents revaluations of available-for-sale investments. The hedging reserve arises as a result of recognising the fair value
of derivative financial instruments designated as hedging instruments on the balance sheet.
The cost of shares held by employee share trusts of £36m (2009 – £37m) and Treasury Shares £7m (2009 – £7m) has been
deducted from retained earnings. The share-based payment reserve of £30m (2009 – £19m) has been included in retained
earnings.
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Information for shareholders
29 Commitments
(a) Finance lease commitments
The Group has no commitments to future minimum lease payments under finance leases (2009 – £nil).
(b) Operating lease commitments
At the end of the financial year, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases which fall due as follows:
As at 31 March 2010 As at 31 March 2009
Other Other
Property assets Total Property assets Total
£m £m £m £m £m £m
Within one year 18 1 19 25 1 26
Between one and five years 62 2 64 85 − 85
After five years 26 – 26 44 − 44
106 3 109 154 1 155
No amounts were expected to be received under non-cancellable sub-leases as at 31 March 2010 (2009 – £nil).
Property operating leases commitments relates to the rental of premises for office space in the UK, US and Asia Pacific, in the
locations that the Group operates.
(c) Capital commitments
As at 31 March 2010, there was no capital expenditure contracted or provided for (2009 – £nil).
The valuation of the scheme is performed on an annual basis. Given the insignificant size of the pension plan no further
disclosure has been provided.
ICAP plc Annual Report 2010
131
31 Contingent liabilities
Group
(a) From time to time the Group is engaged in litigation in relation to a variety of matters. It is not possible to quantify the
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ICAP in ten
extent of any potential liabilities, but there are none currently expected to have a material adverse impact on the Group’s
consolidated results or net assets.
(b) In the normal course of business, certain Group companies enter into guarantees and indemnities to cover trading
arrangements and/or the use of third party services or software.
Company
The Company has provided a subordinated guarantee to a subsidiary company in respect of the $193m subordinated loan notes
repayable in 2015 which has a fair value of £nil as at 31 March 2010 (2009 – £nil).
32 Related party transactions
Group
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Business review
(a) IPGL
IPGL is a company controlled by Michael Spencer, the Group Chief Executive Officer of ICAP plc. A number of transactions take
place between IPGL and its subsidiaries and the Group and these are detailed below.
IPGL
During the year, IPGL charged the Group £102,290 (2009 – £263,200) for the net amount of transactions between the two
parties. This amount includes £119,170 (2009 – £86,220) paid by IPGL in respect of certain employees of the Group who
provided services to IPGL and its subsidiary undertakings. All transactions are carried out on an arm’s length basis. As at
31 March 2010, IPGL owed the Group £136,425 (2009 – the Group owed IPGL £209,693).
Exotix Holdings Limited
As part of the disposal of Exotix Holdings Limited to IPGL in 2007, the Group loaned employees of Exotix Limited (Exotix),
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Governance
(a subsidiary of Exotix Holdings Limited), £1.5m to enable them to purchase a shareholding. Interest of £12,730 has been
charged on these loans at a fair market rate during the year. As at 31 March 2010 £0.7m (2009 – £0.8m) is still outstanding.
The Group also collected revenue of £17.2m (2009 – £11.6m) on behalf of Exotix. The Group recharged the company
£122,758 (2009 – £95,408) as compensation for overheads and IT support provided during the year. As at 31 March 2010,
there was a balance due to the company from the Group of £0.8m (2009 – £1.4m). The Group holds £2.2m as collateral from
Exotix on deposit. The Group collected £60,591 interest on this balance on behalf of Exotix.
City Index Limited
In June 2008 the Group agreed to provide FXSolutions, a subsidiary company of City Index Limited, with FX data from its EBS
platform for $2m per annum. During the year the Group has charged FXSolutions £1.3m (2009 – £0.6m) for the provision of
data. As at 31 March 2010 there was no balance outstanding with the Group.
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Financial statements
(b) Hartfield, Titus & Donnelly LLC
The Group supplies and maintains electronic broking software on behalf of Hartfield, Titus & Donnelly LLC, a joint venture of the
Group. During the year ended 31 March 2010, the Group charged £302,801 (2009 – £278,455) and the balance due from
Hartfield, Titus & Donnelly LLC as at the year end was £78,612 (2009 – £82,816).
