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Tuesday 09 March, 2021

TP ICAP Group plc

Final Results

RNS Number : 6098R
TP ICAP Group plc
09 March 2021
 

09 March 2021


TP ICAP

Financial and Preliminary Management Report of TP ICAP Limited (the "Company") (formerly TP ICAP plc) for the year ended 31 December 2020
(the "Period")

TP ICAP   announces its group (the "Group") results for the Period today. 

 

Nicolas Breteau, CEO of TP ICAP, said: 

 

" We delivered a robust 2020 financial performance demonstrating our enhanced operational strength and the benefits of our diversified business model.

 

"To manage the impact of COVID-19, we swiftly deployed innovative technology and workflows meaning we were well-equipped to provide clients with continuous high quality service and play a systemic role in keeping markets open and liquid during a period of exceptional stress.

 

"2020 was a transformational year for TP ICAP.  We set out a new strategy to deliver higher shareholder returns and made good progress in executing initiatives across all of our businesses to advance our strategic pillars of electronification, aggregation and diversification.

 

"We strengthened our financial position by redomiciling our Group's holding company and embedding a new risk management framework. And we announced the acquisition of Liquidnet, an electronic buyside-focused trading platform that will accelerate our strategy and transform the Group's growth trajectory. The acquisition is expected to complete at the end of this month, and together we will create a modern, global market infrastructure powerhouse, with strong sell-side and buy-side networks, and leading franchises across all major asset classes.

 

"During these unprecedented times I would like to thank our shareholders for their overwhelming support in relation to the acquisition of Liquidnet, the successful rights issue, and the redomiciliation of our Group's holding company. I would also like to thank my colleagues for their hard work and commitment and our clients for their ongoing trust and support."

 

Financial highlights

 

Commentary on year on year performance is on a reported and constant currency basis.    

Adjusted (before significant items)

 


2020

2019

Change (%)

Revenue

£1,794m

£1,833m

-2%

Operating profit (EBIT)

£272m

£279m

-3%

Op.profit margin

15.2%

15.2%

0% pts

Profit before tax

£223m

£230m

-3%

Basic EPS

32.9p

 

33.8p

-3%

Reported (after significant items)

 


 2020

2019

Change (%)

Revenue

£1,794m

£1,833m

-2%

Operating profit (EBIT)

£178m

£142m

+25%

Op. profit margin

9.9%

7.7%

+2.2% pts

Profit before tax

£129m

£93m

+39%

Basic EPS

17.2p

12.0p

+43%

 

A table showing Adjusted and Reported figures for each period, detailing significant items is included in the Financial Review.

 

The average number of shares used for the basic 2020 EPS calculation for the period is 557.0m (2019: 559.4m).

 

Operational highlights

 

· Delivered a solid financial performance, demonstrating our strong operational capability and the growing success of our diversification strategy, against the difficult macroeconomic backdrop and reduced secondary volumes in the wider interdealer broker market.

· Revenue of £1,794m marginally declined 2% on a reported basis (1% lower at constant currency).

· Diversified revenue(1) increased 6% (7% higher at constant currency)

· Reported operating profit was 25% higher than 2019. Adjusted was 3% lower, as lower revenues were only partially offset by tight cost discipline. Global Broking revenue decreased by 6% on a reported basis (5% lower at constant currency), as despite a strong first quarter, volumes shrunk as clients appetite for risk decreased. Energy & Commodities revenue increased 2% on a reported basis (3% higher at constant currency) with good growth in the majority of products, boosted by strategic hires.

· Institutional Services revenue increased 21% on a reported and at constant currency basis,  as the business benefited from investment in talent and enhanced asset classes and geographic coverage.

· Data & Analytics revenue increased 7% on a reported basis (9% at constant currency), capitalising on the launch of new, higher-value products, whilst growing and deepening its client base.

 

(1)  Diversified revenue is defined as the sum of Energy & Commodities, Institutional Services and Data & Analytics revenues.

 

Strategic highlights

 

· Adapted our business quickly to manage the impact of the pandemic by deploying new technology and workflows. Protecting our employees' welfare enabled us to provide seamless, high-quality service to our clients, and maintain a strong balance sheet.

· Announced the transformational acquisition of Liquidnet, an electronic, buy-side focused trading network, expected to be completed by the end of Q1 2021, after the successful completion of our £315m rights issue.

· Continued to invest in and execute our electronification and aggregation strategy, while diversifying and growing our non-Global Broking businesses

· Enhanced the enablers of our strategy, including a new Global Risk Framework and implementing a new ESG Reporting Framework.

 

Dividend

 

For 2020, the Board is recommending a final dividend per share (DPS) of 2p that equates to £16m. The dividend will be paid on 18 May 2021 (with a record date of 9 April 2021).

 

This will take the full-year DPS to 6p, (rebased to take into account the bonus element of the rights issue completed in February 2021), an one-off 50% reduction to the prior year, in line with the statement made on 9 October regarding the proposed Liquidnet acquisition.

This reduction will help fund the Liquidnet acquisition and minimise dilution of earnings on a per share basis. For 2021 onwards, we will target a dividend cover of approximately 2x adjusted earnings. The new dividend policy reflects a balanced approach to capital allocation and is expected to allow TP ICAP to drive growth, while allowing dividends to increase in line with adjusted earnings.

 

Please see the Financial Calendar on the Company's website for further information on upcoming dividend timings, including dividend re-investment plan election dates.

 

2021 guidance and outlook

 

· The first two months' revenue per trading day is marginally higher than the prior year. March 2020 was a record month in terms of revenues, with very strong secondary volumes and exceptional volatility. As such, given this tough comparative, our Q1 2021 revenues may be lower than in the prior year. For 2021, we expect full year revenue to grow at low-single digit at constant currency basis.

· As we outlined, in our Capital Markets Day ("CMD"), we are targeting c£30m of strategic cash investments in 2021, which includes c£13m of operating expenses.

· We forecast that our contribution margin will be stable at c38% year on year, as higher investment will be offset by continuous cost-cutting initiatives in the front and back-office.

· With regard to Brexit, despite the complications caused by COVID, we are executing our plans, leveraging our EU network, and moving brokers to our Paris hub. As a result, we continue to cover our EU clients effectively .

· All the aforementioned targets exclude any potential impact from the completion of the Liquidnet acquisition.

 

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:


Analysts and investors
Al Alevizakos
Direct: +44 (0) 203 933 3040

Email: [email protected]

Media
William Baldwin-Charles
Direct: +44 (0) 207 200 7124

Email: [email protected]

 

Neil Bennett

Maitland

Direct: +44 ﴾0﴿20 7379 5151

Email: [email protected]  

 

About TP ICAP

 

§ TP ICAP brings together buyers and sellers in global financial, energy and commodities markets.

§ It is the world's largest wholesale market intermediary, with a portfolio of businesses that provide broking services, data & analytics and market intelligence, trusted by clients around the world.

§ We operate from offices in 26 countries, supporting award-winning brokers with market-leading technology.

 

 

CEO review

 

2020 was a year in which the Group made material progress in enhancing its position as a leading, global market infrastructure and data solutions provider.

 

We unveiled and started the execution of our new strategy to drive higher returns to shareholders.  We announced the acquisition of Liquidnet, an electronic, buy-side focused trading network, which will fundamentally accelerate the execution of our strategy and transform our future growth prospects.  We made good progress on the redomiciliation of our Group holding company, which will provide greater financial flexibility for the Group and became effective on 26 February 2021. And we continued to enhance the enablers of our strategy, such as embedding our Global Risk Framework and developing and launching our new  ESG Reporting Framework.

 

That such progress was achieved against the backdrop of COVID-19 serves only to underline the operational strength and flexibility of our Group, which in turn positions us well to continue to execute our strategy to drive higher returns to shareholders over time.

 

Managing COVID-19

 

COVID-19 caused a considerable shock to the global economy and had a significant impact on the markets in which we operate. We saw a substantial increase in volatility in the early part of the year, although this dropped materially after April as clients assumed more risk averse positions and therefore traded significantly less. We saw a degree of normalisation of trading in OTC markets towards the end of the year.

 

Following the emergence of the pandemic, we acted quickly to adapt our operational processes to protect our staff and meet the various COVID-19 guidelines that were issued in the 26 countries where we operate. In a matter of weeks we introduced new digital technology and amended workflows which allowed a significant proportion of brokers to work from home. For those brokers who remained in the office during this time, we reconfigured the layout of our offices to provide adequate space to socially distance.

 

Through these actions, and at a time of unprecedented market volatility, we ensured that all desks continued to be fully operational, that our clients benefited from continuous global coverage across all asset classes, and that global markets remained open and liquid.

 

The overwhelming majority of our support staff have worked from home throughout the pandemic. Where required, particularly in the compliance, risk, regulatory and IT functions, we have enabled a small number of employees to come into our offices to support brokers.

 

Despite the challenges posed by the pandemic, we made significant progress during the year. We announced our new strategy in March, which was explained in detail at our Capital Markets Day in December 2020. We have started the execution of this strategy, albeit at a slower than originally intended pace as we took a prudent approach to investment given the uncertainty caused by COVID-19.

 

The acquisition of Liquidnet, approved by shareholders on 1 February 2021, will accelerate the execution of our strategy as well as provide our firm with significant new growth opportunities. Furthermore, we made progress in the redomiciliation of the holding company of TP ICAP, which came into effect on 26 February 2021. The redomiciliation will provide the Group with greater financial flexibility.

 

To partially fund the acquisition, we launched a rights issue to raise £315 million. This issue was successfully completed with existing shareholders taking up more than 98% of the new shares, with the remainder offered into the market. The new shares commenced trading on the London Stock Exchange on 17 February.

 

Financial performance

 

The Group delivered a robust performance in 2020. The year started with high market volatility, resulting in a very good performance in the first three months of the year. Markets were materially slower thereafter, with a consequential impact on revenues. This underlined the importance and growing success of our diversification strategy as lower full year revenues in Global Broking were partially offset by strong full year revenue growth in Energy & Commodities, Institutional Services and Data & Analytics ('D&A').

 

In 2020, revenues from our faster growing, non-global broking businesses accounted for 35% of total revenues, compared to 32% in 2019.

 

Group revenue declined 2% to £1,794m against £1,833m for the prior year on a reported basis (1% at constant currency) as although Global Broking experienced a weaker year we saw continued good growth in our other three businesses. We achieved a reported operating profit of £178m for the Group, up 25% on the prior year, with our adjusted operating profit of £272m, down 3% from last year. The increase in reported operating profit was mainly due to 2020 being the first year following the completion of the ICAP integration and therefore benefiting from no integration costs. Our reported operating profit margin of 9.9% was up 2.2% on last year, and the adjusted operating profit (EBIT) margin of 15.2% is flat on the prior year, due to strict cost controls. We reported a statutory profit before tax of £129m, 39% higher than last year with the adjusted profit before tax of £223m, down 3% from £230m in the prior year.

 

Basic reported earnings per share ('EPS') were 17.2p with adjusted earnings per share of 32.9p, and we are paying a dividend of 6.0p per share for the full year (rebased to take into account the bonus element of the rights issue), in line with our intention stated in the announcement regarding the acquisition of Liquidnet on 9 October 2020.

 

Regional performance

 

Revenue for the EMEA region was £888m, a 1% decrease on a reported basis (1% at constant currency). Global Broking revenue decreased 6% as a very strong first half, particularly in Rates and FX, was more than offset by a significantly weaker second half with the Emerging Markets business performance suffering from the pandemic driven slow-down in Turkey and South Africa. Energy & Commodities was up against a strong prior year performance, Institutional Services grew revenues as it continued to scale up and Data & Analytics delivered another year of strong growth.

 

The Americas reported revenue of £670m was down 2% year-on-year on a reported basis (down 1% in constant currency). Strong growth in E&C, Institutional and D&A was offset by Global Broking which faced difficult market conditions.

 

In Asia Pacific, revenue at £236m decreased 4% year-on-year on a reported basis (3% on constant currency). This reflected very good growth in Energy & Commodities, Institutional Services and D&A, with more challenging Global Broking figures, as trading appetite dampened due to the pandemic placing practical constraints on market activity.

 

Strategic delivery

 

In March 2020 we identified the three key strategic pillars which would underpin our medium-term growth strategy: electronification; aggregation of liquidity; and diversification of our revenues. On 1 December we held a Capital Markets Day at which senior management presented in detail how this strategy would be executed across the Group.

 

For our Global Broking and Energy & Commodities businesses, we are executing a hub strategy for the asset classes of Rates, Foreign Exchange, Credit, and Oil.  These hubs will drive electronification and liquidity aggregation.  They will offer clients a single sign-on to access via a single screen a multitude of TP ICAP products and brands all with a common look and feel. The hubs will provide robust pre- and post-trade processing, improved connectivity and straight-through processing ("STP").

 

The overall outcome from the hub strategy will be institutionalising volumes and client relationships. We have already launched several electronic platforms, and these are already demonstrating tangible benefits for TP ICAP and our clients. The hubs will result in increased revenues. With these platforms client volume tends to be stickier, and brokerage rates more standardised. Silos between bank traders should erode enabling more cross-asset or cross-instrument transaction activity which will result in increased volume. With more client activity conducted via platforms and common screens, there will also be more opportunity for us to provide targeted data and analytics products. Most importantly, we expect them to result in lower costs.

 

In Data & Analytics, our focus is on moving up the value chain in terms of product offering, going beyond selling raw data to selling value-adding solutions, something for which clients will pay a premium.  We will also innovate in how we distribute, delivering our solutions both directly through a webstore but also partnering with other well-established cloud providers. Finally, our focus is to expand to new buy-side clients, and increase our market share of the wallet with existing clients.

 

In Institutional Services, the focus will remain on expanding product coverage as well as building out regional customer coverage.

 

Liquidnet

 

To materially accelerate our strategy we announced the proposed acquisition of Liquidnet, a premier, technology-driven, global electronic trading network focused on the buy-side. The acquisition will also bring deep expertise in the cash equities asset class as well as provide us with compelling new growth opportunities as we explained in detail at our Capital Markets Day.

 

The total consideration for the acquisition is between US$575m and US$700m, comprising cash of US$525m, subject to customary adjustments, payable on completion and with deferred consideration of US$50m and contingent deferred consideration of up to US$125m.

 

Liquidnet's electronic network incorporates extensive buyside trade workflow connectivity, including integrations with all major order management and execution management systems.  We intend to build on Liquidnet's capabilities and connectivity, and expand its offering, particularly in respect of Dealer-2-Client ("D2C") electronic trading in Credit and Rates. Furthermore, we expect to leverage the data assets and analytics expertise of both organisations to drive non-transaction-related earnings.

 

We believe that TP ICAP's strong dealer relationships and product expertise are highly complementary to Liquidnet's electronic capabilities and global buyside customer base. In addition, its global low-touch block cash Equities franchise complements our existing high-touch derivatives and cash Equities activities. Combined, TP ICAP and Liquidnet will be able to offer our clients compelling electronic trading and analytics solutions, driving sustained growth and shareholder value creation over the medium and long term.

 

While this new strategy will drive the medium-term growth of TP ICAP, we took the decision to slow investment in 2020 adopting a prudent approach to managing through the crisis and prioritised our liquidity and capital buffers under stressed scenarios.

 

Despite the aforementioned deceleration, we were still able to progress with a number of strategic  initiatives and detail some of these in the business division reviews below. We intend to accelerate the execution of our strategy in 2021 and the following years.

