Final Results

RNS Number : 3208G

Tullett Prebon PLC

03 March 2015

 



TULLETT PREBON PLC

Preliminary Statement of Results - for the year ended 31 December 2014

Tullett Prebon plc (the "Company") today announced its preliminary statement of results for the year ended 31 December 2014. 

Operational Summary

·       Appointed John Phizackerley Chief Executive 1 September 2014

·       Cost improvement programme implemented - reducing annual fixed costs by over £45m

·       Completion of PVM acquisition - Energy now accounts for 22% of group pro forma revenue

·       Hired Fixed Income brokers from Murphy & Durieu - broker headcount in the Americas now c550

·       Settlement of all litigation between the Company and BGC

·       Finalising global strategic review

·       New Investment Firm Consolidation Waiver from the FCA running to 2024

Financial Highlights

Underlying, before exceptional and acquisition related items

(including PVM since acquisition on 26 November 2014)

·      Revenue £703.5m (2013: £803.7m)

·      Operating profit £100.7m (2013: £115.4m)

·      Operating margin 14.3% (2013: 14.4%)

·      Profit before tax £86.6m (2013: £99.6m)

·      Basic EPS 32.3p (2013: 36.0p)

Reported, after exceptional and acquisition related items

(including PVM since acquisition)

·      Profit before tax £33.5m (2013: £84.4m)

·      Basic EPS 11.2p (2013: 30.1p)

A table showing Underlying and Reported figures for each year, detailing the exceptional and acquisition related items, is included in the Financial Review.

Pro forma Underlying (including PVM for the full year 2014)

·     Revenue £772.2m

·     Operating profit £112.1m

·     Operating margin 14.5%

·     Basic EPS 32.8p

Dividend

The Board is recommending an unchanged final dividend of 11.25p per share, making the total dividend for the year 16.85p per share, unchanged from that paid for 2013.  The final dividend will be payable on 14 May 2015 to shareholders on the register at close of business on 24 April 2015.

The Board has considered whether the settlement money from BGC should be returned to shareholders or retained to fund business developments, including acquisitions.  In the light of the opportunities to invest in products and services to facilitate our clients' strategies that would further strengthen our business and earn an attractive return on capital, the Board has decided that the funds should be retained for those purposes.  The Board does not have any intention to hold capital in excess of the Company's regulatory and business development requirements.

Commenting on the results, John Phizackerley, Chief Executive of Tullett Prebon plc, said:

"Tullett Prebon has produced a robust set of results reflecting a strong operational performance in what was another challenging year for the interdealer brokerage sector.  Due to ongoing cost discipline we have maintained our margins.  Looking forward, we will continue to add products and services to facilitate our clients' strategies, incorporating content and technologies that add value.  Our focus on conduct and culture emphasises our ongoing commitment to play a central role in global financial markets and to be viewed as a trusted partner.  We will continue to look to make strides to exploit the opportunities in a consolidating marketplace.

The benefits from the acquisition of PVM and the arrival of brokers from Murphy & Durieu will flow through in 2015. PVM significantly increases the scale of the group's activities in the energy sector, and diversifies the group's client base, reducing our dependence on wholesale investment and commercial banks. We will continue to expand the data content for our high margin, growing, Information Sales business through the oil price data generated from the PVM business, and through other exclusive data content deals.

It remains difficult, however, to predict accurately the level of activity in the markets we serve.  Revenue in the first two months of 2015, excluding PVM, and at constant exchange rates, is unchanged compared with the equivalent period last year.  We will continue to show discipline on costs. The benefit of the actions we have taken through the cost improvement programme in 2014 will continue to flow through in 2015, particularly in the first half."

Forward-looking statements:

This document contains forward-looking statements with respect to the financial condition, results and business of the Company. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. The Company's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

Enquiries:

Stephen Breslin, Head of Communications

Tullett Prebon plc

Direct:  [phone]

email:    [e-mail]

Craig Breheny, Director

Brunswick Group LLP

Direct: [phone]

email:    [e-mail]

Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com

Overview

Market conditions remained challenging throughout 2014 as the overall level of activity in the financial markets remained subdued, although there was some pick-up in activity in some products and markets in the second half of the year.

In the light of the continuation of difficult market conditions a number of actions were taken during the year to further reduce headcount and other fixed costs in order to maintain flexibility in costs and to align the cost base with the lower level of revenue.  The benefit of this cost improvement programme, together with the continued benefit from cost management actions taken in previous years, is reflected in the maintenance of the underlying operating margin at 14.3%, compared with 14.4% in the previous year, despite the reduction in revenue.

Market conditions and revenue

The group generates revenue from commissions it earns by facilitating and executing customer orders.  The level of revenue is substantially dependent on customer trading volumes which are affected by the level of volatility in financial markets, by customers' risk appetite, and by their willingness and ability to trade.

Volatility is one of the key drivers of activity in the financial markets. Measures of financial market volatility, which reached post financial crisis lows during the first half of the year, picked up during the second half.  The business experienced the effects of the pick-up in volatility most strongly in Asia Pacific and in some products in North America, but the level of market activity in Europe and the Middle East continued to be largely subdued reflecting the cyclical effect of further flattening and lowering of yield curves and spread compression in bond markets.

Market volumes also continue to be adversely affected by the more onerous regulatory environment applicable to many of our customers. Regulators worldwide have been adopting an increased level of scrutiny in supervising the financial markets and they continue to generally tighten the capital, leverage and liquidity requirements of commercial and investment banks, and to implement steps to limit or separate their activities in order to reduce risk. This has reduced risk appetite and reduced the willingness and ability of our customers to trade.

The introduction of new regulatory reforms directly affecting the operation of the OTC derivatives markets has also created some uncertainty and has resulted in the fragmentation of some liquidity pools which has also reduced market volumes.

Excluding PVM Oil Associates, which was acquired on 26 November 2014, revenue in 2014 was 10% lower than in 2013 at constant exchange rates.   Consistent with the lower level of market activity, revenue in the first half of the year was 15% lower than last year, and was 5% lower in the second half.

Cost management and operating margin

In the light of the continuation of difficult market conditions a number of actions were taken during the year to further reduce headcount and other fixed costs.  This cost improvement programme has involved the exit of 166 front office staff, 51 support and other staff, and the vacating of office space, reducing annual fixed costs by over £45m with an annualised operating profit benefit, as previously estimated, of around £35m.  Just over half that amount has been realised in 2014, with the balance expected to flow through in 2015.  The cost of these actions is £46.7m, of which £22.0m are non-cash charges, including the £3.2m write down of an employment incentive grant receivable that may not be recoverable due to the reduction in headcount.  This cost has been charged as an exceptional item in the 2014 accounts.

The objectives of the cost improvement programme, and the objectives of actions taken in previous years, have been to preserve the variable nature of broker compensation and to reduce it as a percentage of broking revenue, and to generally reduce fixed costs throughout the business, in order to ensure that the business is well positioned to respond to less favourable market conditions and to maintain operating margins.  Broker compensation costs as a percentage of broking revenue have reduced to 56.1% in 2014, 2.2% points lower than in 2013, and 3.7% points lower than in 2012.  The overall contribution margin of the business after broker employment costs and other front office direct and variable costs was 2.0% points higher in 2014 than in the prior year, but reflecting the lower level of revenue, the absolute amount of contribution was 6% lower at constant exchange rates.

The management and support costs of the business are not directly variable with revenue.  Despite the increase in the costs of the regulatory readiness project (which covers the development, launch and ongoing running costs of new electronic platforms and associated technology infrastructure, and additional compliance resources) to 3% of revenue compared with 2% in 2013, total management and support costs in 2014 are unchanged in absolute terms compared with 2013.  As a percentage of revenue, however, the business's management and support costs are higher in 2014 than in 2013, offsetting the benefit from the higher contribution margin.

Business development

We have continued to focus on delivering innovative products and a first class broking service to our clients.  Action has also been taken to develop and strengthen the broking business through hiring brokers and through acquisitions, and to develop the group's information sales and post-trade risk management services activities.

