Final Results

RNS Number : 5430Q

Tullett Prebon PLC

01 March 2016

 

TULLETT PREBON PLC

Preliminary Statement of Results - for the year ended 31 December 2015

Tullett Prebon plc (the "Company") today announced its preliminary statement of results for the year ended 31 December 2015. 

Operational Highlights

·       Revenue up 13% with higher revenue in every region

·       Operating profit up 7% with higher operating profit in every region

·       Return on capital employed maintained at 20%

·       Completion of global strategic review

·       Outstanding performance from PVM

·       Acquisition of MOAB strengthens Energy in the Americas

·       Further reductions in broker employment costs

·       Further cost improvement actions implemented

·       Investments to strengthen control and support functions

·       Strong contribution from Information Sales and RMS

·       Agreement reached to acquire ICAP's global hybrid voice broking and information business ("IGBB")

Financial Highlights

Underlying, before exceptional and acquisition related items

·              Revenue £796.0m (2014: £703.5m)

·              Operating profit £107.9m (2014: £100.7m)

·              Operating margin 13.6% (2014: 14.3%)

·              Profit before tax £93.7m (2014: £86.6m)

·              Basic EPS 32.2p (2014: 32.3p)

Reported, after exceptional and acquisition related items

·              Profit before tax £105.7m (2014: £33.5m)

·              Basic EPS 34.0p (2014: 11.2p)

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

The average number of shares used for the EPS calculation for 2015 is 243.6m (2014: 220.4m).  The increase reflects the full year weighting of the 25.8m shares issued in November 2014 as the initial consideration for PVM.

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 2014.  The final dividend will be payable on 19 May 2016 to shareholders on the register at close of business on 29 April 2016.

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

"We achieved a good overall financial performance in 2015 against the backdrop of a challenging trading environment and subdued client demand.  Revenue of £796m in 2015 was 13% higher than in 2014 with underlying operating profit increasing by 7% to £108m.  Return on capital employed was maintained at 20%.  Underlying earnings per share for 2015 of 32.2p are 0.1p lower than for 2014, reflecting the increase in the average number of shares in issue following the acquisition of PVM.

We took a number of initiatives during 2015 in pursuit of our goal to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking.  The agreement for the acquisition of ICAP's global hybrid voice broking and information business provides a unique opportunity to accelerate the delivery of our strategy, and we are in the process of planning the integration of the two businesses to be implemented after completion of the transaction which we expect will be during 2016.

We will continue to look for opportunities to deliver our objectives to build revenue and raise the quality and quantity of earnings through further diversification of the client base, continued expansion into Energy and commodities, and building scale in the Americas and Asia Pacific, whilst preserving the business's core franchises."

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

Our strategic review, the results of which were communicated to the market in June last year, concluded that the central role played by interdealer brokers at the heart of the global wholesale OTC markets remains secure, but that revenue declines were likely to continue in a number of traditional interdealer broker products.  The review concluded that the Energy and commodities markets do not currently face all the same pressures.

Market conditions in 2015 were consistent with these conclusions.  Activity in many of the traditional interdealer broker products remained subdued throughout 2015 although after a slow summer period there was some pick-up in activity in some products and markets in the last two months of the year.  In contrast, activity in the Energy and commodities markets, particularly in oil and oil related financial products, was buoyant reflecting the significant changes and volatility in oil prices throughout the year.

We have continued to actively manage the direct cost base to reflect market conditions.  In the light of the reductions in market volumes in the traditional interdealer broker product areas in the second half of the year further cost improvement action was taken towards the end of 2015 to reduce headcount and other fixed costs in the products and geographies most affected by the reduction in market volumes and revenue.

The business's performance in 2015 has benefited greatly from the investments made in increasing the scale of the group's activities in the Energy sector.  The performance of PVM Oil Associates Limited and subsidiaries ("PVM") which was acquired in November 2014 was strong throughout the year.  The group's leading position in Energy broking was enhanced by the acquisition in August 2015 of MOAB Oil, Inc. significantly increasing the scale of the group's activities in broking crude oil and energy products in North America.  Energy and commodities is now the group's largest product area by revenue.

The Information Sales and Risk Management Services businesses have also performed strongly.  The Information Sales business has benefited from the continued expansion of its client base and geographical presence, the enhancement of its sales capability and the extension of the data content it provides to customers.

We have made investments in senior management to lead our strategy and business development activities.  We have taken steps to strengthen our support and control functions to facilitate the implementation of enhanced cultural, compliance and risk governance frameworks in order to deliver our commitment to instil and embed the highest standards of conduct in the business.

Revenue of £796m in 2015 was 13% higher than in 2014 with underlying operating profit increasing by 7% to £108m.  The underlying operating profit margin in 2015 of 13.6% is 0.7% points lower than in 2014 reflecting the investments being made in the business.  Underlying earnings per share for 2015 of 32.2p are 0.1p lower than for 2014, reflecting the increase in the average number of shares in issue following the acquisition of PVM.

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 conditions in the financial markets, by customers' risk appetite, and by their willingness and ability to trade.

The level of activity in the wholesale OTC financial markets during 2015 continued to be under pressure from the cyclical and structural factors affecting the interdealer broker industry.

Volatility, and the steepness and absolute level of yield curves, are key drivers of activity in the financial markets. Measures of financial market volatility have been a little higher during 2015 than in the previous two years but have remained low in absolute terms, and volatility and trading volumes in many product areas continued to be sporadic.  Interest rates for many of the major currencies have fallen further during 2015 and this has often been accompanied by a further flattening of the yield curve, with a reduction in the spread between short and longer term rates.  Credit spreads in many of the major bond markets have also become further compressed.  The increase in interest rates in the United States towards the end of the year was a small step towards a more normal interest rate environment.

Volumes in the financial markets also continue to be adversely affected by the more onerous regulatory environment applicable to many of our bank customers whose trading activity has been suppressed by the deleveraging of their balance sheets and lower risk appetite.

In contrast, activity in the Energy and commodities markets, particularly in oil and oil related financial instruments, has been buoyant.   Commodity prices, particularly crude oil which is the world's most actively traded commodity, were volatile throughout 2015, resulting in a higher level of market activity.

Excluding PVM, revenue in 2015 was 2% lower than in 2014 at constant exchange rates.  Broking revenue was 3% lower, with revenue from the traditional interdealer broker product areas of Treasury products, Interest Rate Derivatives, and Fixed Income, down 6%, partly offset by growth in Energy and in Equities products.  Revenue from Information Sales and Risk Management Services was 14% higher in 2015 than in 2014.