(c) TFS-ICAP Limited, TFS-ICAP LLC, TFS-ICAP Australia, TFS-ICAP Singapore and TFS-ICAP Japan
The Group invoices and collects revenue on behalf of TFS-ICAP LLC. During the year, the Group invoiced and collected £3.5m
(2009 – £2.1m) for which it did not receive a fee. During the year the Group recharged the various joint ventures a fee as
compensation for overheads and IT support costs as follows: TFS-ICAP Limited – £224,297 (2009 – £208,463 ); TFS-ICAP
Australia – £nil (2009 – £134,299 ); TFS-ICAP LLC – £50,269 (2009 – £57,083 ); TFS-ICAP Singapore – £1.7m (2009 –
£1.8m). During 2008/09 ICAP Indonesia entered into a memorandum of understanding with TFS-ICAP Singapore to develop a
new broking business with a profit/loss share arrangement. Indonesia’s share of the new venture’s profits during the year was
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Information for shareholders
£9,679 (2009 – losses of £5,747). As at 31 March 2010 the outstanding balance from all the joint ventures to the Group was
£1.1m (2009 – £1.0m).
(d) BSN Capital Partners Limited
The Group provides BSN Capital Partners Limited (BSN), an associate undertaking, with office space and other facilities. During
the year, the Group charged BSN £141,766 (2009 – £137,702) for these services. The Group also has a preferred brokerage
agreement with BSN and has recognised revenue of £8.8m (2009 – £5.1m) during the year. As at 31 March 2010 the
outstanding balance was £7.8m (2009 – £5.1m).
ICAP plc Annual Report 2010
133
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ICAP in ten
During the year the Company entered into the following transactions with subsidiaries:
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Management services expenses (0.5) (0.2)
Interest received from related parties – 2.9
Interest paid to related parties – (6.7)
Amounts owed to the Company from subsidiaries are disclosed in note 19 and amounts owed by the Company to subsidiaries
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Business review
are disclosed in note 20. In March 2009, the Company novated the Group’s bank facilities to its immediate subsidiary ICAP
Group Holdings plc and simplified its intra-Group lending and borrowing with its subsidiaries.
33 Cash flow
(a) Reconciliation of profit before tax to net cash flow from operating activities
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Profit before tax from continuing operations 247 285
Loss before tax from discontinued operations (note 4) (66) (4)
−
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Governance
Discontinued operations exceptional item (note 6) 41
Operating exceptional items 26 −
Share of operating profits of associates after tax (7) (7)
Amortisation and impairment of intangible assets arising on consolidation 61 63
Amortisation and impairment of intangible assets arising from development expenditure 23 18
Depreciation of property, plant and equipment 22 23
Other amortisation and impairments 4 3
Share-based payments 10 8
Profit on disposal of available-for-sale investments – (4)
Net finance expense 28 24
Operating cash flows before movements in working capital 389 409
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Financial statements
The movement in trade and other receivables and trade and other payables excludes the impact of the gross-up of matched
principal trades as permitted by IAS7 “Statement of cash flow”. The gross-up has no impact on the cash flow or net assets of
the Group. The cash flow movement in trade and other receivables includes the net movement on matched principal
transactions and deposits for securities borrowed/loaned. The movement for the year ended 31 March 2010, after accounting
for acquisitions, is an inflow of £20m (2009 inflow of £7m).
For details of the cash flow related to discontinued operations see note 4.
ICAP plc Annual Report 2010
34 Client money
At 31 March 2010 the Group held client money of £34m (2009 – £20m). This amount, together with the corresponding
liabilities to clients, is not included in the Group’s balance sheet.
35 Events after the balance sheet date
On 7 May 2010, the Group refinanced its existing £473m three-year unsecured revolving credit facility and $94m swingline
with a new $880m revolving credit facility incorporating an up to $200m swingline facility, and which matures on 31 May
2013. The facility carries a floating interest rate at LIBOR plus 2% with an additional 0.50% payable dependent on the debt to
earnings ratio.