 

Business Review

 

Global Broking

 

Global Broking is our largest division covering Rates, Credit, Equities, Foreign Exchange & Money Markets and Emerging Markets, where we have market leading positions. We bring together buyers and sellers providing a range of professional intermediary services that enable them to execute trades successfully. We operate through Tullett Prebon and ICAP brands separately. We also offer clients a range of ways to interact with us - through voice, hybrid or electronically - depending on the nature of the market, product and transaction. One of our fundamental strengths is the long-established relationships we have with top-tier banks, and our ability to operate deep liquidity pools.

 

Global Broking had a very strong first quarter of 2020 primarily due to abnormal levels of volatility in March leading to significant trading volumes.  In the ensuing months, many clients decided to wind down any positions they had and reduced their risk appetite. Consequently, from May through to October markets were much quieter with a resulting negative impact on revenues. Trading in the final months of the year improved slightly to more normalised patterns, albeit not with the levels of activity usually associated with a US Presidential election. 

 

As a consequence of these macro conditions, revenues for the year were down 6% in reported currency (5% lower at constant currency) at £1,188m from £1,262m in the prior year. It is important to highlight that while the large Tier 1 investment banks are our main client base, their revenue performance is not always a good proxy for that of Global Broking. Global Broking is paid on volumes on secondary markets while Investment Banks benefit from, inter alia, primary issuance in the equity and debt markets,  from principal trading and mark-to-market changes in inventory positions. We believe a better guide is provided by the public information on secondary volumes in the relevant market infrastructure markets, mainly exchanges and other platforms.

 

Our largest business, Rates, saw revenues decline 5% on a reported basis (4% in constant currency) year-on-year following a stand-out start to the year due to the impact of many countries also reducing interest rates to near zero and embracing quantitative easing. Our Equities business was flat on the year in reported currency, (2% higher in constant currency), as although the market was buoyant for cash equities, our business is geared toward Equity Derivatives which experienced a quieter period. We saw the benefit of the LCM acquisition towards the end of the year as the transaction closed. FX and Money Markets' revenue declined 7% on a reported basis (down 7% in constant currency) due to subdued client activity from lower volatility and volumes. The Credit market remained subdued for interdealer brokers as new market participants continued to take market share and new issuance growth did not translate into secondary trading, which resulted in a 4% revenue decline on a reported basis, and 3% lower in constant currency. The Emerging Markets business was affected by the practical impact the pandemic had on those countries with revenues declining 14% on a reported basis (12% at constant currency).

 

Despite the difficult macroeconomic backdrop, we continue to identify opportunities to fill gaps in coverage and offer additional products for our clients as well as continue to expand our hybrid and electronic matching technology offering.

 

We made progress in rolling out the hub strategy, although, as stated, at a slower pace than we had anticipated at the start of the year. For the Rates hub, we introduced several enhancements to our market leading ICAP Interest Rate Options ("IRO") platform and achieved our first cross-product electronic aggregation of liquidity, by bringing inflation swaps/index, conventional gilts, and interest rate swaps onto a single trading platform. We achieved cross-brand aggregation in September when we introduced the ICAP Interest Rate Options platform to the Tullett Prebon brand.

 

For the FX hub, we launched FXO Hub, our cross brand platform for trading FX Options in March this year and we are encouraged by its initial performance, increasing our market share for this asset class by approximately 5% pts.

 

In Credit, we increased electronification through launching the Matchbook Rebalance platform. This is a pure-electronic platform used for Emerging Market, Investment Grade, High Yield, Financial and Sterling Corporate Bonds. The platform, which has common TP ICAP branding, runs auctions allowing traders to clear up unwanted odd-lot risk on their books based on a total P&L marker, and has also recently been launched in the US.

 

Energy & Commodities

 

Energy & Commodities ('E&C') is our second largest division and operates through the Tullett Prebon, ICAP and PVM brands in all key commodities markets including oil, gas, power, renewables, ferrous metals, base metals, precious metals and soft commodities. Clients include regional banks, corporates, hedge funds and trading companies.

 

The energy and commodities markets experienced high volatility in the first four months of the year as markets reacted to global trade wars and the pandemic, with clients adjusting positions to pandemic levels of supply and demand. A combination of clients assuming a risk off position and more people working from home led to quieter months between May and September before market activity returned to more normal levels for the remainder of the year.

 

E&C delivered a good performance in 2020. Revenues were up 2% in reported currency (3% in constant currency) to £391 million, against a particularly strong prior year performance. The primary driver of growth was new hires as a result of our successful hiring pipeline.

 

We saw growth across the majority of product areas, with Oils, our largest business, benefiting from the extraordinary conditions seen in the first part of the year as well as the continued build out of the ICAP oil desk.  We recorded a strong performance in Liquified Natural Gas as the natural gas market became a global rather than regional market, and experienced good growth in Metals and Environmental products.

 

We continued to build and develop the business throughout the year, despite the practical constraints imposed by COVID-19: our successful Weather Derivatives desk in the US is now linking into our Global power desks; we are broking Japanese power contracts out of Singapore with a local Japanese entity due to launch shortly; we have a new ICAP desk covering power markets in Central and Eastern Europe; and have dedicated resource who are successfully growing our hedge fund platform.

 

We are making solid progress on building the Oil Hub, which will ultimately allow clients to view aggregated liquidity across our competing brands. We have started to roll out the electronic matching engine, and we are aiming for this to be on every broker's desk in Q2 2021. We have implemented an Order Management System on the platform to facilitate and manage trades and  provide straight through processing.

 

Decarbonisation has become a significant theme of the energy and commodities markets and we are positioning our business to capture the benefits of this change. Approximately 40% of our revenues come from positive, transitional or neutral products and we anticipate this increasing over time.

 

Institutional Services

 

Institutional Services, which in 2021 will be renamed Agency Execution as it better describes the business and its activities, provides execution services to buy side clients including hedge funds, asset managers and corporates. The role of the division is to power clients' ability to manage their investment or trading process - from trade origination and execution through to post trade analytics. Institutional Services seeks to ensure clients receive the best pricing available in the market ; routing orders into multiple sources of pricing such as exchanges, partner bank liquidity providers and other venues whilst guaranteeing anonymity and neutrality. It is an important part of the Group's diversification strategy bringing in a new revenue stream from a different client base.

 

Institutional Services delivered an excellent performance in 2020, continuing its strong growth trajectory, with revenues up 21% on a reported basis (21% on constant currency) to £91m, up from £75m in 2019. Growth was driven by the investments already made in people, product coverage, geographic reach and technology as the business has greater capacity to service clients and meet their expanding needs.

 

Whilst exchange traded derivatives performed extremely well, we were particularly pleased with the ongoing and diversifying growth in FX , equity derivatives, IRS and government bonds which in aggregate secured our positive performance trajectory in all regions.

 

During the year we experienced significant growth in requests from investors that have traditionally sought execution services exclusively from banks.   It is our belief that this trend will continue . Banks appear to be de-prioritising investment in agency execution services, consistent with the demands to "do more with less". Banks' investments are increasingly geared to businesses with better ability to capitalise on available leverage. At the same time our Institutional Services business has grown its breadth and quality of coverage to a point where we have a significant footprint and a growing reputation as an alternative to traditional banks' sales desks - evidenced in our ongoing market share growth.

 

As well as adding clients, we also note that the number of existing clients engaged in two or more products with us is increasing. This is an extremely encouraging development and one that we think becomes an important driver in our next growth phase.  

 

Our strategy for Institutional Services remains to continue to grow the business and diversify our revenues through: adding more asset classes to our coverage; broadening our geographic reach; and investing in further electronification.

 

Data & Analytics

 

Our D&A business provides unbiased data products that facilitate trading, enhance transparency, reduce risk and improve operational efficiency. It is the leading provider of OTC pricing data and has access to pricing, reference data and analytical tools for major asset classes and markets. We pride ourselves on our rigorous quality assurance processes, which ensure the integrity and robustness of our products.

 

D&A is a fast growing, high margin business with revenues that are largely subscription-based - more than 90% of revenues were recurring in 2020 - so it provides us with excellent earnings diversification and sustainable growth opportunities.

 

Revenues for 2020 were up 7% on a reported basis (9% in constant currency) at £145m which was a strong performance given estimates that financial market data companies will have seen growth of between 4-5% for the year, according to Burton Taylor estimates. While the pandemic caused D&A to experience weaker growth in the first half of the year, it saw an improved performance in the second half with a particularly strong final quarter where revenues grew 11%. We remain confident that the business will deliver double-digit revenue growth in 2021.

 

The business also made further progress with its growth strategy in the period. It invested in its people and processes, introducing new sales methodology, appointing Regional Heads of Sales, and hiring sales specialists focused on Energy and Commodities. This new, systematic approach should lead to a shorter sales cycle and lasting revenue benefits.

 

We continued to develop new products, launching six new offerings, including, importantly, our first "information" product: Bond Evaluated Pricing ("BEP"). BEP combines our data with third parties' data to create intra-day, transparent insight with observable pricing from our neutral broking partners. We created the product after our clients told us that meaningful transparency in fixed income pricing has become critical as regulators globally require more detailed disclosure and stricter risk management. We intend to roll out further information products in 2021.

 

In the energy and commodities sector, we began the roll out of our new Oil Market Data Feed, on the crude and refined oil markets aimed at trading houses, major oil companies, buy-side funds and the banks. We have also enhanced our offering in Liquified Natural Gas expanding coverage to include additional markets such as US Gulf Coast and WIM (West India Marker).

 

In terms of distribution initiatives, we launched a new direct to client service, known as SURFIX, which provides clients direct access to our critical mass of breadth across our multiple brands, including Tullett Prebon, ICAP and PVM, in the easy-to use, industry standard FIX format. We expanded our Channel Partners to include the public cloud providers, providing clients with options on moving market data infrastructure into the cloud. This will allow client to operate with greater agility and a lower total cost of ownership.

 

We will continue to roll out new products covering other asset classes, third party data partnerships and moving up the value pyramid. We plan to capitalise on regulatory opportunities, including new risk free rates in connection with the retirement of LIBOR, and the need for regulated benchmarks and indices. This includes an Interest Rate Options Volatility Index based on our Global Broking data, and index partnerships, in Energy and Commodities.

 

Environmental, Social & Governance

 

Increasingly, clients, investors, ratings agencies, regulators, Non-Governmental Organisations and other core stakeholders including current and prospective employees incorporate environmental, social and corporate governance ("ESG") performance into their decision-making process.  Consequently, TP ICAP believes that performing well in ESG represents a licence to do business and is a critical factor in achieving sustainable growth.

 

To strengthen how we measure, manage and report on the components of ESG that are most relevant to our Group in 2020 we undertook a comprehensive materiality assessment that led to us establishing an ESG Reporting Framework formed of 15 data disclosure areas.  Each disclosure has an associated set of metrics according to internationally recognised standards.  To ensure ownership and accountability, individual disclosure areas have been assigned to a relevant senior manager, and governance has been strengthened up to and including Board level.  Having identified these 15 ESG disclosure areas, we have also begun to report against them.

 

Whilst important, we recognise that robust reporting is but one step forward in our sustainability journey.  We have more to do, the next step being to develop an overarching ESG strategy that is aligned to our purpose.  We commit to completing this strategy by the end of 2021, with execution to commence in 2022.

 

We introduced a new Enterprise Risk Management framework ("ERMF") in the second half of 2019 which took into account the increased scale and diversity of our business and responded to regulatory expectations.  One of the  key matters for the Risk Committee was the monitoring of the operation of the new ERMF with the objective of ensuring that this has been embedded across all areas of the Group (both organisationally and geographically). This includes the new Governance, Risk Management and Compliance ("GRC") system that underpins the ERMF and the delivery of risk management training to  all staff.  The EMRF has now had extensive third-party reviews which have found that the framework has been embedded consistently across the Group with no adverse findings. TP ICAP has now attested to the embedding and ongoing operation of the ERMF. We have reviewed our principal risks and evolved the ERMF to account for factors including the impact of Covid-19, the potential impact of Brexit on Financial Services and execution risk of the Liquidnet acquisition.

 

Near term outlook

 

· The first two months' revenue per trading day was slightly higher year on year. March 2020 was a record month in terms of revenues, with very strong secondary volumes on record-high volatility. As such, given this tough comparative, we believe that our Q1 2021 revenues may be lower than in the prior year. For 2021, we forecast full year revenue to grow at low-single digit rates at constant currency basis. This excludes any positive revenue contribution following the completion of the Liquidnet acquisition.

· As we outlined in our Capital Markets Day ("CMD"), we are targeting c£30m of strategic cash investments in 2021, which includes c£13m of operating expenses.

· With regard to Brexit, despite the complications caused by COVID, we are executing our plans, leveraging our EU network, and moving brokers to our Paris hub. As a result, we continue to cover our EU clients effectively.

 

Concluding comments

 

2020 was in many ways a landmark year in the development of the Group.  We announced a new strategy; unveiled a transformational transaction; and continued to adapt and strengthen our platform against the most challenging of backdrops.  Consequently, TP ICAP is well placed to adapt and remain relevant as markets and clients' needs continue to evolve. In so doing, we will drive sustainable growth and higher returns to our shareholders over time and extend our position as a leading, global market infrastructure and data solutions provider. 

 

During these unprecedented times I would like to thank our shareholders for their overwhelming and continued support in relation to the acquisition of Liquidnet, the successful rights issue and redomiciliation of our Group's holding company.  I would also like to thank all of my colleagues at TP ICAP for the remarkable fortitude they have demonstrated throughout 2020, and of course our clients for their continuing trust in us.  I look forward to working with you all in the coming year, one that I approach with confidence.

 

Nicolas Breteau

Chief Executive Officer

9 March 2021

 

 

Financial Review

 

Introduction

 

During 2020, we faced a unique macroeconomic backdrop marked by the emergence and continuous impact of the COVID-19 pandemic.  The pandemic led us to adjust our ambitious 2020 IT investment plan as our primary focus has been the well-being of our employees, the seamless provision of our services, the support of financial market, and the protection of shareholders' value.

 

This once-in-a-generation environment initially led to record volatility and boosted market volumes. This was especially pronounced in March, across all our broking products. However, market volumes materially softened as the year progressed, most notably during the summer months. This was due to the fact that governments started to lower interest rates to support the wider economy and restarted large quantitative easing programmes. In addition, traders decided to de-risk.

 

Against this backdrop, Group revenues were slightly lower year-on year on a reported and constant currency basis. This is a big testament of the success of our diversification strategy. Our high-growth businesses, Institutional Services and Data & Analytics offered high top-line growth, whilst Energy & Commodities continued to grow its market share and capitalise on specific market opportunities.

 

Operating costs in 2020 have declined materially year-on-year following the completion of the integration of ICAP in 2019, reflected in a reduction in ' Significant items ' . Management adjusts for such items for planning purposes and measuring the Group ' s performance, and to aid comparability from period to period. They are also useful measures for investors and analysts when considered together with reported results .

Despite our initial plans to invest heavily in our core strategy, COVID-19 meant that we re-prioritised investment in cloud technology and workflows to support our brokers to work from home. Despite these unplanned investments and other costs regarding recent acquisitions, we were able to reduce our overall management and support costs year-on-year by £9m (£4m on a constant currency basis), which included material bonus adjustments. This highlights our ability to adapt our cost base to various macroeconomic circumstances.  Looking forward, the proposed Liquidnet acquisition means that we will incur some non-recurring costs in 2021. However, we are all very excited to partner with Liquidnet as its cutting-edge technology, market-leading connectivity and well-known franchise will help us develop new, high-growth revenue streams.