The Company completed the acquisition of PVM Oil Associates Limited and its subsidiaries ("PVM"), a leading independent broker of oil instruments, on 26 November 2014.  PVM is focused entirely on Energy products, and has a long history as an international crude oil and products broker covering OTC swaps, forwards and physical crude oil and refined products, and exchange traded instruments including WTI, Brent and Gasoil futures.  PVM's customers are major oil companies, independent refiners and producers, government agencies, trading houses, banks, investment funds and corporations.

The acquisition of PVM increases the scale of the group's activities in the Energy sector, particularly in Europe, and will give the group a significant presence in broking crude oil and petroleum products complementing its existing activities in these areas.  Crude oil is the world's most actively traded commodity.  The acquisition will also allow Tullett Prebon Information to expand its data offering to include the current and historical oil price data generated from the PVM business and to offer this data to a broader set of customers.

PVM's unaudited management accounts for the 12 months to December 2014 show revenue of $125.8m (£76.2m) with operating profit of $21.2m (£12.9m).  In its audited accounts for the year ended 31 July 2013, PVM reported revenue of $107.5m, with operating profit of $18.2m.  PVM's broker headcount at the end of 2014 was 129.

Information relating to the consideration for the acquisition of PVM, its balance sheet, and the impact on the group's Income Statement for 2014 and on a pro forma basis, is set out in the Financial Review below.

In early January 2015, the Company announced the expansion of its broking activities in North America through the acquisition of 40 brokers from Murphy & Durieu, a New York based inter-dealer broker.  The 40 new brokers have expertise and access to deep liquidity pools in a wide range of fixed income products including corporate bonds, convertibles, municipal bonds and government securities, allowing the business to provide even stronger and better execution to clients in the US Fixed Income market.

For the fifth consecutive year the Company was voted number one in more product categories than any other single interdealer broker in Risk magazine's 2014 annual interdealer rankings published in September. Dealers across the wholesale banking markets in all three regions in which the business operates voted Tullett Prebon number one in 32 out of 99 categories, reflecting the Company's focus on first class service and delivery of flexible and innovative products.

The business was also named Commodity Derivatives Interdealer Broker of the Year at GlobalCapital's 2014 Global Derivatives Awards in October, Best Broker for Forward FX for the fourteenth year running at the 2014 FX Week Best Bank Awards in November, and Commodities Broker of the Year and Innovator of the Year in the 2014 Futures and Options World awards in December.

The majority of OTC product markets are not characterised by continuous trading, and depend upon the intervention and support of voice brokers for their liquidity and effective operation. The business has continued to focus on its hybrid electronic broking offering, deploying platforms to comply with regulatory requirements and to respond to market demand.  The platforms we offer provide clients with the flexibility to transact either entirely electronically or in conjunction with the business's comprehensive voice execution broker network. 

The business in all three regions is supported by the deployment of the group's electronic broking platforms.  The platforms facilitate client trading through electronic execution or with voice broker support, and provide a range of functionality including streaming prices, analytics, and auction capability, and operate as highly efficient front end order management and trade capture systems for both brokers and customers.

The Company's swap execution facility, tpSEF Inc. ("tpSEF") started operating in October 2013 under its temporary registration from the CFTC.  tpSEF provides swap execution services across the five major asset classes utilising many of the group's electronic broking platforms to satisfy the regulatory requirements relating to trade execution, trade reporting, audit trail, and submission to clearing for instruments required to be cleared.   tpSEF offers execution services for both Required Transactions (certain interest rate and credit index instruments subject since February 2014 to the CFTC's mandatory clearing requirement and the "made available to trade" determination) and Permitted Transactions (all other instruments within the scope of the legislation).  Third party analysis of the notional volume of trades reported through SEFs shows that the total volumes, including the dealer-to-client segment, have increased during 2014 and that the volumes in the dealer-to-dealer segment, and the market shares of the interdealer brokers within that segment, have been largely maintained.

In Europe, the implementation of EMIR, which contains provisions governing mandatory clearing requirements and trade reporting requirements for derivatives, is coming into effect in stages as the various technical standards are agreed.  The requirement that details of derivative contracts must be reported to recognised trade repositories came into effect from 12 February 2014, the first clearing obligations are expected to come into effect during 2015, subject to the authorisation of a relevant CCP, and margin requirements for non-cleared trades will apply from 1 December 2015.  The legislative framework governing permissible trade execution venues, and governance and conduct of business requirements for trading venues, (MiFID II) and a new regulation (MiFIR), has been adopted by the EU Council and Parliament, and the rules set out in MiFID II will become effective at the beginning of 2017. 

The Information Sales business was awarded, for the fourth consecutive year, the title of Best Data Provider (Broker) at the Inside Market Data Awards in May.  Clients continue to demand an ever higher standard of independent, quality data and the award, which is determined by an independent poll of end-users, reaffirms the industry's recognition of our position as the leading provider of the highest quality independent price information and data from the global OTC markets.

Whilst the vast majority of the trades we arrange for customers involve voice brokers, a growing proportion of our broking activity is supported by and relies upon the functionality provided by electronic platforms.   The revenue from those products supported by electronic platforms, together with the revenue from the Information Sales and Risk Management Services businesses, accounted for over 30% of total revenue in 2014.

Our key financial and performance indicators for 2014, excluding PVM in order to aid the comparison with those for 2013, are summarised in the table below. 

	2014	2013	Change
Revenue	£696.0m	£803.7m	-10%*
Underlying Operating profit	£99.2m	£115.4m	-13%*
Underlying Operating margin	14.3%	14.4%	-0.1% points
Average broker headcount	1,625	1,702	-5%
Average revenue per broker (£'000)	400	430	-7%*
Broker employment costs : broking revenue	56.1%	58.3%	-2.2% points
Broker headcount (year-end)	1,573	1,687	-7%
Broking support headcount (year-end)	704	747	-6%
*At constant exchange rates

Average broker headcount during 2014 was 5% lower than during the previous year, with the year end broker headcount of 1,573 7% lower than at the end of 2013, reflecting the exit of headcount through the cost improvement programme.  The lower level of market activity in 2014 is reflected in the reduction in average revenue per broker which, at £400k for 2014, is 7% lower than for 2013.

Including PVM and the 40 brokers acquired from Murphy & Durieu in January this year, the pro forma year end broker headcount was 1,742.

The year-end broking support headcount of 704 was 6% lower than at the end of 2013, reflecting the exit of staff through the cost reduction programme.

Operating Review

The tables below analyse revenue by region and by product group, and underlying operating profit by region, for 2014 compared with 2013.

Revenue

A significant proportion of the group's activity is conducted outside the UK and the reported revenue is therefore impacted by the movement in the foreign exchange rates used to translate the revenue from non-UK operations.  The tables therefore show revenue for 2013 translated at the same exchange rates as those used for 2014, with growth rates calculated on the same basis. The revenue figures as reported for 2013 are shown in Note 3 to the Consolidated Financial Statements.

The commentary below reflects the presentation in the tables.

Revenue by product group	2014 £m	2013 £m	Change
Treasury Products	190.5	203.1	-6%
Interest Rate Derivatives	140.6	166.9	-16%
Fixed Income	186.5	218.0	-14%
Equities	39.5	41.6	-5%
Energy	100.0	101.6	-2%
Information Sales and Risk Management Services	46.4	46.0	+1%
At constant exchange rates	703.5	777.2	-9%
Exchange translation		26.5
Reported	703.5	803.7	-12%

Revenue was 9% lower in 2014 than in 2013 at constant exchange rates, driven by lower volumes in the traditional interdealer broker product groups of Interest Rate Derivatives and Fixed Income in Europe and North America.

Revenue from Treasury Products (FX and cash) was 6% lower, reflecting the lower level of market activity in the major currency spot and forward FX markets in Europe and North America, partly offset by higher activity in emerging markets currencies, particularly in offshore Renminbi products and forward JPY in Asia Pacific.

