Final Results
TULLETT PREBON PLC
PRELIMINARY RESULTS - for the year ended 31 December 2010
Tullett Prebon plc (the "Company") today announced its preliminary results for
the year ended 31 December 2010.
Financial Highlights
* Revenue £908.5m (2009: £947.7m)
* Operating profit £152.4m (2009: £170.8m)
* Operating margin 16.8% (2009: 18.0%)
* Adjusted Profit before tax (1.) £139.7m (2009: £157.0m)
* Adjusted EPS (2.) 46.4p (2009: 49.2p)
* Operating cash flow £132.0m - 87% conversion of operating profit
Notes
(1.)Adjusted Profit before Tax is stated before non cash gains and losses in
net finance income / (expense). A reconciliation of Adjusted Profit before
Tax to the Reported Profit before Tax of £141.3m (2009: £156.5m) is shown
in the Financial Review
(2.)Adjusted EPS is stated before non cash gains and losses in net finance
income / (expense) net of tax, prior year tax items, and tax on capital
related items
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:
"The financial results for 2010 reflect the enduring strength of the business
in challenging market and competitive conditions, and the progress that has
been made in re-establishing our position in North America.
Revenue for the year of £908.5m was 4% lower than reported for 2009 mainly due
to the net effect of the broker defections in North America following the raid
by BGC in the second half of 2009. Underlying revenue, adjusting for the broker
defections, was unchanged compared with the prior year which, given that market
activity was more subdued overall in 2010 than in 2009, was a good performance.
After lower financing costs, adjusted profit before tax of £139.7m compares
with £157.0m in 2009. With a reduction in the effective tax rate to 29.2%,
adjusted basic earnings per share were 6% lower than last year at 46.4p.
One of the most attractive features of the business is its excellent cash flow
generation. Operating cash flow for the year was £132.0m and at the end of the
year net funds amounted to £67.8m, an increase in the year of £58.8m.
The Board recognises that dividends are an important element of shareholder
return and is recommending a final dividend of 10.5p per share, making the
total dividend for the year 15.75p per share, an increase of 5% on the 15.0p
per share paid for 2009. The final dividend will be payable on 19 May 2011 to
shareholders on the register on 26 April 2011."
Terry Smith, Chief Executive, added:
"The world's financial markets remain unsettled, and although it is difficult
to predict market conditions, it seems reasonable to expect that there will
continue to be periods of volatility.
Underlying revenue, adjusting for the impact of the closure of the six
satellite offices in North America, is 3% higher in the first two months of the
year than a year ago. This reflects the benefit of the rebuilding in North
America and the continued recovery in Asia. We will continue to invest in the
development of the business across all three regions.
The enduring strength of the business is the valuable service it provides to
clients through its ability to create liquidity through price and volume
discovery to facilitate trading in a wide range of financial instruments. We
believe that the introduction of the various regulatory proposals affecting the
OTC markets will be positive for our business as the proposals formalise the
role of the intermediary in those markets. The changes in the regulatory
environment will result in changes in the way in which some trades are
executed, reported and cleared. We believe that we are well positioned to
continue to provide a valuable service to clients and that our offering can be
developed to meet the requirements being proposed."
Enquiries:
Nigel Szembel, Head of Communications Mobile: 07802 362088
Tullett Prebon plc
Further information on the Company and its activities is available on the
Company's website: www.tullettprebon.com
Overview
The financial results for 2010 reflect the enduring strength of the business in
challenging market and competitive conditions, and the progress that has been
made in re-establishing our position in North America.
Although financial markets have remained unsettled and risk appetite has
started to return, market activity was more subdued overall in 2010 than in
2009. There were only a few limited periods of sustained higher volatility
during the year, most notably in May, and in November and the first two weeks
in December.
Underlying revenue in 2010 was unchanged compared with the prior year which was
a good performance in these market conditions. The net effect of the broker
defections in North America, following the raid by BGC in the second half of
2009, reduced revenue by 5%. In addition the action taken during the year to
close six `satellite' offices in North America that made only a limited
contribution to operating profit reduced revenue by 1%. The impact of currency
movements on the translation of our non-UK operations was slightly favourable.
Overall, revenue of £908.5m was 4% lower than reported for 2009. Operating
profit for the year was £152.4m, 11% lower than 2009, with an operating margin
of 16.8%.
Excellent progress has been made in re-establishing our presence in all of the
major product areas in North America affected by the broker defections.
Including the twenty-six strong credit broking team who started with the
business in early January 2011, broker headcount on the affected desks is now
largely back to the levels before the defections.
In addition to the hiring programme, action has been taken to reduce costs and
complexity in North America including reductions in broking support staff and
the closure of six satellite offices in the region. The offices that have been
closed accounted for around 2% of group revenue in 2010, mainly in cash
equities and energy products, and their closure allows management to focus on
the two main offices in New Jersey and New York.
The presidential election in Brazil has delayed the final approval of our
acquisition of Convenção, one of the leading and most well respected brokers in
Brazil, which will facilitate our expansion both in the market in Brazil and in
other Latin American markets, and will complement our existing emerging markets
activities in North America.
We have continued to develop our electronic broking capabilities, focused on
the hybrid electronic broking model, developing electronic platforms which
complement and support existing voice broker liquidity. This approach is
preferred by both clients and brokers as it is better suited to the majority of
OTC products for which liquidity will continue to depend on the support of
voice brokers, and it facilitates the development and introduction of trade
execution methods and other capabilities as necessary to meet regulatory
requirements and market demands. We have a well established development process
with access to market leading technology and we are well placed to launch new
platforms as and when they are required.