 

Key financial and performance metrics

 

Our key financial and performance metrics for 2020 are summarised in the table below together with comparatives from the equivalent period in 2019 on a reported basis.

 


 2020

 2019

Change

Total revenue (reported) (1)

£1,794m

£1,833m

-2%

Operating profit (EBIT):




 - Reported

£178m

£142m

+25%

 - Reported margin

9.9%

7.7%

+2.2% pts

 - Adjusted

£272m

£279m

-3%

 - Adjusted margin

15.2%

15.2%

0% pts

Contribution(2):




 - Broking

£606m

£626m

-3%

 - Broking margin

36.3%

36.4%

-0.1% pts

 - Data & Analytics

£68m

£68m

+24%

 - Data & Analytics margin

50.4%

50.4%

+3.4% pts

Total contribution

£680m

£694m

-2%

Adjusted operating profit margin (%):




 - Global Broking

16.6%

17.5%

-0.9% pts

 - Energy & Commodities

13.6%

12.0%

+1.6% pts

 - Institutional Services

7.7%

4.0%

+3.7% pts

 - Data & Analytics

44.1%

43.7%

+0.4% pts

Average:

 - Broker headcount

2,789

2,740

+2%

 - Revenue per broker (£'000)(3)

591

620

-5%

 - Contribution per broker (£'000)(4)

217

228

-5%

Period end:




 - Broker headcount

2,793

2,784

0%

 - Broker support headcount

1,846

1,824

+1%

 - Other support headcount

287

300

-4%

Broker compensation costs : broking revenue(5)

 

54.7%

 

53.1%

 

+1.6% pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average broker headcount was 2% higher to 2,789 in 2020 from 2,740 in 2019 due to the acquisition of Louis Capital Markets (LCM) and the consolidation of our business in Malaysia. However, with a 5% decrease in average revenue per broker, the resulting broking revenue was 3% lower than 2019 on a reported basis (2% lower on a constant currency basis). The period-end broking support headcount increased 1% primarily reflecting in-sourcing (including Belfast), and investing in Risk and Compliance functions as a response to increasing regulatory demands.

 

(1)  On a reported basis. Revenues declined 1% at constant currency

(2)  Broking includes contribution from Global Broking, Energy & Commodities and Institutional Services. Figures include inter-division revenues in Global Broking and Energy & Commodities, and inter-division front-office costs in Data & Analytics.

(3)  Average revenue per broker is defined as Total Broking revenues excluding inter-division revenues divided by average broker headcount.

(4)  Average contribution per broker represents broking contribution (as defined in the Contribution section) divided by the average broker headcount.

(5)  Broker compensation costs: broking revenue is defined as Total Broking compensation costs divided by Broking revenues excluding inter-division revenues

 

The tables that follow analyse revenue by business division as well as revenue and Adjusted operating profit by region for 2020 compared with the equivalent period in 2019.. The table also shows the change on a constant currency basis. A significant portion of the Group's activity is conducted outside the UK and the statutory revenue is therefore impacted by the movement in the foreign exchange rates used to translate the revenue from non-UK operations. The comparative data in the following tables therefore shows the statutory revenue change, but also the constant currency basis, where the 2019 revenues are translated at the same exchange rates as those used for 2020.

 

Income Statement

 

The Group presents its reported results in accordance with IFRSs as detailed in the financial statements. The Group also presents adjusted, non-IFRS, measures to report performance. Adjusted results and other alternative performance measures ('APMs') may be considered in addition to, but not as a substitute for, the reported results presented in accordance with IFRS. The Group believes that adjusted results and other APMs, when considered together with reported results, provide shareholders, analysts and other stakeholders with additional information to better understand the Group's financial performance and compare financial performance from period to period. These adjusted measures and other APMs are also used by management for planning and to measure the Group's performance. Management also uses adjusted measures to allow better comparability of information between operating segments. Investors and analysts should not rely on any single financial measure but should review the Annual Report, including the financial statements and notes, in their entirety.

 

Reported results are adjusted for significant items to derive adjusted results. A reconciliation from reported to adjusted measures is provided in the table below. The Group's adjusted performance is derived by adjusting reported results for Significant items. For 2020, the Group's adjusted and reported operating profit (or Earnings before interest and tax, 'EBIT') of £272m and £178m, versus £279m and £142m in the prior year. Reported operating profit (EBIT) increased by 25% due to a material reduction in the Significant items.

 

Adjusted operating profit (EBIT) decreased by 3% as lower revenues were only partially offset by lower costs.

 


2020

2019

£m

Adjusted

Significant items

Reported

Adjusted

Significant items

Reported

Revenue

1,794

-

1,794

1,833

-

1,833

Employment, compensation and benefit

(1,147)

(6)

(1,153)

(1,134)

(20)

(1,154)

General and administrative expenses

(333)

(27)

(360)

(380)

(55)

(435)

Depreciation and impairment of PPE and ROUA

(36)

(1)

(37)

(33)

(1)

(34)

Amortisation and impairment of int. assets

(20)

(39)

(59)

(23)

(46)

(69)

Impairment of other assets

-

(23)

(23)

-

(24)

(24)

Operating expenses

(1,536)

(96)

(1,632)

(1,570)

(146)

(1,716)

Other operating income(1)

14

2

16

16

9

25

Operating profit (EBIT) (1)

272

(94)

178

279

(137)

142

Operating profit margin

15.2%

-

9.9%

15.2%

-

7.7%

Net finance expense(1)

(49)

-

(49)

(49)

-

(49)

Profit before tax

223

(94)

129

230

(137)

93

Tax(10)

(55)

7

(48)

(55)

15

(40)

Share of net profit of associates and JVs

16

-

16

15

-

15

Non-controlling interests

(1)

-

(1)

(1)

-

(1)

Equity attributable to the eq. holders of the parent

183

(87)

96

189

(122)

67

Average number of shares

557.0m

557.0m

557.0m

559.4m

559.4m

559.4m

Basic EPS(1)

32.9p

(15.7p)

17.2p

33.8p

(21.8p)

12.0p

 

(1)  2019 has been restated to remove the initial IFRS16 impact that was adopted in 2019

 

Revenue

 

Total revenue of £1,794m in 2020 was 2% lower than 2019 on a reported basis, and 1% lower at constant exchange rates. 2020 marked an unprecedented period due to the emergence of the COVID-19 pandemic. This created a turbulent and uncertain environment globally. Throughout the period, much management attention was given to ensuring the continuity of our business and the broader financial services markets across every location during the evolving stages of the pandemic. We were taking into account varying external requirements and the safety and welfare of our staff and the need to maintain an appropriate level of supervision of broking activities in working from home conditions.

 

Revenue by business division


2020

2019

Reported
Change

Constant Currency Change

By region

£m

£m

%

%

EMEA

888

900

-1%

-1%

Americas

670

687

-2%

-1%

Asia Pacific

236

246

-4%

-3%

Total Revenues

1,794

1,833

-2%

-1%






By business division

£m

£m

%

%

  Rates

510

537

-5%

-4%

  Credit

90

94

-4%

-3%

  FX & Money Markets

186

201

-7%

-7%

  Emerging Markets

183

213

-14%

-12%

  Equities

201

199

0%

+2%

  Inter-division revenues(1)

18

18

0%

0%

Total Global Broking

1,188

1,262

-6%

-5%

  Energy & Commodities

388

379

+2%

+3%

  Inter-division revenues(2)

3

3

0%

0%

Total Energy & Commodities

391

382

+2%

+3%

Institutional Services

91

75

+21%

+21%

Data & Analytics

145

135

+7%

+9%

Inter-division eliminations(2)

(21)

(21)

0%

0%

Total Revenues

1,794

1,833

-2%

-1%

 

(1)  Inter-division revenues have been received by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Data & Analytics division. The broking inter-segmental revenues and Data & Analytics inter-segmental costs are eliminated upon the consolidation of the Group financial results.

(2)  Presented in line with our divisional disclosures

 

Regarding regional performance, EMEA revenue for the region decreased by 1% in 2020 compared with 2019 on a reported basis (1% lower on a constant currency basis), with mixed results in different asset classes. During 2020, our broking staff headcount increased to 1,260 mainly due to the Louis Capital Markets (LCM) acquisition and ICAP Oil hires.

 

Americas revenues decreased by 2% in 2020 versus 2019 on a reported basis (1% lower on a constant currency basis). This was due to difficult market conditions for TP ICAP's traditional Global Broking business, offset by strong growth in our growing Institutional Services and Energy & Commodities divisions.

 

Revenue in Asia Pacific in 2020 versus 2019 decreased 4% on a reported basis (3% lower on a constant currency basis). This was driven mainly by a decline in Global Broking, partially offset by revenue increases in Energy & Commodities, Institutional Services and Data & Analytics.

 

Regarding divisional performance, volatility indices spiked during the first quarter across a number of asset classes, including equities and energy. However, this trend largely reversed as the year progressed. Since May, we witnessed reduced volatility, a new round of quantitative easing, lowering interest rates and flattening yield curves. These trends are generally negative for our broking divisions. Despite this mixed environment, Energy & Commodities, Data & Analytics and Institutional Services performance remained strong. This performance was offset by subdued performances in Global Broking, especially in Emerging Markets.

 

We continued to recognise Inter-division revenue in Global Broking and Energy & Commodities to identify the value of data provided to the Data & Analytics division.

 

Global Broking revenues were 6% lower on a reported basis (5% lower on a constant currency basis). Rates division shrunk by 5% on a reported basis (4% lower on a constant currency basis). While rates activity was strong during the first quarter, new measures of governments' support globally, including interest rate reductions and quantitative easing, painted a weak picture since the summer. Conditions in credit markets were challenging for interdealer brokers, as a number of new competitors continued to gain market share and the issuance growth did not lead to high secondary trading. This led Credit revenue to decline 4% on a reported basis (3% lower on a constant currency basis). FX & Money Markets and Emerging Markets both saw revenue declines of 7%

 

(7% on a constant currency basis) and 14% (12% on a constant currency basis) respectively compared with the prior year due to subdued client activity on lower volume and volatility. Emerging Markets were especially impacted due to the earlier impact of COVID-19. Finally, Equities revenues were flat on a reported basis (2% higher on a constant currency basis). Market was favourable for cash equities trading, but TP ICAP is geared to equity derivatives, which was very mixed especially during the summer months.

 

Energy & Commodities revenue increased 2% on a reported basis (3% higher on a constant currency basis) compared to 2019 as market volatility provided a number of trading opportunities, especially between January and April. Revenues increased in most products, including Oil and Power. There was notable double-digit revenue growth in Gas and Environmental products. Other notable successes include the build-out of ICAP Oil business, Japanese Power, PVM US Gas & Power and Weather Derivatives.

 

Institutional Services revenue grew by 21% on a reported basis (21% higher on a constant currency basis) compared to 2019 on a broadened asset market coverage, expanded geographical presence and focusing on higher value electronic execution services. Revenues grew strongly in the key product lines, including exchange traded derivatives, equity derivatives, government bonds and FX. This performance was led by higher volatility and increased client demand. We also benefitted from changing market dynamics as our agency execution model continues to gain ground. We continued to add new hires and accelerate our client onboarding processes, which have also improved the performance of the business.

 

Data & Analytics revenue was 7% higher than 2019 on a reported basis (9% on a constant currency basis). Like most companies in the financial market data sector, we initially experienced a setback to growth earlier this year due to the impact of COVID-19. This was due to higher cancellation rates, deferral of clients' new initiatives and regulators' compliance dates for new regulations. However, the business recovered strongly through the second half of the year, producing double-digit growth for the last quarter. During 2020, we launched six new products, including our first Information product, started a direct-to-service service and expanded our Channel Partners to include the public cloud providers. We continue to show Inter-segmental revenues received by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Data & Analytics division. These inter-division revenues are based on commercial terms benchmarked against third-party rates and rates charged by TP ICAP's broking desks to third parties.

 

The broking inter-division revenues and Data & Analytics interdivision costs are eliminated upon the consolidation of the Group financial results.

 

Operating expenses

 

Total operating costs were £1,632m, which was 5% lower than in 2019 on a reported basis. Total adjusted operating costs of £1,536m in 2020 were 2% lower than 2019 (1% lower on a constant currency basis (see Note 5 in the Financial Statements for further details)). This has been driven by a decrease in front office and management and support costs.


2020

2019(1)

Change

Reported Change

Constant Currency Change


£m

£m

£m

%

%

  Broker compensation

902

900

2

0%

+1%

  Other front office costs

162

193

(31)

-16%

-14%

  Data & Analytics costs

50

46

4

+9%

+9%

Total front office costs(2)

1,114

1,139

(25)

-2%

-1%







  Other employment costs

224

215

9

+4%

+5%

  Technology and related costs(3)

69

59

10

+17%

+19%

  Premises and related costs(4)

27

26

1

+4%

+4%

  Depreciation and amortisation (4)

56

56

0

0%

0%

  Other administrative costs(4)

46

75

(29)

-39%

-38%

Total management and support costs

422

431

(9)

-2%

-1%

Total adjusted operating costs

1,536

1,570

(34)

-2%

-1%







Significant items:

96

146

(50)

-34%

n/a

  Restructuring and other related items

20

12




  Disposals and acquisitions and investments in new businesses

53

57




  Goodwill impairment

21

24




  Settlements and provisions in connection with legal and regulatory matters

2

19




  ICAP integration costs

-

34




Total operating expenses

1,632

1,716

(84)

-5%

n/a

 

(1)  2019 has been restated to remove the initial IFRS16 impact that was adopted in 2019

(2)  Presented in line with our divisional disclosures

(3)  Included in general and administrative expenses

(4)  Includes depreciation and impairment of PPE and ROUA and Amortisation and impairment of intangibles.

 

The table above sets out administrative expenses on the basis reviewed by management, divided principally between front office and management and support costs. Front office costs have a larger variable component to them and are directly linked to the output of our brokers.

 

The largest element of the front office is broker compensation and travel and entertainment. Other front office costs are telecommunications and information services, clearing and settlement fees as well as other direct costs. The remaining total cost base represents the management and support costs of the Group.

 

Broker compensation costs marginally increased on a reported basis (+£9m or +1% at constant currency) due to the acquisition of LCM. Excluding this acquisition, broker compensation costs were flat at constant currency. This is despite lower revenues, due to the shift in revenue mix towards businesses with a higher compensation ratio, mainly to Energy & Commodities, but also Institutional Services which is still in growth mode.

 

Overall, broker compensation ratio increased to 54.7% (+1.6% pts year-on-year). A proportion of the increase is due to the resulting decline in travel and entertainment caused by the pandemic during the year. Travel and entertainment costs are usually recharged to the brokers. This increases the broker compensation ratio but does not have an impact on contribution. The rest of the broker compensation ratio increase is due to the aforementioned revenue shift toward higher compensation ratio businesses.

