Half Year Report
TULLETT PREBON PLC
INTERIM RESULTS - for the six months ended 30 June 2010
Tullett Prebon plc (the "Company") today announced its preliminary results for
the six months ended 30 June 2010.
Financial Highlights
- Revenue £475.8m (2009: £517.9m)
- Operating profit £84.7m (2009: £100.6m)
- Operating margin 17.8% (2009: 19.4%)
- Adjusted Profit before tax (1) £78.6m (2009: £92.8m)
- Adjusted EPS (2) 25.5p (2009: 28.5p)
Notes
1. Adjusted PBT is stated before non cash gains and losses in net finance income/
(expense). A reconciliation of the adjusted PBT to the reported PBT of £79.3m
(2009: £91.7m) 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
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:
"The performance of the business continues to be robust.
Revenue of £475.8m is 8% lower than reported for 2009. Underlying revenue was
unchanged compared with the same period a year ago, which is an excellent
performance against a strong comparative. The net effect of the broker
defections in North America following the raid by BGC in the second half of
last year has been to reduce revenue by 7%. The impact of currency movements
on the translation of our non-UK operations has been slightly adverse.
Operating profit for the first half was £84.7m, with an operating margin of
17.8%. Adjusted basic earnings per share were 25.5p.
An interim dividend of 5.25p per share (2009: 5.0p per share) will be paid on
18 November 2010 to shareholders on the register at 29 October 2010."
Terry Smith, Chief Executive, added:
"The world's financial markets remained unsettled during the first half with
bouts of intense volatility. Market activity in June and July has been
relatively subdued, and although it continues to be difficult to forecast
market activity, it is likely that the unsettled financial market conditions
will persist into the second half and that there will be periods of higher
activity in the remaining months of the year.
We have a well diversified and robust business and we are well positioned to
respond to, and to benefit from, changes in the way in which the OTC markets
and our customers operate and are regulated. We expect to deliver a good
outcome for the year."
Enquiries:
Investors and Analysts
Nigel Szembel, Head of Communications
Tullett Prebon plc
44 (0)207 200 7722
Press
Charlotte Kirkham
M:Communications
44 (0)207 920 2331
Further information on the Company and its activities is available on the
Company's website: www.tullettprebon.com
TULLETT PREBON PLC
INTERIM MANAGEMENT REPORT - for the six months ended 30 June 2010
Overview
The performance of the business continues to be robust.
Risk appetite in the financial markets has started to return, although overall
activity in the markets in which we operate was generally slightly lower in the
first half compared to the same period last year which still benefited,
particularly in the first quarter, from the volatility and turbulence in
financial markets following the collapse of Lehman Brothers. Market volatility
picked up in May, although this level of volatility did not persist into June.
Revenue of £475.8m is 8% lower than reported for 2009. As expected, the
underlying revenue run rate in comparison with prior year improved over the
period, and for the first half overall, underlying revenue was unchanged
compared with the same period a year ago. This is an excellent performance
against a strong comparative. The net effect of the broker defections in North
America following the raid by BGC in the second half of last year has been to
reduce revenue by 7%. The impact of currency movements on the translation of
our non-UK operations has been slightly adverse.
In North America we have re-established our presence in all of the major
product areas affected by the broker defections. We have now largely paused
our hiring in these areas in order to allow us to assess the success of these
hirings and the condition of the markets in the products concerned. Broker
headcount on the affected desks at the end of June was around half the level
before the defections, and total broker headcount in North America is 12% lower
than a year ago.
Action is being taken to reduce costs and complexity in North America,
including the exit of under-performing brokers, reductions in broking support
staff, and the planned closure of six small offices in the region before the
end of the year, one of which has already been effected. The offices to be
closed accounted for around 3% of group revenue in 2009, mainly from cash
equities and energy products, but they made only a limited contribution to
operating profit, and their closure will allow management to focus on the two
main offices in New Jersey and New York. One-off costs relating to the cost
reduction actions being taken across the whole business of around £3m will be
incurred, largely in the second half.
We continue to develop our electronic capabilities. Our electronic broking
development is focused on the hybrid model, with electronic platforms which
complement and support existing voice broker liquidity. This approach is
better suited to most OTC products, is preferred by both clients and brokers,
and facilitates evolution of trade execution to meet market requirements. Our
current electronic broking offering competes effectively with similar platforms
provided by our peers, and we are well placed to launch new electronic
platforms across all regions when market opportunities arise or regulations
require.
We have also continued to develop our Information Sales and Risk Management
Services activities. TP Match, our pure electronic FRA matching platform which
was launched towards the end of 2009, has successfully built market share,
particularly in the US dollar market. The acquisition of OTC Valuations, which
complements our Information Sales business and which allows us to meet the
increasing demand for independent valuation services, completed in May.
Revenue from products supported by electronic platforms, together with
Information Sales and Risk Management Services revenue, accounted for one sixth
of total revenue in the first half of the year. The proportion of that revenue
that is derived from voice-only execution continues to reduce, with an
increased proportion derived from trades conducted through the platforms.
Operating profit for the first half was £84.7m, with an operating margin of
17.8%. There is some operational leverage in the business, and the reduction
in operating profit and margin compared to the first half of 2009 largely
reflects the reduction in revenue. Broker compensation as a percentage of
broking revenue is slightly higher than a year ago due to the increased costs
of employment, particularly in North America and London, as a result of the
unlawful poaching raids on the business by BGC, and the initial inefficiencies
as new hires build up to their full run rate of revenue. Support costs are
little changed compared to a year ago.