Levels of activity in most Interest Rate Derivatives products (swaps and options) were subdued throughout the period reflecting the further flattening of yield curves for major currencies.  Activity in Asia Pacific was generally stronger, particularly in the second half of the year.

The Fixed Income product group includes government and government agency bonds, corporate bonds and related derivatives.  The decline in revenue reflects the generally subdued levels of activity in the government and government agency bond markets in Europe and North America, partly offset by higher levels of activity in emerging markets' bonds in North America.

Our Equities business in the Americas delivered a strong performance, with increases in revenue from both equity derivatives and the ADR and GDR conversion desk, but this was offset by lower activity in Europe, particularly in index options.

Revenue from Energy products, including the £7.5m of revenue from PVM since acquisition, was 2% lower than in 2013, held back by lower activity in power markets, and in some oil products and commodities particularly in the first half of the year.

Revenue from Information Sales and Risk Management Services was 1% higher than last year, with increased revenue from the Information Sales business through a combination of expansion in its customer base and the addition of new content sets distributed both directly and via its market data vendor customers, offset by lower revenue from Risk Management Services where market conditions have remained challenging reflecting low interest rate volatility. 

Revenue by region	2014 £m	2013 £m	Change
Europe and the Middle East	405.6	465.6	-13%
Americas	201.6	219.2	-8%
Asia Pacific	96.3	92.4	+4%
At constant exchange rates	703.5	777.2	-9%
Exchange translation		26.5
Reported	703.5	803.7	-12%

Europe and the Middle East

Revenue in Europe and the Middle East, including £6.4m of revenue from PVM since acquisition, was 13% lower than in 2013.  Broking revenue was 14% lower than last year, partly offset by growth in revenue from Information Sales.  Revenue in the first half of 2014 was 18% lower than in 2013, and in the second half was 7% lower than in 2013.

The difficult market conditions severely affected the traditional major product areas of forward FX, interest rate swaps and government and corporate bonds, which account for a significant proportion of the revenue in the region.  Revenue from emerging markets products held up better than those in the G7 currencies, including a good performance in South African Rand bonds and forward FX, benefiting from the opening of an office in Johannesburg, and in Eastern European and Turkish forward FX.  Revenue from Energy and commodities was held back by weaker power markets, but with the inclusion of PVM was in line with the prior year.

The business has continued to develop its presence in the Middle East through further transfers of brokers from London during the year, and revenue from the offices in Dubai and Bahrain was 17% higher in 2014 than in 2013, reflecting the increase in broker headcount in those centres.  Headcount in London, and in the offices in continental Europe, was lower than last year reflecting the transfers to the Middle East and the reduction through the cost improvement programme.  Year end broker headcount in EMEA was 734.  Average broker headcount for the region was 6% lower than last year, with average revenue per broker 10% lower than in the prior year reflecting the lower level of market activity.

Americas

Revenue in the Americas was 8% lower in 2014 than in 2013.  Revenue in the first half was 13% lower than in the same period in 2013, with revenue in the second half 2% lower than in 2013.

The reduction in the overall level of market activity in the Americas in 2014 particularly affected the revenue from Interest Rate Derivatives and from government and agency Fixed Income, which were subdued throughout the year.  The improvement in market conditions in North America in the second half of the year resulted in a much stronger performance in Treasury products (FX and cash) and in credit products, with revenue in the second half up 25% and 15% respectively compared with the same period a year earlier.  The Equities business in the region performed strongly throughout 2014 with revenue from both equity derivatives and the ADR and GDR conversion desk up by over 25%, benefiting from the continued investment in the business. The business in Brazil experienced a sharp decline in revenue in the first half of the year reflecting a less buoyant economy and much reduced market activity, but conditions improved in the second half with revenue 7% higher than in the same period in the prior year.

Average broker headcount in the Americas was 3% lower than in 2013, with average revenue per broker 5% lower.  Including the brokers hired from Murphy & Durieu who started with the business at the beginning of 2015 the pro forma year end broker headcount in the Americas was 542.

Asia Pacific

Revenue in Asia Pacific was 4% higher than last year.  Broking revenue was 5% higher with revenue from the Risk Management Services business which is operated from the region slightly lower than last year reflecting the low interest rate volatility. Regional revenue was 4% lower in the first half than in the same period in 2013, with a 14% increase in the second half as market conditions improved.

Over 80% of the broking revenue in the region comes from Treasury products and Interest Rate Derivatives.  Revenue from Treasury products was 14% higher than last year, benefiting from the high levels of activity throughout the year in offshore Renminbi products.  Activity in many of the interest rate swaps markets in the region was lower in the first half than a year ago, but activity picked up in the second half, to leave revenue from Interest Rate Derivatives slightly higher for the full year.  The region increased its revenue from Energy and commodities where it has continued to build its presence and extend its product coverage, particularly in oil products.

Average broker headcount in the region was 5% lower than in 2013, with average revenue per broker up 10%.  Year end broker headcount in Asia Pacific was 337.

Underlying Operating profit

The revenue, underlying operating profit and operating margin by region shown below are as reported.

	Revenue				Underlying Operating profit
£m	2014	2013	Change		2014	2013	Change
Europe and the Middle East	405.6	468.7	-13%		80.1	97.9	-18%
Americas	201.6	233.9	-14%		10.5	10.4	+1%
Asia Pacific	96.3	101.1	-5%		10.1	7.1	+42%
Reported	703.5	803.7	-12%		100.7	115.4	-13%

Underlying Operating margin by region	2014	2013
Europe and the Middle East	19.8%	20.9%
Americas	5.2%	4.4%
Asia Pacific	10.5%	7.0%
	14.3%	14.4%

Underlying operating profit in Europe and the Middle East of £80.1m was 18% lower than in the prior year, and with revenue down 13% the underlying operating margin has reduced by 1.1% points, to 19.8%.  Broker employment costs as a percentage of broking revenue have fallen by 1.1% points but the benefit of this has been offset by the operational leverage effect of lower revenue.

In the Americas the underlying operating profit of £10.5m is slightly higher than in 2013 despite the 14% reduction in revenue, and the underlying operating margin has improved to 5.2%.  Broker employment costs as a percentage of revenue have been reduced significantly, and other front office costs have also been reduced. The broking contribution margin (before management and support costs) has improved by more than 3% points, but this benefit has been partly offset by the operational leverage effect of lower revenue.

Underlying operating profit in Asia Pacific has increased by over 40% to £10.1m, and the underlying operating margin in the region has increased to 10.5% from 7.0%.  Broker employment costs as a percentage of broking revenue and other front office costs have been reduced, and the benefit of the higher contribution margin has been complemented by the operational leverage effect of the higher revenue.

Litigation

The legal actions that the Company had been pursuing against BGC Partners Inc. and certain of its subsidiaries (collectively "BGC") as well as former employees in the USA in response to the raid on the business by BGC in the second half of 2009 have concluded.

The outcome of the FINRA arbitration on the claims against BGC and former employees brought by the subsidiary companies in the United States which were raided by BGC, along with various claims asserted against those subsidiary companies, was determined in July 2014.  

The Arbitrators determined that BGC and certain of the raided brokers should pay $33.3m in compensatory damages to the subsidiary companies on account of the claims against them.  The Arbitrators also determined that the subsidiary companies should pay $6.1m in compensatory damages to a representative of the former equity holders of Chapdelaine Corporate Securities & Co. which the Company acquired in January 2007 on account of certain of their claims, and $0.2m (£0.1m) to one of the raided brokers.  The net $27.0m (£16.0m) compensatory damages were received in August 2014.

The separate action taken by the Company and certain of its subsidiaries against BGC in the New Jersey Superior Court, alleging claims for racketeering, unfair competition, misappropriation of confidential information and trade secrets, and tortious interference, has also concluded.

The Company entered into an agreement with BGC on 13 January 2015 under which BGC will pay $100m (£66m) to the Company to settle the litigation in the New Jersey Superior Court.  In a prior ruling, the Judge had dismissed the Company's claim under the New Jersey racketeering law, and any damages that would have been awarded by the jury in the case would therefore not have been subject to trebling.

