Half-yearly Report
TULLETT PREBON PLC
UNAUDITED INTERIM RESULTS - for the six months ended 30 June 2007
Highlights
Tullett Prebon plc today announced its interim results for the six months
ended 30 June 2007. The highlights are:
- Revenue £371.6m (2006: £348.0m) - growth* of 12% at constant
exchange rates
- Operating profit £64.8m (2006: £62.5m) - growth* of 8% at constant
exchange rates
- Profit before tax £57.1m (2006: £68.1m)
- Adjusted** EPS 17.2p (2006: 16.9p). Basic EPS 16.1p (2006: 22.0p)
* calculated by translating the first half 2006 results of overseas
operations at the average exchange rates used for the first half of 2007
** excluding non cash gains and losses in net finance income/(expense)
and prior year tax items
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon
plc, said:
"Our objectives for the next few years are to grow revenue and to develop
our electronic trading platform. In January 2007 the acquisition of
Chapdelaine was completed, which has strengthened the business in North
America. A number of steps have been taken during the first half in pursuit of
the objectives.
The benefits of the further investments we have made will only
start to show in the second half and into 2008. Nevertheless, revenue
growth expressed at constant exchange rates was 12% in the first half with
revenue of £371.6m, reflecting good underlying progress in most areas of
the business and the boost from the acquisition of Chapdelaine. On the same
basis, operating profit has increased by 8%, to £64.8m. Adjusted earnings per
share for the first half were 17.2p."
Terry Smith, Chief Executive, added:
"The second half of 2007 has begun with significant volatility in
financial markets. Whilst these conditions are detrimental for many financial
services businesses, they are ideal for the inter-dealer broker business. Our
business performs well during such periods, and we have seen record
performances across all three regions in July and August. The short term
outlook for financial markets is characterised by uncertainty but we are well
placed to benefit from these conditions.
In addition, we believe that the actions being taken to develop the business
will create future value for shareholders."
- Ends -
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.
Chairman's statement
This is the first set of results for Tullett Prebon since the demerger of the
Collins Stewart stockbroking business in December 2006, which allowed us
to make the capital repayment to shareholders of £301.5 million in March 2007.
In the years 2005 and 2006, following the acquisition of Prebon, the
inter-dealer broker business focused on doubling operating margins and
delivering strong cash flows.
Following these achievements our objectives for the next few years are to
grow revenue and to develop our electronic trading platform. In January
2007 the acquisition of Chapdelaine was completed, which has strengthened the
business in North America. A number of steps have been taken during the first
half in pursuit of the objectives.
We have signed a number of new brokers both to extend our product coverage
and to support existing products. We have been particularly active in
building our presence in the fast growing area of credit, with key hires in
Europe, North America and Asia Pacific. We have launched two new products on
the TradeBladeTM platform, and we have hired a new, highly experienced, team
to lead our electronic broking initiative into the next stage of its
development. We are pursuing further opportunities to strengthen the business
in this period of continuing change in its markets.
The benefits of the further investments we have made will only start to show
in the second half and into 2008. Nevertheless, revenue growth expressed at
constant exchange rates was 12% in the first half, with revenue of £371.6m
reflecting good underlying progress in most areas of the business and the
boost from the acquisition of Chapdelaine. On the same basis, operating
profit has increased by 8%, to £64.8m. As expected, operating margins
in the first half have been diluted by the continuing net investment
in the development of TradeBladeTM.
As a result of the return of capital to shareholders, the group's
capital structure is significantly different from a year ago, and net
financing costs are not comparable year on year. Profit before tax for the
first six months was £57.1m, with adjusted earnings per share for the first
half of 17.2p. An interim dividend of 4p will be paid on 6 December 2007 to
shareholders on the register at 16 November 2007.
The Board is confident that the strategy being followed will continue
the development of the business and create value.
Keith Hamill
Chairman
10 September 2007
operating and financial review
Action has been taken during the first half to accelerate the rate
of revenue growth.
We have been successful in recruiting new brokers to join the business
in all three geographic regions, which will enhance and broaden our
product coverage and deepen liquidity pools. We have focused particularly on
the newer and more rapidly growing markets such as Credit, Volatility and
Emerging Markets. As there is a delay between hiring and the brokers starting
with the business, the impact on revenue will start to show in the second half
and into 2008. The new staff are expected to deliver annualised revenues of
some £60m compared with investment of less than £20m.