Our key financial and performance indicators for the first half of 2010
compared with those for the first half of 2009 are summarised in the table
below.
Change
Constant
2010 2009 Reported Exchange
Rates
Revenue £475.8m £517.9m -8% -7%
Operating profit £84.7m £100.6m -16% -15%
Operating margin 17.8% 19.4% -1.6% points
Broker headcount (period end) 1,624 1,647 -1%
Average revenue per broker (£'000) 283 308 -8% -7%
Broker employment costs : broking revenue 57.9% 7.6% +0.3% points
Broking support headcount (period end) 703 713 -1%
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. At a Directions hearing on
30 April 2010 permission for BGC to appeal was refused on 20 out of 22 grounds,
and in particular, permission to appeal against the finding of conspiracy was
refused. BGC have, however, petitioned the Court of Appeal for permission to
widen the appeal. The substantive appeal hearing is expected to be heard
before the end of the year. The Company is seeking substantial damages from
BGC. The damages trial has been fixed for 4 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"). This case will
be proceeding to trial in the near future. A separate action brought by
Tullett Prebon plc for a federal case to be heard in the United States District
Court in New Jersey against BGC alleging, among other causes of action,
violations of the New Jersey RICO statute has been dismissed by the judge.
This dismissal was on technical grounds, in part based on the pendency of the
FINRA arbitration, and did not reach the merits of the claim. We respectfully
disagree with the Judge's opinion, and have filed a notice of appeal. The
decision has no effect on the FINRA arbitration.
Legal action also continues to be pursued against former employees in Hong Kong
who have unlawfully terminated their employment with the Company in order to
join BGC.
Revenue and Operating Profit
The tables below analyse revenue and operating profit for the first half of
2010 compared with the equivalent period in 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 complete
analysis of performance, revenue and operating profit growth rates for the
first half of 2010 shown below are presented both as reported and using
translation exchange rates consistent with those used for 2009. 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 125.2 124.0 +1% +2%
Interest Rate Derivatives 107.5 102.3 +5% +6%
Fixed Income 132.7 188.3 -30% -28%
Equities 38.1 38.8 -2% +1%
Energy 55.6 52.3 +6% +7%
Information Sales and Risk Management 16.7 12.2 +37% +37%
Services
475.8 517.9 -8% -7%
The increase in revenue in Treasury Products reflects strong growth in forward
FX, including non-deliverable-forwards, offset by a reduction in revenue from
cash and deposits.
The increase in revenue in Interest Rate Derivatives reflects a strong recovery
in revenue from emerging market interest rate swaps and from interest rate
options.
The fall in revenue in Fixed Income reflects the impact of the broker
defections in North America together with the effect of lower market activity
in credit derivatives in both Europe and North America, and in agency bonds in
North America.
In Equities, growth in equity derivatives, reflecting more active markets and
the development of the business in Asia, has been offset by lower revenue in
cash equities.
The Energy business in Europe which covers power, gas and oil products has
delivered strong revenue growth, benefiting from the continued buoyant market
and from broker hires, and this has offset a reduction in revenue from North
America, where the business is focused mainly on power products.
The Information Sales business has continued to benefit from increasing
customer demand for both real time and end of day data, and an expansion of the
customer base. The post trade Risk Management Services business has
established significant revenue from the TP Match platform launched at the end
of last year.
Revenue by region
Change
Constant
2010 2009 Reported Exchange
£m £m Rates
Europe 288.1 289.1 -0% -0%
North America 135.6 183.6 -26% -23%
Asia Pacific 52.1 45.2 +15% +13%
475.8 517.9 -8% -7%
Revenue in Europe is little changed compared to last year. Broking revenue is
1% lower, offset by increased revenue from Information Sales and Risk
Management Services. Broker headcount in Europe is 4% higher than last June at
803, and average revenue per broker is 5% lower compared with the same period a
year ago. Broking revenue has benefited from more buoyant activity in emerging
markets products, particularly in forward FX and in interest rate swaps, but
revenue from the cash, forward FX and interest rate swap desks which were
affected by the BGC raid in the first half of last year has been lower. In
Fixed Income, revenue from government bonds has been maintained but revenue has
fallen in credit products, with substantially lower market activity in credit
derivatives compared to the prior year. Markets across all sectors of the
Energy business have been active, and revenue in Equities has benefited from
the development of the alternative investments desk and from investment in
equity derivatives.
Revenue in North America has reduced by 23%. Most of this decline is due to
lower revenue from those desks affected by the broker defections last year.
Excluding this, revenue has reduced by 6%. Broker headcount in North America
has fallen from 526 at June 2009 to 461 at June 2010. Headcount on the
affected desks fell by 77 when the brokers defected during the second half of
2009, and at June 2010 headcount on those desks is still 49 lower than a year
ago. Underlying broker headcount is down by 4% reflecting the closure of the
Florida office and a reduction in the number of credit derivatives brokers due
to the decline in the market. Underlying average revenue per broker is 2%
lower. Revenue in Treasury Products and Interest Rate Derivatives has
benefited from a recovery in risk appetite with particularly good growth in
emerging market products, FX options and interest rate options. Fixed Income
revenue is down sharply due to the broker defections, which were mainly from
this product group, and also due to lower activity in the markets for agency
bonds and credit derivatives.