The settlement agreement also settles all other outstanding litigation between the parties, which will now be dismissed, and includes a clause that prevents either party hiring desk heads and senior management from the other for one year from the date of the agreement.

The first $25m of the $100m settlement was paid to the Company in January 2015, and the balance of $75m will be paid to the Company before the end of March 2015.  The income will be taxed in the UK at the standard rate of corporation tax applicable in 2015.

Consistent with the treatment adopted in previous years, the costs incurred in 2014 in relation to these actions, net of the compensatory damages received during the year, have been included as an exceptional charge in the income statement.  The exceptional item in the income statement in 2014 is a net credit of £3.1m (2013: net charge £15.2m).  The $100m settlement will be recognised in exceptional items in the income statement in 2015.

The Company has a duty to shareholders to seek to protect its legal rights and interests, and although legal action can be uncertain, protracted and expensive, the Company believes it is appropriate to take action in order to do so.

Financial Review

The results for 2014 compared with those for 2013 are shown in the tables below.

2014
Income Statement £m	Underlying	Exceptional and acquisition related items	Reported
Revenue	703.5		703.5
Operating profit	100.7		100.7
Charge relating to cost improvement programme		(46.7)	(46.7)
Credit relating to major legal actions		3.1	3.1
Acquisition costs		(1.8)	(1.8)
Amortisation of acquisition deferred consideration		(0.9)	(0.9)
Goodwill impairment		(6.8)	(6.8)
Operating profit	100.7	(53.1)	47.6
Net finance expense	(14.1)		(14.1)
Profit before tax	86.6	(53.1)	33.5
Tax	(16.9)	6.5	(10.4)
Associates	1.9		1.9
Minorities	(0.4)		(0.4)
Earnings	71.2	(46.6)	24.6
Average number of shares	220.4m		220.4m
Basic EPS	32.3p		11.2p

2013
Income Statement £m	Underlying	Exceptional items	Reported
Revenue	803.7		803.7
Operating profit	115.4		115.4
Charge relating to major legal actions		(15.2)	(15.2)
Operating profit/(loss)	115.4	(15.2)	100.2
Net finance expense	(15.8)		(15.8)
Profit/(loss) before tax	99.6	(15.2)	84.4
Tax	(22.4)	2.4	(20.0)
Associates	1.4		1.4
Minorities	(0.2)		(0.2)
Earnings	78.4	(12.8)	65.6
Average number of shares	217.8m		217.8m
Basic EPS	36.0p		30.1p

Net finance expense

An analysis of the net finance expense is shown in the table below.

£m	2014	2013
Receivable on cash balances	1.4	1.8
Payable on Sterling Notes August 2014	(0.4)	(0.6)
Payable on Sterling Notes July 2016	(9.9)	(9.9)
Payable on Sterling Notes June 2019	(4.2)	(4.2)
Payable on bank facilities, including commitment fee	(1.5)	(1.7)
Amortisation of debt issue costs	(1.1)	(2.3)
Other interest	(0.5)	(0.3)
Net cash finance expense	(16.2)	(17.2)
Net non-cash finance income	2.1	1.4
	(14.1)	(15.8)

The net cash finance expense of £16.2m in 2014 is £1.0m lower than in 2013.  The reduction primarily reflects the non-recurrence in 2014 of the £0.9m of accelerated amortisation of debt issue costs recognised in 2013 that related to the bank debt that was repaid during that year.

The net non-cash finance income comprises the net of the expected return and interest on pension scheme assets and liabilities of £2.2m (2013: £1.9m), partly offset by the amortisation of the discount on deferred consideration.

Tax

The effective rate of tax on underlying PBT is 19.5% (2013: 22.5%).  The 3.0% point reduction in the effective rate reflects the benefit of the reduction in the UK statutory rate of corporation tax to 21.5% for 2014, 1.75% points lower than for 2013, and the release of some provisions relating to tax uncertainties which have been resolved.  Excluding the benefit from the release of provisions, the effective rate of tax on underlying PBT would have been 23.1% (2013: 24.4%).

The tax credit on exceptional items reflects the net tax relief recognised on those items at the relevant rate for the jurisdiction in which the charges are borne.  No tax relief has been recognised on the exceptional charges and credits arising in the USA in either 2014 or 2013 due to the current low level of taxable profit in that jurisdiction.  In addition, there is no tax effect relating to the non-cash charge for the impairment of goodwill.

Acquisition of PVM

The total consideration for the acquisition of the equity of the PVM, which had no debt, and on the assumption that the business had nil net working capital at completion, is $160.0m.

The initial consideration of $112.0m (£71.1m at the agreed exchange rate of $1.5747) was satisfied through the issue of 25.8m new Ordinary Shares in the Company.

Deferred consideration of up to $48.0m is subject to the achievement of revenue targets in the three years after completion, which together with any required adjustment to reflect the actual amount of working capital and available cash acquired at completion (estimated to be $10m), will be satisfied through the further issue of new Ordinary Shares in the Company, or cash, at the discretion of the Company.  The payment of deferred consideration to an individual vendor is linked to their continued service with the business and the deferred consideration amount will therefore be amortised through the income statement over the three years following completion.  This charge will be reported as an acquisition related item and not in underlying operating profit. The 2014 Income Statement includes a charge of $1.3m (£0.9m) for the period since completion of the acquisition, and the full year charge for 2015 will be $16m (£10.3m at the 2014 year end exchange).  The charge is a capital item for the Company and does not attract corporation tax relief.

The group's estimate of the fair value of the net assets acquired is $17.9m, comprising fixed assets of $1.6m, net working capital liabilities of $11.1m and cash of $27.4m.

In the period from 26 November 2014, the date of completion of the acquisition, to the end of the year, PVM's revenue was £7.5m, with underlying operating profit, and PBT, of £1.5m, and underlying earnings of £1.1m, after a tax charge at an effective rate of 23.7% on underlying PBT, in line with the effective rate of tax applicable to PVM for the 12 months to 31 December 2014.  The acquisition was therefore accretive to earnings per share, with earnings of 42.3p per share issued for the initial consideration, weighted for the period since acquisition. 

PVM's unaudited management accounts for the 12 months to December 2014 show revenue of $125.8m (£76.2m), underlying operating profit of $21.2m (£12.9m), underlying PBT of $21.5m (£13.0m), and earnings of $16.3m (£9.9m).  On a pro forma basis, assuming PVM had been acquired on 1 January 2014 and using PVM's unaudited management accounts for 2014, the acquisition would have been accretive to underlying earnings per share, with underlying earnings of 38.4p per share issued for the initial consideration.

Exceptional and acquisition related items

The £46.7m charge relating to the cost improvement programme, the £3.1m credit (2013: £15.2m charge) relating to the major legal actions, and the £0.9m charge relating to the amortisation of acquisition deferred consideration, are discussed above.

The £1.8m charge relating to acquisition costs reflects the legal and professional costs incurred in relation to the acquisition of PVM.

The £6.8m charge relating to goodwill impairment reflects the write down in the balance sheet carrying value of the group's business in Brazil.  For the purposes of goodwill impairment testing, Brazil is regarded as a separate region of the group.  The carrying value of the goodwill attributed to each region is tested for impairment annually.  The estimated value for each region is compared with the balance sheet carrying value of the region, including goodwill, and any shortfall is recognised as an impairment. Market conditions in Brazil have been challenging in the last two years, and revenue has fallen by nearly one-quarter since 2012.  The business continues to be profitable but the absolute level of operating profit has fallen below the level required to support the carrying value.

Basic EPS

The average number of shares used for the basic EPS calculation of 220.4m reflects the 217.7m shares in issue at the beginning of the year, plus 2.6m reflecting the 25.8m shares issued on 26 November 2014 in satisfaction of the initial consideration payable for PVM, plus the 0.3m shares that are issuable when vested options are exercised, less the 0.2m shares held throughout the year by the Employee Benefit Trust which has waived its rights to dividends. 