The integration of Chapdelaine has been successfully completed. Our
activities in North America have benefited from the increased scale and depth
of liquidity that Chapdelaine provides in corporate bonds and credit
derivatives in particular.
We have continued to develop our electronic trading platform, TradeBladeTM.
In May we added an FX Options capability to the platform and in August
launched Mortgage-Backed Securities, taking the number of product areas
supported by the technology to five. Our clients continue to support our drive
to establish a credible presence in electronic broking. A new team from ABN
Amro with extensive experience in the development of electronic trading
capability, led by Paul Humphrey, will start with the business in October to
lead this initiative in the next stage of its development.
The results for continuing operations for the first half of 2007 together with
those for the comparative period in 2006 and the year ended 31 December 2006
are summarised below.
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Revenue 371.6 348.0 654.1
Operating profit 64.8 62.5 114.8
Net interest (6.1) (2.5) (4.0)
Non-cash accounting (1.6) 8.1 14.2
items
Finance (7.7) 5.6 10.2
income/(expense)
Profit before tax 57.1 68.1 125.0
Earnings per share
- Adjusted basic 17.2p 16.9p 31.6p
- Basic 16.1p 22.0p 39.7p
Revenue and Operating Profit
The tables below analyse revenue and operating profit for the continuing
operations for the first half of 2007 compared with the equivalent
period in 2006. 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 overseas
operations. In order to give a more meaningful analysis of performance, the
results for 2006 shown below are stated using translation exchange rates
consistent with those used in 2007, with revenue and operating profit growth
rates calculated on the same basis.
Six months Six months
ended ended Change
Revenue by product 30 June 2007 30 June 2006
group £m £m
Treasury Products 96.5 98.5 -2%
Interest Rate Derivatives 89.8 84.1 +7%
Fixed Income 109.3 91.2 +20%
Equities 36.8 23.6 +56%
Energy 32.1 28.2 +14%
Information Sales 7.1 6.4 +11%
At consistent exchange rates 371.6 332.0 +12%
Translation - 16.0
Reported 371.6 348.0 +7%
Levels of activity were variable during the first half with periods
of relatively subdued trading interspersed with periods of high volatility.
Performance in Treasury Products overall has been held back by a
slowdown in the non-banking cash market in Europe and flat money market
activity in North America.
Interest Rate Derivatives have benefited from the recent volatility
in interest rates and the continuing investment and growth in emerging
economies.
The growth in Fixed Income includes the impact of Chapdelaine which
was acquired in January and which has considerably strengthened our North
America credit activities. The Fixed Income desks of Chapdelaine have been
fully integrated into our existing business and hence it is not possible to
isolate the specific impact of the acquisition. The government and agency
Fixed Income market in North America was challenging, and Fixed Income
revenues in Europe were flat.
Our Equities businesses continue to perform strongly, with a high level
of activity in equity derivatives in all three regions resulting from
sustained volatility in equity markets during the first half. The inclusion of
the separate Chapdelaine cash equities desk further boosts the growth rate.
Our Energy operations continue to grow strongly, and we are well positioned
to benefit from the ongoing volatility in Energy markets and growth in the
use of derivatives.
We continue to develop our Information Sales activities with geographical
expansion and extension of the customer base.
Six months Six months
ended ended Change
Revenue by region 30 June 2007 30 June 2006
£m £m
Europe 184.4 179.6 +3%
North America 151.5 120.8 +25%
Asia Pacific 35.7 31.6 +13%
At consistent exchange rates 371.6 332.0 +12%
Translation - 16.0
Reported 371.6 348.0 +7%
Revenues in Europe increased by 3% with strong growth in volatility
products and Energy offset by a more mixed performance in other product areas.
A relatively subdued trading environment in Treasury Products and Interest
Rate Derivatives for much of the first half has dampened the overall rate of
growth, although activity in both these areas picked up significantly in June
as a result of increased interest rate and foreign exchange rate volatility.
We were not well placed to take advantage of the rapid growth in the credit
derivatives market. In order to address this we have undertaken a major
restructuring of our credit activities, and have recently hired brokers who
are market leaders in this area. This will give us a significant presence in
credit and credit default swaps ("CDS") in London, supporting our growing
activities in structured CDS. The Energy markets continue to be attractive and
we have demonstrated our commitment to offering comprehensive coverage by
expanding our activities with the addition of coal, emissions products and
nuclear fuel derivatives. Equity market volatility has resulted in very active
equity derivatives markets in the first half and, together with new hires in
this area has driven significant growth in Equities, despite our withdrawal
from equity financing at the end of the first half last year.