Revenue in Asia has increased by 13%. Broker headcount in Asia at the end of
June was 360, 4% higher than a year ago, and average revenue per broker has
increased by 9%. Market activity in Asia fell sharply in 2009 but has picked
up during the first half of this year, reflecting the return of risk appetite
and capital deployed by clients in the region. Volumes in forward FX,
especially in non-deliverable-forwards for non convertible currencies and in FX
options in regional currencies, have recovered strongly. The region has also
benefited from good revenue growth from the development of our market leading
oil products desks in Singapore following the integration of the Aspen
business, and from the commencement in February this year of the operation of
the equity derivatives business in Tokyo.
Operating profit by region
Change
Constant
2010 2009 Reported Exchange
£m £m Rates
Europe 69.6 69.4 +0% +0%
North America 11.7 28.7 -59% -57%
Asia Pacific 3.4 2.5 +36% +36%
Reported 84.7 100.6 -16% -15%
Operating margin by region 2010 2009
Europe 24.2% 24.0%
North America 8.6% 15.6%
Asia Pacific 6.5% 5.5%
17.8% 19.4%
Operating profit and operating margin in Europe are little changed. Revenue,
the broker employment costs to revenue percentage and support costs are all
very similar to the same period last year.
Operating profit in North America has fallen by 57% due to the decline in
revenue with a reduction in operating margin to 8.6%. Broker employment costs
as a percentage of revenue are higher than a year ago reflecting the increased
costs of employment in the light of competitor action and the initial
inefficiencies as new hires build up to their full run rate of revenue. The
reduced scale of the business has also eroded the operating margin as the fixed
costs in the region have not reduced in line with revenue.
Operating profit in Asia Pacific has increased by 36% reflecting the higher
revenue compared to a year ago with an improvement in operating margin to
6.5%. Broker employment costs as a percentage of revenue are slightly higher
than a year ago due to the investment in establishing the equity derivatives
business in Tokyo which commenced operations in February and is still building
up to the anticipated revenue run rate. The improvement in operating margin
reflects the benefit of increased revenue on the fixed support cost base.
Financial Review
The results for the first half of 2010 compared with those for the first half
of 2009 are shown in the table below.
2010 2009
£m £m
Revenue 475.8 517.9
Operating profit 84.7 100.6
Cash finance expense (6.1) (7.8)
Adjusted Profit before tax * 78.6 92.8
Tax (24.8) (32.5)
Associates 1.0 1.0
Minority interests (0.2) (0.5)
Adjusted Earnings ** 54.6 60.8
Weighted average number of shares 214.3m 213.6m
Adjusted Earnings per share 25.5p 28.5p
* Adjusted PBT reconciles to reported PBT as follows: 2010 2009
£m £m
Adjusted Profit before tax 78.6 92.8
Non cash finance income/(expense) 0.7 (1.1)
Reported Profit before tax 79.3 91.7
** Adjusted Earnings reconciles to 2010 2009
reported Earnings as follows:
£m £m
Adjusted Earnings 54.6 60.8
Non cash finance income/(expense) 0.7 (1.1)
Tax on non cash finance income/(expense) (0.2) 0.4
Reported Earnings
55.1 60.1
Cash finance expense
The reduction in cash finance expense reflects the lower interest rates on the
fixed rate bonds which took effect in July and August last year, and lower
interest on the bank debt due to lower interest rates and the lower average
amount outstanding, partly offset by lower interest receivable on cash
balances.
Taxation
The effective rate of tax on adjusted PBT is 31.5% (2009: 35.0%). The
effective rate of tax reflects the estimated effective rate for the full year.
The reduction in the effective rate compared with 2009 results from the
increase in the proportion of taxable profits generated in the UK versus the
US.
Exchange rates
The income statements and balance sheets of the group's non-UK operations are
translated into sterling at average and period end exchange rates
respectively. The most significant exchange rates for the group are the US
dollar, the Euro, the Singapore dollar and the Japanese Yen. Average and
period end exchange rates for these currencies against sterling are shown
below.
Average Period End
H1 2010 H1 2009 H2 2009 30 June 31 Dec 30 June
2010 2009 2009
US dollar $1.54 $1.47 $1.64 $1.50 $1.61 $1.65
Euro €1.14 €1.10 €1.13 €1.22 €1.13 €1.17
Singapore dollar S$2.15 S$2.19 S$2.33 S$2.09 S$2.27 S$2.38
Japanese Yen ¥141 ¥140 ¥150 ¥132 ¥150 ¥159
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 84.7 100.6
Share based compensation 1.3 (0.2)
Depreciation and amortisation 4.5 4.1
EBITDA 90.5 104.5
Capital expenditure (net of disposals) (5.2) (4.1)
Working capital (47.0) (57.4)
Operating cash flow 38.3 43.0
Exceptional items - cash payments - (6.3)
Interest (0.5) (4.4)
Taxation (20.1) (15.0)
Defined benefit pension scheme funding (6.3) (6.3)
ESOT transactions 1.7 1.5
Dividends received from associates / paid to minorities 1.4 1.9
Acquisitions/investments (2.4) (3.5)
Cash flow 12.1 10.9
The normal seasonal pattern of working capital movements is for trade
receivables and net settlement balances to be higher at June than at December,
and operating cash flow for the first half of the year therefore tends to be
lower than operating profit.
The working capital cash flow in the first half also reflects an increase in
the broker sign-on prepayment balance, as new sign-on payments have been higher
than the amortisation.
The defined benefit pension scheme funding includes £4.5m of additional special
contributions agreed with the Trustees of the schemes with the aim of
eliminating the actuarial deficits in the pension schemes by 31 December 2010.
