INTL FCStone 2014 Annual Report Download - page 54

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INTL FCSTONE INC. Form 10K38
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Commercial Hedging
We serve our commercial clients through our team of risk
management consultants, providing a high-value-added
service that we believe differentiates us from our competitors
and maximizes the opportunity to retain our clients. Our risk
management consulting services are designed to quantify and
monitor commercial entities’ exposure to commodity and
financial risk. Upon assessing this exposure, we develop a plan
to control and hedge these risks with post-trade reporting
against specific client objectives. Our clients are assisted in the
execution of their hedging strategies through a wide range of
products from listed exchange-traded futures and options, to
basic OTC instruments that offer greater flexibility, to structured
OTC products designed for customized solutions.
Our services span virtually all traded commodity markets, with
the largest concentrations in agricultural and energy commodities
(consisting primarily of grains, energy and renewable fuels, coffee,
sugar, cotton, and food service) and base metals products listed
on the LME. Our base metals business includes a position as
a Category One ring dealing member of the LME, providing
execution, clearing and advisory services in exchange-traded
futures and OTC products. We also provide execution of foreign
currency forwards and options as well as a wide range of structured
product solutions to our commercial customers who are seeking
cost-effective hedging strategies. Generally, our clients direct
their own trading activity, and our risk management consultants
do not have discretionary authority to transact trades on behalf
of our clients.
e following table provides the financial performance for Commercial Hedging for the periods indicated.
(in millions)
Year Ended September 30,
2014 % Change 2013 % Change 2012
Trading gains, net $ 124.3 9% $ 114.3 (21)% $ 144.9
Commission and clearing fees 79.9 17% 68.4 3% 66.4
Consulting and management fees 15.7 4% 15.1 2% 14.8
Interest income 4.1 (2)% 4.2 (9)% 4.6
Operating revenues 224.0 11% 202.0 (12)% 230.7
Transaction-based clearing expenses 25.0 5% 23.7 2% 23.3
Introducing broker commissions 18.2 21% 15.0 22% 12.3
Interest expense 0.3 —% 0.3 (25)% 0.4
Net operating revenues 180.5 11% 163.0 (16)% 194.7
Variable direct compensation and benefits 47.9 11% 43.3 (22)% 55.8
Net contribution 132.6 11% 119.7 (14)% 138.9
Non-variable direct expenses 65.3 4% 62.6 (2)% 63.7
Segment income $ 67.3 18% $ 57.1 (24)% $ 75.2
e following tables set forth transactional revenues and selected data for Commercial Hedging for the periods indicated.
Exchange-traded
Year Ended September 30,
2014 % Change 2013 % Change 2012
Transactional revenues (in millions):
Agricultural $ 57.9 14% $ 50.8 (5)% $ 53.7
Energy and renewable fuels 5.7 (10)% 6.3 9% 5.8
LME metals 38.6 30% 29.8 37% 21.8
Other 7.1 4% 6.8 36% 5.0
$ 109.3 17% $ 93.7 9% $ 86.3
Selected data:
Volume (contracts, 000’s) 17,827.2 9% 16,356.5 23% 13,254.8
Average rate per contract(1) $ 6.04 8% $ 5.61 (12)% $ 6.35
Average customer segregated equity (millions) $ 878.2 (3)% $ 900.8 (2)% $ 923.2
(1) Give-up fee revenues included in exchange-traded transactional revenues have been excluded from the calculation of exchange-traded average rate per contract.