Exchange and Hedging

The income statements of the group's non-UK operations are translated into sterling at average exchange rates.  The most significant exchange rates for the group are the US dollar, the Euro, the Singapore dollar and the Japanese Yen.  The balance sheets of the group's non-UK operations are translated into Sterling using year-end exchange rates.  The major balance sheet translation exposure is to the US dollar.  The group's current policy is not to hedge income statement or balance sheet translation exposure.

Average and year end exchange rates used in the preparation of the financial statements are shown below.

	Average			Year End
	2014	2013		2014	2013
US dollar	$1.65	$1.56		$1.56	$1.66
Euro	€1.24	€1.18		€1.29	€1.20
Singapore dollar	S$2.09	S$1.95		S$2.07	S$2.09
Japanese Yen	¥174	¥151		¥187	¥174

Cash flow

	2014	2013
	£m	£m
Underlying Operating profit	100.7	115.4
Share-based compensation and other non-cash items	0.9	1.0
Depreciation and amortisation	13.6	11.9
Accelerated depreciation - fire damaged assets	-	1.5
EBITDA	115.2	129.8
Capital expenditure (net of disposals)	(11.0)	(17.0)
Decrease in initial contract prepayment	8.7	16.6
Other working capital	(21.9)	(21.7)
Operating cash flow	91.0	107.7
Exceptional items - cost improvement programme 2014	(17.0)	-
Exceptional items - restructuring 2011/2012	(0.9)	(3.2)
Exceptional items - major legal actions net cash flow	3.1	(15.2)
Interest	(15.2)	(14.9)
Taxation	(15.9)	(27.5)
Dividends received from associates/(paid) to minorities	0.8	0.7
Acquisitions/investments	(8.7)	(2.3)
Cash flow	37.2	45.3

The operating cash flow in 2014 of £91.0m represents a conversion of 90% (2013: £107.7m and 93%) of underlying operating profit into cash.

Capital expenditure of £11.0m includes the development of electronic platforms and 'straight through processing' technology, and investment in IT and communications infrastructure.

The initial contract prepayment balance has reduced further in 2014, as the payments in the year were lower than the amortisation charge.

The other working capital outflow in 2014 reflects an increase in trade receivables due to the higher revenue in December 2014 than in the same month in the previous year, reductions in bonus accruals due to the lower level of broking revenue throughout the second half of the year compared with the previous year and the reduction in management and support staff bonuses which are paid annually,  and the payment in December 2014 of £5.5m of payroll related creditors included in the acquisition balance sheet of PVM reflecting the withholdings from payments made to staff shortly before completion of the acquisition.

During 2014 the group made £17.0m of cash payments relating to actions taken under the 2014 cost improvement programme, and £0.9m relating to the 2011/12 restructuring programme.  Most of the remaining £8.0m of cash payments associated with the implementation of the cost improvement programme are expected to be made during 2015.

The major legal actions net cash inflow of £3.1m is in line with the credit in the income statement, and reflects the payments for legal costs made during the year, net of the $27.0m (£16.0m) compensatory damages awarded by the FINRA arbitrators that were received in August 2014.

Interest payments in 2014 reflect the income statement charge for net cash finance expenses excluding the charge for the amortisation of debt issue costs.

Tax payments in 2014 of £15.9m were lower than the payments made in 2013 primarily reflecting lower tax payments in the UK due to the reduction in the UK tax charge, lower net payments in Asia due to some refunds received in 2014, and the return of tax deposits previously paid in Brazil.

The cash payments relating to acquisitions and investments in 2014 includes the £1.8m of costs incurred in relation to the acquisition of PVM, and £1.4m of costs incurred in relation to the issuance of the equity to satisfy the initial consideration for that acquisition, together with the £3.6m payment to secure the release of the brokers from Murphy & Durieu, the £1.2m purchase of our former partner's equity interest in our main business in Japan which was previously operated as a joint venture, and the final £0.7m payment of deferred consideration relating to the acquisition of Convenção in Brazil.

The movement in cash and debt is summarised below.

£m	Cash	Debt	Net
At 31 December 2013	282.8	(227.6)	55.2
Cash flow	37.2	-	37.2
Dividends	(36.7)	-	(36.7)
Debt repayments	(8.5)	8.5	-
Amortisation of debt issue costs	-	(0.6)	(0.6)
Cash acquired with subsidiaries	17.5	-	17.5
Effect of movement in exchange rates	5.5	-	5.5
At 31 December 2014	297.8	(219.7)	78.1

At 31 December 2014 the group held cash, cash equivalents and other financial assets of £297.8m which exceeded the debt outstanding by £78.1m.

Debt Finance

The composition of the group's outstanding debt is summarised below.

	At 31 Dec	At 31 Dec
£m	2014	2013
6.52% Sterling Notes August 2014	-	8.5
7.04% Sterling Notes July 2016	141.1	141.1
5.25% Sterling Notes June 2019	80.0	80.0
Unamortised debt issue costs	(1.4)	(2.0)
	219.7	227.6

The £8.5m Sterling Notes were repaid at their maturity in August 2014.  In addition to the outstanding Notes, the group has a committed £150m revolving credit facility that has remained undrawn through the period, which matures in April 2016.

Pensions

The group has one defined benefit pension scheme in the UK following the merger during 2012 of the two schemes which were acquired with Tullett plc and Prebon Marshall Yamane.  The scheme is closed to new members and future accrual.

The triennial actuarial valuation of the scheme as at 30 April 2013 was concluded in January 2014.  The actuarial funding surplus of the scheme at that date was £64.2m and under the agreed schedule of contributions the Company will continue not to make any payments into the scheme.

The assets and liabilities of the scheme are included in the Consolidated Balance Sheet in accordance with IAS19.  The scheme's invested assets returned 16% (net of fees) during the year, and the fair value of the scheme's assets at the end of the year was £255.7m (2013: £226.1m).  The value of the scheme's liabilities at the end of 2014 calculated in accordance with IAS19 was £193.6m (2013: £175.6m). The valuation of the scheme's liabilities at the end of 2014 reflects the demographic assumptions adopted for the most recent triennial actuarial valuation and a discount rate of 3.7% (2013: 4.4%).  Under IAS19 the scheme shows a surplus, before the related deferred tax liability, of £62.1m at 31 December 2014 (2013: £50.5m).

Return on capital employed

The return on capital employed (ROCE) in 2014, excluding PVM, was 20% (2013: 24%).   ROCE is calculated as underlying operating profit divided by the average capital employed in the business.  Capital employed is defined as shareholders' funds less net funds and the accounting pension surplus (net of deferred tax), adding back cumulative amortised and impaired goodwill and the post-tax reorganisation costs related to the integration of the Tullett and Prebon businesses.

The pro forma ROCE in 2014 for PVM calculated using the underlying operating profit per the unaudited management accounts for the full year 2014 and the value of the initial consideration is 20%.

Regulatory capital

The group's lead regulator is the Financial Conduct Authority. As part of the application for the change in control approval from the FCA for the acquisition of PVM the group applied for and has received a new Investment Firm Consolidation Waiver.  The new waiver took effect on 25 September 2014 and will expire on 24 September 2024.  Consistent with the previous waiver, under the terms of the new waiver each investment firm within the group must be either a limited activity or a limited licence firm and must comply with its individual regulatory capital resources requirements. Tullett Prebon plc, as the parent company, must continue to maintain capital resources in excess of the sum of the solo notional capital resources requirements for each relevant firm within the group.

The terms of the new waiver require the group to eliminate the excess of its consolidated own funds requirements compared with its consolidated own funds ("excess goodwill") over the ten year period to 24 September 2024. The amount of the excess goodwill must not exceed the amount determined as at the date the waiver took effect and must be reduced in line with a schedule over the ten years, with the first reduction of 25% required to be achieved by March 2017. The Company expects to achieve this reduction within its current business plan.  The waiver also sets out conditions with respect to the maintenance of financial ratios relating to leverage, debt service and debt maturity profile.

Many of the group's broking entities are regulated on a 'solo' basis, and are obliged to meet the regulatory capital requirements imposed by the local regulator of the jurisdiction in which they operate.