ICAP plc Annual Report 2010
135
01 – 15
ICAP in ten
Year ended Year ended
31 March 31 March
2010 2009
£m £m
Cost and net book value
As at 1 April 1,955 988
Additions 67 2,379
Disposals (33) (1,412)
As at 31 March 1,989 1,955
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Business review
During the year the Company, as part of an internal reorganisation, purchased Link Brokers Derivatives Inc from a subsidiary
undertaking for cash of £33m. Link Brokers Derivatives Inc was then sold to ICAP Group Holdings plc (formerly ICAP Group
Holdings Limited) (IGHP), a subsidiary company by way of a share issue by IGHP of 33,478,000 £1 ordinary shares, which
increased the value of the Company’s investment by £33m.
During the prior year, the Company acquired ICAP Holdings (Asia Pacific) Limited, ICAP Holdings Limited and ICAP Securities
Limited and then disposed of them, along with ICAP America Investments Limited, in exchange for shares in IGHP. As all
companies remain wholly-owned subsidiaries of the Company, this is regarded as a transaction of no substance and the
investment in IGHP is recognised at the same value as the companies disposed of.
The Company’s immediate subsidiary companies are IGHP, Intercapital Limited and Garban Group Holdings Limited, all of which
are incorporated in England and are 100% owned by the Company. All of the Company’s other subsidiaries are indirectly owned.
The Company’s principal subsidiaries and their country of incorporation and the Group’s ownership are listed below:
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Governance
% held
Argentina ICAP Securities SA 100
Australia ICAP Australia Pty Limited 100
ICAP Brokers Pty Limited 100
Bahrain ICAP (Middle East) WLL* 49
Brazil ICAP do Brasil Corretora De Títulose e Valores Mobiliários Ltda 100
Arkhe Distribuidora De Títulose e Valores Mobiliários SA 100
China ICAP (Hong Kong) Limited 100
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Financial statements
ICAP Shipping (Hong Kong) Limited 75
Link Securities (Hong Kong) Limited 100
Colombia ICAP FX Colombia SA 89
ICAP Securities Colombia SA 95
Denmark ICAP Scandinavia Fondsmaeglerselskab A/S 100
ICAP Shipping (Denmark) ApS 75
* ICAP (Middle East) WLL is treated as a subsidiary since the Group exercises control over the company as the majority shareholder takes no part in the
management of the company.
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
% held
England EBS Dealing Resources International Limited 100
Harlow (London) Limited 100
ICAP Electronic Broking Limited 100
ICAP Energy Limited 100
ICAP Europe Limited 100
ICAP Management Services Limited 100
ICAP Securities Limited 100
ICAP Shipping Derivatives Limited 75
ICAP Shipping Limited 75
ICAP Shipping Tanker Derivatives Limited 75
ICAP Shipping Tankers Limited 75
ICAP WCLK Limited 100
My Treasury Limited 75
The Link Asset and Securities Company Limited 100
Traiana Limited 100
ICAP America Investments Limited 100
ICAP Group Holdings plc 100
ICAP Holdings Limited 100
ICAP Holdings (Asia Pacific) Limited 100
ReMatch Limited 70
Trading Cross Connects UK Limited 64
TriOptima UK Limited 100
Germany ICAP Deutschland GmbH 100
ICAP Shipping (Germany) GmbH 75
Gibraltar ICAP Shipping (Gibraltar) Limited 75
India ICAP India Private Limited 51
Indonesia PT ICAP Indonesia 85
Israel Traiana Technologies Limited 100
Japan EBS Dealing Resources Japan Limited 100
ICAP Totan Securities Co Limited 60
TriOptima Japan KK 100
Korea ICAP Foreign Exchange Brokerage Limited 100
Mexico ICAP Referenciadora, S.A. de C.V. (formerly Escorfin SA) 100
Netherlands ICAP Holdings (Nederland) BV 100
New Zealand ICAP New Zealand Limited 80
Norway ICAP Energy AS 100
Philippines ICAP Philippines Inc 100
Poland ICAP (Poland) Sp. Zo.o. 100
Singapore ICAP AP (Singapore) Pte Limited 100
ICAP Currency Options Pte Limited 100
ICAP Energy Pte Limited 100
ICAP Financial Products Pte Limited 100
ICAP Shipping Singapore Pte Limited 75
Reset Pte Limited 100
TriOptima Asia Pacific Pte Limited 100
South Africa FCB-Harlow Butler Pty Limited 51
Sweden TriOptima AB 100
ICAP plc Annual Report 2010
137
% held
01 – 15
ICAP in ten
United States EBS Dealing Resources Inc 100
First Brokers Securities LLC 100
ICAP Securities USA LLC 100
ICAP Capital Markets LLC 100
ICAP Corporates LLC 100
ICAP Electronic Broking LLC 100
ICAP Energy LLC 100
ICAP Futures LLC 100
ICAP Information Services Inc. 100
ICAP Ocean Tomo LLC 100
ICAP Services North America LLC 100
17 – 41
Business review
ICAP Shipping USA Inc (formerly Skaarup Shipbrokers Inc) 75
ICAP United, Inc 100
Intercapital Securities LLC 100
Link Brokers Derivatives Corporation 100
Moving Pictures Film and Television LLC 100
ReMatch Inc 70
Trading Cross Connects US LLC 64
Traiana Inc 100
TriOptima North America LLC 100
Wrightson ICAP LLC 100
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Governance
The percentage held represents the percentage of issued ordinary share capital held (all classes) and also represents the voting
rights of the Company. The Group also owns 100% of the non-voting preference share capital of ICAP India Private Limited.