The Information Sales business has continued to expand its customer base and
investment is being made to increase the breadth of the data it offers to
customers. The post trade Risk Management Services business has established a
significant market share in electronic LIBOR reset matching through the tpMATCH
platform that was launched at the end of 2009.
Revenue from products supported by electronic platforms, together with
Information Sales and Risk Management Services revenue, continues to account
for one sixth of total revenue, as no new platforms were launched in 2010. The
proportion of that revenue derived from voice-only execution continues to
reduce, with an increasing proportion derived from trades conducted through the
platforms.
There have been significant developments during 2010 in the process of agreeing
and introducing reforms designed to strengthen the financial system and to
improve the operation of the financial markets. In the United States the
Dodd-Frank Wall Street Reform and Consumer Protection Act has passed into law,
and the European Commission has published proposals on the regulation of OTC
derivatives markets and on the review of the Markets in Financial Instruments
Directive. We support the general direction of these developments, and more
detailed comments on them and their potential impact on the business are set
out below. Whilst these developments will introduce increased regulation of OTC
derivatives markets and changes in the way in which some trades are executed,
they reinforce and formalise the role of the intermediary in the wholesale
markets for financial instruments. There are only a very few highly liquid
products that are suitable for execution solely on pure electronic platforms
without intervention and support from brokers. We believe that our investments
in electronic platforms and associated infrastructure, and our hybrid
electronic broking model, means we are well positioned to respond to, and to
benefit from, changes in the way in which OTC markets and our customers
operate.
The enduring strength of our business is the valuable service it provides to
clients through its ability to create liquidity through price and volume
discovery to facilitate trading in a wide range of financial instruments. Our
strategy is to continue to focus on providing services as an intermediary in
wholesale OTC markets, and to continue to build a business with the scale and
breadth to deliver superior performance and returns, whilst maintaining strong
financial management disciplines.
Our key financial and performance indicators for 2010 compared with those for
2009 are summarised in the table below.
Change
Constant
2010 2009 Reported Exchange
Rates
Revenue £908.5m £947.7m -4% -5%
Operating profit £152.4m £170.8m -11% -11%
Operating margin 16.8% 18.0% -1.2%
points
Broker headcount (year end) 1,601 1,612 -1%
Average revenue per broker (£'000) 540 565 -4% -5%
Broker employment costs : broking 58.5% 58.0% + 0.5%
revenue points
Broking support headcount (year end) 679 712 -5%
Reported revenue in 2010 of £908.5m was 5% lower than 2009 at constant exchange
rates. Year end broker headcount was 1% lower at 1,601 but this reflects the
closure of the six satellite offices in North America. Adjusting for that
action, year end broker headcount was 3% higher than last year. Average revenue
per broker at £540k was 5% lower at constant exchange rates reflecting the
generally lower level of activity in the market and the impact of new hires
building up to their full run rate of revenue.
Operating profit of £152.4m was 11% lower than for 2009 with the operating
margin at 16.8% compared to 18.0% for 2009. There is some operational leverage
in the business and the reduction in operating margin primarily reflects the
effect of the reduction in revenue in North America. In addition broker
compensation as a percentage of broking revenue increased by 0.5% points to
58.5% due to the increased costs of employment in North America as a result of
the unlawful poaching raid on the business by BGC, and the initial
inefficiencies experienced as the affected desks were re-established. The 5%
reduction in broking support headcount reflects cost reduction action taken in
North America.
Litigation
On 18 March 2010 Judgment was handed down in the legal action that the Company
had taken in London against BGC, two of BGC's senior directors and ten former
Company brokers, in response to a raid by BGC in early 2009 on the London
business. The Judge held that there was an unlawful conspiracy between BGC and
its two senior directors to poach the Company's employees and that the Company
was and is entitled to a 12 month injunction against all but one of the former
brokers, and also against BGC, as well as financial remedies. The Judge
dismissed BGC's counter-claim against the Company. BGC's appeal against some of
grounds in the Judgment was heard in December 2010. On 22 February 2011 the
Court of Appeal handed down its Judgment which rejected all the appeals lodged
by BGC. The Company is seeking substantial damages from BGC. The damages trial
has been fixed for four weeks commencing in March 2011.
Legal action continues to be pursued against BGC and former employees in the
United States. The subsidiary companies in the United States directly affected
by the raid have brought a claim against BGC in arbitration pursuant to the
rules of the Financial Industry Regulatory Authority ("FINRA"). The outcome of
this case is unlikely to be determined before 2012.
A separate action brought by Tullett Prebon plc issued in the United States
Court for the District of New Jersey against BGC alleging, among other causes
of action, violations of the New Jersey RICO statute has been dismissed, and is
under appeal. This case was dismissed by the judge on technical grounds, in
part based on the pendency of the FINRA arbitration, and which did not consider
the merits of the claim. This appeal is likely to be heard in 2012.
Legal action also continues to be pursued against former employees in Hong Kong
and Singapore who have unlawfully terminated their employment with the Company
in order to join BGC.
Operating Review
The tables below analyse revenue and operating profit for 2010 compared with
2009. A significant proportion of the group's activity is conducted outside the
UK and the reported results are therefore impacted by the movement in the
foreign exchange rates used to translate the results of non-UK operations. In
order to give a more meaningful analysis of performance, revenue and operating
profit growth rates for 2010 shown below are presented both as reported, and
calculated using translation exchange rates for 2009 consistent with those used
for 2010. The commentary below refers to growth rates at constant exchange
rates.