Outlook

Tullett Prebon has produced a robust set of results reflecting a strong operational performance in what was another challenging year for the interdealer brokerage sector.  Due to ongoing cost discipline we have maintained our margins.  Looking forward, we will continue to add products and services to facilitate our clients' strategies, incorporating content and technologies that add value.  Our focus on conduct and culture emphasises our ongoing commitment to play a central role in global financial markets and to be viewed as a trusted partner.  We will continue to look to make strides to exploit the opportunities in a consolidating marketplace.

The benefits from the acquisition of PVM and the arrival of brokers from Murphy & Durieu will flow through in 2015.  PVM significantly increases the scale of the group's activities in the energy sector, and diversifies the group's client base, reducing our dependence on wholesale investment and commercial banks. We will continue to expand the data content for our high margin, growing, Information Sales business through the oil price data generated from the PVM business, and through other exclusive data content deals.

It remains difficult, however, to predict accurately the level of activity in the markets we serve.  Revenue in the first two months of 2015, excluding PVM, and at constant exchange rates, is unchanged compared with the equivalent period last year.  We will continue to show discipline on costs.  The benefit of the actions we have taken through the cost improvement programme in 2014 will continue to flow through in 2015, particularly in the first half.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consolidated Income Statement

for the year ended 31 December 2014

	Notes	Underlying	Exceptional and acquisition related items	Total
2014		£m	£m	£m
Revenue	3	703.5	-	703.5
Administrative expenses	4	(607.9)	(69.1)	(677.0)
Other operating income	4,5	5.1	16.0	21.1
Operating profit		100.7	(53.1)	47.6
Finance income	6	3.6	-	3.6
Finance costs	7	(17.7)	-	(17.7)
Profit before tax		86.6	(53.1)	33.5
Taxation		(16.9)	6.5	(10.4)
Profit of consolidated companies		69.7	(46.6)	23.1
Share of results of associates		1.9	-	1.9
Profit for the year		71.6	(46.6)	25.0
Attributable to:
Equity holders of the parent		71.2	(46.6)	24.6
Minority interests		0.4	-	0.4
		71.6	(46.6)	25.0
Earnings per share
Basic	8	32.3p		11.2p
Diluted	8	32.3p		11.2p
2013
Revenue	3	803.7	-	803.7
Administrative expenses	4	(699.3)	(15.2)	(714.5)
Other operating income	5	11.0	-	11.0
Operating profit		115.4	(15.2)	100.2
Finance income	6	3.7	-	3.7
Finance costs	7	(19.5)	-	(19.5)
Profit before tax		99.6	(15.2)	84.4
Taxation		(22.4)	2.4	(20.0)
Profit of consolidated companies		77.2	(12.8)	64.4
Share of results of associates		1.4	-	1.4
Profit for the year		78.6	(12.8)	65.8
Attributable to:
Equity holders of the parent		78.4	(12.8)	65.6
Minority interests		0.2	-	0.2
		78.6	(12.8)	65.8
Earnings per share
Basic	8	36.0p		30.1p
Diluted	8	36.0p		30.1p

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2014

	2014	2013
	£m	£m
Profit for the year	25.0	65.8
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of the defined benefit pension scheme	10.0	7.2
Taxation charge relating to items not reclassified	(3.5)	(2.5)
	6.5	4.7
Items that may be reclassified subsequently to profit or loss:
Revaluation of investments	(0.5)	(0.5)
Effect of changes in exchange rates on translation of foreign operations	7.7	(7.8)
Taxation (charge)/credit relating to items that may be reclassified	(0.2)	0.2
	7.0	(8.1)
Other comprehensive income for the year	13.5	(3.4)
Total comprehensive income for the year	38.5	62.4
Attributable to:
Equity holders of the parent	37.8	62.5
Minority interests	0.7	(0.1)
	38.5	62.4

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consolidated Balance Sheet

as at 31 December 2014

	Notes	2014 £m	2013 £m
Non-current assets
Intangible assets arising on consolidation	10	336.6	275.6
Other intangible assets		20.1	21.8
Property, plant and equipment		29.4	28.8
Interest in associates		5.0	4.0
Investments		5.2	5.7
Deferred tax assets		2.3	2.9
Defined benefit pension scheme		62.1	50.5
		460.7	389.3
Current assets
Trade and other receivables		3,261.9	5,820.2
Financial assets	13	10.7	31.2
Cash and cash equivalents	13	287.1	251.6
		3,559.7	6,103.0
Total assets		4,020.4	6,492.3
Current liabilities
Trade and other payables		(3,269.2)	(5,812.7)
Interest bearing loans and borrowings	13	-	(8.5)
Current tax liabilities		(12.3)	(19.3)
Short term provisions		(6.6)	(1.8)
		(3,288.1)	(5,842.3)
Net current assets		271.6	260.7
Non-current liabilities
Interest bearing loans and borrowings	13	(219.7)	(219.1)
Deferred tax liabilities		(24.1)	(17.9)
Long term provisions		(9.7)	(4.3)
Other long term payables		(15.3)	(10.3)
		(268.8)	(251.6)
Total liabilities		(3,556.9)	(6,093.9)
Net assets		463.5	398.4
Equity
Share capital		60.9	54.4
Share premium		17.1	17.1
Merger reserve		178.5	121.5
Other reserves		(1,173.4)	(1,180.1)
Retained earnings		1,378.8	1,383.4
Equity attributable to equity holders of the parent		461.9	396.3
Minority interests		1.6	2.1
Total equity		463.5	398.4

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consolidated Statement of Changes in Equity

for the year ended 31 December 2014

                                                                Equity attributable to equity holders of the parent

	Share capital	Share premium account	Merger reserve	Reverse acquisition reserve	Re- valuation reserve	Hedging and translation	Own shares	Retained earnings	Total	Minority interests	Total equity
2014	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2014	54.4	17.1	121.5	(1,182.3)	1.9	0.4	(0.1)	1,383.4	396.3	2.1	398.4
Profit for the year	-	-	-	-	-	-	-	24.6	24.6	0.4	25.0
Other comprehensive income for the year	-	-	-	-	(0.5)	7.2	-	6.5	13.2	0.3	13.5
Total comprehensive income for the year	-	-	-	-	(0.5)	7.2	-	31.1	37.8	0.7	38.5
Dividends paid	-	-	-	-	-	-	-	(36.7)	(36.7)	(0.2)	(36.9)
Issue of ordinary shares	6.5	-	58.4	-	-	-	-	-	64.9	-	64.9
Share issue costs	-	-	(1.4)	-	-	-	-	-	(1.4)	-	(1.4)
Decrease in minority interests	-	-	-	-	-	-	-	(0.2)	(0.2)	(1.0)	(1.2)
Credit arising on share-based payment awards	-	-	-	-	-	-	-	1.2	1.2	-	1.2
Balance at 31 December 2014	60.9	17.1	178.5	(1,182.3)	1.4	7.6	(0.1)	1,378.8	461.9	1.6	463.5
2013
Balance at 1 January 2013	54.4	17.1	121.5	(1,182.3)	2.4	7.7	(0.1)	1,348.8	369.5	2.5	372.0
Profit for the year	-	-	-	-	-	-	-	65.6	65.6	0.2	65.8
Other comprehensive income for the year	-	-	-	-	(0.5)	(7.3)	-	4.7	(3.1)	(0.3)	(3.4)
Total comprehensive income for the year	-	-	-	-	(0.5)	(7.3)	-	70.3	62.5	(0.1)	62.4
Dividends paid	-	-	-	-	-	-	-	(36.7)	(36.7)	(0.3)	(37.0)
Credit arising on share-based payment awards	-	-	-	-	-	-	-	1.0	1.0	-	1.0
Balance at 31 December 2013	54.4	17.1	121.5	(1,182.3)	1.9	0.4	(0.1)	1,383.4	396.3	2.1	398.4