Revenues in North America increased by 25%, benefiting from the successful
and rapid integration of the business of Chapdelaine, together with strong
performances in most areas of activity. Good growth in Treasury Products
reflects increased volumes in FX driven by the continued global investment
in the emerging economies of Latin America and Eastern Europe, and the
ongoing volatility in these areas. Interest Rate Derivative volumes have
also benefited from the investment and growth in these emerging economies,
complementing the strong growth from our leading position in US dollar swaps.
Within Fixed Income, our largest product group in North America, revenue from
US Treasuries, repos, agencies and mortgage products was lower than a year
ago. Market conditions in credit (corporate bonds and CDS) were more
favourable with strong volumes. Our equity arbitrage and equity derivatives
activities have grown very strongly, benefiting from significant volatility in
equity markets, with revenue further boosted by the inclusion of the cash
equities business of Chapdelaine. The strongest part of our Energy activities
in North America is in the electricity market and we have continued to benefit
from the ongoing growth in this area.
Revenues in Asia Pacific increased by 13% reflecting our strong position in
a buoyant market. We have maintained our leadership position in our key
product areas in the major centres in the region and achieved revenue growth
of over 20% across Singapore, Hong Kong and our joint venture in Tokyo,
which together account for over 75% of regional revenue. We have seen
particularly strong growth in non-deliverable forwards, FX options, interest
rate options and equity derivatives, and our strength in these and other areas
is facilitating new broker hires to allow us to continue to expand. Our
pioneering joint venture in Shanghai has made good progress, with revenues
increasing as more banks recognise the value of our services. Our wholly owned
business in Korea continues to progress. There are considerable opportunities
for us to develop and broaden our business in Asia. A newly hired Credit team
based in Singapore will start during the second half, and we continue to
evaluate opportunities to expand our product coverage.
Six months Six months
ended ended Change
Operating Profit 30 June 2007 30 June 2006
£m £m
Europe 40.0 36.4 +10%
North America 20.9 20.9 -
Asia Pacific 3.9 2.5 +56%
At consistent exchange rates 64.8 59.8 +8%
Translation - 2.7
Reported 64.8 62.5 +4%
Six months Six months
ended ended
Operating Margin 30 June 2007 30 June 2006
Europe 21.7% 20.3%
North America 13.8% 17.3%
Asia Pacific 10.9% 8.0%
17.4% 18.0%
Operating profit is 8% higher than in the first half of 2006, with operating
margin at 17.4%, 0.6% points lower than in the first half of 2006. The
reduction in operating margin masks an underlying improvement in voice
broking margin which is offset by the impact of the gross investment of £6.7m
(2006 H1: £1.5m) in TradeBladeTM.
Operating profit in Europe increased by 10% as margins increased by 1.4%
points to 21.7%. The improvement in margin in Europe primarily reflects
the reduction in support costs compared to the same period last year.
Operating profit in North America was unchanged in the first half compared to
a year ago with the benefit of increased revenue and the acquisition of
Chapdelaine offset by the increased net investment in TradeBladeTM. This is
also the primary driver for the 3.5% point reduction in margin in the region.
Operating profit in Asia Pacific increased by 56% as a result of the growth in
revenue and the 2.9% point increase in margin to 10.9%. The improvement in
margins in Asia Pacific reflects the benefit of increased scale and a
reduction in the ratio of broker employment costs to revenue.
Broker headcount at the end of June was 1,587 (31 December 2006: 1,512).
The main driver of the increase during the period was the acquisition
of Chapdelaine. Average revenue per broker for the first six months of the
year increased by 10% in consistent currency compared to the same period last
year. Broker compensation to revenue for the period reduced to 56.4% (2006:
57.7%).
Finance Income/(Expense)
Finance income/(expense) includes non-cash amounts relating to the mark
to market of derivative financial instruments, amortisation of discounted
deferred consideration, and expected return and interest on pension scheme
assets and liabilities. Excluding these items the net finance charge in the
first half of 2007 was £6.1m (2006: £2.5m). The increase reflects the interest
payable and fees amortisation on the facilities entered into to finance the
return of capital, partly offset by increased interest receivable due to
higher interest rates and a one-off interest receipt on reclaimed tax.
Taxation
The underlying effective rate of tax, excluding prior year tax items and
after adjusting for non-cash items within finance income/(expense), is 38%
(2006: 40%).