Revenue by product group Change
Constant
2010 2009 Reported Exchange
£m £m Rates
Treasury Products 248.4 238.9 +4% +2%
Interest Rate Derivatives 205.0 192.0 +7% +5%
Fixed Income 249.3 317.1 -21% -21%
Equities 67.2 74.0 -9% -9%
Energy 105.8 100.6 +5% +5%
Information Sales and Risk 32.8 25.1 +31% +31%
Management Services
908.5 947.7 -4% -5%
Revenue in most product areas was higher in 2010 than 2009 reflecting the
strength of the business in the traditional `flow' products of foreign exchange
and interest rate swaps, and the continuing development of the Energy business.
Within Treasury Products, good growth in forward FX in all three regions,
particularly in emerging market forward FX including non-deliverable forwards,
offset a decline in revenue from cash and deposits broking. FX options revenue
was little changed.
Similarly, within Interest Rate Derivatives, revenue growth was driven by the
strong performance in emerging market interest rate derivatives across all
three regions. Revenue from G7 interest rate swaps and interest rate options
was also higher than last year.
The decline in revenue in Fixed Income reflects the impact of the broker
defections in North America, together with the decline in activity in credit
derivatives in both Europe and North America, and in agency bonds in North
America. The traditional `flow' European government bond business continued to
perform well, boosted by the volatility in those markets in periods during the
year, and the business increased market share in exchange traded futures and
options.
In Equities, the decline in revenue was primarily driven by reductions in
activity in cash equities, including the equities business acquired with
Chapdelaine that was exited as part of the satellite office closures. Revenue
from equity derivatives was also slightly lower than last year.
Energy markets were relatively buoyant during the year and the Energy business
in Europe which covers power, gas and oil products performed strongly, and
offset a decline in revenue from the Energy business in North America which is
mainly focused on power products.
The Information Sales business continued to benefit from increasing customer
demand for both real time and end of day data and from an expansion of the
customer base. In addition, the post trade Risk Management Services business
has established a significant market share in electronic LIBOR reset matching
through the tpMATCH platform that was launched at the end of 2009, and made a
substantial contribution to revenue.
Revenue by region Change
Constant
2010 2009 Reported Exchange
£m £m Rates
Europe 536.1 542.6 -1% -1%
North America 259.0 318.0 -19% -19%
Asia Pacific 113.4 87.1 +30% +22%
908.5 947.7 -4% -5%
Europe
Revenue in Europe was 1% lower than in 2009. Broker headcount in Europe at 807
was 2% higher than a year ago but average revenue per broker declined slightly
reflecting the more subdued market. The business continued to perform well in
the traditional `flow' products of foreign exchange, interest rate swaps and
government bonds, with revenue held back by slower market activity in the
`volatility' products of FX and interest rate options, and credit and equity
derivatives.
In Fixed Income the business maintained its leading position in government
bonds and increased market share in exchange traded futures and options, but
did experience lower activity in the credit markets for corporate bonds and
particularly credit derivatives. Despite the loss of revenue from the cash,
forward FX and interest rate swap desks affected by the BGC raid in the first
half of 2009, revenue in Treasury Products and Interest Rate Derivatives was
little changed with strong growth in emerging markets products (Eastern Europe,
Russia, Turkey, and South Africa). The Equities business, the smallest product
group in Europe, suffered from lower activity in equity derivatives which
offset growth in revenue from the development of the alternative investments
desk. The Energy business continued to benefit from active markets and
delivered strong revenue growth in all three main product areas of oil, power
and gas.
North America
In North America, revenue fell by 19%. Almost all this decline was due to lower
revenue from those desks affected by the broker defections following the raid
on the business by BGC in the second half of 2009, and to the reduction in
revenue from desks in the six satellite offices that were closed during the
year.
Underlying revenue in North America, excluding the affected desks and the
impact of the office closures, was 3% lower than last year, reflecting slightly
lower average revenue per broker with broker headcount little changed. Good
revenue growth in Treasury Products and Interest Rate Derivatives, particularly
from Latin American emerging markets products, was offset by weaker markets in
agency bonds and credit derivatives in Fixed Income.
Year end broker headcount in North America at 437 was 7% lower than at the end
of 2009, reflecting the 52 brokers who left the business as a result of the
closure of the six satellite offices. Adjusting for this, year end broker
headcount was 5% higher than last year reflecting the rebuilding of the desks
affected by the raid in 2009. Including the twenty-six strong credit broking
team who joined the business at the beginning of 2011, broker headcount on the
affected desks is now largely back to the levels before the defections.
Revenue from the desks in the offices that were closed during the year
accounted for around 7% of the total revenue in North America in 2010, mainly
in Equities and Energy.
Asia
Revenue increased by 22% in Asia. Year end broker headcount of 357 was little
changed on last year, with average revenue per broker up by 13% reflecting the
strong recovery of market activity in the region due to the return of risk
appetite and capital deployed by clients. The increased revenue in 2010 also
reflects the development of the Risk Management Services business, much of
which is operated from Singapore.
Much of the business in Asia is focused on Treasury Products and Interest Rate
Derivatives and revenue grew strongly in these areas reflecting the return of
liquidity in regionally based products and market share gains. The business
also benefited from investment in the development of other products, including
the oil products desks in Singapore and the equity derivatives activity in
Tokyo.
Although the three largest centres in the region, Singapore, Hong Kong and
Tokyo, represented over 80% of the region's revenue, the business is profitably
developing scale in other Asia Pacific financial centres, including the joint
venture in Shanghai.
Operating profit by region
Change
Constant
2010 2009 Reported Exchange
£m £m Rates
Europe 120.7 123.2 -2% -2%
North America 22.5 44.4 -49% -49%
Asia Pacific 9.2 3.2 +188% +168%
Reported 152.4 170.8 -11% -11%
Operating margin by region 2010 2009
Europe 22.5% 22.7%
North America 8.7% 14.0%
Asia Pacific 8.1% 3.7%
16.8% 18.0%
Operating profit and operating margin in Europe were both slightly lower than
last year, primarily reflecting the small decline in revenue. Broker employment
costs as a percentage of revenue were little changed compared with 2009, and
support costs were also in line with last year.