TriOptima, and each of its subsidiaries, and Arkhe each have a 31 December year end. TriOptima is required to have a
31 December year end in order to determine any potential earn out payments required under the terms of the acquisition,
and Arkhe is required to as part of local regulatory requirements. All other subsidiaries have a 31 March year end.
All companies operate in their country of incorporation, except ICAP Securities USA LLC and ICAP Futures LLC which also
operate in the UK, ICAP Energy AS which also operates in the Netherlands and in Spain and EBS Dealing Resources Limited which
operates worldwide.
The principal activity of ICAP Information Services Inc and Wrightson ICAP LLC is the provision of financial information to third
65 – 140
Financial statements
parties. All other subsidiaries are involved in voice broking, electronic broking, post trade or activities related to broking activity.
(b) Joint ventures – Group
The Group’s principal joint ventures and their country of incorporation are listed below:
% held Principal activity
Australia TFS-ICAP 25.0 Voice broking
China Shanghai CFETS-ICAP International Money Broking Co Limited 33.0 Voice broking
England TFS-ICAP Limited 22.5 Voice broking
Germany TFS-ICAP Gmbh 12.5 Voice broking
Japan TFS-ICAP 25.0 Voice broking
Mexico SIF ICAP, S.A. de CV 50.0 Voice broking
141 – 143
Information for shareholders
The Company’s joint venture is CFETS-ICAP, a moneybroking company in China, of which the Company owns 33%.
ICAP plc Annual Report 2010
139
01 – 15
ICAP in ten
% held Principal activity
England BSN Capital Partners Limited 25.1 Voice broking
China Capital Shipbrokers Limited 37.5 Voice broking
India CTI Shipbrokers (India) Pvt Limited 22.5 Voice broking
Japan Totan Capital Markets Co. Limited 28.1 Voice broking
Malaysia Amanah Butler Malaysia Sdn Bhd 32.1 Voice broking
Singapore Amias Berman Holdings Pte Limited 35.0 Voice broking
Island Shipbrokers Pte Limited 16.9 Voice broking
United States Blockcross Holdings LLC 20.0 Electronic trading
CLS Aggregation Services LLC 49.0 Post trade risk
17 – 41
Business review
Confirmhub LLC 25.0 Post trade risk
Ticonderoga Securities LLC 19.88 Voice broking
Island Shipbrokers Pte Limited is regarded as an associate of the Group, as a company controlled by the Group owns 22.5%
of the equity and has significant influence on the accounting and operational policies of Island Shipbrokers Pte Limited.
The Group owns 19.88% of the equity of Amias Berman Holdings Pte Limited, but has contractual rights to 35% of the
net profits.
The Group also owns 100% of the non-voting 9% redeemable preference share capital of Ticonderoga.
BSN Capital Partners Limited has a 31 December year end and all other associates have a 31 March year end.
43 – 63
Governance
65 – 140
Financial statements
141 – 143
Information for shareholders
ICAP plc Annual Report 2010
Information on ICAP plc (Company No 3611426) can be found on Notifying the Company of a change of name
01 – 15
ICAP in ten
the Company’s website, www.icap.com. To ensure the details of a shareholding are correct, notification of a
change of name should be made in writing to Capita. A copy of any
Financial calendar marriage certificate or change of name deed should be provided as
2010 evidence of the name change.