PVM had an excellent first full year in the group.  PVM's main activities are in crude oil and petroleum products and the business continued to benefit from the higher level of activity in those markets.  PVM's revenue in 2015 was 26% higher than in 2014.

Cost management and operating margin

The business actively manages its direct cost base to reflect market conditions.  As the level of activity and revenue in the traditional interdealer product areas has fallen action has been taken in the product areas and geographies most affected to align the cost base with the lower level of revenue.  The objectives of the cost improvement programmes have been to reduce fixed costs, to preserve the variable nature of broker compensation and to reduce it as a percentage of broking revenue, in order to ensure that the business is well positioned to respond to less favourable market conditions and to maintain operating margins. 

The cost improvement programme implemented towards the end of 2015 is focused on reducing headcount in Europe and the Middle East and on restructuring broker contracts in North America to reduce fixed costs and to reduce the level of pay out as a percentage of broking revenue.  Front office broking headcount is being reduced by approximately 70 heads representing a reduction of around 7.5% of the front office headcount in Europe and the Middle East and in North America in Treasury products, Interest Rate Derivatives, and Fixed Income.  The cost of the actions taken in 2015 of £25.7m, of which £4.4m is the non-cash write down of amounts previously paid, has been charged as an exceptional item in the 2015 accounts.  A further charge of less than £10m is expected to be made in the first half of 2016 relating to the actions being taken under this programme which had not been completed by the end of 2015.

As a result of these actions, together with the actions taken in 2014, fixed broker employment costs in the traditional interdealer product areas in Europe and the Middle East and in North America have been reduced in line with the decline in revenue in those areas.  Total broker compensation costs as a percentage of broking revenue have fallen by 0.5% points to 55.7%, continuing the downward trend established since 2012 when total broker compensation costs as a percentage of broking revenue were 59.8%.  The reduction in the overall broker employment costs to revenue percentage in 2015 has been held back by some inoperative bonus pool arrangements (fixed costs in these areas are being reduced through the 2015 cost improvement programme), and by the change in the mix of the business with a higher proportion of revenue in Energy where broker compensation costs as a percentage of revenue tend to be a little higher than the average.

The overall contribution margin of the business, after broker employment costs and other front office direct and variable costs, was 0.7% points higher in 2015 than in the prior year, reflecting the reduction in the broker compensation to broking revenue percentage, a full year of PVM which has a higher contribution margin than the average group broking contribution margin, and the growth in Information Sales and Risk Management Services which have a relatively low level of variable costs.

The investments that have been made in developing the group's capabilities in managing strategic initiatives and in strengthening the control and support functions have resulted in an increase in management and support costs and one-off project costs in the year.  These investments are important for the business to retain its competitive advantage, to innovate, and to grow revenue and earnings.

Business development

The global strategic review that was initiated in September 2014 concluded with the Company hosting a Capital Markets Day for institutional investors and analysts in June 2015.  The presentation materials are available on the Company's website.

The Company's goal is to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking. The Company plans to build revenue and raise the quality and quantity of earnings through further diversification of the client base, continued expansion into Energy and commodities, and building scale in the Americas and Asia Pacific, whilst preserving the business's core franchises.

We concluded from the strategic review that interdealer brokers remain secure at the heart of the global financial services industry, facilitating efficient and effective trading in the wholesale OTC financial markets, and that the majority of OTC product markets, which are not characterised by continuous trading, depend upon the intervention and support of voice brokers for their liquidity and effective operation.

We are wholly committed to the hybrid voice broking model, and to developing the technology and services that support it.  This is where the business is positioned, and we aim to be the best operator and best provider of liquidity and trusted partner to our clients.

A number of initiatives have been taken during 2015 in pursuit of the strategic objectives. 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 businesses.

The Company completed the acquisition of MOAB Oil, Inc. ("MOAB") a leading independent broker of physical and financial instruments in the energy markets in the United States in August. MOAB is entirely focused on energy products, and its expertise includes physical gasoline, gasoline blending components, oil product swaps, ethanol and ethanol derivatives. MOAB has long-established relationships with major oil companies, gasoline blenders, the oil trading divisions of investment banks and other trading firms.  The acquisition of MOAB complements the acquisition of PVM and further establishes the group's leading position in the Energy sector, significantly increasing the scale of the group's activities in broking crude oil and energy products in North America.

We continue to launch new products and provide innovative solutions to our clients.  We have established our presence in environmental products in North America, commenced the broking of iron ore in Europe, and expanded our activities in base and precious metals in Europe. We have started broking MSCI futures and ETFs in London. We have hired a team to establish our presence in corporate and sovereign bonds in Asia. Our alternative investments team has launched TP-AIME, the first screen-based matching engine to better facilitate secondary market transactions in a range of alternative investments.  The platform also facilitates auctions in hedge fund, private equity and real estate fund interests.  We have announced the establishment of a joint venture with Synrex Limited to develop a new institutional all-to-all real estate trading portal for the issuance and secondary trading of indirect real estate risk across a range of instruments.

The quality of our broking activities has been recognised with the Company being voted the number one overall IDB in currency in Risk magazine's 2015 annual interdealer rankings published in September.  The business also performed strongly in rates and equities.  Tullett Prebon was named Interest Rates Broker of the Year and SEF of the Year in the 2015 GlobalCapital awards, and was voted the top broker in FX options in the 2015 FX Week Best Bank Awards.

We have continued to expand the data sets provided by our Information Sales business. We were proud to announce that our Information Sales business was awarded, for the fifth consecutive year, the title of Best Data Provider (Broker) at the Inside Market Data Awards in May. This award, which is determined by an independent ballot of end-users, reaffirms our position as the leading provider of the highest quality independent price information and data from the global OTC markets.

The Company announced in November 2015 that it had agreed terms with ICAP for the acquisition by Tullett Prebon of ICAP's global hybrid voice broking and information business ("IGBB").  The transaction will position the group as the leading inter-institutional liquidity provider in OTC products and as a nexus of product knowledge, broking experience and client relationships, and provides a unique opportunity to accelerate the delivery of the strategy.  The acquisition is expected to complete in 2016.

OTC Market Regulation

Regulatory reforms of the OTC derivatives markets have been effected in the United States through the implementation by the CFTC and the Securities Exchange Commission of the provisions of the Dodd-Frank Act, and are being effected in the European Union through the European Markets Infrastructure Regulation ("EMIR") and the Markets in Financial Instruments Directive ("MiFID II") and Markets in Financial Instruments Regulation ("MiFIR").

The group's swap execution facility ("SEF") in the United States, which was granted temporary registration by the CFTC in September 2013, was granted permanent registration by the CFTC in January 2016.