 

Other front office costs have decreased by 16% (£31m) on a reported basis (14% lower on a constant currency basis). There were reductions of £22m in travel and entertainment and £5m lower expected credit losses on customer receivables, partly offset by higher telecommunications and information services costs. The increase in front-office Data & Analytics costs of 9% on a reported basis (9% higher on a constant currency basis) reflects its investment to achieve top-line growth. The £9m increase in the other staff costs on a reported basis (£11m on a constant currency basis reflect increased technology (£5m), risk (£1m) and legal and compliance (£1m) support costs as we enhance these functions to fulfil our increased IT strategic needs and ensure compliance in an ever-changing environment. Technology and related costs includes the costs of all external technology services, including maintenance contracts, consultancy, market data services and communications costs. During 2020, these costs increased by £10m on a reported basis (£11m higher on a constant currency basis) due to a combination of planned increases regarding IT infrastructure modernisation, cyber and surveillance IT projects, other IT investments and COVID-19 related IT spending,

 

such as investment in cloud services. The significant decrease in other administrative costs (£29m lower on a reported basis, £28m lower on a constant currency basis) includes lower corporate travel and entertainment (£4m), £9m lower consultancy and agency fees, lower Brexit costs (£3m), and lower currency exchange net losses arising on monetary assets and liabilities in the current year (£8m) compared to 2019.

 

Significant items

 

Significant items are material items, that may span several accounting periods, that are excluded from adjusted measures to allow better comparability of financial performance from period to period and give additional information to better understand the Group's financial performance when considered together with reported results.

 

Total significant items amounted to £94m in 2020 (2019: £84m). Significant items include:

 

Restructuring and related costs of £20m (2019: £12m)  

 

Restructuring and related costs arise from initiatives to reduce the ongoing cost base and improve efficiency in the business to enable the delivery of our strategic priorities. These initiatives are material in size and nature to warrant exclusion from adjusted measures. These initiatives may span several accounting periods. Costs for other smaller scale restructuring are retained within both reported and adjusted results. In 2020, the following restructuring and related costs were considered to be significant items:

 

(i)  £8m relating to the Group's re-domiciliation to Jersey announced in December 2019. These were mainly professional advisory fees in readiness preparation of the Group leading up to the re-domiciliation which was successfully undertaken on 26 February 2021. The nature of this project is one-off and costs are not expected to be incurred after 2021;

(ii)  £4m of premises related costs following various office integrations, mainly in relation to ongoing costs of maintaining property which became vacant or is available to be sub-let;

(iii)  £4m additional costs incurred from the restructuring of senior management within the Global broking division relating to the Group's cost reduction reorganisation programme announced in November 2020;

(iv)  £2m  relates to additional costs whilst transferring capabilities to our Belfast office which is part of the Group's cost effectiveness programme;

(v)  £1m of on-going costs incurred in winding up the Group's UK defined benefit which commenced in 2019 (£4m for 2019); and

(vi)  other employee long-term benefit costs of £1m relating to remeasurement of uninsured Group income protection liabilities (2019: £1m).

 

As adjusted results include the benefits of material restructuring programmes but some of the related costs have been excluded, they should not be regarded as a complete picture of the Group's financial performance, which is presented in the reported results.

 

Disposals, acquisitions and investments in new businesses £53m (2019: £57m)

 

Costs, and any related income, related to disposals, acquisitions and investments are transaction dependent and can vary significantly year on year, depending on the size and complexity of each transaction. These amounts, including the amortisation of intangible assets arising on consolidation, are excluded in deriving adjusted results  to better reflect the trading performance of the Group and its segments. Amortisation of intangible assets arising on consolidation is treated in line with acquisition related costs, the exclusion of which normalises the impact of deal dependent pricing and allows comparability of performance from period to period. Amortisation of purchased and developed software is retained  in both the reported and adjusted results as these are considered to be core to supporting the operations of the business.

 

In 2020 the following disposal, acquisition and investment costs were considered to be significant items:

 

(i)  acquisition costs of £11m related mainly to the proposed Liquidnet acquisition. For 2019, we incurred £6m principally for the Axiom, ClearCompress and LCM acquisitions;

(ii)  £39m (2019: £42m) relating to the amortisation of intangibles arising on acquisitions;

(iii)  Adjustments to deferred or contingent consideration of £2m (2019: £6m) arose mainly from changes in estimates relating to the Axiom acquisition, partly offset by changes in estimates on the LCM and ClearCompress acquisitions;

(iv)  The Group also impaired the carrying value of an investment in an associate by £1m.

 

As adjusted results include the benefits of acquisitions but some of the related costs have been excluded, they should not be regarded as a complete picture of the Group's financial performance, which is presented in the reported results.

 

Goodwill impairment  

 

As with other related acquisition costs and adjustments, management consider goodwill impairment separately, due to significant variations year-on-year, to aid comparability of results. In H1 2020, the carrying value of the Asia-Pacific CGU has been written down by £21m (2019: £24m) ( see note 13).

 

Legal and regulatory matters  

 

Costs, and recoveries, related to certain legal and regulatory cases are treated as significant items due to their size and nature . Management consider these cases separately due to the judgements and estimation involved, the costs and recoveries of which could vary significantly year-on-year.  In 2020, costs were £2m (2019:£19m). In 2020, this was made up of £5m costs relating to various ongoing material cases offset by a £3m provision release in relation to the   European Commission Yen Libor. In 2019, costs of £19m were incurred, relating primarily to a £15m FCA fine.

 

Recoveries £2m (2019: £9m)

 

£2m was recovered from the CME Group under the terms of the ICAP acquisition and have been reported within other operating income. In 2019, £9m was recovered in relation to an employment-related legal settlement

 

Regional analysis

 

2020 (£m)

EMEA

Americas

Asia Pacific

Total

Revenue

888

670

236

1794

Total front office costs

(518)

(442)

(154)

(1,114)

Contribution

370

228

82

680

  Contribution margin

41.2%

34.0%

34.7%

37.9%

Management and support costs

(216)

(135)

(71)

(422)

Other operating income 

6

3

5

14

Adjusted operating profit (EBIT)

160

96

16

272

  Adjusted operating profit margin

18.0%

14.3%

6.8%

15.2%






2019 (£m)

EMEA

Americas

Asia Pacific

Total

Revenue

900

687

246

1,833

Total front office costs

(524)

(458)

(157)

(1,139)

Contribution

376

229

89

694

  Contribution margin (%)

41.8%

33.3%

36.2%

37.9%

Management and support costs

(222)

(140)

(69)

(431)

Other operating income 

10

5

1

16

Adjusted operating profit (EBIT)

164

94

21

279

  Adjusted operating profit margin (%)

18.2%

13.7%

8.5%

15.2%

 

EMEA

 

Revenue for the region decreased by 1% in 2020 compared with 2019 on a reported basis (1% lower on a constant currency basis), with mixed results in different asset classes. During 2020, our broking staff headcount increased to 1,266 mainly due to the Louis Capital Markets (LCM) acquisition and ICAP Oil hires.

 

Global Broking revenues fell 6% versus 2019. Overall, the division had a very strong first half of 2020 with exceptional volatility levels in March and April, caused by the pandemic. However, since May, market dynamics reversed as many clients decided to reduce risk and close out position and government reduced interest rates to very low levels and restarted quantitative easing. In terms of products, Rates and FX reported lower revenues as strong H1 was offset by lowering interest rates and traders working from home as the year progressed. Emerging Markets revenues were materially lower year-on-year as many emerging market economies were hit hard by COVID-19, especially South Africa and Turkey. Credit revenues increased during the year through higher primary issuance, stronger CDS and insurance markets, offset by weaker performance in some other products. Finally, Equities were slightly up year-on-year, primarily due to the LCM acquisition. LCM was able to offset the decline on Q2 dividend season that was severely impacted due to the pandemic.

 

Energy & Commodities revenues increased slightly year-on-year. This was materially due to the oil price volatility witnessed in the first half of the year. The second half saw some decline with less freight being transported around the world and continued uncertainty regarding forward contracts. The flight to gold enabled the precious metals business to have a very strong year. We continued to grow our ICAP brand with important hires in our oil products.

 

Institutional Services revenues saw a 17% increase versus 2019. The division expanded its EMEA product offering by opening a COEX Rates desk during the year as well as growing its exchange traded derivatives (ETD) business.

 

Data & Analytics were less impacted by market volatility due to the nature of its subscription business. However, the broadening of its product range and customer base led to 9% revenue increase year-on-year. Contribution margin for the region reduced by 0.6 percentage points to 41.2%, mainly due to lower revenues, increased costs associated with adjusting to a working from home environment and higher compensation ratio.

 

Adjusted operating profit in EMEA of £160m was 2% lower than 2019, and with revenue down 1% on a reported basis (and 1% lower on a constant currency basis), the adjusted operating profit margin has decreased by 0.2 percentage points, to 18.0%. This was a result of reduced revenues, the completion of Louis Capital Markets acquisition and continuous investment in IT and Hub Strategies,

offset by some reduction in the support head headcount.

 

Americas

 

Americas revenues decreased by 2% in 2020 versus 2019 on a reported basis (1% lower on a constant currency basis). This was due to difficult market conditions for TP ICAP's traditional Global Broking business, offset by strong growth in our Institutional Services and Energy & Commodities divisions.

 

Within the Global Broking business, the volatility in March and April boosted our first half markets. However, general market conditions worsened as the year progressed and clients reduced their risk appetite. Overall, Global Broking revenues declined 5% year on year. All asset classes, excluding Equities, posted lower revenues versus 2019.

 

Rates revenues decreased by 10% as USD swaps and Treasuries markets weakened in the second half of the year. Rates continues to be the largest asset class in the Americas. Emerging Markets revenues were the worst performing class for 2020, as developing markets were asymmetrically affected by the pandemic and working offsite conditions.

 

Equities revenues were up marginally year-on-year due to new product development. While cash equities market was very strong, equity derivatives (EQD) faced a mixed year, affected by a slower Q2 dividend season. FX & Money Markets businesses saw small revenue declines in 2020, due to lower volatility levels and client de-risking in Forward FX.

 

US fixed income markets remained subdued for inter-broker dealers, as market structure is changing and new market entrants surface. TP ICAP reported single-digit revenue decline.

 

The Americas' Energy & Commodities business demonstrated another strong year, with a 4% revenue increase. There were increased revenues in oil and gas businesses. Energy & Commodities continues to be a targeted growth area for TP ICAP Americas across all our brands.

 

Finally, TP ICAP's Institutional Services was the standout performer of the Americas' region in 2020, with 29% revenue growth. The business expanded its product offerings and it remains an area for growth opportunities.

 

Contribution margin improved 0.6 percentage points to 14.3%, as lower revenues were more than offset by materially lower travelling and entertainment.

 

In the Americas, the adjusted operating profit of £96m is 2% higher than 2019 but the adjusted operating profit margin has increased by 0.6 percentage point to 14.3% on higher contribution margin and tight cost management, partially offset by continuous investment in IT and Hub Strategies.

 

Asia Pacific

 

Revenue in Asia Pacific in 2020 versus 2019 decreased 4% on a reported basis (3% lower on a constant currency basis). This was driven mainly by a decline in Global Broking, partially offset by revenue increases in Energy & Commodities, Institutional Services and Data & Analytics.

 

Global Broking revenue declined year-on-year by 8% to £184m. The year started healthily but going into the second quarter, the impact of the pandemic began to cause a reduction in risk appetite and trading volumes. A low interest rate environment, especially in Australia where rates got capped during the year, kept market volumes at muted levels. Japanese markets were relatively quiet after the first quarter and remained slow throughout the year. During the year, we undertook a review of underperforming desks and took some actions, including targeted compensation adjustments and selected staff exits where appropriate, while maintaining our service to customers across all key asset classes. This review led to limited impact on revenue but was positive on Asia Pacific's contribution rate. During the year, we took majority control of our Malaysian business and started to consolidate it to our regional revenues.

 

Energy & Commodities revenue grew by 11% year-on-year. This reflected the benefit of a number of recently established desks as we have increased the scale and diversification of our business. These new desks brought in new revenue and included TP middle distillates, PVM Gasoline, and ICAP branded Precious Metals. Importantly, the competing desks already operating under other brands continued to perform well.

 

Institutional Services initiated FX Option business in Singapore in 2019 and this business continued to develop during 2020, though at a relative low pace given similar headwinds to those affecting the

Global Broking business.

 

The overall contribution margin decreased year-on-year by 1.6% from 36.3% to 34.7%. This deterioration in contribution rate arose in Global Broking, Energy & Commodities and also from the impact of starting up the Institutional Services business.

 

Adjusted operating profit in Asia Pacific decreased to £16m in 2020 (£5m lower than in 2019), while the adjusted operating profit margin has reduced by 1.7 percentage points to 6.8% with the benefit of reductions in management and support costs as a result of the integration being more than offset by revenue decline and costs relating with the scaling of Institutional Services.

 

Contribution margin declined 1.5 percentage point to 34.7%. This deterioration is contribution rate arose due to lower revenues in Global Broking, but also from the impact of starting up the Institutional Services business.

 

Overall, adjusted profit margin of 6.8% in 2020 was lower than the 8.5% 2019 margin, as lower revenues & contribution, combined with central allocations regarding IT investments could not be offset by support cost savings.

 

Divisional Analysis

 

This section demonstrates the performance of TP ICAP Group by division in terms of revenues, contribution and operating profit. The broking inter-segmental revenues and Data & Analytics inter-segmental costs are eliminated upon the consolidation of the Group financial results. Broker contribution (excluding Data & Analytics) declined 3% to £606m, as higher contribution from Energy & Commodities and Institutional Services was offset by lower contribution from Global Broking, due to lower revenues and higher ICP amortisation.

 

Contribution represents the revenue of our businesses less the total front office costs described above. An improvement in the absolute level of contribution is an important metric in driving earnings growth for the Group. In 2020 the overall level of contribution was 2% lower at £680m year-on-year. The overall contribution margin was flat at 37.9% as lower revenues were more than offset by lower front office costs. There was some broker compensation ratio increase, due to revenue shift changes and lower travel and entertainment that is usually recharged to the brokers, offset by lower discretionary bonuses and lower clearing and settlement fees. TP ICAP's adjusted operating profit (EBIT) of £272m is 3% lower than the prior year, as lower revenues were only partially offset by lower front office and net management and support cost savings. The operating profit (EBIT) margin stayed flat at 15.2%.