19 May Results for year ended 31 March 2010 Dividend payments directly into bank/building society accounts
announced Dividends for shareholders are paid through BACS and can be
14 July Annual general meeting, London paid directly into a UK bank or building society account with
21 July Ex-dividend date for final dividend the tax voucher sent direct to the shareholder’s registered
address. A dividend mandate form is available from Capita or
23 July Record date for final dividend from its website, www.icap-shares.com, under the forms and
17 – 41
Business review
20 August Final dividend payment booklets section.
November Results for half year to 30 September 2010 Scrip dividend election forms
announced If you would like to make an election to receive a scrip dividend
2011 alternative, a personalised election form is available by calling the
ICAP shareholder helpline, 0871 664 0565* or +44 800 280 2584.
January Ex-dividend date for interim dividend
Transferring ICAP shares
January Record date for interim dividend Transferring shares to someone else requires the completion of a
February Interim dividend payment stock transfer form. These forms are available by calling the ICAP
May Results for year ending 31 March 2011 shareholder helpline 0871 664 0565* or +44 800 280 2584.
announced Lost ICAP share certificate(s)
43 – 63
Governance
July Annual general meeting, London Shareholders who have lost their share certificate(s) or have
had their certificate(s) stolen should inform Capita immediately
August Final dividend payment
by calling the ICAP shareholder helpline, 0871 664 0565* or
November Results for half year to 30 September 2011 +44 800 280 2584*.
announced
Following the share split only the ICAP ordinary 10p share
Registrar certificates are valid.
Capita Registrars Ltd, Northern House, Woodsome Park, Fenay ShareGift
Bridge, Huddersfield HD8 0GA. Telephone: 0871 664 0565* Shareholders with a small number of shares, the value of which
or +44 800 280 2584, www.capitaregistrars.com. makes it uneconomic to sell them, may wish to consider donating
Information about current holdings is available at them to charity through ShareGift, a registered charity administered
65 – 140
Financial statements
www.icap-shares.com. Shareholders will need their investor by The Orr Mackintosh Foundation. Further information about
code (account number) and postcode to view information on ShareGift is available at www.sharegift.org or by telephone,
their own holding. 020 7930 3737.
Frequent shareholder enquiries Disability helpline
Notifying the Company of a change of address For shareholders with hearing difficulties a text phone number is
Shareholders should notify the Company’s registrar, in writing of available, 0871 664 0532* or +44 20 8639 2062.
any change. If shares are held in joint names, the notification must Depositary for ICAP plc Level 1 ADR Program
be signed by the first named shareholder. The Company has established a Level 1 American Depositary
Receipt (ADR) program. The Bank of New York acts as the
depositary bank for the program. ICAP’s ADRs trade on the
141 – 143
Information for shareholders
OTC market under the symbol “IAPLY” and its CUSIP number
is 450936109. Each ADR represents two ordinary shares.
* Calls to this number are charged at 10p per minute plus network extras.