In the European Union, the implementation of EMIR, which contains provisions governing mandatory central clearing requirements and trade reporting requirements for certain OTC derivatives, is coming into effect in stages as the various technical standards are approved. The mandatory reporting of the details of all relevant derivatives contracts to recognised trade repositories came into effect from February 2014. The first clearing obligations are expected to come into effect in June 2016, and margin requirements for non-cleared trades are expected to apply from September 2016.

The legislative framework governing permissible trade execution venues, and governance and conduct of business requirements for trading venues, through the introduction of MiFID II and MiFIR is currently set to become effective from 3 January 2018.

Regulatory matters

The Company is currently under investigation by the FCA in relation to certain trades undertaken between 2008 and 2011, including trades which are risk free, with no commercial rationale or economic purpose, on which brokerage is paid, and trades on which brokerage may have been improperly charged. As part of its investigation, the FCA is considering the extent to which during the relevant period (i) the Company's systems and controls were adequate to manage the risks‎ associated with such trades and (ii) whether certain of the Company's managers were aware of, and/or managed appropriately the risks associated with, the trades. The FCA is also reviewing the circumstances surrounding a failure in 2011 to discover certain audio files and produce them to the FCA in a timely manner.  As the investigation is ongoing, any potential liability arising from it cannot currently be quantified.

Our key financial and performance indicators for 2015 are summarised in the table below.  The figures shown include PVM except where stated.

	2015	2014	Change
Broking Revenue (excluding PVM)	£638.9m	£649.6m	-3%*
Information Sales / RMS Revenue (excluding PVM)	£53.3m	£46.4m	+14%*
Total Revenue (excluding PVM)	£692.2m	£696.0m	-2%*
Total Revenue	£796.0m	£703.5m	+13%
Underlying Operating profit	£107.9m	£100.7m	+7%
Underlying Operating margin	13.6%	14.3%	-0.7% pts
Average broker headcount (excluding PVM)	1,614	1,625	-1%
Average broker headcount (including PVM)	1,748
Average revenue per broker (£'000)
-       excluding PVM	396	400	-2%*
-       including PVM	425
Broker compensation costs : broking revenue	55.7%	56.2%	-0.5% pts
Period end broker headcount
-       at June	1,750	1,595	+10%
-       at December	1,726	1,702	+1%
Period end broking support headcount	801	765	+5%
*At constant exchange rates

Broker headcount increased from 1,595 at June 2014 to 1,702 at December 2014 largely due to the acquisition of PVM.  Broker headcount increased in the first half of 2015 to 1,750 mainly due to the brokers acquired from Murphy & Durieu in January.  Broker headcount has fallen in the second half of the year to 1,726 as a result of actions taken under the cost improvement programme in Europe and North America, partly offset by the acquisition of MOAB and by hiring in Asia Pacific including the team to establish our presence in corporate and sovereign bonds in the region.

Excluding PVM, average broker headcount during 2015 was 1% lower than during the previous year, with a 2% reduction in average revenue per broker, resulting in the 3% fall in base broking revenue.

The year-end broking support headcount of 801 was 5% higher than at the end of 2014, reflecting the strengthening the control and support functions with additional headcount in customer relationship management, risk, human resources, and legal and compliance.

Operating Review

The tables below analyse revenue by region and by product group, and underlying operating profit by region, for 2015 compared with 2014.

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 2014 translated at the same exchange rates as those used for 2015, with growth rates calculated on the same basis. The revenue figures as reported for 2014 are shown in Note 3 to the Consolidated Financial Statements.

The commentary below reflects the presentation in the tables.

Revenue by product group	2015 £m	2014 £m	Change
Treasury Products	185.0	194.2	-5%
Interest Rate Derivatives	135.3	141.0	-4%
Fixed Income	171.2	190.3	-10%
Equities	46.3	41.6	+11%
Energy	204.3	101.3	+102%
Information Sales and Risk Management Services	53.9	46.7	+15%
At constant exchange rates	796.0	715.1	+11%
Exchange translation		(11.6)
Reported	796.0	703.5	+13%

Revenue in 2015 was 11% higher than in 2014. The benefit from the first full year of PVM, together with growth in Equities and in Information Sales and RMS, has been partly offset by lower volumes in the traditional interdealer broker product groups of Treasury Products (FX and cash), Interest Rate Derivatives and Fixed Income.

Revenue from Energy has more than doubled, reflecting the inclusion for a full year of PVM, the benefit from the acquisition of MOAB and higher levels of activity in the oil markets generally, and the development of our activities in this sector in all three regions. Energy is now the business's largest product group by revenue.

Our Equities businesses, which are primarily focused on equity derivatives, have performed well in both Europe and the Americas where we have benefited from the higher levels of volatility in equity markets compared with a year ago, and from the investments we have made in broadening our product coverage, including alternative investments and real estate instruments.  In contrast, revenue in Asia Pacific was lower than last year reflecting lower levels of client activity in the Japanese market.

Revenue from Information Sales and Risk Management Services was 15% higher than last year.  The Information Sales business has benefited from the growing client demand for independent data for use in risk management, compliance and validation, and has increased revenue by adding new data content sets and through broadening its customer base, with an increasing number of information feeds to client IT applications. The investment in sales and marketing in the Risk Management Services business has resulted in increased market share in USD and Asia Pacific currencies.

Revenue from Treasury Products (FX and cash) was 5% lower, with lower activity in Europe and in Asia Pacific partly offset by a stronger performance in the Americas, particularly in emerging markets' currencies.

Revenue from Interest Rate Derivatives products (swaps and options) was 4% lower.  Levels of market activity in these products, which had been higher in the first half of the year reflecting the sporadic volatility in interest rates in Europe during that period and improved market conditions for JPY products in Asia Pacific, were particularly subdued in the second half reflecting the further flattening of yield curves for major currencies.

The 10% decline in revenue from Fixed Income reflects the low liquidity and levels of activity across the European government and corporate bond markets, and in the North American government and agency bond markets, partly offset by higher revenue in corporate bonds in North America including that generated by the brokers hired from Murphy & Durieu at the beginning of the year, and higher levels of activity in the high yield sector.

Revenue by region	2015 £m	2014 £m	Change
Europe and the Middle East	455.3	404.7	+13%
Americas	234.5	214.0	+10%
Asia Pacific	106.2	96.4	+10%
At constant exchange rates	796.0	715.1	+11%
Exchange translation		(11.6)
Reported	796.0	703.5	+13%

Europe and the Middle East

Revenue in Europe and the Middle East was 13% higher including PVM, and was 7% lower excluding PVM.  The base broking revenue in the region was 9% lower than last year, partly offset by growth in revenue from Information Sales.