The effective rate is higher than the standard UK rate of 30% reflecting
the profits earned in the US, where the statutory rate is 46%, and the
extent of disallowable items. The reduction in the effective rate compared
with 2006 results primarily from the benefit of a restructuring of intra-group
financing arrangements.
Adjusted EPS
The adjusted basic EPS calculation excludes the non-cash amounts in finance
income/(expense) and their related tax, and also prior year tax items.
The calculation is shown in note 7.
Litigation
In July 2007, BGC agreed to settle Tullett Prebon's claims against them
in the Singapore litigation, on terms which are confidential.
Cash Flow
The net cash flow is summarised in the table below. The figures for the
six months to June 2006 are for the continuing operations only, and are
therefore comparable to those for the first half of 2007.
Consistent with the normal pattern of working capital movements, operating
cash flow for the first half of £42.1m is lower than operating profit.
In line with activity levels, working capital balances, particularly
`name give up' receivables and settlement balances, are at their lowest point
at the end of each year and are significantly higher at the end of each half
year. The working capital outflow in the first half is therefore expected to
substantially reverse in the second half. Interest is a net cash inflow
despite the cash interest profit and loss charge because the first interest
payment on the new £300m bank facility will be made in September and interest
on the Eurobond is payable annually in August. The dividend payment reflects
the 6p per share final dividend for 2006 paid in June. Acquisition expenditure
represents the $57m initial payment for Chapdelaine plus associated
transaction costs.
Six months Six months
ended ended
30 June 2007 30 June 2006
£m £m
Operating profit 64.8 62.5
Share option plan charges 2.1 2.8
Depreciation and amortisation 3.7 3.9
EBITDA 70.6 69.2
Capital expenditure (net) (2.7) (2.7)
Working capital (25.8) (32.2)
Operating cash flow 42.1 34.3
Interest 2.9 1.2
Taxation (17.0) (10.0)
Pension funding (1.4) (1.0)
Share option cash flows 0.4 (1.3)
Transaction costs (1.0) -
Dividends paid (12.7) (23.2)
Dividends paid to minorities (0.4) -
Acquisition (29.7) -
Net cash flow (16.8) -
The Group has moved from a net funds position at December 2006 to a
net debt position at the half year reflecting the net cash outflow in the
first half and the £301.5m return of capital to shareholders. The return was
financed by new bank facilities. The movement in net funds/debt is summarised
below.
£m
Net funds at 31 December 2006 111.2
Net cash flow (16.8)
Funds acquired with Chapdelaine 3.0
Return of capital to shareholders (301.5)
Effect of movement in exchange rates (1.9)
Movements in fair value/amortisation of 0.5
costs
Net (debt) at 30 June 2007 (205.5)
FUTURE DEVELOPMENTS AND OUTLOOK
Outlook
The second half of 2007 has begun with significant volatility in financial
markets. Whilst these conditions are detrimental for many financial
services businesses, they are ideal for the inter-dealer broker business. Our
business performs well during such periods, and we have seen record
performances across all three regions in July and August. The short term
outlook for financial markets is characterised by uncertainty but we are well
placed to benefit from these conditions.
The development of our electronic broking capability is a key element
in meeting our clients' needs, and we will continue to invest in this
area. We also continue to actively pursue acquisition opportunities, both in
established and emerging markets, and will seek to make new hires in those
product areas which we believe have the best potential for future revenue
growth.
The outlook for Tullett Prebon is positive and we believe that the
actions being taken to develop the business will create future value for
shareholders.
