INTL FCStone 2012 Annual Report Download - page 8

CHIEF EXECUTIVE’S REPORT
In scal year 2012, INTL FCStone experienced
a second consecutive year of record adjusted
operating revenues, more than 12 percent higher
than last year’s mark. Adjusted shareholder
equity and adjusted net value per share
outstanding also increased over the previous
scal year. The continued growth in operating
revenues and shareholder value is a convincing
indication that the company’s business model is
a strong and eective one.
The company’s business strategy was tested
as never before by an unprecedented series
of events beginning in October, 2011 with the
collapse of Futures Commission Merchant (FCM)
MF Global. As one of the most high-prole
organizations in the FCM space, MF Global’s
improper use of customer margin funds, and
the subsequent losses suered by many of its
customers, gave the entire listed futures industry
– which had long emphasized the inviolability
of margin accounts – a credibility issue with its
customers. Less than ten months later, another
well-known FCM, Peregrine Financial Group, shut
its doors suddenly amid allegations of nancial
fraud, with a signicant shortfall in customer
funds.
While the demise of MF Global in particular
removed a substantial competitor of ours from
the playing eld, it also contributed to a loss
of condence in the markets that was among
several factors resulting in lower trading volumes
overall for FCMs and exchanges.
At the same time, the nancial industry faced a
number of wrenching regulatory adjustments.
Chief among these was the implementation
of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, which required
expensive, complex and far-reaching changes
in many areas of the industry, particularly in the
marketing of Over-the-Counter (OTC) derivatives.
The ongoing global nancial weakness, the
slowdown in the growth of commodity prices
and commodity volatility, and the long-term
drought in the Midwestern United States also
contributed to the turmoil and uncertainty facing
the commodities industry worldwide.
However, the board and executive management
remain convinced that we have a strategy and
a business model that remains relevant in the
current dicult environment – providing a high-
touch value-added service to mid-sized, mainly
commercial organizations looking to hedge
their nancial risks and gain ecient access to
nancial markets. As a relationship business,
we focus our expertise, capital and systems on
providing thoughtful and strategic nancial
solutions to these organizations with the intent
of creating long-term relationships with them –
and, at the same time, annuities for our business.
In many ways, this is an old-fashioned approach
that has become increasingly uncommon in an
industry focused on high-frequency trading,
automation and a preoccupation with scale
rather than service. Nonetheless, we believe our
strategy works. Thanks to our unique customer-
centric approach, and to our diversication
across a broad range of niche nancial services,
we remain protable and continue to exhibit
strong growth as customers increasingly
recognize us as a credible solution provider.
Our growth has also been aided by the
consolidation of the industry and the resulting
reallocation of capital, as business models reliant
on high degrees of leverage, outright speculative
or proprietary trading or the interposing of a
brokerage function between a customer and
an exchange without adding value have been
eectively eliminated. Our business model,
which has never been reliant on any of these
“The continued growth in operating
revenues and shareholder value
is a convincing indication that the
company’s business model is a strong
and eective one.”
7 | 2012 INTL FCStone Annual Report