Acquisition and investment expenditure in 2010 comprises deferred consideration
payments relating to the acquisitions of Primex and Aspen, and the initial
consideration (net of cash acquired) for OTC Valuations.
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 12.1 - 12.1
Dividends (21.4) - (21.4)
Debt repayments / draw downs (30.4) 30.4 -
Effect of movement in exchange rates 7.8 0.1 7.9
Movements in fair value / amortisation of - (0.4) (0.4)
costs
At 30 June 2010 364.3 (357.1) 7.2
Net funds of £7.2m at 30 June 2010 are slightly lower than the £9.0m at 31
December 2009. The sterling equivalent value of the cash balances held in
non-UK operating subsidiaries, principally in the United States, has benefited
from the movements in exchange rates.
The group's borrowings at 30 June 2010 comprised the £141.1m Eurobond due July
2016, the remaining £8.5m of the Eurobond due August 2014, £210m of bank debt
drawn under an amortising term loan maturing in January 2012, and a small
amount of finance leases.
OTC Market Regulation
The passing into law of the Dodd-Frank Wall Street Reform and Consumer
Protection Act in the United States is a significant development in the process
of agreeing reforms designed to strengthen the financial system and to improve
the operation of the financial markets. The most pertinent section of the
legislation for the inter-dealer broker industry covers the regulation of the
OTC derivatives markets.
The Act empowers the appropriate Commission (the Commodity Futures Trading
Commission for "swaps" and the Securities and Exchange Commission for
"security-based swaps") to determine whether particular instruments should be
cleared through central counterparties. Financial entities trading a swap
which is required to be cleared must execute the trade through a "swap
execution facility" or a "board of trade", and the trade information will be
reported to a swap data repository which will facilitate the availability of
swap transaction and pricing data. The legislation requires the appropriate
Commission to establish the detailed rules and regulations to apply these
principles within one year of the date of enactment.
We support the principles of the legislation in this area, and we believe that
it will enhance our business. Inter-dealer brokers play a vital role in the
OTC financial markets, creating liquidity through price and volume discovery,
and facilitating efficient trading and risk management, and this legislation
formalises that role. We believe that our business will meet the requirements
for "swap execution facilities" and we are well placed to introduce new systems
and to make systems enhancements that may be required to comply with the
details of the new rules as they emerge.
We particularly welcome the recognition in the legislation of the following
matters on which we have previously commented:
- Central counterparty clearing is not appropriate for all financial
instruments. Only those swaps that can effectively and safely be cleared by a
central counterparty should be required to be cleared, and this should be
determined in conjunction with the clearing organisations.
- In order to maintain efficiency and market flexibility, access to clearing
should be open to all execution venues on a non-discriminatory basis.
- The provision of trade information needs to be balanced with maintaining
market liquidity. Trade reporting to a central depository would be useful in
allowing regulators to understand total market and individual participant
exposures, but too much transparency can destroy liquidity.
The European Commission is expected to propose legislation in the second half
of the year to improve the functioning of derivatives markets. We continue to
be engaged through our trade association in providing input to the discussions
on various proposals, and we are confident that we are well positioned to
respond to the regulations when they are issued.
Outlook
The world's financial markets remained unsettled during the first half with
bouts of intense volatility. Market activity in June and July has been
relatively subdued, and although it continues to be difficult to forecast
market activity, it is likely that the unsettled financial market conditions
will persist into the second half and that there will be periods of higher
activity in the remaining months of the year.
The underlying revenue run rate in comparison with the prior year is therefore
expected to continue to improve in the second half, and although we are not
planning to fully rebuild broker headcount in North America this year, the net
effect on revenue of the broker defections is expected to be lower in the
second half than in the first half.
We have a well diversified and robust business and we are well positioned to
respond to, and to benefit from, changes in the way in which the OTC markets
and our customers operate and are regulated. We expect to deliver a good
outcome for the year.
Condensed Consolidated Income Statement
for the six months ended 30 June 2010
Notes Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
(unaudited) (unaudited)
£m £m £m
Revenue 5 475.8 517.9 947.7
Administrative expenses (393.8) (419.3) (781.2)
Other operating income 2.7 2.0 4.3
Operating profit 5 84.7 100.6 170.8
Finance income 6 5.6 14.8 20.2
Finance costs 7 (11.0) (23.7) (34.5)
Profit before tax 79.3 91.7 156.5
Taxation (25.0) (32.1) (46.9)
Profit of consolidated companies 54.3 59.6 109.6
Share of results of associates 1.0 1.0 1.8
Profit for the period 55.3 60.6 111.4
Attributable to:
Equity holders of the parent 55.1 60.1 110.8
Minority interests 0.2 0.5 0.6
55.3 60.6 111.4
Earnings per share
Adjusted basic 8 25.5p 28.5p 49.2p
Basic 8 25.7p 28.1p 51.8p
Diluted 8 25.4p 28.0p 51.2p
