ICAP reports half year Revenues to be 10% lower

Interdealer broker ICAP (LON:IAP) gave us a glimpse into its first half results (for the period ended September 30, 2014), and it was neither encouraging nor surprising.

ICAP reported that revenues will be about 10% below where they were last year, as trading volumes remained muted during most of 2014. A bright spot was ICAP’s Forex ECN unit, EBS, which apparently will see its first above-$100 billion ADV month in September in quite a while.

ICAP shares reacted negatively to the news, trading down about 1.5% on the London Stock Exchange this morning.

The full ICAP statement reads as follows, and can also be accessed here:

ICAP plc Trading Statement

London, 30 September 2014 – ICAP plc (IAP.L), a leading markets operator and provider of post trade risk mitigation and information services, is providing this trading update ahead of its results for the half-year ended 30 September 2014 which will be announced on 19 November.


  • Group revenue for the half year to 30 September 2014 is expected to be 10% lower than the previous year on a constant currency basis (15% lower on a reported basis)
  • Restructuring of the Global Broking division remains on-track to deliver a more focused business and annualised savings in excess of £60 million. Of this, £40 million will be realised in the current year’s income statement, principally in the second half of the year. Accordingly, the phasing of full year profits is expected to be more heavily weighted to the second half than in comparison to prior years
  • Double digit revenue growth in Post Trade Risk and Information division fuelled by continued expansion of TriOptima business, up 11%
  • Trading performance of Global Broking and EBS Market was materially impacted by bank deleveraging, combined with low interest rates and subdued FX volatility but showed significant month-on-month improvement in September
  • More than £10 million of incremental investment charged through the income statement with respect to the ongoing development of new product initiatives within the Electronic and Post Trade divisions, with EBS Direct seeing a single day record volume of $25 billion in September

Michael Spencer, Group Chief Executive Officer, said: “Market conditions remain challenging, but we are increasing the efficiency of the Group while continuing to innovate. Low volatility levels and a focus by our clients on costs and regulation resulted in execution volumes remaining suppressed during much of the period. There was some good improvement to client activity in September, as central bank actions led to an increase in foreign exchange and interest rate volatility pushing average daily volumes on EBS to more than $100 billion per day for the first time in twelve months. While I do not expect a linear recovery, this provides a basis to be guardedly optimistic about future market activity.

“Over the last six months we have significantly restructured the cost base across Global Broking providing increased leverage and focus. However, we continue to invest heavily in new product initiatives across our leading, Electronic Markets and Post Trade divisions, which already contribute more than 70% of the Group’s operating profit. We are now starting to see a return on investment in the form of the strong performance of TriOptima and the EBS Direct service, which in September achieved average daily volumes of $19 billion per day in less than a year from its launch, which is a very impressive achievement.”

Electronic Markets

Total revenue generated by the Electronic Markets division is expected to decline by 6% reflecting a 4% fall to $710 billion per day in average daily volumes (“ADV”) transacted on the EBS and BrokerTec platforms. EBS volumes were significantly impacted by historically low FX volatility in G4 currencies, notwithstanding a sharp spike in trading activity in September driven by macro-economic factors. Trading activity in emerging market currencies including NDFs broke new records during the second quarter and there was very strong growth in activity in Russian ruble and offshore Chinese renminbi.

ADV on EBS Direct, the relationship-based disclosed liquidity service, continued to grow averaging $19 billion per day so far in September (June: $11 billion), including a record single day of $25 billion. BrokerTec’s overall share of total market volume traded in US Treasuries remained strong with ongoing speculation around the timing of an increase in rates in the US providing a stimulus to trading activity. Overall volumes transacted on both the EBS and BrokerTec platforms increased sharply in September to $770 billion per day in response to more volatile markets.

Post Trade Risk and Information

During the period, the Post Trade Risk and Information division performed strongly delivering revenue growth of 11%. The more stringent leverage ratio required of bank clients increased the demand for triReduce, resulting in more than $59 trillion being compressed since the start of the financial year (H1 2013/14: $17 trillion). In addition, triResolve, the portfolio reconciliation service, now has more than 1,200 subscriber firms compared to 670 a year ago. The performance of the other Post Trade Risk and Information businesses were broadly in line with last year. Volumes on Traiana’s Harmony network declined as a result of quieter FX markets. Activity levels on Reset tracked episodic speculation around interest rate changes.

Global Broking

During the first half of the year, the structural and cyclical headwinds that have previously impacted Global Broking’s trading performance continued to persist. As a result, the division’s revenue is expected to decline by 16% on a constant currency basis (20% on a reported basis) in the first half despite a modest uptick in trading in September.

In response to the challenging market backdrop, the trading operations and support functions of Global Broking are being restructured. Since the start of the year, broker headcount has been reduced by more than 265 and 21 under-performing desks have been closed. Based on recent activity levels, the ongoing renegotiation of broker contracts is expected to lead to a three percentage point reduction in the ratio of broker compensation to revenue in 2015/16.

The restructuring programme remains on-track to deliver annualised savings in excess of £60 million. Of this, £40 million will be realised in the current year’s income statement, principally in the second half of the year. In total, the cost saving programme will result in an estimated one-off charge of £35 million to £45 million, which will be treated as an exceptional item. Further details on the restructuring programme will be provided in November’s half year results statement.

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