The broking business in the region continues to face difficult market conditions in many of the traditional major product areas.  Revenue from government and corporate bonds, from forward FX and cash, and from interest rate derivatives were all lower than last year.

Revenue from Equities was higher reflecting the higher volatility in equity markets and the benefit from investment in broadening the product coverage to include MSCI futures and real estate instruments. Revenue from Energy and commodities excluding PVM was unchanged with higher revenues from oil and other commodities offset by lower revenue in power and gas products.  Including PVM, Energy is the largest product group by revenue in the region, and accounts for over one third of the region's total revenue.

Average broker headcount in the region, excluding PVM, was 5% lower than last year with average revenue per broker down 4%.  Period end broker headcount, including PVM, was 799, 5% lower than at June 2015.

Americas

Revenue in the Americas was 10% higher including PVM and was 4% higher excluding PVM.

The benefit from the investments that have been made in the region in Energy and corporate bonds has more than offset the lower level of market activity in the product areas where the business is particularly dependent on serving the traditional interdealer broker client base, most notably Interest Rate Derivatives and government and agency Fixed Income.  Revenue from Treasury products (FX and cash), particularly in emerging markets' currencies, was higher than last year.

The business's presence in corporate bonds has been enhanced by the addition of the brokers from Murphy & Durieu at the beginning of 2015, and revenue from Fixed Income products in the region is now balanced between credit, and government and agency bonds. The investments made in the Equities business over the last two years have resulted in good revenue growth in that area in 2015.

The quality of the Energy business in the Americas has been significantly improved through the acquisitions of PVM and MOAB, investments in gas and environmental products, and our withdrawal from broking power contracts for end-users by disposing of our standalone subsidiary Unified Energy Services.  Our Energy activities in the Americas accounted for 15% of the total revenue in the region in 2015.

Average broker headcount in the Americas, excluding PVM, was 7% higher than in 2014, with average revenue per broker 2% lower.  Period end broker headcount in the Americas, including PVM, was 543.

Asia Pacific

Revenue in Asia Pacific was 10% higher than last year including PVM and was 3% higher excluding PVM, reflecting increased revenue from the Risk Management Services business which is operated from the region, with base broking revenue unchanged.

Base broking revenue in the region has benefited from the continued growth in the offshore Renminbi market, the investment made in our Fixed Income broking capability with the hiring of a team to build our presence in corporate and sovereign bonds that started with the business during the second half, and the development of our Energy and commodities broking activities.  Including PVM, Energy and commodities now accounts for around one sixth of the region's total broking revenue.

Activity in FX options and equity derivatives was lower than in the prior year reflecting a slowdown in client trading in volatility products. Revenue from Interest Rate Derivatives was higher than last year reflecting improved market conditions for JPY interest rate swaps in the first half.

Average broker headcount in the region, excluding PVM, was 1% lower than in 2014 with average revenue per broker up 2%.  Period end broker headcount in Asia Pacific, including PVM, was 385.

Underlying Operating profit

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

	Revenue				Underlying Operating profit
£m	2015	2014	Change		2015	2014	Change
Europe and the Middle East	455.3	405.6	+12%		81.2	80.1	+1%
Americas	234.5	201.6	+16%		14.9	10.5	+42%
Asia Pacific	106.2	96.3	+10%		11.8	10.1	+17%
Reported	796.0	703.5	+13%		107.9	100.7	+7%

Underlying Operating margin by region	2015	2014
Europe and the Middle East	17.8%	19.8%
Americas	6.4%	5.2%
Asia Pacific	11.1%	10.5%
	13.6%	14.3%

Underlying operating profit in Europe and the Middle East of £81.2m was 1% higher than in the prior year, but with revenue up 12% the underlying operating margin has reduced by 2.0% points, to 17.8%.  The actions taken under the cost improvement programmes have resulted in a 9% reduction in fixed broker employment costs in the region compared with the prior year, excluding PVM, in line with the reduction in base broking revenue, and total broker employment costs as a percentage of broking revenue have fallen by 0.4% points.  The benefit of the higher contribution margin has been offset by higher management and support costs due to the investments being made in strengthening and developing the business, and one off costs relating to technology and regulatory projects.

In the Americas the underlying operating profit of £14.9m is 42% higher than in 2014 and the underlying operating margin has improved by 1.2% points to 6.4%.  The actions taken under the cost improvement programmes have resulted in a 14% reduction in fixed broker employment costs (excluding PVM, MOAB and the brokers hired from Murphy & Durieu), in 2015 compared with 2014, and total broker employment costs as a percentage of broking revenue have fallen by 1.4% points.  Total management and support costs in the region have increased broadly in line with the increase in revenue.

Underlying operating profit in Asia Pacific has increased by 17% to £11.8m.  Broker employment costs as a percentage of broking revenue are little changed compared with the prior year, with the improvement in the underlying operating margin reflecting the operational leverage effect of the higher revenue, and the development of the higher margin Risk Management Services business.

Financial Review

The results for 2015 compared with those for 2014 are shown in the tables below.

2015
Income Statement £m	Underlying	Exceptional and acquisition related items	Reported
Revenue	796.0		796.0
Operating profit	107.9		107.9
Credit relating to major legal actions		64.4	64.4
Charge relating to cost improvement programme		(25.7)	(25.7)
Acquisition costs related to IGBB		(12.1)	(12.1)
Amortisation of acquisition deferred consideration		(10.5)	(10.5)
Amortisation of intangible assets arising on acquisition		(1.2)	(1.2)
Other acquisition and disposal items		(0.9)	(0.9)
Operating profit	107.9	14.0	121.9
Net finance expense	(14.2)	(2.0)	(16.2)
Profit before tax	93.7	12.0	105.7
Tax	(17.5)	(7.5)	(25.0)
Share of net profit of associates	2.6		2.6
Minority interests	(0.4)		(0.4)
Earnings	78.4	4.5	82.9
Average number of shares	243.6m		243.6m
Basic EPS	32.2p		34.0p

2014
Income Statement £m	Underlying	Exceptional and acquisition related items	Reported
Revenue	703.5		703.5
Operating profit	100.7		100.7
Credit relating to major legal actions		3.1	3.1
Charge relating to cost improvement programme		(46.7)	(46.7)
Acquisition costs related to PVM		(1.8)	(1.8)
Amortisation of acquisition deferred consideration		(0.9)	(0.9)
Goodwill impairment		(6.8)	(6.8)
Operating profit/(loss)	100.7	(53.1)	47.6
Net finance expense	(14.1)		(14.1)
Profit/(loss) before tax	86.6	(53.1)	33.5
Tax	(16.9)	6.5	(10.4)
Share of net profit of associates	1.9		1.9
Minority interests	(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

Exceptional and acquisition related items

The Company entered into an agreement with BGC in January 2015 under which BGC would pay $100m to the Company to settle the litigation in the New Jersey Superior Court.  The first $25m of the $100m settlement was paid to the Company in January and the remaining $75m was paid to the Company at the end of March.  Net of the £2.7m of costs incurred in 2015 in relation to the legal action the exceptional credit in 2015 relating to the major legal actions is £64.4m.  The £3.1m credit in 2014 relates to the net $27m compensatory damages awarded to the subsidiary companies in the United States following the conclusion of the FINRA arbitration on their claims against BGC and former employees which were received in August 2014, net of costs incurred in the year in relation to the major legal actions with BGC.