Operating profit in North America nearly halved and the operating margin
reduced to 8.7%. The reduction in profitability reflects the reduction in the
scale of the business following the broker defections, as although support
costs in the region reduced, they still represented a higher percentage of
revenue in 2010 than in 2009. Broker employment costs as a percentage of
revenue were also higher than a year ago reflecting the increased costs of
employment in the light of competitor action and the initial inefficiencies
experienced as new hires build up to their full run rate of revenue.
The business in Asia Pacific has a relatively high level of operational
gearing, and the operating margin in the region more than doubled with
operating profit increased to £9.2m, primarily due to the benefit of increased
revenue. Broker employment costs as a percentage of revenue were also lower
than last year as the inefficiencies arising from the lower levels of revenue
in 2009 were reduced, and support costs were little changed year on year.
Financial Review
The results for 2010 compared with those for 2009 are shown in the table below.
2010 2009
£m £m
Revenue 908.5 947.7
Operating profit 152.4 170.8
Finance expense (12.7) (13.8)
Adjusted Profit before tax (1.) 139.7 157.0
Tax (40.8) (53.0)
Associates 1.5 1.8
Minority interests (0.6) (0.6)
Adjusted Earnings (2.) 99.8 105.2
Weighted average number of shares 214.9m 213.9m
Adjusted Earnings per share 46.4p 49.2p
Note (1.) Adjusted PBT reconciles to reported PBT as follows:
2010 2009
£m £m
Adjusted Profit before tax 139.7 157.0
Non cash finance (expense)/income 1.6 (0.5)
Reported Profit before tax 141.3 156.5
Note (2.) Adjusted Earnings reconciles to reported Earnings as follows:
2010 2009
£m £m
Adjusted Earnings 99.8 105.2
Non cash finance (expense)/income 1.6 (0.5)
Deferred tax on non cash finance (expense)/income (0.5) 0.2
Prior year tax items 1.6 5.9
Tax on capital related items 6.0 -
Reported Earnings 108.5 110.8
Finance Expense
The net finance expense comprises the interest payable on the fixed rate bonds,
the interest payable on the floating rate bank debt, the interest income on
cash deposits, and the amortisation of debt issue costs which are paid upfront
and charged to the income statement over the term of the debt to which they
relate.
The reduction in finance expense in 2010 compared to 2009 reflected the full
year benefit of the lower interest rates on the bonds which took effect in July
and August 2009, and lower interest on the bank debt due to lower interest
rates and the lower average amount outstanding, partly offset by the lower
interest receivable on cash balances.
Non cash finance income/(expense) items are excluded from adjusted profit
before tax and adjusted earnings. In 2010 and 2009 these items comprised only
the expected return and interest on pension scheme assets and liabilities. In
2010 these pension related items netted to a credit of £1.6m; in 2009 these
items netted to a charge of £0.5m.
Tax
The effective rate of tax on adjusted profit before tax was 29.2% (2009:
33.8%). The reduction in the effective rate compared with 2009 results
primarily from the increase in the proportion of taxable profits generated in
the UK and Asia relative to the US.
Tax charges and credits arising on non cash finance income/(expense) items,
prior year tax items and tax charges and credits on capital related items are
excluded from the calculation of the effective tax rate on adjusted profit
before tax, as they do not relate to current trading. Prior year tax items
primarily reflect the release of tax provisions made in previous years as tax
matters are settled. The tax credit on capital related items reflects the tax
benefit arising in the US from the write down of goodwill under US GAAP in the
local accounts. The statutory effective rate of tax, including these items was
23.8% (2009: 30.0%).
Adjusted Basic EPS
Adjusted Basic EPS is calculated using adjusted earnings shown in the table
above and the undiluted weighted average number of shares in issue of 214.9m
(2009: 213.9m).
Exchange and Hedging
The income statements of the group's non-UK operations are translated into
sterling at average exchange rates. The most significant exchange rates for the
group are the US dollar, the Euro, the Singapore dollar and the Japanese Yen.
The group's current policy is not to hedge income statement translation
exposure.
The balance sheets of the group's non-UK operations are translated into
sterling using year end exchange rates. The major balance sheet translation
exposure is to the US dollar. Since October 2008 the group's policy is not to
hedge balance sheet translation exposure.
Average and year end exchange rates used in the preparation of the financial
statements are shown below.
Average Year End
2010 2009 2010 2009
US dollar $1.55 $1.55 $1.57 $1.61
Euro €1.17 €1.12 €1.17 €1.13
Singapore dollar S$2.12 S$2.26 S$2.01 S$2.27
Japanese Yen ¥136 ¥145 ¥127 ¥150
Cash flow and financing
Cash flow before dividends and debt repayments and draw downs is summarised in
the table below.
2010 2009
£m £m
Operating profit 152.4 170.8
Share based compensation (0.9) (0.4)
Depreciation and amortisation 9.4 8.2
EBITDA 160.9 178.6
Capital expenditure (net of disposals) (12.4) (9.4)
Working capital (16.5) (31.3)
Operating cash flow 132.0 137.9
Exceptional items - restructuring cash payments - (6.8)
Interest (11.5) (11.7)
Derivative financial instruments - (10.0)
Taxation (27.5) (30.4)
Defined benefit pension scheme funding (8.8) (8.1)
ESOT transactions 1.7 1.5
Dividends received from associates/(paid) to 1.1 1.2
minorities
Acquisitions/investments (2.4) (3.5)
Sale of investments 1.7 -
Cash flow 86.3 70.1
In 2010 the group again delivered a substantial operating cash flow,
representing 87% of operating profit. The working capital outflow of £16.5m in
2010 reflects the increase in the broker sign-on prepayment balance, as new
sign-on payments during the year were higher than the amortisation. Net capital
expenditure of £12.4m relates to investment in electronic platforms and
associated infrastructure, and office fit out costs including the new disaster
recovery centre in Piscataway, New Jersey, and was slightly higher than the
£9.4m of depreciation and amortisation.