Terry Smith
Chief Executive
10 September 2007
consolidated income statement
for the six months ended 30 June 2007
Notes Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
Revenue 3 371.6 348.0 654.1
Other operating income 2.9 7.2 17.5
Administrative expenses (309.7) (292.7) (556.8)
Operating profit 3 64.8 62.5 114.8
Finance income 4 10.1 15.4 30.4
Finance costs 5 (17.8) (9.8) (20.2)
Profit before tax 57.1 68.1 125.0
Taxation 6 (22.9) (21.6) (41.0)
Profit of consolidated companies 34.2 46.5 84.0
Share of results of associates 0.2 - -
Profit for the period from continuing
operations 34.4 46.5 84.0
Profit for the period from discontinued 3 - 22.0 44.3
operations
Profit for the period 34.4 68.5 128.3
Attributable to:
Equity holders of the parent 34.1 68.1 127.6
Minority interests 0.3 0.4 0.7
34.4 68.5 128.3
Earnings per share
From continuing operations
Adjusted basic 7 17.2p 16.9p 31.6p
Basic 7 16.1p 22.0p 39.7p
Diluted 7 15.9p 21.7p 38.9p
consolidated statement of recognised income and expense
for the six months ended 30 June 2007
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
Gain on revaluation of available for sale assets 0.1 - -
Gain on net investment hedge 1.4 4.9 8.4
Effect of changes in exchange rates on
translation of foreign operations (2.1) (8.3) (14.3)
Actuarial gains on defined benefit
pension schemes 19.3 8.0 8.0
Taxation on items taken directly to
equity - continuing operations (4.3) 2.1 4.7
Taxation on items taken directly to
equity - discontinued operations - 2.6 4.5
Net income recognised directly in 14.4 9.3 11.3
equity
Profit for the period from continuing 34.4 46.5 84.0
operations
Profit for the period from discontinued - 22.0 44.3
operations
Total recognised income and expense for
the period 48.8 77.8 139.6
Attributable to:
Equity holders of the parent 48.5 77.4 138.9
Minority interest 0.3 0.4 0.7
48.8 77.8 139.6
consolidated balance sheet
as at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
(as
restated)
Non-current assets
Goodwill 356.3 428.4 311.7
Other intangible assets 2.3 2.9 1.5
Property, plant and equipment 17.0 22.1 18.8
Interest in associates 2.8 2.7 2.6
Other financial assets 2.7 6.6 2.7
Deferred tax assets 15.3 30.9 28.2
Derivative financial instruments 9.0 5.5 5.8
405.4 499.1 371.3
Current assets
Trade and other receivables 25,147.0 19,529.9 12,627.0
Other financial assets 27.8 55.7 27.0
Cash and cash equivalents 216.5 265.6 236.4
Derivative financial instruments 3.1 13.1 9.8
25,394.4 19,864.3 12,900.2
Total assets 25,799.8 20,363.4 13,271.5
Current liabilities
Trade and other payables (25,179.9) (19,505.6) (12,667.2)
Other financial liabilities - (4.5) -
Interest bearing loans and borrowings (31.3) (11.7) (0.9)
Current tax liabilities (24.9) (48.9) (31.4)
(25,236.1) (19,570.7) (12,699.5)
Net current assets 158.3 293.6 200.7
Non-current liabilities
Interest bearing loans and borrowings (418.5) (152.1) (151.3)
Retirement benefit obligations (5.1) (27.7) (26.2)
Deferred tax liabilities (1.1) (0.6) (1.3)
Long-term provisions (10.9) (8.2) (7.8)
Other long-term payables (14.6) (2.5) (3.1)
(450.2) (191.1) (189.7)
Total liabilities (25,686.3) (19,761.8) (12,889.2)
Net assets 113.5 601.6 382.3
Equity
Share capital 53.1 53.1 690.1
Share premium account - 250.9 -
Reverse acquisition reserve (1,182.3) - (1,182.3)
Other reserves 110.4 118.4 100.7
Retained earnings 1,130.7 176.8 772.1
Equity attributable to equity holders
of the parent 111.9 599.2 380.6
Minority interest 1.6 2.4 1.7
Total equity 113.5 601.6 382.3
The financial statements were approved by the board of directors and
authorised for issue on 10 September 2007 and are signed on its behalf by:
Terry Smith
Chief Executive
consolidated cash flow statement
for the six months ended 30 June 2007
Notes Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
(as
restated)
Net cash from operating activities 9 23.1 41.3 163.6
Investing activities
Sale of other financial assets 0.2 8.9 12.9
Interest received and similar income 6.2 7.0 15.5
Proceeds on disposal of property, plant
and equipment - 0.4 2.0
Proceeds on disposal of available for
sale assets - 1.4 7.2
Purchase of available for sale assets - (0.8) -
Purchase of intangible assets (1.5) (0.3) (0.6)
Purchase of property, plant and
equipment (1.1) (2.7) (5.0)
Acquisition of subsidiaries (27.8) (4.0) (4.4)
Derecognised on demerger of Collins
Stewart - - (122.3)
Net cash (used in)/received from
investment activities (24.0) 9.9 (94.7)
Financing activities
Dividends paid (12.7) (23.2) (33.8)
Dividends paid to minority interest (0.4) - (0.2)
Return of capital (301.5) - -
Exercise of share options 0.4 (1.7) (15.6)
Taxation credit on share option
exercises - - 1.5
Issue of debt 297.2 - -
Demerger and return of capital
transaction costs (1.0) - (4.5)
Repayment of obligations under finance
leases (0.3) (0.1) (0.5)
Net cash used in financing activities (18.3) (25.0) (53.1)
Net (decrease)/increase in cash and
cash equivalents (19.2) 26.2 15.8
Net cash and cash equivalents at the
beginning of the period 236.2 234.2 234.2
Effect of foreign exchange rate changes (1.8) (5.5) (13.8)
Net cash and cash equivalents at the
end of the period 215.2 254.9 236.2
Cash and cash equivalents 216.5 265.6 236.4
Overdrafts (1.3) (10.7) (0.2)
Net cash and cash equivalents 215.2 254.9 236.2
notes to the consolidated financial statements
for the six months ended 30 June 2007
1. General information
The interim financial statements for the six months ended 30 June 2007 have
been prepared using accounting policies consistent with International
Financial Reporting Standards (IFRS). The interim information, together
with the comparative information contained in this report for the year
ended 31 December 2006, does not constitute statutory accounts within the
meaning of section 240 of the Companies Act 1985. However, the information has
been reviewed by the Company's auditors, Deloitte & Touche LLP, and their
report appears at the end of the interim financial report. The interim
financial report is unaudited and was approved by the board of directors on 10
September 2007.