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consolidated Cash Flow Statement

for the year ended 31 December 2014

	Notes	2014	2013
		£m	£m
Net cash from operating activities	12	52.8	62.1
Investing activities
Sale/(purchase) of financial assets		20.6	(1.9)
Interest received		1.5	1.9
Dividends from associates		1.0	1.0
Expenditure on intangible fixed assets		(5.3)	(6.7)
Purchase of property, plant and equipment		(5.7)	(10.4)
Investment in subsidiaries		(5.5)	(2.3)
Cash acquired with the acquisition of PVM		17.5	-
Net cash arising from investment activities		24.1	(18.4)
Financing activities
Dividends paid	9	(36.7)	(36.7)
Dividends paid to minority interests		(0.2)	(0.3)
Equity issue costs		(1.4)	-
Repayment of debt		(8.5)	(30.0)
Debt issue and bank facility arrangement costs		-	(1.7)
Net cash used in financing activities		(46.8)	(68.7)
Net increase/(decrease) in cash and cash equivalents		30.1	(25.0)
Cash and cash equivalents at the beginning of the year		251.6	281.5
Effect of foreign exchange rate changes		5.4	(4.9)
Cash and cash equivalents at the end of the year	13	287.1	251.6

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Notes to the Consolidated Financial Statements

for the year ended 31 December 2014

1.      General information

Tullett Prebon plc is a company incorporated in England and Wales under the Companies Act.

2.      Basis of preparation

(a) Basis of accounting

The financial information included in this document does not constitute the Group's statutory accounts for the years ended 31 December 2014 or 2013, but is derived from those accounts.  Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting.  The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The Financial Statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the going concern basis continues to be used in preparing these Financial Statements.

(b) Basis of consolidation

The Group's Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company made up to 31 December each year.  Under IFRS 10, which has been adopted in 2014 (see below), control is achieved where the Company exercises power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to use its power to affect the returns from the entity.  Previously, control was defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

(c) Adoption of new and revised Accounting Standards

The following new and revised Standards and Interpretations have been adopted in the current year although their adoption has not had any significant impact on the Financial Statements.

The Group has adopted a package of four standards on consolidation, joint arrangements, associates and disclosures comprising IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements', IFRS 12 'Disclosures of Interests in Other Entities', and IAS 28 (as revised in 2011) 'Investments in Associates and Joint Ventures'.  Subsequent to the issue of these standards, amendments to IFRS 10,11 and 12 were issued to clarify certain transitional guidance on first time application of the standards.  Additionally, the Group has adopted Amendments to IAS 32 'Financial Instruments: Presentation' regarding offsetting financial assets and financial liabilities, Amendments to IAS 36 'Impairment of assets' regarding recoverable amount disclosures for non-financial assets and Amendments to IAS39 'Financial Instruments: Recognition and Measurement' regarding the novation of derivatives and continuation of hedge accounting.

3.      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:

	2014	2013
Revenue:	£m	£m
Europe and the Middle East	405.6	468.7
Americas	201.6	233.9
Asia Pacific	96.3	101.1
	703.5	803.7
Operating profit:
Europe and the Middle East	80.1	97.9
Americas	10.5	10.4
Asia Pacific	10.1	7.1
Underlying operating profit	100.7	115.4
Net credit/(charge) relating to major legal actions (1)	3.1	(15.2)
Charge relating to cost improvement programme (2)	(46.7)	-
Acquisition costs (2)	(1.8)	-
Acquisition related share-based payment charge (2)	(0.9)	-
Goodwill impairment (2)	(6.8)	-
Reported operating profit	47.6	100.2
Finance income	3.6	3.7
Finance costs	(17.7)	(19.5)
Profit before tax	33.5	84.4
Taxation	(10.4)	(20.0)
Profit of consolidated companies	23.1	64.4
Share of results of associates	1.9	1.4
Profit for the year	25.0	65.8

Notes:

(1)     The credit relating to major legal actions in 2014 is the net of amounts included in other income and in administrative expenses.

(2)     Costs are included in administrative expenses.

There are no inter-segment sales included in segment revenue.

	2014	2013
Revenue by product group	£m	£m
Treasury Products	190.5	211.4
Interest Rate Derivatives	140.6	174.2
Fixed Income	186.5	225.5
Equities	39.5	43.2
Energy	100.0	102.4
Information Sales and Risk Management Services	46.4	47.0
	703.5	803.7

4.      Exceptional and acquisition related items

Exceptional and acquisition related items comprise:

	2014	2013
	£m	£m
Net (credit)/charge relating to major legal actions	(3.1)	15.2
Charge relating to cost improvement programme	46.7	-
Acquisition costs	1.8	-
Acquisition related share-based payment charge	0.9	-
Goodwill impairment	6.8	-
	53.1	15.2
Taxation credit on above items	(6.5)	(2.4)
	46.6	12.8

5.      Other operating income

Other operating income represents receipts such as rental income, royalties, insurance proceeds, settlements from competitors and business relocation grants.  Costs associated with such items are included in administrative expenses.

6.      Finance income

	2014	2013
	£m	£m
Interest receivable and similar income	1.4	1.8
Deemed interest arising on the defined benefit pension scheme surplus	2.2	1.9
	3.6	3.7

7.      Finance costs

	2014	2013
	£m	£m
Interest and fees payable on bank facilities	1.5	1.7
Interest payable on Sterling Notes August 2014	0.4	0.6
Interest payable on Sterling Notes July 2016	9.9	9.9
Interest payable on Sterling Notes June 2019	4.2	4.2
Other interest payable	0.5	0.3
Amortisation of debt issue and bank facility costs	1.1	2.3
Total borrowing costs	17.6	19.0
Amortisation of discount on deferred consideration	0.1	0.5
	17.7	19.5

8.      Earnings per share

	2014	2013
Basic - underlying	32.3p	36.0p
Diluted - underlying	32.3p	36.0p
Basic earnings per share	11.2p	30.1p
Diluted earnings per share	11.2p	30.1p

The calculation of basic and diluted earnings per share is based on the following number of shares:

	2014 No.(m)	2013 No.(m)
Basic weighted average shares	220.4	217.8
Contingently issuable shares	0.2	-
Issuable on exercise of options	-	0.2
Diluted weighted average shares	220.6	218.0

The earnings used in the calculation of underlying, basic and diluted earnings per share, are set out below:

	2014	2013
	£m	£m
Earnings for the year	25.0	65.8
Minority interests	(0.4)	(0.2)
Earnings	24.6	65.6
Net (credit)/charge relating to major legal actions	(3.1)	15.2
Charge relating to cost improvement programme	46.7	-
Acquisition costs	1.8	-
Acquisition related share-based payment charge	0.9	-
Goodwill impairment	6.8	-
Tax on above items	(6.5)	(2.4)
Underlying earnings	71.2	78.4

9.      Dividends

	2014	2013
	£m	£m
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 31 December 2014 of 5.6p per share	12.2	-
Final dividend for the year ended 31 December 2013 of 11.25p per share	24.5	-
Interim dividend for the year ended 31 December 2013 of 5.6p per share	-	12.2
Final dividend for the year ended 31 December 2012 of 11.25p per share	-	24.5
	36.7	36.7

In respect of the current year, the Directors propose that the final dividend of 11.25p per share amounting to £27.4m will be paid on 14 May 2015 to all shareholders on the Register of Members on 24 April 2015.  This dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these Financial Statements.  The trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.

10.    Intangible assets arising on consolidation

		Goodwill	Other	Total
2014		£m	£m	£m
At 1 January 2014		275.6	-	275.6
Recognised on acquisitions		55.8	9.5	65.3
Impairment		(6.8)	-	(6.8)
Effect of movements in exchange rates		2.5	-	2.5
At 31 December 2014		327.1	9.5	336.6
2013
At 1 January 2013		278.5	-	278.5
Effect of movements in exchange rates		(2.9)	-	(2.9)
At 31 December 2013		275.6	-	275.6

Goodwill arising through business combinations has been allocated to individual cash-generating units ('CGUs') for impairment testing as follows:

	2014	2013
CGU	£m	£m
Europe and the Middle East	195.1	195.1
North America	57.5	50.4
Brazil	3.3	10.8
Asia Pacific	19.3	19.3
PVM Oil Associates	51.9	-
	327.1	275.6

Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU.  The recoverable amount of each CGU is the higher of its value in use ('VIU') or its net realisable value ('NRV').