The exceptional items cash payments of £6.8m in 2009 represent the completion
of the cash outflows arising from the cost reduction actions taken at the end
of 2008.
Interest payments in 2010 were in line with the profit and loss charge adjusted
for the amortisation of debt issue costs.
The cash flow from derivative financial instruments in 2009 related to the
maturity of the cross currency interest rate swap, which until October 2008 was
designated as a net investment hedge of part of the US dollar denominated net
assets, and of the forward FX contract executed at that time to close out the
FX position inherent in the swap.
Tax payments in 2010 were lower than in 2009 reflecting the lower tax charge in
the year, particularly in the US, where we also received a refund of tax paid
in the prior year.
During 2010 and 2009 the group made regular contributions to its defined
benefit pension schemes to match the benefits paid and the administration
expenses. In addition, in each of January 2010 and January 2009 contributions
of £4.5m were made under agreements with the trustees of the schemes aimed at
eliminating the actuarial deficits by 31 December 2010.
Expenditure on acquisitions and investments in 2010 comprised the deferred
consideration payments relating to the acquisitions of Primex and Aspen, and
the initial consideration for the acquisition of OTC Valuations.
During the year the group sold its investment in a software development company
for initial cash consideration of £1.7m.
The movement in cash and debt is summarised below.
£m Cash Debt Net
At 31 December 2009 396.2 (387.2) 9.0
Cash flow 86.3 - 86.3
Dividends (32.7) - (32.7)
Debt repayments / draw downs (30.4) 30.4 -
Effect of movement in exchange rates 6.3 0.1 6.4
Amortisation of debt issue costs - (1.2) (1.2)
At 31 December 2010 425.7 (357.9) 67.8
At 31 December 2010 the group held cash, cash equivalents and other financial
assets of £425.7m which exceeded the debt outstanding by £67.8m.
At 31 December 2010 the group's outstanding debt comprised £141.1m Eurobonds
due July 2016, £8.5m Eurobonds due August 2014, £210m drawn under an amortising
bank term loan facility, and a small amount of finance leases. The term loan
was subject to a repayment of £30m in January 2011 with £180m maturing in
January 2012. The group also had a committed £50m revolving credit facility
that remained undrawn throughout the year.
On 8 February 2011 the group entered into £235m of new bank facilities,
comprising a £120m amortising term loan facility, and a committed £115m
revolving credit facility, which replace the previous bank facilities discussed
above. The term loan is subject to repayments of £30m in each of February 2012
and February 2013 with £60m maturing in February 2014. The committed revolving
credit facility, which has not been drawn, will also mature in February 2014.
Pensions
The group has two defined benefit pension schemes in the UK which were acquired
with Tullett and Prebon, both of which are closed to new members and future
accrual.
During 2010 the value of the schemes' assets has increased from £137.7m to
£169.5m reflecting strong investment returns and the additional contributions.
Under IAS19 the value of the schemes' liabilities have increased from £139.0m
to £145.9m, resulting in a net surplus at 31 December 2010 of £23.6m (2009: net
deficit £1.3m).
Triennial actuarial valuations of both schemes were undertaken during 2010.
These actuarial valuations concluded that each scheme has a significant funding
surplus. As a result, the group agreed with the trustees of each scheme that,
with effect from February 2011 until the next actuarial valuation,
contributions will be equal to the schemes' administration expenses.
Return on capital employed
The return on capital employed in 2010 was 40% (2009: 47%) which has been
calculated as operating profit divided by average shareholders' funds adding
back cumulative amortised goodwill and acquisition related reorganisation costs
net of tax, less net funds, and adjusting for the IAS19 pension surplus or
deficit.
Regulatory developments
There have been significant developments during 2010 in the process of agreeing
and introducing reforms designed to strengthen the financial system and to
improve the operation of the financial markets.
In the United States the Dodd-Frank Wall Street Reform and Consumer Protection
Act was enacted on 21 July 2010 and includes legislation governing the
regulation and operation of OTC derivatives markets. The Act requires the CFTC
and SEC to establish detailed rules and regulations to apply the principles of
the legislation by July 2011. Most pertinently for the inter-dealer broker
industry the CFTC published its proposed rules on the Core Principles and Other
Requirements for Swap Execution Facilities (SEFs) in early January 2011. The
CFTC rules governing SEFs are due to come into force in the final quarter of
2011 although this could be delayed pending the outcome of the comment process.
In Europe, the European Commission tabled proposals on the regulation of OTC
derivatives markets, commonly known as the European Markets Infrastructure
Regulation (EMIR), in September 2010, and in December published a consultation
on the review of the Markets in Financial Instruments Directive, commonly known
as MiFID II. It is envisaged that the EMIR and MiFID II reforms will come into
force during 2013.
We continue to be engaged both directly and through our trade associations in
responding to these consultation and discussion documents, and with assisting
the rule setters in understanding how the OTC markets currently operate, to
help ensure that the final regulations achieve their stated objectives and
avoid unintended negative consequences.