The £25.7m charge in 2015 relating to the cost improvement programme is discussed in the Overview above.  The £46.7m charge in 2014 relates to the cost improvement actions taken in the prior year.

The £12.1m charge in 2015 relating to acquisition costs reflects legal and professional costs incurred in relation to the agreement to acquire ICAP's global hybrid voice broking and information business.  The £1.8m charge in 2014 reflects the costs incurred in relation to the acquisition of PVM.

The Company completed the acquisition of PVM on 26 November 2014.   The payment to each individual vendor of their share of up to $48m of deferred consideration (which is subject to the achievement of revenue targets in the three years after completion) is linked to their continued service with the business, and is therefore amortised through the income statement over the three year period.  The amortisation charge recognised in 2015 is £10.5m (2014: £0.9m).

Intangible assets other than goodwill of £9.5m arising on the acquisition of PVM relate to the PVM brand and the value of customer relationships.  This amount is being amortised through the income statement over the estimated useful lives of those assets.  The amortisation charge recognised in 2015 is £1.2m (2014: nil).

The other acquisition and disposal items include the loss on the disposal of Unified Energy Services and costs relating to the acquisition of MOAB.

The £6.8m charge in 2014 relating to goodwill impairment reflects the write down in the balance sheet carrying value of the group's business in Brazil.

Net finance expense

The underlying net cash finance charge comprises the £14.1m interest payable on the outstanding Sterling Notes, the commitment fees for the revolving credit facility of £1.6m, £1.8m of amortisation of debt issue and arrangement costs including a £0.6m one-off charge relating to the balance of unamortised arrangement costs arising on the revolving credit facility that was refinanced in April 2015, partly offset by other net interest income of £1.8m. 

The underlying net non-cash finance income comprises the deemed interest on the pension scheme net asset of £2.3m, partly offset by the unwinding of discounted liabilities and provisions.

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

£m	2015	2014
Receivable on cash balances	1.8	1.4
Payable on Sterling Notes August 2014	-	(0.4)
Payable on Sterling Notes July 2016	(9.9)	(9.9)
Payable on Sterling Notes June 2019	(4.2)	(4.2)
Commitment fees payable on bank facilities	(1.6)	(1.5)
Amortisation of debt issue and arrangement costs	(1.8)	(1.1)
Other interest	(0.4)	(0.5)
Net cash finance expense	(16.1)	(16.2)
Net non-cash finance income	1.9	2.1
Underlying net finance expense	(14.2)	(14.1)
Acquisition related finance expense	(2.0)	-

The acquisition related finance expense comprises: £0.8m of commitment fees and amortisation of arrangement costs relating to the £470m bank bridge facility that the Company entered into in November 2015 in order to fund the repayment of the £330m of debt that will be acquired with IGBB and the maturity of the £141.1m notes in July 2016; £0.9m of costs and commitment fees relating to a £100m facility put in place in the middle of the year to fund the maturity of the notes in case the transaction with ICAP did not proceed; and £0.3m relating to the unwinding of the discount on deferred consideration relating to the acquisitions of PVM and MOAB.

Tax

The effective rate of tax on underlying PBT is 18.7% (2014: 19.5%).  The reduction in the effective rate reflects the benefit of the reduction in the UK statutory rate of corporation tax to 20.25% for 2015, 1.25% points lower than for 2014, partly offset by a lower level of provision releases 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 20.5% (2014: 23.1%).

The tax charge on exceptional and acquisition related items reflects the net of tax charges and 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 2015 or 2014 due to the tax losses available in that jurisdiction.

Basic EPS

The average number of shares used for the basic EPS calculation of 243.6m reflects the 243.5m shares in issue at the beginning of the year, 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. 

Cash flow

	2015	2014
	£m	£m
Underlying Operating profit	107.9	100.7
Share-based compensation and other non-cash items	2.2	0.9
Depreciation and amortisation	15.0	13.6
EBITDA	125.1	115.2
Capital expenditure (net of disposals)	(13.9)	(11.0)
(Increase) / decrease in initial contract prepayment	(0.9)	8.7
Other working capital	13.6	(21.9)
Operating cash flow	123.9	91.0
Exceptional items - cost improvement programme 2015	(3.7)	-
Exceptional items - cost improvement programme 2014	(5.3)	(17.0)
Exceptional items - restructuring 2011/2012	(0.3)	(0.9)
Exceptional items - major legal actions net cash flow	64.4	3.1
Acquisition costs related to IGBB	(12.1)	-
Other acquisition and disposal items	(0.5)	(1.8)
Interest	(14.6)	(15.2)
Taxation	(19.5)	(15.9)
Dividends received from associates/(paid) to minorities	1.1	0.8
Acquisition consideration /investments (net of disposals)	(12.0)	(6.9)
Cash flow	121.4	37.2

The operating cash flow in 2015 of £123.9m represents a conversion of 115% (2014: £91.0m and 90%) of underlying operating profit into cash.

Capital expenditure of £13.9m includes the development of electronic platforms and 'straight through processing' technology, and investment in IT and communications infrastructure.

Initial contract payments in 2015 were broadly in line with the amortisation charge.

The other working capital inflow in 2015 primarily reflects an increase in bonus accruals compared with the prior year end, reflecting the higher level of broking activity towards the end of the year than in 2014. 

During 2015 the group made £3.7m of cash payments relating to actions taken under the 2015 cost improvement programme, £5.3m relating to the 2014 cost improvement programme, and £0.3m relating to the 2011/12 restructuring programme.

The major legal actions net cash inflow of £64.4m is in line with the credit in the income statement.

Interest payments in 2015 reflect the income statement charge for net cash finance expenses excluding the charge for the amortisation of debt issue costs.

