ICAP PLC IAP

DJ UPDATE: ICAP Plans Structure Overhaul; Posts Fall In Profit

-- CEO says overhaul will save at least GBP50 million a year by the end of March 2014

-- Says ongoing euro crisis and regulatory uncertainty are depressing trading volumes

-- It's just a matter of time for Greece to exit the euro, he says

-- CEO says French President Hollande will fail if he proposes Tobin tax in the U.K.

(Adds comment and detail throughout.)

 
  By Vladimir Guevarra 
  Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--U.K. interdealer broker ICAP PLC (IAP.LN) Wednesday said it is drawing up a plan to save at least GBP50 million a year from overhauling its business structure, after posting a 27% fall in net profit due to higher costs related to previous acquisitions and disposals.

The cost-savings plan comes as ICAP struggles with a double whammy of lackluster trading volumes reflecting a weak macroeconomy, and uncertainties over changes in regulations in the financial services industry.

ICAP, the world's largest interdealer broker by revenue, said net profit attributable to shareholders for the year ended March 31 was GBP137 million, down from GBP187 million a year ago.

However, it said pretax profit from continuing operations before acquisition and disposal costs and exceptional items--a measure more closely followed by analysts--was GBP354 million, up 1% from GBP350 million previously.

The pretax profit was toward the higher end of the GBP336 million to GBP358 million range of forecasts from analysts. In February, ICAP guided that the result was expected to be towards the upper end of the range.

Revenue was GBP1.68 billion, down 3% from GBP1.74 billion previously.

ICAP is recommending a total dividend of 22 pence for the year, an increase of 10% from 19.95 pence the previous year.

"ICAP delivered a solid performance in 2011-12 against a difficult economic environment. The fact that we maintained profitability in a year when trading volumes were under such pressure is testament to the effectiveness of our diversified business, our global presence, our people and the actions we took to manage our cost base as market conditions changed," Chief Executive Michael Spencer said.

"In the last quarter of our financial year we saw an improvement in risk appetite in some markets. However, activity in April and early May was slow with the ongoing euro crisis and regulatory uncertainty depressing trading volumes."

"Some resolution on these important issues would give a big and welcome lift to market sentiment," he said.

ICAP said it has saved GBP20 million per year from previous cost-cutting measures.

A new cost-savings plan and structural overhaul "will result in further significant savings over the next two years," with run-rate savings of at least GBP50 million a year by the end of March 2014, Spencer said.

ICAP provides voice- and electronic-broking and post-trade services to banks and traders, covering a variety of financial instruments, including equity markets, commodities, foreign exchange, interest rates and credit.

At 1004 GMT, ICAP shares were down 2% at 329 pence, while the FTSE 100 index was down 1.1%.

Bank of America Merrill Lynch said ICAP's results show its "resilience, with the company able to deliver decent numbers--including a 1% rise in earnings per share--in a very testing operating environment."

It said ICAP shares have "extremely good value on just over 8 times 2013 earnings" and that the company "is compelling at current levels." BAML kept its buy rating on the stock.

Analysts from Peel Hunt said ICAP's pre-tax profit results have exceeded expectations. However, Peel Hunt said "a great deal of attention is placed on new initiatives, the success of which has been mixed at best and it has led to a number of earnings misses."

Peel Hunt said ICAP has become more "tempered" on its expectations concerning the push by regulators towards electronic broking, a move which would benefit ICAP's own electronic-broking business. Peel Hunt also said it prefers Tullett Prebon PLC (TLPR.LN) over ICAP.

In a briefing, CEO Spencer said there are no final details yet on his planned restructuring but said that may involve areas like procurement, IT spending, compensation and pay, and travel and entertainment.

It may also involve job cuts. But since ICAP is hiring people in growing parts of the business, Spencer said he would be surprised if the current headcount of around 5,100 wouldn't have grown by next year.

"We are looking for--and there's no time horizon for this--something in the region of 5% potentially can be removed from our core cost base without damaging or undermining the business," he said.

He also said that it would only be a matter for time for Greece to exit the euro, and that new French President Francois Hollande won't succeed if he plans to impose a proposed financial transaction tax, also called the Tobin tax, on the U.K. and the City of London.

"I've been skeptical that the euro project will prosper forever with some peripheral countries involved...We all know now with hindsight that Greece should have never been part of the euro, and possibly the same is true of other countries."

"It's a matter of when, not if, Greece leaves euro, and I think this will be much better for the people of Greece," Spencer said. He said that other countries like Brazil and Indonesia have defaulted previously but recovered after going through restructuring.

He said that if Greece could leave the euro in an orderly manner, "maybe some other currencies can do, too."

"The euro should be constructed around a smaller group of much more solid, stable and like-minded economies," he said.

"On President Hollande's enthusiasm for the Tobin tax, I wish him good luck. I endorse his effort to use the Tobin tax upon his own nation. He is democratically welcome to do so."

"However, his effort to stuff the Tobin tax down British throats will fail and quite properly fail. It is rather bad form that people want to impose taxes on other countries," he said.

"Clearly, the Tobin tax is always designed as a tax on the City of London that wouldn't affect anybody else very much."

"Our government knows this full well...And they have said many times they will not adopt the Tobin tax in the U.K.," Spencer said.

- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com

(END) Dow Jones Newswires

May 16, 2012 06:16 ET (10:16 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.