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2010
Six months Six months Year
ended ended ended
30 June 30 June 31
2010 2009 December
(unaudited) (unaudited) 2009
£m £m £m
Profit for the period 55.3 60.6 111.4
Other comprehensive income:
Revaluation of available-for-sale assets - 0.5 0.9
Gain on net investment hedges - 3.6 2.5
Effect of changes in exchange rates on
translation of foreign operations 12.2 (23.0) (17.2)
Actuarial losses on defined benefit pension
schemes (0.9) (9.7) (0.5)
Taxation charge on components of other
comprehensive income (3.2) (1.3) (1.9)
Other comprehensive income for the period 8.1 (29.9) (16.2)
Total comprehensive income for the period 63.4 30.7 95.2
Attributable to:
Equity holders of the parent 63.0 30.4 94.9
Minority interests 0.4 0.3 0.3
63.4 30.7 95.2
Condensed Consolidated Balance Sheet
as at 30 June 2010
30 June 30 June 31
2010 2009 December
(unaudited) (unaudited) 2009
£m £m £m
Non-current assets
Goodwill 378.1 380.9 373.5
Other intangible assets 10.2 6.6 7.4
Property, plant and equipment 24.3 24.6 25.6
Interest in associates 3.1 2.7 3.5
Other financial assets 4.7 5.4 4.8
Deferred tax assets 14.7 15.2 13.7
Retirement benefit asset 4.8 - -
439.9 435.4 428.5
Current assets
Trade and other receivables 15,289.1 21,328.6 5,765.0
Other financial assets 33.0 33.4 30.1
Cash and cash equivalents 331.3 316.0 366.1
Derivative financial instruments - 3.6 -
15,653.4 21,681.6 6,161.2
Total assets 16,093.3 22,117.0 6,589.7
Current liabilities
Trade and other payables (15,303.1) (21,377.8) (5,825.5)
Interest bearing loans and borrowings (30.0) (34.0) (30.2)
Derivative financial instruments (0.1) (7.9) -
Current tax liabilities (44.9) (42.8) (36.7)
Short term provisions (1.1) (1.6) (1.5)
(15,379.2) (21,464.1) (5,893.9)
Net current assets 274.2 217.5 267.3
Non-current liabilities
Interest bearing loans and borrowings (327.1) (359.2) (357.0)
Retirement benefit obligations - (12.1) (1.3)
Deferred tax liabilities (11.1) (1.2) (8.1)
Long-term provisions (9.0) (8.2) (7.8)
Other long-term payables (9.4) (12.8) (9.1)
(356.6) (393.5) (383.3)
Total liabilities (15,735.8) (21,857.6) (6,277.2)
Net assets 357.5 259.4 312.5
Equity
Share capital 53.8 53.8 53.8
Share premium account 9.9 9.9 9.9
Reverse acquisition reserve (1,182.3) (1,182.3) (1,182.3)
Other reserves 140.1 125.3 128.6
Retained earnings 1,333.4 1,250.0 1,300.3
Equity attributable to equity holders of the
parent 354.9 256.7 310.3
Minority interests 2.6 2.7 2.2
Total equity 357.5 259.4 312.5
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2010
Equity attributable to equity holders of the parent
Share Reverse Re- Hedging
Share premium acquisition valuation Merger and Own Retained Minority Total
capital account reserve reserve reserve translation shares earnings Total interests equity
(unaudited) £m £m £m £m £m £m £m £m £m £m £m
Balance at 1
January 2010 53.8 9.9 (1,182.3) 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5
Profit for the
period - - - - - - - 55.1 55.1 0.2 55.3
Other
comprehensive
income for the
period - - - - - 8.9 - (1.0) 7.9 0.2 8.1
Total
comprehensive
income for the
period - - - - - 8.9 - 54.1 63.0 0.4 63.4
Dividends paid in
the period - - - - - - - (21.4) (21.4) - (21.4)
Sale of own
shares - - - - - - 2.3 (0.6) 1.7 - 1.7
Shares used to
meet share award
exercises - - - - - - 0.3 (0.3) - - -
Credit arising on
share-based
payment awards - - - - - - - 1.3 1.3 - 1.3
Balance at 30
June 2010 53.8 9.9 (1,182.3) 2.3 121.5 16.5 (0.2) 1,333.4 354.9 2.6 357.5
(unaudited)
Balance at 1
January 2009 53.8 9.9 (1,182.3) 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5
Profit for the
period - - - - - - - 60.1 60.1 0.5 60.6
Other
comprehensive
income for the
period - - - 0.5 - (19.2) - (11.0) (29.7) (0.2) (29.9)
Total
comprehensive
income for the
period - - - 0.5 - (19.2) - 49.1 30.4 0.3 30.7
Dividends paid in
the period - - - - - - - (17.1) (17.1) - (17.1)
Sale of own
shares - - - - - - 2.6 (1.1) 1.5 - 1.5
Shares used to
meet share award
exercises - - - - - - 1.5 (1.5) - - -
Debit arising on
share-based
payment awards - - - - - - - (0.2) (0.2) - (0.2)
Balance at 30
June 2009 53.8 9.9 (1,182.3) 1.9 121.5 4.7 (2.8) 1,250.0 256.7 2.7 259.4
Balance at 1
January 2009 53.8 9.9 (1,182.3) 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5
Profit for the
year - - - - - - - 110.8 110.8 0.6 111.4
Other
comprehensive
income for the
year - - - 0.9 - (16.3) - (0.5) (15.9) (0.3) (16.2)
Total
comprehensive
income for the
year - - - 0.9 - (16.3) - 110.3 94.9 0.3 95.2
Dividends paid in
the year - - - - - - - (27.8) (27.8) (0.7) (28.5)
Sale of own
shares - - - - - - 2.6 (1.1) 1.5 - 1.5
Shares used to
meet share award
exercises - - - - - - 1.5 (1.5) - - -
Increase in
minorities'
equity interests - - - - - - - - - 0.2 0.2
Debit arising on
share-based
payment awards - - - - - - - (0.4) (0.4) - (0.4)
Balance at
31 December 2009 53.8 9.9 (1,182.3) 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2010
Notes Six months Six months Year
ended ended ended
30 June 30 June 31
2010 2009 December
2009
(unaudited) (unaudited)
£m £m £m
Net cash from operating activities 10(a) 15.7 13.9 85.3
Investing activities
Purchase of other financial assets (2.5) (4.5) (0.8)
Interest received 0.9 1.2 5.0
Dividends from associates 1.4 1.9 1.9
Purchase of available-for-sale assets - (0.3) (0.1)
Purchase of intangible fixed assets (3.8) (2.3) (4.1)
Purchase of property, plant and equipment (1.4) (1.8) (5.2)
Proceeds on disposal of property, plant
and equipment 0.1 0.1 0.2
Investment in subsidiaries (2.4) (3.2) (3.4)
Net cash used in investment activities (7.7) (8.9) (6.5)
Financing activities
Dividends paid 9 (21.4) (17.1) (27.8)
Dividends paid to minority interests - - (0.7)
Sale of own shares 1.7 1.5 1.5