 

GB =Global Broking;  E&C = Energy & Commodities;  IS = Institutional Services, D&A = Data & Analytics

2020 (£m)

GB

E&C

IS

D&A

Corp. Centre


Total

Revenue:








  - External

1,170

388

91

145


1,794

  - Inter-division

18

3

-

(21)



1,188

391

91

145

(21)


1,794

Total front office costs:








  - External

(734)

(261)

(69)

(50)



(1,114)

  - Inter-division

 -

 -

 -

(21)

21



(734)

(261)

(69)

(71)

21


(1,114)









Contribution

454

130

22

74

 -


680

Contribution margin

38.2%

33.2%

24.2%

51.0%

n/a


37.9%

Net management and support costs:








  - Management and support costs

(260)

(78)

(15)

(10)

(59)


(422)

  - Other operating income

3

 1

 -


10


14


(257)

(78)

(15)

(10)

(49)


(408)

Adjusted Operating profit / (loss)

197

53

7

64

(49)


272









Adjusted operating profit margin

16.6%

13.6%

7.7%

44.1%

n/a


15.2%

Significant items







(94)

Reported operating profit (EBIT)







129

Reported operating profit margin







9.9%









 

2019 (£m)

GB

E&C

IS

D&A

Corp. Centre


Total

Revenue:








  - External








  - Inter-division

1,244

379

75

135


1,833


18

3


(21)


Total front office costs:

1,262

382

75

135

(21)


1,833

  - External








  - Inter-division

(775)

(261)

(57)

(46)



(1,139)


 -

 -

 -

(21)

21


Contribution

(775)

(261)

(57)

(67)

21


(1,139)

Contribution margin









487

121

18

68

 -


694

Net management and support costs:

38.6%

31.7%

24.0%

50.4%

n/a


37.9%

  - Management and support costs








  - Other operating income

(268)

(75)

(15)

(9)

(64)


(431)


2

 -

 -


14


16

Adjusted Operating profit / (loss)

(266)

(75)

(15)

(9)

(50)


(415)


221

46

3

59

(50)


279

Adjusted operating profit margin

17.5%

12.0%

4.0%

43.7%

n/a


15.2%

Significant items







(137)

Reported operating profit (EBIT)







142

Reported operating profit margin







7.7%

 

Global Broking revenues were 6% lower on a reported basis (5% lower on a constant currency basis). Following a strong first quarter, activity significantly abated as the year progressed. This led to a weaker performance in most asset classes. Rates, FX & Money Markets, Emerging Markets and Credit. This performance was only partially offset by small growth in Equities.

 

Lower revenues led to a small 0.4% pts decline in contribution margin, as the impact of smaller top-line was absorbed by lower discretionary bonuses, lower travel and entertainment and lower clearing and settlement fees.

 

The adjusted operating profit (EBIT) decreased to £197m, or 11% lower versus 2019. This was a result of reduced revenue, increased costs associated with adjusting to a working from home environment for many staff, the region becoming Brexit ready, the Louis Capital Markets (LCM) acquisition and continued investment in IT, Cyber and Risk & Compliance costs and our Hub strategy. Operating profit (EBIT) margin decreased 0.9 percentage points to 16.6%.

 

Energy & Commodities revenues increased 2% on a reported basis (3% higher on a constant currency basis) compared to 2019 as market volatility provided a number of trading opportunities,

especially between January and April. Revenues increased in most products, including Oil and Power. There were notable double-digit revenue growth in Gas and Environmental products.

 

Contribution increased 7% year on year to £130m, mainly due to higher revenues offset mainly through the broker compensation ratio increase, due to revenue shift changes, combined with higher initial contract payments ('ICP') amortisation.

 

The adjusted operating profit (EBIT) increased to £53m, or 15% higher versus 2019. This is primarily due to higher revenues, supported by some front-office, management related savings and contract re-negotiations partially offset by higher ICP. The Adjusted operating profit (EBIT) margin improved 1.6 percentage points to 13.6%.

 

Institutional Services revenue grew by 21% on a reported basis (21% higher on a constant currency basis) compared to 2019 on a broadened asset market coverage, expanded geographical presence and focusing on higher value electronic execution services. Revenues grew strongly in the key product lines, including exchange traded derivatives, equity derivatives, government bonds and FX. This performance was led by higher volatility, increased client demand but also stemming from changing market dynamics as our agency execution model continues to gain ground and investment banks continue to reorganise their sales coverage teams. We continued to add new hires and accelerate our client onboarding processes, which have also improved the performance of the business.

 

Contribution increased to £22m, with contribution margin increasing slightly by 0.2% pts to 24.2%. The increase is due to strong revenue growth, offset by higher trading costs, compensation and IT costs as we continue to build scale.

 

Institutional Services improved its adjusted operating profit (EBIT) to £7m (233% higher year-on-year). The business continues to generate necessary scale to improve its profitability, with very strong revenue growth. The adjusted operating profit (EBIT) margin improved to 7.7%, 3.7 percentage points higher year-on-year.

 

Data & Analytics revenue was 7% higher than 2019 on a reported basis (9% on a constant currency basis). Like most companies in the financial market data sector, we initially experienced a setback to

growth earlier this year due to the impact of COVID-19. This was due to higher cancellation rates, deferral of clients' new initiatives and regulators' compliance dates for new regulations. However, the business recovered strongly through the second half of the year, producing double-digit growth for the last quarter.

 

During 2020, we launched six new products, including our first Information product,

started a direct-to-service service and expanded our Channel Partners to include the public cloud providers. We continue to show Inter-segmental charges made by Global Broking and Energy &

Commodities to reflect the value of proprietary data provided to the Data & Analytics division. These inter-division charges are based on commercial terms benchmarked against third party rates

and rates charged by TP ICAP's broking desks to third parties. Data & Analytics contribution represents the revenue of the Data & Analytics business less the total front office costs associated with running the business, including the cost of internally generated data from the broking businesses. In 2020, Contribution improved to £74m (9% higher year-on-year) mainly due to higher revenues, as Data & Analytics continues to build scale, launching new higher-value products, improving distribution channels and increasing the number of clients in the buy-side and the sell-side. Contribution margin increased to 51.0% or 0.6 percentage points higher year-on-year.

 

Finally, Data & Analytics reported strong adjusted operating profit (EBIT) of £64m, or 8% higher versus 2019. The results benefited from strong revenue growth and positive operational leverage. As such, the adjusted operating profit (EBIT) margin improved to 44.1%, 0.4 percentage points higher year-on-year

 

Net finance expense

 

The reported net finance expense of £49m is in line with the £49m charged in 2019, as lower finance costs were offset by lower interest income. Interest expense was £52m, of which £36m relates to the Group's Sterling Notes, £3m of bank facility costs, £1m relating to the amortisation of debt issue and bank facilities and £1m of other interest payable. The interest expense includes £11m interest payable on IFRS16 lease liabilities. The expense is offset by £2m of interest income and £1m of income of finance lease receivables.

 

Tax

 

The effective rate of tax on reported profit before tax is 37% (2019: 43%), reflecting the tax deductibility of certain expenditure classed as significant items. The effective rate of tax on adjusted profit before tax is 24.7% (2019: 23.9%). The rate is consistent with the outlook previously given, noting that the prior year effective tax rate was lower due to a greater impact from the conclusion of prior year tax liabilities at less than the amount provided.

 

Basic EPS

 

The average number of shares used for the basic EPS calculation of 557m reflects the 563.3m shares in issue less the 4.5m shares held by the Employee Benefit Trust at the beginning of the year, less the difference between the time apportionment element of the 4.8m of shares acquired by the Employee Benefit Trust to satisfy deferred share awards made to senior management, and the 0.7m of deferred shares meeting their vesting requirements in June. The Employee Benefit Trust has waived its rights to dividends. Post year-end, the number of shares in issue increased to 788m due to the rights issue that was completed on 16 February 2021.

 

Dividend

 

For 2020, the Group proposes a full-year dividend per share ("DPS") of 6p that equates to £47m (2019 DPS: 11.9p, rebased to take into account the bonus element of the rights issue completed on 16 February 2021), a one-off c50% reduction to the prior year. This reduction will help fund the Liquidnet acquisition and minimise dilution of earnings on a per share basis. For 2021 onwards, we will target a dividend cover of approximately 2x adjusted earnings. The new dividend policy reflects a balanced approach to capital allocation and is expected to allow TP ICAP to drive growth, while allowing dividends to increase in line with adjusted earnings.

 

Cash flow statement

The cash flow presentation reconciles the adjusted cash flow generation, excluding the impact of Significant items, to the reported net cash flow from operations. The impact on EBITDA of significant items was £30m mainly due to acquisition and business reorganisation costs.

 

During the year, there was a 6% decline in reported operating cash flow of, as higher reported operating profit (EBIT) was offset by higher initial contract prepayments (ICP), changes in working capital and incremental capital expenditure regarding our new London Headquarters and investment in IT.

 

During the period there was a small increase in initial contract prepayments. The working capital outflow of £28m which mainly reflects the reduced management and support bonuses and associated payroll taxes. Capital expenditure has increased to £53m reflecting incremental spending on our new London Headquarters and continued IT spending on routine, mandatory and investment projects.

 

After interest paid and adjusted taxation paid, the adjusted free cash flow for the Group was £119m, a decrease of £41m year on year, mainly due to higher capital expenditure.

 

Cash Flow

Other* = Significant items

2020 (£m)

Adjusted

Other*

Reported

Operating profit (EBIT)

272

(94)

178

Share based payment charge and pension scheme administration fees

9

(1)

8

Depreciation and amortisation

33

-

33

Depreciation on leased assets

23

-

23

Non-cash items

-

5

5

Impairment & amortisation of intangible assets

arising on consolidation


60

60

Change in Initial contract prepayments

(4)

-

(4)

Working capital

(28)

(5)

(33)

Cash generated from operations

305

(35)

270

Capital expenditure

(53)

-

(53)

Operating cash flow

252

(35)

217

Interest paid

(53)

-

(53)

Tax paid

(80)

7

(73)

Free cash flow

119

(28)

91

 

2019 (£m)

Adjusted

Other*

Reported

Operating profit (EBIT)

279

(137)

142

Share based payment charge and pension scheme administration fees

6

3

9

Depreciation and amortisation

36

4

40

Depreciation on leased assets

20

1

21

Non-cash items

1

6

7

Impairment & amortisation of intangible assets

arising on consolidation


66

66

Change in Initial contract prepayments

(2)

2

-

Working capital

(21)

1

(20)

Cash generated from operations

319

(54)

265

Capital expenditure

(33)

-

(33)

Operating cash flow

286

(54)

232

Interest paid

(53)

-

(53)

Tax paid

(73)

9

(64)

Free cash flow

160

(45)

115

 

Debt finance

 

The revolving credit facility provided by a syndicate of banks was refinanced in December 2018 on improved terms increasing our overall facility to £270m from £250m. The main revolving credit facility now matures in December 2023,

 

The composition of the Group's outstanding debt is summarised below. In August 2020 the Group entered into a revolving credit facility with Tokyo Tanshi Co., Ltd. ('Totan') for JPY 10 bn (c£70m equivalent) with an initial maturity of two years. This facility can be extended for six months by mutual agreement semi-annually. The current maturity date is 27 February 2023. JPY 4 bn (£28m

equivalent) was drawn as at the period-end (2019: £0m). During 2020, no refinancing actions were carried out on the bonds issued by the Group under its £1bn Euro Medium Term Note Programme.

The amounts of bonds outstanding remain £250m 5.25% Notes due 2026 (2019: £250m) and £431m 5.25% Notes due 2024 (2019: £431m).

 

£m

At 31

Dec 2020

At 31

Dec 2019

5.25% Sterling Notes January 2024

431

431

5.25% Sterling Notes May 2026

250

250

Revolving credit facility drawn - Banks

-

-

Revolving credit facility drawn - Totan

28

-

Overdraft

7

-

Unamortised debt issue costs

(2)

(2)

Accrued interest

11

11

Gross Debt pre-IFRS 16

725

689

IFRS 16 lease liabilities

212

140

Total Debt

937

829

 

Cash and cash equivalent

 

Of the £783m cash and financial investments balance at the period end, £687m is held in 74 regulated entities to meet regulatory capital, margin and other trading requirements as well as accrued profits, £86m is held in non-regulated entities for working capital requirements as well as accrued profits and £10m is held in corporate holding companies. The £687m of cash held in regulated entities generally remains held within those Group's entities for regulatory and operational reasons.

 

Exchange rates

 

The income statements and balance sheets of the Group's businesses whose functional currencies are not GBP are translated into Sterling at average and period end exchange rates respectively. The most significant exchange rates for the Group are the US Dollar and the Euro. The Group's current policy is not to hedge income statement or balance sheet translation exposure. Average and period end exchange rates used in the preparation of the financial statements are shown below.

 


Average


Period End


 2020

 2019


2020

2019

US dollar

$1.29

$1.28


$1.37

$1.28

Euro

€1.13

€1.14


€1.12

€1.14

 

Pensions

 

The Group has one defined benefit pension scheme in the UK that is currently in the process of being wound up.

 

The Sponsor and Trustee commenced the wind-up of the Scheme in 2019 to enable the Trustee to exchange the Scheme's bulk annuity policy for individual policies that will be held directly by the Scheme's beneficiaries, in a process known as a 'buy-out'. Under UK legislation, once a Scheme commences wind-up, the assets of the Scheme pass unconditionally to the Trustee to enable it to settle the Scheme's liabilities. As a result, the Group has applied the requirement of IFRIC 14, fully restricting the Group's recognition of the £49m (2019: £52m) net surplus by applying an asset recognition ceiling. The asset ceiling is recorded as a charge in other comprehensive income.

 

During the wind-up period, the Group will continue to restrict the recognition of the net surplus. Should any member benefits be augmented during this period, they will represent a past service cost and will be recorded as a significant item in the Income Statement as and when those benefits are agreed. Costs associated with the settlement of the Scheme's liabilities will also be recorded as a significant item in the Income Statement as and when incurred. Past service and settlement costs amounted to £1m in 2020 (2019: £3m).

 

Following the full settlement of the Scheme's liabilities the Scheme will be wound-up and the Sponsor expects to receive the remaining asset. Any repayment received will also be subject to applicable taxes at that time, currently 35%.

 

Regulatory capital

 

As at 31 December 2020 the Group's lead regulator was the FCA. Following the Group's redomiciliation to Jersey on 26 February 2021, the Group now falls under the regulation of the Jersey Financial Services Commission. As at 31 December 2020 the Group held an FCA waiver from the consolidated capital adequacy requirements under CRD IV. The waiver took effect on 30 December 2016, following the acquisition of ICAP, with an expiry of 30 December 2026. Under the terms of the waiver, each investment firm within the Group must be treated as either a limited activity or a limited licence firm and comply with its individual regulatory capital resources requirements. TP ICAP plc, as the parent Company as at 31 December 2020, 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 requirement compared with its consolidated own funds ('Excess Goodwill') over the ten-year period to 30 December 2026. The amount of the Excess Goodwill must not exceed the amount determined as at the date the waiver took effect (the 'Excess Goodwill Ceiling'). The Excess Goodwill Ceiling is reduced to nil in line with a schedule over ten years to December 2026, with the first reduction of 25% having occurred at the end of June 2019. The Excess Goodwill Ceiling continues to reduce 25% every 2.5 years on a straight-line basis. The waiver also sets out conditions with respect to the maintenance of financial ratios relating to leverage, debt service and debt maturity profile. As at 31 December 2020, the Group's regulatory capital headroom under the Financial Holding Company test calculated in accordance with Pillar 1 was £1,550m (2019: £1,591m). 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. Information disclosure under Pillar 3 is available on the Group's website: www.tpicap.com . Following the redomiciliation to Jersey, the Group will no longer be subject to the consolidated capital adequacy requirements under CRD IV and as a result the 'Financial Holding Company test' and CRD IV waiver requirements of the FCA are no longer applicable. The FCA has become the lead regulator of the Group's sub-consolidated activities, legally headed by the UK, for which the consolidated capital adequacy requirements under CRD IV now apply. This sub-group has not applied for a waiver as the sub-group maintains an appropriate excess of financial resources.