ICAP plc Annual Report 2010
142 Definitions
In this Annual Report the following words Acquired Asian The acquisition from Nittan Capital of its
shall have the following meanings: Businesses voice broking interests in Asia (Nittan
Capital (Hong Kong) Ltd, Nittan AP
(Singapore) Pte Ltd, Noranda Investments
Pte Ltd, NextGen Holding Co Ltd and certain
subsidiaries including ICAP-AP (Thailand)
Co. Ltd)
Arkhe Arkhe Distribuidora De Titulose e Valores
Mobiliarios SA
Baltic Dry Index Daily index which tracks worldwide
international shipping prices
of various dry bulk cargoes
BEIP grant Business Employment Incentive Program,
a grant run by the New Jersey Economic
Development Authority
BrokerTec see ICAP Electronic Broking below
BSMP The Bonus Share Matching Plan
BSN BSN Holdings Limited
CDS Credit Default Swaps
CFETS-ICAP Shanghai CFETS-ICAP International Money
Broking Co. Limited
Combined Code the Combined Code on Corporate
Governance (2008 version)
Companies Act Companies Act 2006
Company or ICAP ICAP plc (formerly Garban-Intercapital plc
and Garban plc)
CRD Capital Requirements Directive
Demerger the demerger of Garban from United on
17 November 1998
dollar or $ unless otherwise specified all references
to dollars or $ symbol are to the currency
of the US
EBS EBS Group Limited and its subsidiaries
EMEA Europe, the Middle East and Africa
EPS Earnings per share
EU European Union
Exco Exco plc, which changed its name to
Intercapital plc on 26 October 1998
Exco/Intercapital the acquisition of the Intercapital companies
merger by Exco on 26 October 1998
Exotix or Exotix Exotix Holdings Limited and its subsidiaries
business
FICC Fixed Income Clearing Corporation
FINRA Financial Industry Regulatory Authority
First Brokers First Brokers Securities Inc
ICAP plc Annual Report 2010
143
Fitch Fitch Ratings Limited Link the businesses of The Link Asset and
01 – 15
ICAP in ten
FRC Financial Reporting Council Securities Company Limited, Link Securities
Hong Kong Limited and Link Brokers
FRS Financial Reporting Standard Derivatives Corporation
FSA Financial Services Authority Merger the merger of Garban and Intercapital on
FTSE 100 index comprised of the 100 largest 9 September 1999
companies listed on the London Stock MiFID Markets in Financial Investments Directive
Exchange in terms of their market
capitalisation Moody’s Moody’s Investors Services
FTSE All Share the aggregation of the FTSE 100, FTSE 250 NSCC National Securities Clearing Corporation
and FTSE Small Cap Indices OTC over-the-counter
17 – 41
Business review
FX foreign exchange Pillar 1 the minimum capital requirements firms will
Garban Garban plc be required to meet for credit, market and
operational risk under the Basel Accord
Garban Trust Garban Employee Share Ownership Trust
Pillar 2 a supervisory review process
Group the Company and its subsidiary
undertakings ReMatch ReMatch Holdings Limited and its
subsidiaries
HMRC Her Majesty’s Revenue & Customs
Reset Reset Holdings Private Limited and its
ICAAP Internal Capital Adequacy Assessment subsidiaries
Process
RPI Retail Price Index
43 – 63
Governance
ICAP Electronic the businesses of ICAP Electronic Broking
Broking LLC (formerly BrokerTec USA LLC) and SEC Securities and Exchange Commission
ICAP Electronic Broking Limited (formerly Share split at an extraordinary general meeting held
BrokerTec Europe Limited) on 4 February 2004 shareholders approved
ICAP Energy ICAP Energy LLC and ICAP Energy A/S a five for one share subdivision which
(formerly APB Financial LLC and APB Energy divided the Group’s ordinary shares of 50p
Europe A/S) each into five ordinary shares of 10p each.
The subdivision was effective from
ICAP shares ICAP plc ordinary shares of 10p each 9 February 2004.
ICAP Shipping ICAP Shipping Limited (formerly ICAP Hyde Traiana Traiana Inc and subsidiaries
& Company Limited) and related companies
65 – 140
Financial statements
Treasury Shares shares as defined by the Companies
ICAP Trust ICAP Employee Share Trust Acquisition of Own Shares (Treasury Shares)
IFRIC International Financial Reporting Regulations 2003 which came into force
Interpretations Committee on 1 December 2003
IFRS International Financial Reporting Standards TriOptima TriOptima AB and its subsidiaries
INFBV INCAP Finance BV United Fuels the acquisition of the majority of the assets
of United Fuels International, Inc and its
Intercapital Intercapital Limited (formerly Intercapital plc) affiliates
Intercapital those companies acquired from IPGL
companies at the time of their merger with Exco In this document, according to context, the expressions ICAP and
the Group are also used to mean the ICAP plc group as a whole,
141 – 143
Information for shareholders
in October 1998
or ICAP plc and/or its relevant subsidiaries. The business of ICAP
IPGL IPGL Limited plc is solely that of a holding company. ICAP plc itself conducts
ISDA International Swaps and Derivatives no broking or other activities.
Association
ISMA International Securities Market Association
LIBID London Interbank Bid Rate
LIBOR London Interbank Offered Rate
ICAP plc Annual Report 2010
144
ICAP plc
2 Broadgate
London EC2M 7UR
United Kingdom
Telephone +44 20 7000 5000
Facsimile +44 20 7000 5975
Email investors@icap.com
Website www.icap.com
Company number 3611426