Although the final rules are still to be agreed, focusing on the impact on the
OTC markets, there are four general themes that emerge in these proposals:
* the requirement for market participants to use central counterparties
(CCPs) to clear certain contracts (to be determined by a central
authority), with exemptions for non-financial counterparties.
* the requirement for trades to be reported to trade repositories.
* enhanced pre and post trade transparency.
* the requirement for trades which are settled through a central counterparty
to be traded through regulated execution venues that meet particular
criteria in how they operate and how they are governed - termed SEFs in the
US and `qualifying organised trading facilities' in Europe.
We agree with the objectives and support the direction of these proposals. We
believe that their introduction will be positive for our business as the
proposals formalise the role of the intermediary in the OTC markets.
Specifically, we would make the following observations:
* the increased use of CCPs transfers rather than eliminates risk, and as
acknowledged by the proposals, the decision as to which trades are suitable
for CCP clearing needs to be made in conjunction with the CCP in the
context of their ability to manage the risk.
* the increased use of CCPs is likely to increase the number of
counterparties able to be served by the business.
* access to clearing should be open to all execution venues in order to
maintain efficiency and market flexibility, and this is recognised by the
proposals.
* the provision of trade information to central repositories would be useful
for regulators to understand total market and individual participant
exposures, but too much pre and post trade transparency can be harmful to
liquidity, reduce market efficiency and undermine the efficacy of
regulation.
* there are only a very few highly liquid products that are suitable for
execution solely on pure electronic platforms without intervention and
support from brokers. The proposed requirements for execution venues
include the increased use of electronic facilitation, but we believe that
given the nature of the markets, broker support in providing liquidity will
remain essential to the effective operation of those markets. We believe
that our hybrid electronic broking model means that we are well positioned
to continue to provide a valuable service to clients, and that our offering
can be developed to meet the requirements being proposed.
Outlook
The world's financial markets remain unsettled, and although it is difficult to
predict market conditions, it seems reasonable to expect that there will
continue to be periods of volatility.
Underlying revenue, adjusting for the impact of the closure of the six
satellite offices in North America, is 3% higher in the first two months of the
year than a year ago. This reflects the benefit of the rebuilding in North
America and the continued recovery in Asia. We will continue to invest in the
development of the business across all three regions.
The enduring strength of the business is the valuable service it provides to
clients through its ability to create liquidity through price and volume
discovery to facilitate trading in a wide range of financial instruments. We
believe that the introduction of the various regulatory proposals affecting the
OTC markets will be positive for our business as the proposals formalise the
role of the intermediary in those markets. The changes in the regulatory
environment will result in changes in the way in which some trades are
executed, reported and cleared. We believe that we are well positioned to
continue to provide a valuable service to clients and that our offering can be
developed to meet the requirements being proposed.
_____________________________________________________________________
Consolidated Income Statement
for the year ended 31 December 2010
Notes 2010 2009
£m £m
Revenue 3 908.5 947.7
Administrative expenses (764.4) (781.2)
Other operating income 4 8.3 4.3
Operating profit 152.4 170.8
Finance income 5 11.3 20.2
Finance costs 6 (22.4) (34.5)
Profit before tax 141.3 156.5
Taxation (33.7) (46.9)
Profit of consolidated companies 107.6 109.6
Share of results of associates 1.5 1.8
Profit for the year 109.1 111.4
Attributable to:
Equity holders of the parent 108.5 110.8
Minority interests 0.6 0.6
109.1 111.4
Earnings per share
Basic 7 50.5p 51.8p
Diluted 7 50.3p 51.2p
Adjusted earnings per share is disclosed in note 7
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
2010 2009
£m £m
Profit for the year 109.1 111.4
Other comprehensive income:
Revaluation of available-for-sale assets 0.3 0.9
Gain on net investment hedge - 2.5
Effect of changes in exchange rates on translation 9.1 (17.2)
of foreign operations
Actuarial gains/(losses) on defined benefit 14.5 (0.5)
pension schemes
Taxation charge on components of other (6.8) (1.9)
comprehensive income
Other comprehensive income for the year 17.1 (16.2)
Total comprehensive income for the year 126.2 95.2
Attributable to:
Equity holders of the parent 125.3 94.9
Minority interests 0.9 0.3
126.2 95.2
Consolidated Balance Sheet
as at 31 December 2010
2010 2009
£m £m
Non-current assets
Goodwill 376.5 373.5
Other intangible assets 12.1 7.4
Property, plant and equipment 24.3 25.6
Interest in associates 3.6 3.5
Other financial assets 4.1 4.8
Deferred tax assets 13.0 13.7
Retirement benefit assets 23.6 -
457.2 428.5
Current assets
Trade and other receivables 4,186.9 5,765.0
Other financial assets 35.6 30.1
Cash and cash equivalents 390.1 366.1
4,612.6 6,161.2
Total assets 5,069.8 6,589.7
Current liabilities
Trade and other payables (4,229.4) (5,825.5)
Interest bearing loans and borrowings (30.1) (30.2)
Current tax liabilities (40.3) (36.7)
Short term provisions (0.5) (1.5)
(4,300.3) (5,893.9)
Net current assets 312.3 267.3
Non-current liabilities
Interest bearing loans and borrowings (327.8) (357.0)
Retirement benefit obligations - (1.3)
Deferred tax liabilities (19.5) (8.1)
Long term provisions (3.9) (7.8)
Other long term payables (6.5) (9.1)
(357.7) (383.3)
Total liabilities (4,658.0) (6,277.2)
Net assets 411.8 312.5
Equity
Share capital 53.8 53.8
Share premium 9.9 9.9
Reverse acquisition reserve (1,182.3) (1,182.3)
Other reserves 146.7 128.6
Retained earnings 1,380.9 1,300.3
Equity attributable to equity holders of the parent 409.0 310.3
Minority interests 2.8 2.2
Total equity 411.8 312.5
Consolidated Statement of Changes in Equity
for the year ended 31 December 2010
........................Equity attributable to equity holders of the parent..............