 

Consolidated Income Statement

for the year ended 31 December 2020



2020

2019


Notes

£m

£m

Revenue

3

1,794

1,833

Employment, compensation and benefits


(1,153)

(1,154)

General and administrative expenses


(360)

(435)

Depreciation and impairment of PPE and ROUA


(37)

(34)

Amortisation and impairment of Intangible asset


(59)

(69)

Impairment of other assets


(23)

(24)

Total operating costs

4

(1,632)

(1,716)

Other operating income

5

16

25

Operating profit


178

142

Finance income

6

3

6

Finance costs

7

(52)

(55)

Profit before tax

 

129

93

Taxation

 

(48)

(40)

Profit after tax

 

81

53

Share of results of associates and joint ventures

 

16

15

Profit for the year

 

97

68


 


 

Attributable to:

 


 

Equity holders of the parent

 

96

67

Non-controlling interests

 

1

1


 

97

68


 


 

Earnings per share

 


 

- Basic

8

17.2p

12.0p

- Diluted

8

17.0p

11.9p


 



 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2020


2020

2019


£m

£m

Profit for the year

97

68

Items that will not be reclassified subsequently

to profit or loss:

 

 

Remeasurement of defined benefit pension schemes

2

(52)

Equity instruments at FVTOCI - net change in fair value

-

1

Taxation

-

19


2

(32)

Items that may be reclassified subsequently

to profit or loss:

 

 

Fair value movements on net investment hedge

2

-

Effect of changes in exchange rates on translation

of foreign operations

(30)

(44)

Taxation

(1)

-


(29)

(44)

Other comprehensive loss for the year

(27)

(76)

Total comprehensive income/(loss) for the year

70

(8)


 

 

Attributable to:

 

 

Equity holders of the parent

69

(8)

Non-controlling interests

1

-


70

(8)

 

Consolidated Balance Sheet

as at 31 December 2020


Notes

2020

£m

2019

£m

Non-current assets

 

 

 

Intangible assets arising on consolidation

10

1,463

1,511

Other intangible assets


58

61

Property, plant and equipment


101

72

Right-of-use assets


163

91

Investment in associates


61

58

Investment in joint ventures


29

28

Other investments


18

20

Deferred tax assets


4

3

Retirement benefit assets


-

-

Other long term receivables


24

26



1,921

1,870



 

 

Current assets


 

 

Trade and other receivables


70,027

49,371

Financial investments

13

127

148

Derivative financial instruments


3

-

Cash and cash equivalents

13

656

676



70,813

50,195

Total assets


72,734

52,065



 

 

Current liabilities


 

 

Trade and other payables


(69,927)

(49,305)

Loans and borrowings

11,13

(46)

(11)

Lease liabilities

13

(26)

(23)

Current tax liabilities


(28)

(48)

Short term provisions

14

(17)

(21)



(70,044)

(49,408)

Net current assets


769

787



 

 

Non-current liabilities


 

 

Loans and borrowings

11,13

(679)

(678)

Lease liabilities

13

(186)

(117)

Deferred tax liabilities


(79)

(83)

Long term provisions

14

(23)

(26)

Other long term payables


(23)

(21)

Retirement benefit obligations


(2)

(2)



(992)

(927)

Total liabilities


(71,036)

(50,335)

Net assets


1,698

1,730


 

 

 

Equity

 

 

 

Share capital

 

141

141

Share premium

 

17

17

Merger reserve

 

1,384

1,384

Other reserves

 

(1,246)

(1,205)

Retained earnings

 

1,383

1,375

Equity attributable to equity holders of the parent

 

1,679

1,712

Non-controlling interests

 

19

18

Total equity

 

1,698

1,730

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2020

 

 

 

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

Non-controlling

interests

Total

equity

2020

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Balance at

1 January 2020

141

17

1,384

(1,182)

5

(12)

(16)

1,375

1,712

18

1,730

Profit for the year

-

-

-

-

-

-

-

96

96

1

97

Other comprehensive

(loss)/income for the year

-

-

-

-

-

(29)

-

2

(27)

-

(27)

Total comprehensive income/(loss) for the year

-

-

-

-

-

(29)

-

98

69

1

70

Dividends paid

-

-

-

-

-

-

-

(94)

(94)

(1)

(95)

Gain on disposal of equity investments at FVTOCI

-

-

-

-

(1)

-

-

1

-

-

-

Share settlement of share-based awards

-

-

-

-

-

-

3

(3)

-

-

-

Own shares acquired for employee trusts

-

-

-

-

-

-

(14)

-

(14)

-

(14)

Increase in non-controlling interests

-

-

-

-

-

-

-

-

-

1

1

Credit arising on share-based awards

-

-

-

-

-

-

-

6

6

-

6

Balance at

31 December 2020

141

17

1,384

(1,182)

4

(41)

(27)

1,383

1,679

19

1,698


 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Balance at

1 January 2019

141

17

1,384

(1,182)

4

31

(11)

1,814

16

1,830

Profit for the year

-

-

-

-

-

-

-

67

67

1

68

Other comprehensive

(loss)/income for the year

-

-

-

-

1

(43)

-

(33)

(75)

(1)

(76)

Total comprehensive (loss)/income for the year

-

-

-

-

1

(43)

-

(8)

-

(8)

Dividends paid

-

-

-

-

-

-

-

(94)

(94)

(1)

(95)

Share settlement of share-based awards

-

-

-

-

-

-

2

(3)

(1)

-

(1)

Own shares acquired for employee trusts

-

-

-

-

-

-

(7)

-

(7)

-

(7)

Increase in non-controlling interests

-

-

-

-

-

-

-

3

3

3

6

Credit arising on share-based awards

-

-

-

-

-

-

-

5

5

-

5

Balance at

31 December 2019

141

17

1,384

(1,182)

5

(12)

(16)

1,375

1,712

18

1,730


 

 

 

 

 

 

 

 

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 December 2020


Notes

2020

2019



£m

£m

Cash from operating activities

12

144

148


 


 

Investing activities

 


 

Sale/(purchase) of financial investments1

 

18

(20)

Sale of equity instruments at FVTOCI

 

2

1

Purchase of equity instruments at FVTOCI

 

-

(1)

Purchase of derivative financial instruments

 

(2)

-

Interest received

 

3

5

Dividends from associates and joint ventures

 

13

10

Expenditure on intangible fixed assets

 

(16)

(20)

Purchase of property, plant and equipment

 

(35)

(13)

Direct costs on acquiring right-of-use-assets

 

(2)


Deferred consideration paid

 

(22)

(12)

Investment in associates and joint ventures

 

(3)

(5)

Acquisition consideration paid

 

(18)

-

Cash acquired with acquisitions

 

9

-

Net cash flows from investment activities

 

(53)

(55)


 


 

Financing activities

 


 

Dividends paid

9

(94)

(94)

Dividends paid to non-controlling interests

 

(1)

(1)

Dividend equivalents paid on share-based awards

 

-

(1)

Sale of equity to non-controlling interests

 

-

6

Own shares acquired for employee trusts

 

(14)

(7)

Net repayment of bank loans2

11

-

(52)

Net borrowing/(repayment) of loans from related parties2

11

28

(3)

Gain on derivative financial instruments

 

-

3

Funds received from issue of Sterling Notes

 

-

250

Repayment/repurchase of Sterling Notes

 

-

(149)

Bank facility arrangement fees and debt issue costs

 

-

(2)

Payment of lease liabilities

 

(24)

(21)

Net cash flows from financing activities

 

(105)

(71)


 


 

(Decrease)/increase in cash and overdrafts

 

(14)

22


 


 

Cash and overdrafts at the beginning of the year

 

676

667

Effect of foreign exchange rate changes

 

(13)

(13)

Cash and overdrafts at the end of the year

13

649

676


 

 

 

Cash and cash equivalents

 

656

686

Overdrafts

 

(7)

(10)


 

649

676

 

1.   The Includes the impact of changes in restricted funds during the year.

2.  The Group utilises credit facilities throughout the year, entering into numerous short term bank and other loans where maturities are less than three months. The turnover is quick and the volume is large and resultant flows are presented net. Further details are set out in Note 11.

 

 

1.  General information

 

As at 31 December 2020 TP ICAP plc (the 'Company') was a public company limited by shares incorporated in England and Wales under the Companies Act.  On 26 February 2021 following a Scheme of Arrangement TP ICAP Group plc acquired the entire share capital of the Company, resulting in TP ICAP Group plc becoming the Group's ultimate parent undertaking. On 8 March 2021 the Company re-registered as a limited company.

 

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 2020 or 2019, but is derived from those accounts.  Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 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) Presentation of the Income Statement

 

Previously the Group presented a columnar format for its Consolidated Income Statement in order to aid the understanding of the 'underlying' performance measures used by the Group's Chief Operating Decision Maker ('CODM') and to provide a reconciliation to the Group's IFRS reported numbers. For 2020 the information considered by the Group's CODM is contained in Note 3 'Segmental Analysis', and in the Financial and Operating Review.

 

(d) Adoption of new and revised Accounting Standards

 

The following new and revised Standards and Interpretations are effective from 1 January 2020 but they do not have a material effect on the Group's Consolidated financial statements:

Ø Amendments to IAS 1 and IAS 8: Definition of Material;

Ø Amendments to References to the Conceptual Framework in IFRS Standards;

Ø Amendments to IFRS 3 Business Combinations; and

Ø Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform.

 

3.  Segmental analysis

 

Products and services from which reportable segments derive their revenues

 

The Group has a matrix management structure. The Group's Chief Operating Decision Maker ("CODM") is the Executive Committee ("Exco") which operates as a general management committee under the direct authority of the Board. The Exco regularly reviews operating activity on a number of bases, including by geographical region and by business division. The Group considers that geographic segments represent the most appropriate view for the purposes of resource allocation and assessment of the nature and financial effects of the business activities in which the Group engages. These are the Group's primary reportable segments under IFRS 8 'Operating Segments'.

 

The Group's performance is assessed by the CODM on the basis of adjusted performance that removes the effects of significant items from reported results. Significant items are items that management identify and consider separately in order to improve the understanding of the underlying trends and performance of the busines, that would otherwise distort year-or-year comparison. These segmental results are therefore presented on an adjusted basis.

 

In addition the Group has presented its adjusted results by business division: Global Broking, Energy & Commodities, Institutional Services, and Data & Analytics. Segmental income and expenses include transfers between segments and these transfers are conducted at arm's length.

Information regarding the Group's operating segments is reported below:

 

Analysis by geographic segment


EMEA

Americas

Asia Pacific

Total

2020

£m

£m

£m

£m

Revenue

888

670

236

1,794

Total front-office costs

(518)

(442)

(154)

(1,114)

Contribution

370

228

82

680

Employment and general and administrative expenses

(185)

(119)

(62)

(366)

Depreciation and impairment of property, plant and equipment and right-of-use-assets

(15)

(12)

(9)

(36)

Amortisation and impairment of intangibles

(16)

(4)

-

(20)

Total management and support costs

(216)

(135)

(71)

(422)

Other operating income

6

3

5

14

Adjusted operating profit

160

96

16

272

 

 

 

 

 

2019

 

 

 

 

Revenue

900

687

246

1,833

Total front-office costs

(524)

(458)

(157)

(1,139)

Contribution

376

220

89

694

Employment and general and administrative expenses

(190)

(124)

(60)

(374)

Depreciation and impairment of property, plant and equipment and right-of-use-assets

(14)

(12)

(8)

(34)

Amortisation and impairment of intangibles

(18)

(4)

(1)

(23)

Total management and support costs

(222)

(140)

(69)

(431)

Other operating income

10

5

1

16

Adjusted operating profit

164

94

21

279

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

 

Analysis by division


Global Broking

Energy &

Commodities

Institutional

Services

Data & Analytics

Corporate

Centre

Total

2020

£m

£m

£m

£m

£m

£m

Reported Revenue

1,188

391

91

145

(21)

1,794

- External

1,170

388

91

145

-

1,794

- Inter-division

18

3

-

-

(21)

-

Total front-office costs

(734)

(261)

(69)

(71)

21

(1,114)

- External

(734)

(261)

(69)

(50)

-

(1,114)

- Inter-division

-

-

-

(21)

21

-

Contribution

454

130

22

74

-

680

Total management and support costs

(260)

(78)

(15)

(10)

(59)

(422)

Other operating income

3

1

-

-

10

14

Adjusted operating profit

197

53

7

64

(49)

272


 

 

 

 

 

 

2019







Reported Revenue

1,262

382

75

135

(21)

1,833

- External

1,244

379

75

135

-

1,833

- Inter-division

18

3

-

-

(21)

-

Total front-office costs

(775)

(261)

(57)

(67)

21

(1,139)

- External

(775)

(261)

(57)

(46)

-

(1,139)

- Inter-division

-

-

-

(21)

21

-

Contribution

487

121

18

68

-

694

Total management and support costs

(268)

(75)

(15)

(9)

(64)

(431)

Other operating income

2

-

-

-

14

(16)

Adjusted operating profit

221

46

3

59

(50)

279


 

 

 

 

 

 

Corporate centre represents the cost of group and central functions that are not allocated to the Group's divisions.

 

Significant items are centrally managed and controlled by the Group and are not allocated to regional or divisional segments.

Analysis of Significant items


Restructuring and other

related costs

Disposal, acquisitions and investment in new businesses

Goodwill impairment

Settlements and provisions in connection with legal and regulatory matters

Total

2020

£m

£m

£m

£m

£m

Employment, compensation and benefits costs

6

-

-

-

6

Premises and related costs

2

-

-

-

2

Deferred consideration

-

2

-

-

2

Credit relating to significant legal and regulatory settlements

-

-

-

(3)

(3)

Pension scheme past service and settlement costs

1

-

-

-

1

Acquisition costs

-

11

-

-

11

Other general and administration costs

9

-

-

5

14

Total included within general and administration costs

12

13

-

2

27

Depreciation and impairment of PPE and ROUA

1

-

-

-

1

Amortisation and impairment of intangible assets

-

39

-

-

39

Impairment of other assets

1

1

21

-

23

Total included within operating costs

20

53

21

2

96

Included in other operating income

-

-

-

(2)

(2)

Total significant items

20

53

21

-

94

 

 


ICAP integration costs

Restructuring and other

related costs

Disposal, acquisitions and investment in new businesses

Goodwill impairment

Settlements and provisions in connection with legal and regulatory matters

Total

2019

£m

£m

£m

£m

£m

£m

Employment, compensation and benefits costs

15

3

2

-

-

20

Premises and related costs

-

1

-

-

-

1

Deferred consideration

-

-

6

-

-

6

Adjustments to provisions and contingent liabilities acquired


-

3

-

-

3

Charge relating to significant legal and regulatory settlements

-

-

-

-

18

18

Pension scheme past service and settlement costs

-

4

-

-

-

4

Acquisition costs

-

-

2

-

-

2

Other general and administration costs

15

3

2

-

1

21

Total included within general and administration costs

15

8

13

-

19

55

Depreciation and impairment of PPE and ROUA

4

1

-

-

-

5

Amortisation and impairment of intangible assets

-

-

42

-

-

42

Impairment of other assets

-

-

-

24

-

24

Total included within operating costs

34

12

57

24

19

146

Included in other operating income

-

-

-

-

(9)

(9)

Total significant items

34

12

57

24

10

137








 

The Group's reported performance includes significant items. A reconciliation from adjusted operating profit, as considered by CODM, to Group reported performance is included:

 

Adjusted profit reconciliation


2020

2019


£m

£m

Adjusted operating profit

272

279

Significant items

(94)

(137)

Operating profit

178

142

Net finance costs

(49)

(49)

Profit before tax

129

93

Taxation on significant items

7

15

Taxation on adjusted profit before tax

(55)

(55)

Profit after tax

81

53

Share of profit from associated and joint ventures

16

15

Profit for the year

97

68

 

4.  Operating costs



2020

2019



£m

£m

Broker compensation costs


902

900

Other staff costs


244

248

Share-based payment charge


6

5

Charge relating to employee long-term benefits


1

1

Employee compensation and benefits


1,153

1154

Technology and related costs


167

158

Premises and related costs


29

27

Adjustments to deferred consideration


2

6

Adjustments to provisions and contingent liabilities acquired


-

3

(Credit)/charge relating to significant legal and regulatory settlements


(3)

18

Pension scheme past service and settlement costs


1

4

Acquisition costs


11

2

Expected credit loss adjustment


(6)

-

Other administrative costs


159

217

General and administrative expenses


360

435

Depreciation of property, plant and equipment


13

13

Depreciation of right-of-use assets


23

21

Impairment of right-of-use assets


1

-

Depreciation and impairment of property, plant and equipment and right-of-use assets


37

34

Amortisation of other intangible assets


20

27

Amortisation of intangible assets arising on consolidation


39

42

Amortisation and impairment of intangible assets


59

69

Goodwill impairment


21

24

Impairment of finance lease receivables


1

-

Impairment of associates


1

-

Impairment of other assets


23

24



1,632

1,716

 

5.  Other operating income

Other operating income comprises:


2020

2019


£m

£m

Business relocation grants

3

3

Employee related insurance receipts

2

2

Management fees

3

1

Legal settlement receipts

2

9

Other receipts

6

10


16

25

Other receipts include royalties, rebates, non-employee related insurance proceeds, tax credits and refunds.  Costs associated with such items are included in administrative expenses.

