ICAP interims

ICAP is an interdealer broker and provider of post trade risk mitigation and information services.  I have a holding in my income portfolio (epic code: IAP).

ICAP issued their interim results to 30 September 2013 today and revenues and profits were as indicated in their pre-close trading statement.

Revenue was £736m, 1% below the same period last year, although operating profit was £153m up 6.3%, with an improvement in the operating margin from 19.3% to 20.8%.  Pre-tax profits were £139m, 1.5% ahead of last year.  These profits are before acquisition and disposal costs and exceptional costs. 

Adjusted EPS was up 5.2% to 16.2p although the statutory EPS was down 62.3% to 2.9p.  The decline in statutory EPS was due to exceptional costs in the period which included - fines imposed due to manipulation of Yen LIBOR of £55m, a provision of £8m relating to Link Brokers for wrongdoing that pre-dates ICAP's ownership and various associated legal costs less tax credits of £2m.  If we exclude the exceptional costs (but not the acquisition & disposal costs) from both years then the EPS would have increased by 17.3% to 12.9p.

Free cash flow was weak at just £3m for the six month period, compared to £26m last year.  Net debt increased from £25m at the beginning of the year to £87m, but still represents a low level of gearing at just 9%. 

An interim dividend of 6.6p has been declared, this is the same as last year following their custom of paying an interim of 30% of last year's full dividend.

Management stated that they expect that PBT for the full year to be marginally ahead of the prior year.

These results showed the full half year effect of the £80m of annual cost savings implemented last year.  Further cost savings are in process and it is expected that an additional net £5m will be saved this year, with the full effect next year expected to be £15m.

ICAP are taking the right decisions with respect to reducing its cost base, that is beginning to offset the current lack of growth in what is a subdued financial market.  The shares look to be up about 5% on these results, but still offer a yield of over 5.5%.