Share Share Reverse Equity Re-valuation Merger Hedging and Own Retained Total Minority Total
capital premium acquisition reserve reserve reserve translation shares earnings interests equity
account reserve
£m £m £m £m £m £m £m £m £m £m £m £m
Balance at 53.8 9.9 (1,182.3) - 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5
1 January
2010
Profit for - - - - - - - - 108.5 108.5 0.6 109.1
the year
Other - - - - 0.3 - 9.8 - 6.7 16.8 0.3 17.1
comprehensive
income for the year
Total - - - - 0.3 - 9.8 - 115.2 125.3 0.9 126.2
comprehensive
income for
the year
Equity - - - 5.3 - - - - - 5.3 - 5.3
component of
deferred
consideration
Dividends - - - - - - - - (32.7) (32.7) (0.3) (33.0)
paid in the
year
Sale of own - - - - - - - 2.3 (0.6) 1.7 - 1.7
shares
Shares used - - - - - - - 0.4 (0.4) - - -
to meet
share award
exercises
Debit arising - - - - - - - - (0.9) (0.9) - (0.9)
on share-based
payment awards
Balance at 53.8 9.9 (1,182.3) 5.3 2.6 121.5 17.4 (0.1) 1,380.9 409.0 2.8 411.8
31 December
2010
Balance at 53.8 9.9 (1,182.3) - 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5
1 January
2009
Profit for - - - - - - - - 110.8 110.8 0.6 111.4
the year
Other - - - - 0.9 - (16.3) - (0.5) (15.9) (0.3) (16.2)
comprehensive income for
the year
Total - - - - 0.9 - (16.3) - 110.3 94.9 0.3 95.2
comprehensive income for
the year
Dividends - - - - - - - - (27.8) (27.8) (0.7) (28.5)
paid in the year
Sale of own - - - - - - - 2.6 (1.1) 1.5 - 1.5
shares
Shares used - - - - - - - 1.5 (1.5) - - -
to meet share
award exercises
Increase in - - - - - - - - - - 0.2 0.2
minorities' equity interests
Debit arising - - - - - - - - (0.4) (0.4) - (0.4)
on share-based
payment awards
Balance at 53.8 9.9 (1,182.3) - 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5
31 December
2009
Consolidated Cash Flow Statement
for the year ended 31 December 2010
Notes 2010 2009
£m £m
Net cash from operating activities 9(a) 94.7 85.3
Investing activities
Purchase of other financial assets (5.2) (0.8)
Interest received 1.9 5.0
Dividends from associates 1.4 1.9
Sale/(purchase) of available-for-sale assets 1.7 (0.1)
Expenditure on intangible fixed assets (7.5) (4.1)
Purchase of property, plant and equipment (4.9) (5.2)
Proceeds on disposal of property, plant and 0.2 0.2
equipment
Investment in subsidiaries (2.4) (3.4)
Net cash used in investment activities (14.8) (6.5)
Financing activities
Dividends paid 8 (32.7) (27.8)
Dividends paid to minority interests (0.3) (0.7)
Sale of own shares 1.7 1.5
Repayment of debt (30.3) (30.1)
Repayment of obligations under finance leases (0.3) (3.7)
Eurobond issue costs - (2.5)
Payments relating to net investment hedges - (12.5)
Receipts relating to net investment hedges - 2.5
Net cash used in financing activities (61.9) (73.3)
Net increase in cash and cash equivalents 18.0 5.5
Cash and cash equivalents at the beginning of 366.1 374.9
the year
Effect of foreign exchange rate changes 6.0 (14.3)
Cash and cash equivalents at the end of the 9(b) 390.1 366.1
year
Notes to the Consolidated Financial Statements
for the year ended 31 December 2010
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the
Companies Act.
2. Basis of preparation of accounts
Basis of accounting
The financial information included in this document does not constitute the
Group's statutory accounts for the years ended 31 December 2010 or 2009, but is
derived from those accounts. Statutory accounts for 2009 have been delivered to
the Registrar of Companies and those for 2010 will be delivered following the
Company's annual general meeting. The auditor has reported on those accounts;
their reports were unqualified and did not contain a statement under section
498(2) or 498(3) of the Companies Act 2006.
The financial statements have been prepared on the historical cost basis,
except for the revaluation of certain financial instruments.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the going concern basis continues to be used in preparing these
financial statements.
Basis of consolidation
The Group's consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company made up to 31
December each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee enterprise so as to
obtain benefits from its activities.
3. Segmental analysis
Analysis by geographical segment
2010 2009
£m £m
Revenue
Europe 536.1 542.6
North America 259.0 318.0
Asia Pacific 113.4 87.1
908.5 947.7
Operating profit
Europe 120.7 123.2
North America 22.5 44.4
Asia Pacific 9.2 3.2
152.4 170.8
Finance income 11.3 20.2
Finance costs (22.4) (34.5)
Profit before tax 141.3 156.5
Taxation (33.7) (46.9)
Profit of consolidated companies 107.6 109.6
Share of results of associates 1.5 1.8
Profit for the year 109.1 111.4
There are no inter-segment sales included in segment revenue.
4. Other operating income
Other operating income represents receipts such as rental income, royalties,
insurance proceeds, settlements from competitors and business relocation
grants. Costs associated with such items are included in administrative
expenses.