Repayment of debt (30.3) (30.0) (30.1)
Repayment of obligations under finance
leases (0.2) (3.4) (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 (50.2) (49.0) (73.3)
Net (decrease)/increase in cash and cash
equivalents (42.2) (44.0) 5.5
Net cash and cash equivalents at the
beginning of the period 366.1 374.9 374.9
Effect of foreign exchange rate changes 7.4 (18.9) (14.3)
Net cash and cash equivalents at the end
of the period 331.3 312.0 366.1
Cash and cash equivalents 331.3 316.0 366.1
Overdrafts - (4.0) -
Net cash and cash equivalents 10(b) 331.3 312.0 366.1
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2010
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the
Companies Act.
The condensed consolidated financial information for the six months ended 30
June 2010 has been prepared in accordance with the Disclosure and Transparency
Rules (DTR) of the Financial Services Authority and with IAS 34 'Interim
Financial Reporting' as adopted by the European Union (EU). This condensed
financial information should be read in conjunction with the statutory accounts
for the year ended 31 December 2009 which was prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU.
The statutory accounts for the year ended 31 December 2009 have been reported
on by the Company's auditors, Deloitte LLP, and have been delivered to the
Registrar of Companies. The report of the auditors on those accounts was
unqualified and did not contain a statement under section 498(2) or (3) of the
Companies Act 2006.
The condensed consolidated financial information for the six months ended 30
June 2010 has been prepared using accounting policies consistent with IFRS. The
interim information, together with the comparative information contained in
this report for the year ended 31 December 2009, does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006. The
financial information is unaudited but has been reviewed by the Company's
auditors, Deloitte LLP, and their report appears at the end of the interim
financial report.
2. Accounting policies
The condensed consolidated financial statements have been prepared on the
historical cost basis, except for the revaluation of certain financial
instruments. The Group has considerable financial resources both in the
regions and at the corporate centre to comfortably meet the Group's ongoing
obligations. Accordingly, the going concern basis continues to be used in
preparing these condensed consolidated financial statements. The condensed
consolidated financial statements are rounded to the nearest hundred thousand
pounds (expressed as millions to one decimal place - £m), except where
otherwise indicated.
The same accounting policies, presentation and methods of computation are
followed in the condensed financial statements as applied in the Group's latest
annual audited financial statements for the year ended 31 December 2009, except
as described below.
The Group has adopted the revised IFRS 3 'Business Combinations' standard and
amendments to International Accounting Standard (IAS) 27 'Consolidation and
Separate Financial Statements'. The revisions and amendments to these
standards apply to business combinations after 1 January 2010 and require:
acquisition costs to be recognised as an expense in the income statement in the
period in which they arise; all consideration transferred, including contingent
consideration, is recognised and measured at fair value at the acquisition
date; subsequent remeasurement of contingent consideration is recognised in the
income statement; equity interests held prior to control being obtained are
remeasured to fair value at the date of obtaining control, and any gain or loss
is recognised in the income statement; changes in a parent's ownership interest
in a subsidiary that do not result in a change of control are treated as
transactions between equity holders and are reported in equity; and, an option
is available, on a transaction by transaction basis, to measure non-controlling
interests, previously referred to as minority interests, in the entity at fair
value, or at the non-controlling interests' proportionate share of the net
identifiable assets of the entity acquired.
The Group has also adopted amendments to IFRS 2 'Share-based Payment' relating
to group cash settled share-based payment transactions, amendments to IFRIC 9
'Reassessment of Embedded Derivatives' and IAS 39 'Financial Instruments:
Recognition and Measurement' relating to embedded derivatives, amendment to IAS
39 'Financial Instruments: Recognition and Measurement' relating to eligible
hedged items and Improvements to IFRSs (2009). The adoption of these
amendments has not had any significant impact on the financial statements.
3. Related party transactions
Related party transactions are described in the 2009 annual report and accounts
in note 37 to the consolidated financial statements. There have been no
material changes in the nature or value of related party transactions in the
six months ended 30 June 2010.
4. Principal risks and uncertainties
Robust risk management is fundamental to the achievement of the Group's
objectives. The Group maintains a Risk Assessment Framework which identifies
risks within the following eight risk categories: credit risk, market risk,
operational risk, strategic and business risk, financial risk, reputational
risk, governance risk and regulatory, legal and human resource risk. A
detailed explanation of the above risks can be found on pages 16 to 18 of the
latest annual report which is available at www.tullettprebon.com. The directors
do not consider that the principal risks and uncertainties have changed since
the publication of the annual report for the year ended 31 December 2009.
