INTL FCStone 2005 Annual Report Download - page 4

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CHIEF EXECUTIVE’S REPORT – 2005 REVIEW
Building our Capability
Three years ago the new management team laid out a strategic plan to leverage the existing equity
market-making activities into other niche international markets. Based on this plan, during 2003 and
2004, we added four new business areas, strengthened our infrastructure and management team and
raised additional capital.
During the 2005 fiscal year we continued to build on the new capabilities that had been established in
2003 and 2004:
ŠDuring the 2005 fiscal year, we fully integrated the foreign exchange business we acquired in
July 2004. This business has performed significantly better than originally anticipated as the
scope of its activities and customer relationships expanded.
ŠIn June 2005, we recruited an experienced debt capital markets team based in London and
Florida to leverage our existing debt trading capability. While it will take some time to fully
develop this business, we have concluded a number of transactions and have won a number
of interesting mandates to raise capital for emerging market issuers.
ŠIn October 2005, we recruited an experienced base metals trading team to leverage and
expand our existing precious metals trading capability. This team has worked together for
many years and will initially focus on physical lead trading and thereafter other base metals
opportunities.
Our target markets are inherently volatile. As a result, management has endeavored to establish a
greater diversity of revenue with the goal of providing a more stable aggregate earnings stream for our
shareholders. During 2005 the sources of revenue broadened considerably and as we continue to build
out our businesses we believe we will see further diversity and growth.
During 2005 we made progress in establishing a more robust and durable infrastructure to handle our
growth and to strengthen the Company’s internal controls. During 2005 we also completed a
re-engineering of our operations and financial areas. This required additional resources in certain
areas and some cost cutting in others. The net result is a more robust support function which we
believe has sufficient capacity to handle a fairly large increase in activity levels. We also anticipate that
we will realize some operational leverage in the future.
We remain focused on our strategy, which is to incrementally and profitably diversify our existing
businesses by expanding into niche activities where we can differentiate ourselves from larger players
through specialist expertise and/or transactions that do not meet the absolute size criteria of the larger
players.
Our Financial Performance
Although we experienced record revenues and earnings in fiscal 2005, fiscal 2005 was in many ways a
difficult year, with overall performance below our expectations. Our return on equity for the year was
10%, below our stated target of 15%. This was due to a combination of difficult market conditions for
some of our businesses as well as a significant increase in shareholders’ equity, due to the conversion
of our subordinated notes into equity in August 2004. Our return on equity for the fourth quarter ended
September 30, 2005 was a more encouraging 15%.