5. Finance income
2010 2009
£m £m
Interest receivable and similar income 1.9 3.4
Expected return on pension schemes' assets 9.4 6.5
Fair value gain on derivative instruments - 9.0
Amortisation of discount on deferred consideration - 1.3
11.3 20.2
6. Finance costs
2010 2009
£m £m
Interest payable on bank loans 2.5 4.6
Interest payable on Eurobonds 10.5 11.5
Other interest payable 0.4 0.2
Amortisation of debt issue costs 1.2 0.9
Total borrowing costs 14.6 17.2
Fair value loss on derivative instruments - 10.3
Interest cost on pension schemes' liabilities 7.8 7.0
22.4 34.5
7. Earnings per share
2010 2009
Adjusted basic 46.4p 49.2p
Basic 50.5p 51.8p
Diluted 50.3p 51.2p
The calculation of basic and diluted earnings per share is based on the
following number of shares in issue:
2010 2009
No.(m) No.(m)
Weighted average shares in issue used for 214.9 213.9
calculating basic and adjusted basic earnings per share
Contingently issuable shares 0.2 1.8
Issuable on exercise of options 0.6 0.7
Diluted weighted average shares in issue 215.7 216.4
The earnings used in the calculation of adjusted, basic and diluted earnings
per share, are set out below:
2010 2009
£m £m
Profit for the year 109.1 111.4
Minority interests (0.6) (0.6)
Earnings for calculating basic and diluted earnings per 108.5 110.8
share
Expected return on pension schemes' assets (9.4) (6.5)
Interest cost on pension schemes' liabilities 7.8 7.0
Amortisation of discount on deferred consideration - (1.3)
Fair value movement on derivative financial instruments - 1.3
Tax on above items 0.5 (0.2)
Tax on capital related items (6.0) -
Prior year tax (1.6) (5.9)
Adjusted Earnings for calculating adjusted basic 99.8 105.2
earnings per share
8. Dividends
2010 2009
£m £m
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 31 December 2010 of 11.3 -
5.25p per share
Final dividend for the year ended 31 December 2009 of 10.0p 21.4 -
per share
Interim dividend for the year ended 31 December 2009 of - 10.7
5.0p per share
Final dividend for the year ended 31 December 2008 of 8.0p - 17.1
per share
32.7 27.8
In respect of the current year, the directors propose that the final dividend
of 10.5p per share amounting to £22.6m will be paid on 19 May 2011 to all
shareholders on the Register of Members on 26 April 2011. This dividend is
subject to approval by shareholders at the AGM and has not been included as a
liability in these financial statements.
The trustees of the Tullett Prebon plc Employee Share Ownership Trust and the
trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived
their rights to dividends.
9. Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash from operating activities
2010 2009
£m £m
Operating profit 152.4 170.8
Adjustments for:
Share-based compensation (0.9) (0.4)
Profit on sale of other non-current financial assets (1.0) -
Loss on sale of property, plant and equipment 0.2 -
Depreciation of property, plant and equipment 6.4 6.1
Amortisation of intangible assets 3.0 2.1
Decrease in provisions for liabilities and charges (5.4) (1.8)
Outflow from retirement benefit obligations (8.8) (8.1)
(Decrease)/increase in non-current liabilities (1.1) 0.7
Operating cash flows before movement in working capital 144.8 169.4
(Increase)/decrease in trade and other receivables (15.0) 4.4
Decrease/(increase) in net settlement balances 0.2 (0.2)
Increase/(decrease) in trade and other payables 5.6 (41.2)
Cash generated from operations 135.6 132.4
Income taxes paid (27.5) (30.4)
Interest paid (13.4) (16.7)
Net cash from operating activities 94.7 85.3
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short term highly
liquid investments with an original maturity of three months or less. As at 31
December 2010 cash and cash equivalents amounted to £390.1m (2009: £366.1m).
Cash at bank earns interest at floating rates based on daily bank deposit
rates. Short term deposits are made for varying periods of between one day and
one week depending on the immediate cash requirements of the Group, and earn
interest at the respective short term deposit rates.
10. Analysis of net funds
At 1 Cash Non-cash Exchange At 31
January flow items differences December
2010 2010
£m £m £m £m £m
Cash 189.7 49.2 - 3.5 242.4
Cash equivalents 173.6 (30.8) - 2.5 145.3
Client settlement money 2.8 (0.4) - - 2.4
Cash and cash equivalents 366.1 18.0 - 6.0 390.1
Other current financial 30.1 5.2 - 0.3 35.6
assets
Total funds 396.2 23.2 - 6.3 425.7
Bank loans within one year (30.0) 30.0 (30.0) - (30.0)
Bank loans after one year (209.1) - 29.1 - (180.0)
Loans due after one year (147.6) 0.3 (0.3) - (147.6)
Finance leases (0.5) 0.3 (0.2) 0.1 (0.3)
(387.2) 30.6 (1.4) 0.1 (357.9)
Total net funds 9.0 53.8 (1.4) 6.4 67.8
Other current financial assets comprise short term government securities and
term deposits held on deposits with banks and clearing organisations.
11. Events after the balance sheet date
On 8 February 2011, the Group entered into a new £235m credit agreement
consisting of a £120m amortising term loan facility and a £115m committed
revolving credit facility. These facilities replaced the previous facilities
outstanding at that date, a £180m term loan and a £50m committed revolving
credit facility that were due to mature in January 2012. The new term loan is
subject to repayments of £30m in each of February 2012 and February 2013 with
£60m maturing in February 2014. The committed revolving credit facility, which
has not been drawn, will also mature in February 2014.
OTHER INFORMATION
The Annual General Meeting of Tullett Prebon plc will be held at Level 37,
Tower 42, 25 Old Broad Street, London EC2N 1HQ on 12 May 2011 at 2.30pm.
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