 

6.  Finance income


2020

2019


£m

£m

Interest receivable and similar income

2

5

Interest receivable on finance leases

1

1


3

6

 

7.  Finance costs


2020

2019


£m

£m

Fees payable on bank and other loan facilities

2

2

Interest payable on bank and other loans

1

1

Interest payable on Sterling Notes June 2019

-

2

Interest payable on Sterling Notes January 2024

23

24

Interest payable on Sterling Notes May 2026

13

8

Other interest payable

1

1

Amortisation of debt issue and bank facility costs

1

2

Borrowing costs

41

40

Interest payable on lease liabilities

11

12

Premium on repurchase of Sterling Notes January 2024

-

3


52

55

 

8.  Earnings per share


2020

2019

Basic

17.2p

12.0p

Diluted

17.0p

11.9p

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


2020

No.(m)

2019

No.(m)

Basic weighted average shares

557.0

559.4

Contingently issuable shares

6.9

4.2

Diluted weighted average shares

563.9

563.6

 

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


2020

2019


£m

£m

Earnings for the year

97

68

Non-controlling interests

(1)

(1)

Earnings attributable to equity holders of the parent

96

67

 

9.  Dividends


2020

2019


£m

£m

Amounts recognised as distributions to

equity holders in the year:

 


Final dividend for the year ended 31 December 2019

of 11.25p per share

63

-

Interim dividend for the year ended 31 December 2020

of 5.6p per share

31

-

Final dividend for the year ended 31 December 2018

of 11.25p per share

-

63

Interim dividend for the year ended 31 December 2019

of 5.6p per share

-

31


94

94

 

Dividends in respect of the current year and future dividend policy are discussed in the Financial Review.

 

During the year, the Trustees of the TP ICAP plc Employee Benefit Trust have waived their rights to dividends.

 

10.  Intangible assets arising on consolidation



Goodwill

Other

Total



£m

£m

£m

At 1 January 2020


993

518

1,511

Recognised on acquisitions


25

-

25

Amortisation of acquisition related intangibles


-

(39)

(39)

Impairment of acquisition related intangibles


(21)

-

(21)

Effect of movements in exchange rates


(8)

(5)

(13)

At 31 December 2020


989

474

1,463



 

 

 

At 1 January 2019


1,030

564

1,594

Recognised on acquisitions


7

-

7

Remeasurement period adjustments





- Remeasurement of other intangible assets


(5)

5

-

- Increase in net assets acquired


(2)

-

(2)

Amortisation of acquisition related intangibles


-

(42)

(42)

Impairment of acquisition related intangibles


(24)

-

(24)

Effect of movements in exchange rates


(13)

(9)

(22)

At 31 December 2019


993

518

1,511

 

Other intangible assets at 31 December 2020 represent customer relationships, £469m (2019: £506m), business brands and trademarks, £5m (2019: £10m), and other intangibles, £nil (2019: £2m) that arise through business combinations. Customer relationships are being amortised between 10 and 20 years. Goodwill arising through business combinations is allocated to groups of individual cash-generating units ('CGUs'), reflecting the lowest level at which the Group monitors and tests goodwill for impairment purposes.  The Group's CGUs are as follows:

 


2020

2019


£m

£m

EMEA

663

Americas

253

262

Asia Pacific

50

68

Goodwill allocated to CGUs

989

993

 

CGUs, to which goodwill has been allocated, are tested for impairment at least annually. Review for indicators of impairment are undertaken at each reporting date. During the year the Group undertook impairment tests as at 30 June and as at 30 September, triggered as a result of sensitivity of the Asia Pacific CGU to reasonable possible changes in cash flow and discount rate assumptions.

 

Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU. The recoverable amount is the higher of its value in use ('VIU') or its fair value less cost of disposal ('FVLCD'). VIU is a pre-tax valuation, using pre-tax cash flows and pre-tax discount rates which is compared to the pre-tax carrying value of the CGU, whereas FVLCD is a post-tax valuation, using post-tax cash flows, post-tax discount rates and other post-tax observable valuation inputs, which is compared to a post-tax carrying value of the CGU.

 

The key assumptions for the VIU calculations are those regarding expected regional cash flows arising in future years, regional growth rates and regional discount rates as considered by management. Regional specific assumptions reflect the divisional mix in each region and the size and risk profile of that region. Future projections are based on the most recent financial projections considered by the Board which are used to project pre-tax 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.

 

As at 30 June 2020, the recoverable amount for the Asia Pacific CGU was estimated to be lower than its carrying value by £21m and was impaired by that amount. Growth rates on underlying revenues were 1.4% (2019: 2.1%) for EMEA, 1.1% (2019: 1.6%) for Americas and 2.0% (2019: 1.2%) for Asia Pacific over the five year projected period, with pre-tax discount rates of 10.6% (2019: 11.0%) for EMEA, 13.2% (2019: 13.6%) for Americas and 11.6% (2019: 11.6%) for Asia Pacific.

 

As at 30 September 2020, growth rates on underlying revenues were 1.8% for EMEA, 0.8% for Americas and 1.5% for Asia Pacific over the five year projected period, with pre-tax discount rates of 11.0% for EMEA, 13.4% for Americas and 11.8% for Asia Pacific. No further impairment was identified.

 

As at 31 December 2020, the review of the indicators of impairment did not result in a requirement to undertake further impairment testing.

 

The Asia Pacific CGU remains sensitive to reasonably possible changes in the VIU assumptions. Further impairment of the Asia Pacific CGU would be required if there are changes in the applicable assumptions. A reduction in the growth rate over the period by 0.5% would result in a reduction in the value of the CGU by £25m and a 1% increase in the discount rate would reduce the value of the CGU by £13m. A permanent 5% reduction in projected 2021 revenues in each CGU would lead to a £52m reduction in the value of the Asia Pacific CGU and result in an impairment of £2m. The impact on future cash flows resulting from falling growth rates does not reflect any management actions that would be taken under such circumstances.

 

The recoverable amounts of EMEA and Americas CGU continue to be in excess of their carrying value and are not sensitive to reasonable possible changes in the VIU assumptions.

 

11.  Loans and borrowings



Less than

one year

Greater than

one year

Total

2020


£m

£m

£m

Overdrafts


7

-

7

Loans from related parties


28

-

28

Sterling Notes January 2024


10

430

440

Sterling Notes May 2026


1

249

250



46

679

725

2019





Sterling Notes January 2024


10

430

440

Sterling Notes May 2026


1

248

249



11

678

689

 

Overdrafts

 

Overdrafts arising as a result of settling security transactions pending the completion of the onward sale.

 

Bank credit facilities and bank loans

 

The Group has a £270m committed revolving facility that matures in December 2023. Facility commitment fees of 0.8% on the undrawn balance are payable on the facility. Arrangement fees of £3m are being amortised over the maturity of the facility.

 

As at 31 December 2020, the revolving credit facility was undrawn. Amounts drawn down are reported as bank loans in the above table.  Bank loans are denominated in Sterling. During the year, the maximum amount drawn was £161m (2019: £39m), and the average amount drawn was £39m. The Group utilises the credit facility throughout the year, entering into numerous short term bank loans where maturities are less than three months. The turnover is quick and the volume is large and resultant flows are presented net in the Group's cash flow statement in accordance with IAS 7 'Cash Flow'.

 

Interest and facility fees of £3m were incurred in 2020 (2019: £3m).

 

Loans from related parties

 

In August 2020, the Group entered into a Yen 10bn committed facility with The Tokyo Tanshi Co., Ltd, a related party, that matures in February 2023. As at 31 December, the 10bn Yen committed facility equated to £71m. Facility commitment fees of 0.64% on the undrawn balance are payable on the facility. Arrangement fees of less than £1m are being amortised over the maturity of the facility.

 

As at 31 December 2020, Yen 4bn (£28m) of the facility was drawn. The Directors consider that the carrying amount of the loan which is not held at fair value through profit or loss approximates to its fair value. During the year, the maximum amount drawn was £75m, and the average amount drawn was £36m. The Group utilises the credit facility throughout the year, entering into numerous short term bank loans where maturities are less than three months. The turnover is quick and the volume is large and resultant flows are presented net in the Group's cash flow statement in accordance with IAS 7 'Cash Flow'.

 

Interest and facility fees of less than £1m were incurred in 2020.

 

Amounts drawn down are reported as loans from related parties in the above table.

 

Sterling Notes: Due January 2024

 

In January 2017 the Group issued £500m unsecured Sterling Notes due January 2024. The Notes have a fixed coupon of 5.25% payable semi-annually, subject to compliance with the terms of the Notes. In May 2019, the Group repurchased £69m of the Notes. At 31 December 2020, the fair value of the Notes (Level 1) was £473m. Accrued interest at 31 December 2020 amounted to £10m. Unamortised issue costs were £1m.

 

Interest of £23m was incurred in 2020 (2019: £24m). The amortisation expense of issue costs in 2020 and 2019 were less than £1m.

 

Sterling Notes: Due May 2026

 

In May 2019 the Group issued £250m unsecured Sterling Notes due May 2026. The Notes have a fixed coupon of 5.25% paid semi-annually, subject to compliance with the terms of the Notes. At 31 December 2020 the fair value of the Notes (Level 1) was £284m. Accrued interest at 31 December 2020 amounted to £1m. Unamortised issue costs were £1m.

 

Interest of £13m was incurred in 2020 (2019: £8m). Issue costs of £1m were incurred in 2019 and their amortisation expense in 2020 and 2019 was less than £1m.

 

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


2020

2019


£m

£m

Operating profit

178

142

Adjustments for:

 

 

- Share-based payment charge

6

5

- Pension scheme's administration costs

1

-

- Pension scheme past service and settlement costs

1

4

- Depreciation of property, plant and equipment

13

13

- Depreciation of right-of-use assets

23

21

- Amortisation of intangible assets

20

27

- Amortisation of intangible assets arising on consolidation

39

42

- Impairment of intangible assets arising on consolidation 

21

24

- Impairment of associates

1

-

- Loss on disposal of property, plant and equipment

-

1

- Impairment of right-of-use assets

1

-

- Impairment of finance lease receivables

1

-

- Remeasurement of deferred consideration

2

6

Net operating cash flow before movement in working capital

307

285

Decrease/(increase) in trade and other receivables

6

(24)

(Increase)/decrease in net settlement and trading balances

(2)

8

(Decrease)/increase in trade and other payables

(34)

4

Decrease in provisions

(7)

(5)

Increase/(decrease) in non-current liabilities

1

(2)

Retirement benefit scheme contributions

(1)

(1)

Net cash generated from operations

270

265

Income taxes paid

(73)

(64)

Fees paid on bank and other loan facilities

(2)

(2)

Interest paid

(37)

(39)

Interest paid - finance leases

(14)

(12)

Net cash flow from operating activities

144

148

 

 

13.  Analysis of net debt


At 1

January

Cash

flow

Non-cash

items

Acquired with acquisitions

Exchange

differences

At 31

December

2020

£m

£m

£m

£m

£m

£m

Cash and cash equivalents

686

(17)

-

-

(13)

656

Overdrafts

(10)

3

-

-

-

(7)


676

(14)

-

-

(13)

649

Financial investments

148

(18)

-

-

(3)

127

Bank loan due within one year

-

11

(1)

-

-

-

Loans from related parties

-

(28)

-

-

-

(28)

Sterling Notes January 2024

(440)

231

(23)

-

-

(440)

Sterling Notes May 2026

(249)

131

(14)

-

-

(250)

Lease liabilities

(140)

382

(108)

(5)

3

(212)

Total financing liabilities

(829)

47

(146)

(5)

3

(930)

Net debt

(5)

15

(146)

(5)

(13)

(154)

           


At 1

January

Cash

flow

Non-cash

items

Adoption of IFRS 16

Exchange

differences

At 31

December

2019

£m

£m

£m

£m

£m

£m

Cash and cash equivalents

680

19

-

-

(13)

686

Overdrafts

(13)

3

-

-

-

(10)


667

22

-

-

(13)

676

Financial investments

133

20

-

-

(5)

148

Bank loan due within one year

(52)

531

(1)

-

-

-

Loans from related parties

-

3

-

-

(3)

-

Sterling Notes June 2019

(80)

823

(2)

-

-

-

Sterling Notes January 2024

(510)

974

(27)

-

-

(440)

Sterling Notes May 2026

-

(241)5

(8)

-

-

(249)

Lease liabilities

-

332

(32)

(145)

4

(140)

Total financing liabilities

(642)

27

(70)

(145)

1

(829)

Net funds/(debt)

158

69

(70)

(145)

(17)

(5)

1  Relates to interest paid reported as a cash outflow from operating activities

2  Relates to interest paid of £14m (2019: £12m) reported as a cash outflow from operating activities and principal paid of £24m (2019:£21m) reported as a cash outflow from financing activities

3  Relates to principal repayment of £80m reported as a cash outflow from financing activities plus £2m of interest paid reported as a cash outflow from operating activities

4  Relates to principal repayment of £69m reported as a cash outflow from financing activities plus £28m of interest paid reported as a cash outflow from operating activities

5  Relates to principal received of £250m less £2m of debt issue costs reported as a cash outflow from financing activities and £7m of interest paid reported as cash outflow from operating activities

 

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 2020 cash and cash equivalents, net of overdrafts, amounted to £649m (2019: £676m) of which £10m represent amounts subject to regulatory restrictions and are not readily available to be used for other purposes within the Group. 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 investments comprise short term government securities, term deposits and restricted funds held with banks and clearing organisations.

Non-cash items represent interest expense, the amortisation of debt issue costs and recognition of new lease liabilities.