Tax payments in 2015 of £19.5m include £14.5m paid in the UK, an increase compared with the prior year largely due to the inclusion of PVM for a full year.  Tax payments in the United States continue to be at low levels reflecting the use of tax losses.  Tax paid in Asia has increased due to increased taxable profits in a number of jurisdictions.

The cash payments relating to acquisitions and investments in 2015 include £11.6m relating to the acquisition of MOAB comprising the initial cash consideration of £7.9m, plus £3.7m for the working capital in the business, including cash of £1.7m.

The movement in cash and debt is summarised below.

£m	Cash	Debt	Net
At 31 December 2014	297.8	(219.7)	78.1
Cash flow	121.4	-	121.4
Dividends	(41.0)	-	(41.0)
Bank facility arrangement fees	(4.7)	-	(4.7)
Amortisation of debt issue costs	-	(0.5)	(0.5)
Cash acquired/(sold) with subsidiaries	1.4	-	1.4
Effect of movement in exchange rates	4.3	-	4.3
At 31 December 2015	379.2	(220.2)	159.0

Debt Finance

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

	At 31 Dec	At 31 Dec
£m	2015	2014
7.04% Sterling Notes July 2016	141.1	141.1
5.25% Sterling Notes June 2019	80.0	80.0
Unamortised debt issue costs	(0.9)	(1.4)
	220.2	219.7

The group has committed facilities in place to refinance the Notes maturing in July 2016.  When the acquisition of IGBB completes the group will draw the committed £470m bank bridge facility that the Company entered into in November 2015 in order to fund the repayment of the £330m of debt that will be acquired with IGBB and the maturity of the £141.1m Notes.  If the Notes mature before the completion of the acquisition of IGBB, the group will draw on its committed £250m revolving credit facility which matures in April 2018.  When the acquisition completes, that drawing will then be repaid through the drawdown of the bank bridge facility.

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
	2015	2014		2015	2014
US dollar	$1.53	$1.65		$1.47	$1.56
Euro	€1.38	€1.24		€1.36	€1.29
Singapore dollar	S$2.10	S$2.09		S$2.09	S$2.07
Japanese Yen	¥185	¥174		¥177	¥187

Pensions

The group has one defined benefit pension scheme in the UK.  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 fair value of the scheme's assets at the end of the year was £289.8m (2014: £255.7m).  The increase reflects the investment return on the assets of 15% less amounts paid as benefits. The value of the scheme's liabilities at the end of 2015 calculated in accordance with IAS19 was £201.6m (2014: £193.6m). The valuation of the scheme's liabilities at the end of 2015 reflects the demographic assumptions adopted for the most recent triennial actuarial valuation and a discount rate of 3.7% (2014: 3.7%).  Under IAS19 the scheme shows a surplus, before the related deferred tax liability, of £88.2m at 31 December 2015 (2014: £62.1m).

As the scheme is in a strong financial position, the Trustees are actively considering making arrangements for an insurance company to take over their responsibility as Trustees for providing the benefits, and the Company's responsibility for supporting the Scheme financially.

Return on capital employed

The return on capital employed (ROCE) in 2015 was 20% (2014: 20%).   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.

Regulatory capital

The group's lead regulator is the Financial Conduct Authority.

The group has a waiver from the consolidated capital adequacy requirements under CRD IV.  The group's current waiver took effect on 25 September 2014 and will expire on 24 September 2024.  Under the terms of the 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 'Financial Holding Company test'.

The terms of the 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.

The Group's regulatory capital headroom under the Financial Holding Company test calculated in accordance with Pillar 1 was £761m (2014: £715m).

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.  The group maintains an appropriate excess of financial resources in such entities.

Outlook

We achieved a good overall financial performance in 2015 against the backdrop of a challenging trading environment and subdued client demand.

The business's revenue is dependent, in the short term, on the level of activity in the markets we serve.  Revenue in the first two months of 2016 was 3% lower than in the same period in 2015 at constant exchange rates.  Revenue from Information Sales and Risk Management Services, and broking revenue in Energy and Equities was higher than in the prior year, offset by lower broking revenue in the traditional interdealer product areas of Treasury products, Interest Rate Derivatives and Fixed Income.

It is not possible to predict when the structural and cyclical factors currently adversely affecting the interdealer broker industry will ease, or when the level of activity in the wholesale OTC financial markets may increase. Our recent performance has benefited from the buoyant level of activity in the Energy and commodities markets, particularly in oil and oil related financial instruments, and this level of activity may not persist. We have taken further cost improvement action and we will continue to actively manage our cost base to reflect market conditions.

We took a number of initiatives during 2015 in pursuit of our goal to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking.  The agreement for the acquisition of ICAP's global hybrid voice broking and information business provides a unique opportunity to accelerate the delivery of our strategy, and we are in the process of planning the integration of the two businesses to be implemented after completion of the transaction which we expect will be during 2016.

We will continue to look for opportunities to deliver our objectives to build revenue and raise the quality and quantity of earnings through further diversification of the client base, continued expansion into Energy and commodities, and building scale in the Americas and Asia Pacific, whilst preserving the business's core franchises.

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

Consolidated Income Statement

for the year ended 31 December 2015

	Notes	Underlying	Exceptional and acquisition related items	Total
2015		£m	£m	£m
Revenue	3	796.0	-	796.0
Administrative expenses	4	(693.9)	(53.3)	(747.2)
Other operating income	4,5	5.8	67.3	73.1
Operating profit		107.9	14.0	121.9
Finance income	6	4.1	-	4.1
Finance costs	7	(18.3)	(2.0)	(20.3)
Profit before tax		93.7	12.0	105.7
Taxation		(17.5)	(7.5)	(25.0)
Profit of consolidated companies		76.2	4.5	80.7
Share of results of associates		2.6	-	2.6
Profit for the year		78.8	4.5	83.3
Attributable to:
Equity holders of the parent		78.4	4.5	82.9
Minority interests		0.4	-	0.4
		78.8	4.5	83.3
Earnings per share
Basic	8	32.2p		34.0p
Diluted	8	31.5p		33.3p
2014
Revenue	3	703.5	-	703.5
Administrative expenses	4	(607.9)	(69.1)	(677.0)
Other operating income	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