The statutory accounts for the year ended 31 December 2006 have been reported
on by the Company's auditors, Deloitte & Touche 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 237(2) or (3)
of the Companies Act 1985.
Tullett Prebon plc is a company incorporated in Great Britain under the
Companies Act 1985.
In the current financial year, the Group will adopt International
Financial Reporting Standard 7 `Financial instruments: Disclosures' (IFRS 7)
for the first time. As IFRS 7 is a disclosure standard, there is no impact on
the interim financial report. Full details of the change will be disclosed in
the annual report for the year ended 31 December 2007.
The Group has opted for early adoption of IFRIC 11: IFRS2 - Group and Treasury
Share Transactions, the effective date being for annual periods beginning
on or after 1 March 2007. There is no net impact on the results.
On 19 December 2006, in accordance with a court approved scheme of
arrangement under S425 of the Companies Act 1985, the Collins Stewart
stockbroking business was demerged from the Group. Results for Collins Stewart
for the six months ended 30 June 2006 and for the year ended 31 December 2006
have been included in the consolidated income statement as discontinued
operations. The consolidated balance sheet at 30 June 2006 contains both
inter-dealer broking and stockbroking activities, whilst the 31 December and
30 June 2007 consolidated balance sheets contain inter-dealer broking
activities only. The consolidated cash flow statement for the six months ended
30 June 2006 and for the year ended 31 December 2006 reflects both
inter-dealer broking and stockbroking activities whilst the consolidated cash
flow statement for the six months ended 30 June 2007 reflects inter-dealer
broking activities only.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared on the historical cost
basis, except for the revaluation of certain financial instruments. The
financial statements are rounded to the nearest hundred thousand pounds
(expressed as millions to one decimal place - £m), except where otherwise
indicated.
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year
ended 31 December 2006. The US institutional equities business acquired as
part of Chapdelaine in January 2007 procures research, market data and
analytics services to clients in addition to trade execution. The cost of
providing these services is included within administrative expenses and is not
netted against revenue receivable from clients.
During the preceding financial year, the Group reviewed its clearing and
settlement arrangements on `matched principal' transactions settled
through American clearing corporations and determined that certain
transactions were not required to be recognised on the balance sheet. The 30
June 2006 comparative amounts have been restated accordingly. The impact is a
reduction in settlement balances receivable and payable of £60,369.3m each.
The 30 June 2006 comparative balance sheet, cash flow statement and the
related notes have been restated to reflect the reclassification of £15.8m
from other financial assets to trade and other receivables and the
reclassification of £12.3m from other financial liabilities to trade and other
payables in order more fairly to reflect the nature of the balances.
3. Segmental analysis
The Group's primary reporting format is geographical: Europe, North America
and Asia Pacific, and its secondary reporting format is product group. The
change in primary and secondary segments from 2006 is due to the demerger
of the Collins Stewart stockbroking business.
Continuing operations - geographical Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
Revenue
Europe 184.4 180.2 335.1
North America 151.5 133.9 252.8
Asia Pacific 35.7 33.9 66.2
371.6 348.0 654.1
Operating profit
Europe 40.0 36.6 65.9
North America 20.9 23.2 44.3
Asia Pacific 3.9 2.7 4.6
64.8 62.5 114.8
There are no inter-segment sales included in segment revenue. All segment
revenue is derived from sales to external customers.