The key assumptions for the VIU calculations are those regarding expected cash flows arising in future periods, regional growth rates and the discount rates.  Future cash flow projections are based on the most recent Board approved financial budgets which are used to project cash flows for the next five years.  After this period a steady state cash flow is used to derive a terminal value for the CGU.  Goodwill has an indefinite life and this is reflected in the calculation of the CGU's terminal value.  Estimated average growth rates, based on each region's constituent country growth rates as published by the World Bank, are used to estimate cash flows after the budgeted period.

As at 31 December 2014 VIU has been used to estimate recoverable amounts for all CGUs and for all CGU's except Brazil, the estimate of the recoverable amount was higher than the carrying value.  The calculations have been subject to stress tests demonstrating that the impairment test results are tolerant to reasonably possible changes in assumptions as to discount rate and future cash flows.  The VIU calculations used growth rates of 2% for Europe and the Middle East, 2.5% for North America, and 3% for Asia.  Resultant cash flows for Europe and the Middle East, and Asia have been discounted at a pre-tax discount rate of 10.5% (2013: 11.5%), and for North America have been discounted at 12.5% (2013: 13.5%) reflecting the higher level of uncertainty in the forecasts of that CGU's future cash flows.

The estimated recoverable amount for the Brazil CGU using VIU was calculated to be lower than that CGU's carrying value.  Market conditions in Brazil have been challenging in the last two years and revenue has fallen by nearly one-quarter since 2012.  The business continues to be profitable but the absolute level of operating profit has fallen below the level required to support the CGU's carrying value.  The recoverable amount based on its NRV was calculated to be higher than its VIU although still lower than its carrying value, and £6.8m has been recognised as an impairment of the goodwill attributed to that CGU.

11.    Acquisitions

PVM Oil Associates Limited

On 26 November 2014 the Group issued 25.8m shares with a fair value of £64.9m to acquire 100% of the share capital of PVM Oil Associates Limited ('PVM').  Further deferred consideration with an estimated fair value of £5.8m, payable in shares or cash at the Group's discretion, is payable in 2017.  Intangible assets arising on the consolidation of PVM amounted to £61.2m of which £51.7m relates to goodwill.  Acquisition costs of £1.8m have been included in administrative expenses and £1.4m of equity issue costs have been charged against the merger reserve in equity.

This transaction has been accounted for under the acquisition method of accounting.

		Fair value
Net assets acquired:		£m
Property plant and equipment		1.0
Trade and other receivables		16.2
Cash and cash equivalents		17.5
Trade and other payables		(22.0)
Current tax		(1.1)
Provisions		(0.4)
Deferred tax		(1.7)
		9.5
Intangible assets arising on consolidation
Other intangible assets		9.5
Goodwill		51.7
Fair value of total consideration		70.7
Satisfied by:
Issue of ordinary shares		64.9
Deferred consideration		5.8
		70.7

Intangible assets arising on consolidation relate to the PVM brand, £1.5m, the value of customer relationships, £8.0m, with the balance of £51.7m recognised as goodwill, representing the value of the established workforce and the business's reputation.

		£m
Goodwill arising on acquisition		51.7
Effect of movements in exchange rates		0.2
Goodwill at 31 December 2014		51.9

The revenue, underlying operating profit and underlying earnings for the period since the date of the acquisition were £7.5m, £1.5m and £1.1m respectively.  Had PVM been acquired on 1 January 2014 revenue would have been £68.7m higher, underlying operating profit £11.4m higher and underlying earnings £8.8m higher.

As part of the acquisition of PVM, certain former shareholders are eligible to receive additional payments after three years' service provided they remain as employees and PVM achieves revenue performance targets over that period.  The Group has the sole right to issue equity or cash to satisfy these additional payments, which although deferred consideration in substance, are conditional on future employment, and the fair value of the payments as at the date of acquisition, which was estimated to be US$48.0m (£30.6m), is being recognised as a share-based expense, through the income statement and equity, over the three year service term.  The share-based expense recognised in future periods will be adjusted to reflect actual service and revenue performance.

Murphy & Durieu

On 31 December 2014 one of the Group's US subsidiaries hired a team of brokers which formed Murphy & Durieu L.P.'s primary fixed income interdealer brokering business.  Consideration of US$5.6m (£3.6m) was paid in cash.  Deferred consideration with a fair value of US$0.8m (£0.5m) is payable over a five year period subject to earnings targets.  The fair value of the identifiable assets and liabilities acquired were negligible, resulting in the recognition of goodwill of US$6.4m (£4.1m), attributable to the highly skilled workforce and the business's reputation.  Given the nature of the acquisition it is impracticable to show the revenue and earnings for the full year as if acquired from the beginning of the year.

12.    Reconciliation of operating result to net cash from operating activities

	2014	2013
	£m	£m
Operating profit	47.6	100.2
Adjustments for:
Share-based compensation expense	1.2	1.0
Pension scheme's administration costs	0.6	-
Depreciation of property, plant and equipment	6.5	5.5
Amortisation of intangible assets	7.1	6.4
Goodwill impairment	6.8	-
Loss on disposal of property, plant and equipment	-	1.5
Loss on derecognition of intangible assets	-	0.1
Increase/(decrease) in provisions for liabilities and charges	9.7	(5.1)
(Decrease)/increase in non-current liabilities	(1.6)	2.8
Operating cash flows before movement in working capital	77.9	112.4
Decrease in trade and other receivables	25.9	13.2
(Increase)/decrease in net settlement balances	(1.1)	0.4
Decrease in trade and other payables	(17.3)	(19.6)
Cash generated from operations	85.4	106.4
Income taxes paid	(15.9)	(27.5)
Interest paid	(16.7)	(16.8)
Net cash from operating activities	52.8	62.1

13.    Analysis of net funds

	At 1 January 2014 £m	Cash flow £m	Non cash items £m	Exchange rate movements £m	At 31 December 2014 £m
Cash	212.6	5.5	-	5.2	223.3
Cash equivalents	37.4	24.5	-	0.2	62.1
Client settlement money	1.6	0.1	-	-	1.7
Cash and cash equivalents	251.6	30.1	-	5.4	287.1
Financial assets	31.2	(20.6)	-	0.1	10.7
Total funds	282.8	9.5	-	5.5	297.8
Notes due within one year	(8.5)	8.5	-	-	-
Notes due after one year	(219.1)	-	(0.6)	-	(219.7)
	(227.6)	8.5	(0.6)	-	(219.7)
Total net funds	55.2	18.0	(0.6)	5.5	78.1

Cash and cash equivalents comprise cash at bank and other short term highly liquid investments with an original maturity of three months or less.  As at 31 December 2014 cash and cash equivalents amounted to £287.1m (2013: £251.6m).  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 three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.

Financial assets comprise short term government securities and term deposits held with banks and clearing organisations.

14.    Events after the balance sheet date

The action taken by the Company and certain of its subsidiaries against BGC in the New Jersey Superior Court, alleging claims for racketeering, unfair competition, misappropriation of confidential information and trade secrets, and tortious interference, was concluded in January 2015.

The Company entered into an agreement with BGC on 13 January 2015 under which BGC will pay $100m (£66m) to the Company to settle the litigation in the New Jersey Superior Court.  The settlement agreement also settles all other outstanding litigation between the parties, which will now be dismissed.

The first $25m of the $100m settlement was paid to the Company in January 2015, and the balance of $75m will be paid to the Company before the end of March 2015.  The income will be taxed in the UK at the standard rate of corporation tax applicable in 2015.

OTHER INFORMATION

The Annual General Meeting of Tullett Prebon plc will be held at Level 37, Tower 42, 25 Old Broad Street, London EC2N 1HQ on 6 May 2015 at 2.00pm.

 

END

 

 

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