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

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2015

	2015	2014
	£m	£m
Profit for the year	83.3	25.0
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of the defined benefit pension scheme	24.5	10.0
Taxation charge relating to item not reclassified	(8.6)	(3.5)
	15.9	6.5
Items that may be reclassified subsequently to profit or loss:
Revaluation of investments	0.1	(0.5)
Effect of changes in exchange rates on translation of foreign operations	8.8	7.7
Taxation charge relating to items that may be reclassified	(0.5)	(0.2)
	8.4	7.0
Other comprehensive income for the year	24.3	13.5
Total comprehensive income for the year	107.6	38.5
Attributable to:
Equity holders of the parent	107.1	37.8
Minority interests	0.5	0.7
	107.6	38.5

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

Consolidated Balance Sheet

as at 31 December 2015

	Notes	2015 £m	2014 £m
Non-current assets
Intangible assets arising on consolidation	10	357.4	336.6
Other intangible assets		22.1	20.1
Property, plant and equipment		27.4	29.4
Interest in associates		6.0	5.0
Investments		8.5	5.2
Deferred tax assets		2.4	2.3
Defined benefit pension scheme		88.2	62.1
		512.0	460.7
Current assets
Trade and other receivables		2,639.2	3,261.9
Financial assets	13	20.3	10.7
Cash and cash equivalents	13	358.9	287.1
		3,018.4	3,559.7
Total assets		3,530.4	4,020.4
Current liabilities
Trade and other payables		(2,666.7)	(3,269.2)
Interest bearing loans and borrowings	13	(140.9)	-
Current tax liabilities		(17.3)	(12.3)
Short term provisions		(21.3)	(6.6)
		(2,846.2)	(3,288.1)
Net current assets		172.2	271.6
Non-current liabilities
Interest bearing loans and borrowings	13	(79.3)	(219.7)
Deferred tax liabilities		(33.2)	(24.1)
Long term provisions		(7.8)	(9.7)
Other long term payables		(22.2)	(15.3)
		(142.5)	(268.8)
Total liabilities		(2,988.7)	(3,556.9)
Net assets		541.7	463.5
Equity
Share capital		60.9	60.9
Share premium		17.1	17.1
Merger reserve		178.5	178.5
Other reserves		(1,165.1)	(1,173.4)
Retained earnings		1,448.6	1,378.8
Equity attributable to equity holders of the parent		540.0	461.9
Minority interests		1.7	1.6
Total equity		541.7	463.5

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

Consolidated Statement of Changes in Equity

for the year ended 31 December 2015

                                                                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
2015	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2015	60.9	17.1	178.5	(1,182.3)	1.4	7.6	(0.1)	1,378.8	461.9	1.6	463.5
Profit for the year	-	-	-	-	-	-	-	82.9	82.9	0.4	83.3
Other comprehensive income for the year	-	-	-	-	-	8.3	-	15.9	24.2	0.1	24.3
Total comprehensive income for the year	-	-	-	-	-	8.3	-	98.8	107.1	0.5	107.6
Dividends paid	-	-	-	-	-	-	-	(41.0)	(41.0)	(0.4)	(41.4)
Credit arising on share-based payment awards	-	-	-	-	-	-	-	12.0	12.0	-	12.0
Balance at 31 December 2015	60.9	17.1	178.5	(1,182.3)	1.4	15.9	(0.1)	1,448.6	540.0	1.7	541.7
2014
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

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

Consolidated Cash Flow Statement

for the year ended 31 December 2015

	Notes	2015	2014
		£m	£m
Net cash from operating activities	12	144.0	52.8
Investing activities
(Purchase)/sale of financial assets		(10.7)	20.6
Purchase of investments		(0.4)	-
Interest received		1.8	1.5
Dividends from associates		1.5	1.0
Expenditure on intangible fixed assets		(9.3)	(5.3)
Purchase of property, plant and equipment		(4.6)	(5.7)
Investment in subsidiaries		(11.6)	(5.5)
Cash acquired with acquisitions		1.7	17.5
Cash sold with subsidiaries		(0.3)	-
Net cash used in investment activities		(31.9)	24.1
Financing activities
Dividends paid	9	(41.0)	(36.7)
Dividends paid to minority interests		(0.4)	(0.2)
Equity issue costs		-	(1.4)
Repayment of debt		-	(8.5)
Debt issue and bank facility arrangement costs		(4.3)	-
Net cash used in financing activities		(45.7)	(46.8)
Net increase in cash and cash equivalents		66.4	30.1
Cash and cash equivalents at the beginning of the year		287.1	251.6
Effect of foreign exchange rate changes		5.4	5.4
Cash and cash equivalents at the end of the year	13	358.9	287.1

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

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

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 2015 or 2014, but is derived from those accounts.  Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 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 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.

(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:

·     Amendments to IAS 19 'Employee Benefits' regarding employee contributions to defined benefit plans;

·     Annual Improvements to IFRSs (2010-2012 Cycle); and

·     Annual Improvements to IFRSs (2011-2013 Cycle).

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:

	2015	2014
Revenue:	£m	£m
Europe and the Middle East	455.3	405.6
Americas	234.5	201.6
Asia Pacific	106.2	96.3
	796.0	703.5
Operating profit:
Europe and the Middle East	81.2	80.1
Americas	14.9	10.5
Asia Pacific	11.8	10.1
Underlying operating profit	107.9	100.7
Exceptional and acquisition related items (Note 4)	14.0	(53.1)
Reported operating profit	121.9	47.6
Finance income	4.1	3.6
Finance costs	(20.3)	(17.7)
Profit before tax	105.7	33.5
Taxation	(25.0)	(10.4)
Profit of consolidated companies	80.7	23.1
Share of results of associates	2.6	1.9
Profit for the year	83.3	25.0

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

	2015	2014
Revenue by product group	£m	£m
Treasury Products	185.0	190.5
Interest Rate Derivatives	135.3	140.6
Fixed Income	171.2	186.5
Equities	46.3	39.5
Energy	204.3	100.0
Information Sales and Risk Management Services	53.9	46.4
	796.0	703.5

4.         Exceptional and acquisition related items

Exceptional and acquisition related items comprise:

	2015	2014
	£m	£m
Net credit relating to major legal actions	64.4	3.1
Charge relating to cost improvement programmes	(25.7)	(46.7)
	38.7	(43.6)
Acquisition costs relating to IGBB	(12.1)	-
Other acquisition costs	(0.5)	(1.8)
Acquisition related share-based payment charge	(10.5)	(0.9)
Amortisation of intangible assets arising on consolidation	(1.2)	-
Goodwill impairment	-	(6.8)
Loss on disposal of subsidiary undertakings	(0.6)	-
Adjustment to acquisition consideration	0.2	-
	14.0	(53.1)
Finance costs (Note 7)	(2.0)	-
	12.0	(53.1)
Taxation (charge)/credit on above items	(7.5)	6.5
	4.5	(46.6)