Continuing operations - product group Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Revenue £m £m £m
Treasury Products 96.5 102.3 191.0
Interest Rate Derivatives 89.8 88.1 166.5
Fixed Income 109.3 96.4 181.8
Equities 36.8 24.5 41.3
Energy 32.1 30.1 60.0
Information Sales 7.1 6.6 13.5
371.6 348.0 654.1
Discontinued operations
Revenue and operating profit from the Group's discontinued operations was
derived entirely from stockbroking.
4. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Continuing operations £m £m £m
Interest receivable and similar income 6.8 4.6 10.0
Gain on fair value hedge accounting - 0.5 0.5
Mark to market gain on equity swap - 7.7 13.4
Expected return on pension scheme 3.3 2.6 6.5
assets
10.1 15.4 30.4
5. Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Continuing operations £m £m £m
Interest payable on bank loans and 5.5 - -
overdrafts
Interest payable on Eurobond 6.2 6.2 12.4
Other interest payable 0.3 0.7 1.2
Amortisation of debt issue costs 0.9 0.2 0.4
Total borrowing costs 12.9 7.1 14.0
Amortisation of discount on deferred 0.5 - -
consideration
Mark to market loss on equity swap 1.5 - -
Interest cost on pension scheme 2.9 2.7 6.2
liabilities
17.8 9.8 20.2
6. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Continuing operations £m £m £m
Current tax:
UK corporation tax 10.8 12.8 21.5
Double tax relief (0.2) (0.4) (0.6)
10.6 12.4 20.9
Overseas tax 6.7 10.6 23.0
Prior year (over)/under provision of UK (0.1) (0.5) 0.3
tax
Prior year (over) provision of overseas (3.0) (0.6) (2.6)
tax
14.2 21.9 41.6
Deferred tax:
Current period 5.1 1.2 0.1
Prior year overstated/(understated) 3.6 (1.5) (0.7)
22.9 21.6 41.0
7. Earnings per share from continuing operations
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Adjusted basic 17.2p 16.9p 31.6p
Basic 16.1p 22.0p 39.7p
Diluted 15.9p 21.7p 38.9p
The calculation of basic and diluted earnings per share is based on
the following number of shares in issue:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
No. (m) No. (m) No. (m)
Weighted average shares in issue 211.6 210.3 210.7
Issuable on exercise of options 3.1 2.9 4.3
Diluted weighted average shares in issue 214.7 213.2 215.0
The earnings used in the calculation of adjusted, basic and diluted earnings
per share, are as described below:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
Earnings 34.4 46.5 84.0
Minority interest (0.3) (0.2) (0.4)
Earnings for the purposes of the basic
and diluted earnings per share 34.1 46.3 83.6
Mark to market loss/(gain) on equity 1.5 (7.7) (13.4)
swap
Gain on fair value hedge accounting - (0.5) (0.5)
Expected return on pension scheme assets (3.3) (2.6) (6.5)
Interest cost on pension scheme 2.9 2.7 6.2
liabilities
Amortisation of discount on deferred 0.5 - -
consideration
Taxation on above items 0.1 - 0.1
Prior year taxation items 0.5 (2.6) (3.0)
Adjusted earnings 36.3 35.6 66.5
8. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
Amounts recognised as distributions to £m £m £m
equity holders in the period:
Final dividend for the year ended 31
December 2006 of 6p per share 12.7 - -
Interim dividend for the year ended 31
December 2006 of 5p per share - - 10.6
Final dividend for the year ended 31
December 2005 of 11p per share - 23.2 23.2
12.7 23.2 33.8
An interim dividend of 4p per share will be paid on 6 December 2007 to all
shareholders on the Register of Members on 16 November 2007.
The trustees of the Tullett Prebon plc Employee Share Ownership Trust have
waived their rights to dividends.
9. Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash from operating activities
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
(as restated) (as restated)
Operating profit 64.8 95.0 175.2
Adjustments for:
(Profit)/loss on derivatives - (1.9) (1.9)
Expense arising from share option plans 2.1 3.9 6.9
Profit on sale of other financial - (1.4) (6.1)
assets
Profit on sale of property, plant and - (0.2) (1.8)
equipment
Depreciation of property, plant and 3.0 3.8 8.0
equipment
Amortisation of intangible assets 0.7 0.6 1.1
(Decrease)/increase in provisions for
liabilities and charges (0.8) 1.5 1.1
Outflow from retirement benefit (1.4) (1.0) (2.1)
obligations
(Decrease)/increase in non-current (0.3) 0.1 1.1
liabilities
Operating cash flows before movement in
working capital 68.1 100.4 181.5
(Increase)/decrease in trade and other (19.5) 2.3 29.0
receivables
(Increase)/decrease in net settlement (2.9) (16.4) 3.9
balances
Decrease in net long and short - 6.5 14.3
positions
(Decrease) in trade and other payables (2.3) (30.2) (9.9)
Cash generated from operations 43.4 62.6 218.8
Income taxes paid (17.0) (17.7) (41.1)
Interest paid (3.3) (3.6) (14.1)
Net cash from operating activities 23.1 41.3 163.6
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with 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 consolidated cash flow statement, cash and cash
equivalents comprise the following:
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited)
£m £m £m
Cash and cash equivalents 216.5 265.6 236.4
Bank overdrafts (1.3) (10.7) (0.2)
215.2 254.9 236.2
10. Analysis of net funds
At Cash Acquired Non-cash Exchange At
1 January flow with items differences 30 June
2007 subsidiary 2007
£m £m £m £m £m £m
Cash in hand and 160.7 (37.6) - - (1.7) 121.4
at bank
Cash equivalents 73.4 19.3 - - (0.1) 92.6
Client settlement 2.3 0.2 - - - 2.5
money
Overdraft (0.2) (1.1) - - - (1.3)
236.2 (19.2) - - (1.8) 215.2
Bank loans - (297.2) - (0.3) - (297.5)
Other loans (148.8) - - 0.8 - (148.0)
Finance leases (3.2) 0.3 - (0.1) - (3.0)
(152.0) (296.9) 0.4 - (448.5)
Other financial 27.0 (0.2) 1.1 - (0.1) 27.8
assets
Total net funds 111.2 (316.3) 1.1 0.4 (1.9) (205.5)
11. Acquisition
Chapdelaine
On 11 January 2007 the Group acquired 100% of the stock of Chapdelaine
Corporate Brokers Inc. and 100% of the membership interests of C&W
Corporate Securities LLC, these two entities being the owners of Chapdelaine
Corporate Securities & Co. ('CCS'). The consideration was $95m (£48.5m)
payable in cash, $57m (£29.1m) of which was paid on completion, the balance
being payable over the next three years, part of which is dependent on CCS'
performance. The goodwill arising on the acquisition was $89.4m (£44.6m at 30
June 2007).
This transaction has been accounted for by the acquisition method of
accounting.
12. Return of capital
Following approval by the shareholders at the Extraordinary General
Meeting on 26 February 2007, the Company reduced the nominal value of each
ordinary share from 325 pence to 25 pence, and 50,002 redeemable deferred
shares of 100p each were redeemed, thus reducing share capital by £637.0m to
£53.1m. Of the sum arising from the reduction in nominal value, 142 pence per
share, totalling £301.5m, was repaid to shareholders and the remainder was
credited to the Company's reserves.
13. Financing
On 30 January 2007, TP Holdings Limited, a wholly-owned subsidiary
of the Company, entered into a £350m credit facility agreement with The Royal
Bank of Scotland plc and The Governor and Company of the Bank of Scotland as
Arrangers (the Credit Agreement). Under the terms of the Credit Agreement, TP
Holdings Limited has drawn down £300m under a five year amortising term loan
for the purposes of financing the Return of Capital. A further £50m may be
drawn down for general corporate purposes, including acquisitions, under a
five year revolving credit facility that is repayable at the end of year five.
independent review report to tullett prebon plc
Introduction
We have been instructed by the company to review the financial information
for the six months ended 30 June 2007 which comprise the consolidated
income statement, the consolidated statement of recognised income
and expense, the consolidated balance sheet, the consolidated cash flow
statement and related notes 1 to 13. We have read the other information
contained in the interim report and considered whether it contains any
apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the company in accordance with Bulletin
1999/4 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 interim report, including the financial information contained therein,
is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim report in accordance
with the Listing Rules of the Financial Services Authority which require that
the accounting policies and presentation applied to the interim figures are
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board for use in the
United Kingdom. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with International Standards on
Auditing (UK and Ireland) and therefore provides a lower level of assurance
than an audit. Accordingly, we do not express an audit opinion on the
financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for
the six months ended 30 June 2007.
Deloitte & Touche LLP
Chartered Accountants
London
10 September 2007
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