Risks and uncertainties which could have a material impact on the Group's
performance over the remaining six months of the financial year are discussed
in the Interim Management Report.
5. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group is organised by geographic reporting segments which are used for the
purposes of resource allocation and assessment of segmental performance by
Group management. These are the Group's reportable segments under IFRS 8
'Operating Segments'.
Each geographic reportable segment derives revenue from Treasury Products,
Interest Rate Derivatives, Fixed Income, Equities, Energy and Information Sales
and Risk Management Services.
Information regarding the Group's operating segments is reported below:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Revenue £m £m £m
Europe 288.1 289.1 542.6
North America 135.6 183.6 318.0
Asia Pacific 52.1 45.2 87.1
475.8 517.9 947.7
Operating profit
Europe 69.6 69.4 123.2
North America 11.7 28.7 44.4
Asia Pacific 3.4 2.5 3.2
Reported operating profit 84.7 100.6 170.8
Finance income 5.6 14.8 20.2
Finance costs (11.0) (23.7) (34.5)
Profit before tax 79.3 91.7 156.5
Taxation (25.0) (32.1) (46.9)
Profit of consolidated companies 54.3 59.6 109.6
Share of results of associates 1.0 1.0 1.8
Profit for the period 55.3 60.6 111.4
There are no inter-segmental sales included in segment revenue.
5. Segmental analysis (continued)
Other segmental information
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Segment assets £m £m £m
Europe 7,279.7 8,776.9 2,090.7
North America 8,743.0 13,281.8 4,437.0
Asia Pacific 70.6 58.3 62.0
16,093.3 22,117.0 6,589.7
Segmental assets exclude all inter-segment balances.
Analysis by product group Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Revenue £m £m £m
Treasury Products 125.2 124.0 238.9
Interest Rate Derivatives 107.5 102.3 192.0
Fixed Income 132.7 188.3 317.1
Equities 38.1 38.8 74.0
Energy 55.6 52.3 100.6
Information Sales and Risk Management Services 16.7 12.2 25.1
475.8 517.9 947.7
There are no inter-segment sales included in segment revenue.
6. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£m £m £m
Interest receivable and similar income 0.9 2.1 3.4
Fair value gain on derivative instruments - 9.3 9.0
Expected return on pension schemes' assets 4.7 3.3 6.5
Amortisation of discount on deferred
consideration - 0.1 1.3
5.6 14.8 20.2
7. Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£m £m £m
Interest payable on bank loans 1.2 3.1 4.6
Interest payable on Eurobond 5.2 6.2 11.5
Other interest payable 0.1 0.1 0.2
Amortisation of debt issue costs 0.5 0.5 0.9
Total borrowing costs 7.0 9.9 17.2
Fair value loss on derivative instruments 0.1 10.3 10.3
Interest cost on pension schemes' liabilities 3.9 3.5 7.0
11.0 23.7 34.5
8. Earnings per share
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Adjusted basic 25.5p 28.5p 49.2p
Basic 25.7p 28.1p 51.8p
Diluted 25.4p 28.0p 51.2p
The calculation of basic and diluted earnings per share is based on the
following number of shares in issue:
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2009
2010 2009
No.(m) No.(m) No.(m)
Weighted average shares in issue used for calculating
basic and adjusted basic earnings per share 214.3 213.6 213.9
Contingently issuable shares 2.0 0.6 1.8
Issuable on exercise of options 0.8 0.6 0.7
Diluted weighted average shares in issue 217.1 214.8 216.4
8. Earnings per share (continued)
The earnings used in the calculation of adjusted, basic and diluted earnings
per share are set out below:
Six Six Year
months months ended
ended ended 31
30 June 30 June December
2010 2009 2009
£m £m £m
Profit for the period 55.3 60.6 111.4
Minority interests (0.2) (0.5) (0.6)
Earnings for calculating basic and diluted earnings
per share 55.1 60.1 110.8
Expected return on pension schemes' assets (4.7) (3.3) (6.5)
Interest cost on pension schemes' liabilities 3.9 3.5 7.0
Amortisation of discount on deferred consideration - (0.1) (1.3)
Fair value movement on derivative financial
instruments 0.1 1.0 1.3
Tax on above items 0.2 (0.4) (0.2)
Prior year tax - - (5.9)
Adjusted earnings for calculating adjusted basic
earnings per share 54.6 60.8 105.2
9. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£m £m £m
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2009 of 10.0p per share 21.4 - -
Interim dividend for the year ended 31
December 2009 of 5.0p per share - - 10.7
Final dividend for the year ended 31 December
2008 of 8.0p per share - 17.1 17.1
21.4 17.1 27.8
An interim dividend of 5.25p per share will be paid on 18 November 2010 to all
shareholders on the Register of Members on 29 October 2010.
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.
10. Notes to the Condensed Consolidated Cash Flow Statement
(a) Reconciliation of operating profit to net cash from operating activities
Six Six Year
months months ended
ended ended 31
30 June 30 June December
2010 2009 2009
£m £m £m
Operating profit 84.7 100.6 170.8
Adjustments for:
Share-based compensation 1.3 (0.2) (0.4)
Depreciation of property, plant and equipment 3.3 3.1 6.1
Amortisation of intangible assets 1.2 1.0 2.1
Exchange gain on other financial assets - (0.2) -
Increase/(decrease) in provisions for liabilities
and charges 0.2 (1.0) (1.8)
Outflow from retirement benefit obligations (6.3) (6.3) (8.1)
(Decrease)/increase in non-current liabilities - (0.2) 0.7
Operating cash flows before movement in working
capital 84.4 96.8 169.4
(Increase)/decrease in trade and other receivables (31.7) (14.4) 4.4
Increase in net settlement balances (0.6) (8.5) (0.2)
Decrease in trade and other payables (14.9) (39.4) (41.2)
Cash generated from operations 37.2 34.5 132.4
Income taxes paid (20.1) (15.0) (30.4)
Interest paid (1.4) (5.6) (16.7)
Net cash from operating activities 15.7 13.9 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. 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.