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

	2015	2014
	£m	£m
Interest receivable and similar income	1.8	1.4
Deemed interest arising on the defined benefit pension scheme surplus	2.3	2.2
	4.1	3.6

7.      Finance costs

		2015		2014
	Underlying	Acquisition related	Total	Total
	£m	£m	£m	£m
Interest and fees payable on bank facilities	1.6	0.6	2.2	1.5
Interest payable on Sterling Notes August 2014	-	-	-	0.4
Interest payable on Sterling Notes July 2016	9.9	-	9.9	9.9
Interest payable on Sterling Notes June 2019	4.2	-	4.2	4.2
Other interest payable	0.4	-	0.4	0.5
Amortisation of debt issue and bank facility costs	1.8	1.1	2.9	1.1
Total borrowing costs	17.9	1.7	19.6	17.6
Unwind of discounted liabilities and provisions	0.4	0.3	0.7	0.1
	18.3	2.0	20.3	17.7

8.      Earnings per share

	2015	2014
Basic - underlying	32.2p	32.3p
Diluted - underlying	31.5p	32.3p
Basic earnings per share	34.0p	11.2p
Diluted earnings per share	33.3p	11.2p

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

	2015 No.(m)	2014 No.(m)
Basic weighted average shares	243.6	220.4
Contingently issuable shares	5.1	0.2
Diluted weighted average shares	248.7	220.6

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

	2015	2014
	£m	£m
Earnings for the year	83.3	25.0
Minority interests	(0.4)	(0.4)
Earnings	82.9	24.6
Exceptional and acquisition related items (Note 4)	(12.0)	53.1
Tax on exceptional and acquisition related items	7.5	(6.5)
Underlying earnings	78.4	71.2

9.      Dividends

	2015	2014
	£m	£m
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 31 December 2015 of 5.6p per share	13.6	-
Final dividend for the year ended 31 December 2014 of 11.25p per share	27.4	-
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
	41.0	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 19 May 2016 to all shareholders on the Register of Members on 29 April 2016.  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
2015		£m	£m	£m
At 1 January 2015		327.1	9.5	336.6
Recognised on acquisitions		14.5	1.1	15.6
Amortisation		-	(1.2)	(1.2)
Effect of movements in exchange rates		5.9	0.5	6.4
At 31 December 2015		347.5	9.9	357.4
2014
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

11.    Acquisitions

MOAB Oil, Inc.

On 28 July 2015, the Group announced the acquisition of 100% of the share capital of MOAB Oil, Inc. ('MOAB').  Initial cash consideration of £7.9m was paid on completion together with £3.7m for the working capital of the business, including its cash.  Deferred contingent consideration is payable from the first anniversary of completion through to the fifth anniversary.  The amount of deferred contingent consideration is dependent upon the performance of the business over the five year period and has an initial fair value of £8.4m.  Intangible assets arising on the consolidation of MOAB amounted to £15.6m of which £14.5m relates to goodwill.  Acquisition costs of £0.5m have been included in administrative expenses.

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

		Fair value
		£m
Net assets acquired:
Property plant and equipment		0.7
Trade and other receivables		3.4
Cash and cash equivalents		1.7
Trade and other payables		(1.4)
		4.4
Intangible assets arising on consolidation:
Other intangible assets		1.1
Goodwill		14.5
Fair value of total consideration		20.0
Satisfied by:
Initial cash consideration		7.9
Working capital cash payment		3.7
Deferred consideration		8.4
		20.0

Intangible assets arising on consolidation relate to the MOAB brand, £0.2m, the value of customer relationships, £0.9m, with the balance of £14.5m recognised as goodwill, representing the value of the established workforce and the business's reputation.

		£m
Goodwill arising on acquisition		14.5
Effect of movements in exchange rates		0.9
Goodwill at 31 December 2015		15.4

The revenue, underlying operating profit and underlying earnings for the period since the date of the acquisition were £6.1m, £1.7m and £1.0m respectively.  Had MOAB been acquired on 1 January 2015 revenue would have been £8.1m higher, underlying operating profit £1.4m higher and underlying earnings £0.7m higher.

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

	2015	2014
	£m	£m
Operating profit	121.9	47.6
Adjustments for:
Share-based compensation expense	1.5	0.3
Pension scheme's administration costs	0.7	0.6
Depreciation of property, plant and equipment	7.7	6.5
Amortisation of intangible fixed assets	7.3	7.1
Acquisition related share-based payment charge	10.5	0.9
Amortisation of intangible assets arising on consolidation	1.2	-
Goodwill impairment	-	6.8
Loss on disposal of property, plant and equipment	0.2	-
Loss on derecognition of intangible assets	0.1	-
Loss on disposal of subsidiary undertaking	0.2	-
Remeasurement of deferred consideration	0.4	-
Increase in provisions for liabilities and charges	11.5	9.7
Decrease in non-current liabilities	(0.8)	(1.6)
Operating cash flows before movement in working capital	162.4	77.9
Decrease in trade and other receivables	0.1	25.9
Decrease/(increase) in net settlement and trading balances	1.3	(1.1)
Increase/(decrease) in trade and other payables	16.5	(17.3)
Cash generated from operations	180.3	85.4
Income taxes paid	(19.5)	(15.9)
Interest paid	(16.8)	(16.7)
Net cash from operating activities	144.0	52.8

13.    Analysis of net funds

	At 1 January 2015 £m	Cash flow £m	Non cash items £m	Exchange rate movements £m	At 31 December 2015 £m
Cash	223.3	67.7	-	5.7	296.7
Cash equivalents	62.1	(1.6)	-	(0.3)	60.2
Client settlement money	1.7	0.3	-	-	2.0
Cash and cash equivalents	287.1	66.4	-	5.4	358.9
Financial assets	10.7	10.7	-	(1.1)	20.3
Total funds	297.8	77.1	-	4.3	379.2
Notes due within one year	-	-	(140.9)	-	(140.9)
Notes due after one year	(219.7)	-	140.4	-	(79.3)
	(219.7)	-	(0.5)	-	(220.2)
Total net funds	78.1	77.1	(0.5)	4.3	159.0

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 2015 cash and cash equivalents amounted to £358.9m (2014: £287.1m).  Cash at bank earns interest at floating rates based on daily bank deposit rates.  Short term deposits are made for varying periods of between one day and 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.

OTHER INFORMATION

The Annual General Meeting of Tullett Prebon plc will be held at Level 37, Tower 42, 25 Old Broad Street, London EC2N 1HQ on 12 May 2016 at 2.00pm.

 

END

 

 

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