For the purposes of the Condensed Consolidated Cash Flow Statement, cash and
cash equivalents comprise the following:
30 June 30 June 31 December
2010 2009 2009
£m £m £m
Cash and cash equivalents 331.3 316.0 366.1
Bank overdrafts - (4.0) -
331.3 312.0 366.1
11. Analysis of net funds
At Cash Non-cash Exchange At
1 January flow items differences 30 June
2010 2010
£m £m £m £m £m
Cash 189.7 (5.1) - 4.7 189.3
Cash equivalents 173.6 (36.5) - 2.7 139.8
Client settlement money 2.8 (0.6) - - 2.2
Cash and cash equivalents 366.1 (42.2) - 7.4 331.3
Other current financial assets 30.1 2.5 - 0.4 33.0
Total funds 396.2 (39.7) - 7.8 364.3
Bank loans within one year (30.0) 30.0 (29.8) - (29.8)
Bank loans after one year (209.1) - 29.5 - (179.6)
Loans due after one year (147.6) 0.3 (0.1) - (147.4)
Finance leases (0.5) 0.2 (0.1) 0.1 (0.3)
(387.2) 30.5 (0.5) 0.1 (357.1)
Total net funds 9.0 (9.2) (0.5) 7.9 7.2
Client settlement money represents balances held by the Group received as a
result of corporate actions relating to securities transactions.
Other current financial assets comprise short term government securities and
term deposits held on deposit with clearing organisations.
12. Notes to the Condensed Consolidated Statement of Changes in Equity
Total comprehensive income reserve movements
Equity attributable to equity holders of the parent
Revaluation Hedging and Retained Minority Total
reserve translation earnings Total interests equity
Six months ended 30 June
2010 £m £m £m £m £m £m
Profit for the period - - 55.1 55.1 0.2 55.3
Revaluation of
available-for-sale
assets - - - - - -
Exchange differences on
translation of foreign
operations - 12.0 - 12.0 0.2 12.2
Actuarial loss on
defined benefit pension
schemes - - (0.9) (0.9) - (0.9)
Taxation charge on
components of other
comprehensive income - (3.1) (0.1) (3.2) - (3.2)
Total comprehensive
income for the six
months ended 30 June
2010 - 8.9 54.1 63.0 0.4 63.4
12. Notes to the Condensed Consolidated Statement of Changes in Equity
(continued)
Total comprehensive income reserve movements (continued)
Equity attributable to equity holders of the parent
Hedging
Revaluation and Retained Minority Total
reserve translation earnings Total interests equity
Six months ended 30
June 2009 £m £m £m £m £m £m
Profit for the period - - 60.1 60.1 0.5 60.6
Revaluation of
available-for-sale
assets 0.5 - - 0.5 - 0.5
Gain on net investment
hedge - 3.6 - 3.6 - 3.6
Exchange differences on
translation of foreign
operations - (22.8) - (22.8) (0.2) (23.0)
Actuarial loss on
defined benefit pension
schemes - - (9.7) (9.7) - (9.7)
Taxation charge on
components of other
comprehensive income - - (1.3) (1.3) - (1.3)
Total comprehensive
income for the six
months ended 30 June
2009 0.5 (19.2) 49.1 30.4 0.3 30.7
Equity attributable to equity holders of the parent
Hedging
Revaluation and Retained Minority Total
reserve translation earnings Total interests equity
Year ended 31 December
2009 £m £m £m £m £m £m
Profit for the year - - 110.8 110.8 0.6 111.4
Revaluation of
available-for-sale
assets 0.9 - - 0.9 - 0.9
Gain on net investment
hedge - 2.5 - 2.5 - 2.5
Exchange differences on
translation of foreign
operations - (16.9) - (16.9) (0.3) (17.2)
Actuarial loss on
defined benefit pension
schemes - - (0.5) (0.5) - (0.5)
Taxation charge on
components of other
comprehensive income - (1.9) - (1.9) - (1.9)
Total comprehensive
income for the year
ended 31 December 2009 0.9 (16.3) 110.3 94.9 0.3 95.2
Directors' Responsibility Statement
The directors confirm, to the best of their knowledge, that the condensed set
of financial statements has been prepared in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the European Union, and that the interim
management report herein includes a fair review of the information required by
DTR 4.2.7R and DTR 4.2.8R.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial information differs from legislation in other jurisdictions.
By order of the Board
Terry Smith
Chief Executive
2 August 2010
Independent Review Report to Tullett Prebon plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half year report for the six months ended 30 June 2010 which
comprises the Condensed Consolidated Income Statement, the Condensed
Consolidated Statement of Comprehensive Income, the Condensed Consolidated
Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Cash Flow Statement and related notes 1 to 12. We have
read the other information contained in the half year report and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the Company those matters we are required to state to them in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half year report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half year report in
accordance with the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half year report has
been prepared in accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half year report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half year report
for the six months ended 30 June 2010 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
2 August 2010
London, UK
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