 

14.  Provisions


Property

Re-structuring

Legal

and other

Total

2020

£m

£m

£m

£m

At 1 January

6

8

33

47

Charge/(credit) to income statement

2

8

(5)

5

Utilisation of provisions

(1)

(7)

(4)

(12)

Effect of movements in exchange rates

-

-

-

-

At 31 December

7

9

24

40


 

 

 

 

2019

 

 

 

 

At 1 January

14

10

37

61

Charge to income statement

-

8

23

31

Utilisation of provisions

-

(10)

(26)

(36)

Effect of movements in exchange rates

(1)

-

(1)

(2)

At 31 December

6

8

33

47

 

 

 


 

 

 

 

2020

2019

 

 

 

£m

£m

Included in current liabilities

 

 

17

21

Included in non-current liabilities

 

 

23

26

 

 

 

40

47

 

Property provisions outstanding as at 31 December 2020 relate to provisions in respect of building dilapidations, representing the estimated cost of making good dilapidations and disrepair on various leasehold buildings. Onerous provisions as at 1 January 2019 were offset against the right-of-use asset arising on the adoption of IFRS 16.

 

Restructuring provisions outstanding as at 31 December 2020 relate to termination and other employee related costs. The movement during the year reflects the actions taken under the Group's restructuring initiatives. It is expected that the remaining obligations will be discharged during 2021.

 

Legal and other provisions include provisions for legal claims brought against subsidiaries of the Group together with provisions against obligations for certain long-term employee benefits and non-property related onerous contracts. At present the timing and amount of any payments are uncertain and provisions are subject to regular review. It is expected that the obligations will be discharged over the next 25 years.

 

European Commission Yen LIBOR

 

In February 2015 the European Commission imposed a fine of €15m on NEX International Limited (formerly ICAP plc), ICAP Management Services Limited and ICAP New Zealand Limited for alleged competition violations in relation to the involvement of certain of ICAP's brokers in the attempted manipulation of Yen LIBOR by bank traders between October 2006 and January 2011. Whilst this matter relates to alleged conduct violations prior to completion of the Group's acquisition of the ICAP global broking business, it is noted that the fine imposed by the European Commission has been appealed, seeking a full annulment of the Commission's decision. In the event that the Commission imposes a fine in excess of €15m such excess will be borne by NEX Group plc ('NEX'). In November 2017, the European General Court granted a partial annulment of the Commission's findings. The Commission appealed this decision in February 2018 and the Group served its reply during April 2018. A decision from the Courts of Justice of the European Union was received on 10 July 2019 which determined that the decision of the European Commission in relation to the competition violations stood but the decision of the European Commission imposing the fine was annulled. The European Commission is likely to adopt new articles in relation to a fine. Based on the latest review, the Group updated the provision to €6.5m (£6m) in December 2020.

 

IFUS

 

On 11 May 2020, Tullett Prebon (Europe) Ltd ("TPE") received notice of the instigation of disciplinary proceedings by ICE Futures U.S. ("IFUS") relating to activities undertaken between March 2018 and September 2019. Following engagement and consultation with IFUS, TPE agreed a settlement with IFUS dated 13 August 2020 under which TPE agreed and paid a fine of less than USD 1m (less than £1m) in respect of failures of block trades, general record requirements, order ticket requirements, minimum quantity requirements, disclosure of customer identity and failure to supervise. As part of that agreement TPE agreed to enhance its compliance manual, take reasonable proactive and appropriate measures to be in compliance with Exchange Rules, conduct training covering Exchange Rules and to require all TPE brokers to acknowledge receipt and understanding of such training and to cooperate with periodic audits of TPE compliance in connection with Exchange Rules.

 

15.  Contingent liabilities

 

Bank Bill Swap Reference Rate case

 

On 16 August 2016, a complaint was filed in the United States District Court for the Southern District of New York naming Tullett Prebon plc, ICAP plc, ICAP Australia Pty LTD and Tullett Prebon (Australia) Pty. Limited as defendants together with various Bank Bill Swap Reference Rate ('BBSW') setting banks. The complaint alleges collusion by the defendants to fix BBSW-based derivatives prices through manipulative trading during the fixing window and false BBSW rate submissions. On 26 November 2018, the Court dismissed all of the claims against the TP ICAP defendants and certain other defendants. On 28 January 2019, the Court ordered that a stipulation signed by the plaintiffs and the TP ICAP defendants meant that the TP ICAP defendants were not required to respond to any Proposed Second Amended Class Action Complaint ('PSAC') that the plaintiffs were seeking to file. On 3 April 2019 the plaintiffs filed a PSAC, however the TP ICAP defendants have no obligation to respond. The plaintiffs have reserved the right to appeal the dismissal of the TP ICAP defendants but have not as yet done so. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact.

 

Labour claims - ICAP Brazil

 

ICAP do Brasil Corretora De Títulos e Valores Mobiliários Ltda ('ICAP Brazil') is a defendant in 11 (31 December 2019: 13) pending lawsuits filed in the Brazilian Labour Court by persons formerly associated with ICAP Brazil seeking damages under various statutory labour rights accorded to employees and in relation to various other claims including wrongful termination, breach of contract and harassment (together the 'Labour Claims'). The Group estimates the maximum potential aggregate exposure in relation to the Labour Claims, including any potential social security tax liability, to be BRL 56.8m (£8m) (31 December 2019: BRL 49m (£11m)). The Group is the beneficiary of an indemnity from NEX in relation to any liabilities in respect of 7 of the 11 Labour Claims insofar as they relate to periods prior to completion of the Group's acquisition of ICAP. This includes a claim that is indemnified by a predecessor to ICAP Brazil by way of escrowed funds in the amount of BRL 28 million (£4million). The Labour Claims are at various stages of their respective proceedings and are pending an initial witness hearing, the court's decision on appeal or a ruling on a motion for clarification. The Group intends to contest liability in each of these matters and to vigorously defend itself. It is not possible to predict the ultimate outcome of these actions.

 

Flow case - Tullett Prebon Brazil

 

In December 2012, Flow Participaçes Ltda and Brasil Plural Corretora de Câmbio, Títulos e Valores ('Flow') initiated a lawsuit against Tullett Prebon Brasil S.A. Corretora de Valores e Câmbio and Tullett Prebon Holdings do Brasil Ltda alleging that the defendants have committed a series of unfair competition misconducts, such as the recruitment of Flow's former employees, the illegal obtainment and use of systems and software developed by the plaintiffs, as well as the transfer of technology and confidential information from Flow and the collusion to do so in order to increase profits from economic activities. The amount currently claimed is BRL 272m (£38m) (31 December 2019: BRL 243m (£44m)). The Group intends to vigorously defend itself but there is no certainty as to the outcome of these claims. Currently the case is in an early evidentiary phase.

 

LIBOR Class actions

 

The Group is currently defending the following LIBOR related actions.

 

(i) Stichting LIBOR Class Action

 

On 15 December 2017, the Stichting Elco Foundation, a Netherlands-based claim foundation, filed a writ initiating litigation in the Dutch court in Amsterdam on behalf of institutional investors against ICAP Europe Limited ('IEL'), ICAP plc, Cooperative Rabobank U.A., UBS AG, UBS Securities Japan Co. Ltd, Lloyds Banking Group plc, and Lloyds Bank plc. The litigation alleges manipulation by the defendants of the JPY LIBOR, GBP LIBOR, CHF LIBOR, USD LIBOR, EURIBOR, TIBOR, SOR, BBSW and HIBOR benchmark rates, and seeks a declaratory judgment that the defendants acted unlawfully and conspired to engage in improper manipulation of benchmarks. If the plaintiffs succeed in the action, the defendants would be responsible for paying costs of the litigation, but each allegedly impacted investor would need to prove its own actual damages. It is not possible at this time to determine the final outcome of this litigation, but IEL has factual and legal defences to the claims and intends to defend the lawsuit vigorously. A hearing took place on 18 June 2019 on Defendants motions to dismiss the proceedings. On 14 August 2019 the Dutch Court issued a ruling dismissing ICAP plc from the case entirely but keeping certain claims against IEL relating solely to JPY LIBOR. On 9 December 2020, the Dutch Court issued a final judgment dismissing the Foundation's claims in their entirety. The Foundation has until March 2021 to appeal this final judgement. The Group is covered by an indemnity from NEX in relation to any outflow in respect of the ICAP entities with regard to these matters. It is not possible to estimate any potential financial impact in respect of this matter at this time.

 

(ii) Swiss LIBOR Class Action

 

On 4 December 2017, a class of plaintiffs filed a Second Amended Class Action Complaint in the matter of Sonterra Capital Master Fund Ltd. et al. v. Credit Suisse Group AG et al. naming as defendants, among others, TP ICAP plc, Tullett Prebon Americas Corp., Tullett Prebon (USA) Inc., Tullett Prebon Financial Services LLC, Tullett Prebon (Europe) Limited, Cosmorex AG, ICAP Europe Limited, and ICAP Securities USA LLC (together, the 'Companies'). The Second Amended Complaint generally alleges that the Companies conspired with certain bank customers to manipulate Swiss Franc LIBOR and prices of Swiss Franc LIBOR based derivatives by disseminating false pricing information in false run-throughs and false prices published on screens viewed by customers in violation of the Sherman Act (anti-trust) and RICO. On 16 September 2019, the Court granted the Companies' motions to dismiss in their entirety. The plaintiffs have appealed the dismissal to the United States Court of Appeals for the Second Circuit. The Companies intend to contest liability in the matter and to vigorously defend themselves. It is not possible to predict the ultimate outcome of this action or to provide an estimate of any potential financial impact.

 

(iii) Yen LIBOR Class Actions

 

In April 2013, ICAP plc was added as a defendant to an existing civil litigation originally filed in April 2012, Laydon v. Mizuho Bank, Ltd, against certain Yen LIBOR and Euroyen TIBOR panel banks alleging purported manipulation of the Yen LIBOR and Euroyen TIBOR benchmark interest rates. The United States District Court for the Southern District of New York dismissed the plaintiff's antitrust and unjust enrichment claims, but upheld the plaintiff's claim for purported manipulation under the Commodity Exchange Act. ICAP plc and certain other foreign defendants were dismissed in March 2015 for lack of personal jurisdiction. The Court permitted plaintiffs to file an amended complaint whereby they added new defendants to the action including ICAP Europe Limited and Tullett Prebon plc. On 10 March 2017, both ICAP Europe Limited and Tullett Prebon plc were dismissed for lack of personal jurisdiction. On 23 October 2020, the plaintiffs served their formal notice of intent to appeal the dismissal of the TP ICAP defendants. The Group is covered by an indemnity from NEX in relation to any outflow in respect of ICAP Europe Limited with regard to these matters. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact.

 

Other plaintiffs filed a related complaint, Sonterra Capital Master Fund, Ltd. v. UBS AG, which included ICAP plc, ICAP Europe Limited and Tullett Prebon plc as defendants, asserting a cause of action for antitrust injury only as a result of the purported manipulation of Yen LIBOR and Euroyen TIBOR by panel banks and brokers. Defendants filed motions to dismiss for lack of jurisdiction and failure to state a claim. On 10 March 2017, the Court issued an order dismissing the entirety of the Sonterra case on the grounds that the plaintiffs lacked antitrust standing. Plaintiffs appealed the dismissal, which was then stayed to accommodate new settlements reached between the plaintiffs and some of the defendants. The briefing on the appeal was completed on 28 January 2019 and oral argument was heard on 5 February 2020. On 1 April 1 2020, the Second Circuit Court of appeals reversed and remanded the dismissal. In October 2020, the Company filed a renewed motion to dismiss on grounds that were not reached in the original decision to dismiss including but not limited to lack of personal jurisdiction. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact. The Group is covered by an indemnity from NEX in relation to any outflow in respect of ICAP Europe Limited with regard to these matters.

 

ICAP Securities Limited, Frankfurt branch - Frankfurt Attorney General administrative proceedings

 

On 19 December 2018, ICAP Securities Limited, Frankfurt branch ('ISL') was notified by the Attorney General's office in Frankfurt notifying ISL that it had commenced administrative proceedings against ISL and criminal proceedings against former employees and a former director of ISL, in respect of aiding and abetting tax evasion by Rafael Roth Financial Enterprises GmbH ("RRFE"). It is possible that a corporate administrative fine may be imposed on ISL and earnings derived from the criminal offence confiscated. ISL has appointed external counsel and is in the process of investigating the activities of the relevant desk from 2006-2009. This investigation is complicated as the majority of relevant records are held by NEX and NEX failed to disclose its engagement with the relevant authorities prior to the sale of ICAP to Tullett Prebon in 2016. The Group has issued proceedings against NEX in respect of (i) breach of warranties under the sale and purchase agreement, and (ii) an indemnity claim under the tax deed entered into in connection with the IGBB acquisition in relation to these matters. Since the proceedings are at an early stage, details of the alleged wrongdoing or case against ISL are not yet available, and it is not possible at present to provide a reliable estimate of any potential financial impact on the Group.

 

ICAP Securities Limited and The Link Asset and Securities Company Limited - Proceedings by the Cologne Public Prosecutor

 

On 11 May 2020, TP ICAP learned that proceedings have been commenced by the Cologne Public prosecutor against ICAP Securities Limited ('ISL') and The Link Asset and Securities Company Ltd ('Link') in connection with criminal investigations into individuals suspected of aiding and abetting tax evasion between 2004 and 2012. It is possible that the Cologne Public Prosecutor may seek to impose an administrative fine against ISL or Link and confiscate the earnings that ISL or Link allegedly derived from the underlying alleged criminal conduct by the relevant individuals. ISL and Link have appointed external lawyers to advise them. The Group has issued proceedings against NEX in respect of (i) breach of warranties under the sale and purchase agreement, and (ii) an indemnity claim under the tax deed entered into in connection with the IGBB acquisition in relation to these matters. Since the proceedings are at an early stage, details of the alleged wrongdoing or case against ISL and Link are not yet available, and it is not possible at present to provide a reliable estimate of any potential financial impact on the Group.

 

Autorité des Marchés Financiers ('AMF')

 

In August 2019, Tullett Prebon (Europe) Limited ('TPEL') was notified that the AMF was investigating alleged facilitation of market abuse conduct concerning historical transactions with a client undertaken in 2015 on Eurex. In June 2020, the AMF initiated enforcement proceedings before the Enforcement Committee of the AMF. TPEL has responded to the AMF's letter of grievance and is waiting to hear further.  It is not possible at present to provide a reliable estimate of any potential financial impact on the Group.

 

General note

 

The Group operates in a wide variety of jurisdictions around the world and uncertainties therefore exist with respect to the interpretation of complex regulatory, corporate and tax laws and practices of those territories. Accordingly, and as part of its normal course of business, the Group is required to provide information to various authorities as part of informal and formal enquiries, investigations or market reviews.

 

From time to time the Group's subsidiaries are engaged in litigation in relation to a variety of matters. The Group's reputation may also be damaged by any involvement or the involvement of any of its employees or former employees in any regulatory investigation and by any allegations or findings, even where the associated fine or penalty is not material.

 

Save as outlined above in respect of legal matters or disputes for which a provision has not been made, notwithstanding the uncertainties that are inherent in the outcome of such matters, currently there are no individual matters which are considered to pose a significant risk of material adverse financial impact on the Group's results or net assets.

 

The Group establishes provisions for taxes other than current and deferred income taxes, based upon various factors which are continually evaluated, if there is a present obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

 

In the normal course of business, certain of the Group's subsidiaries enter into guarantees and indemnities to cover trading arrangements and/or the use of third party services or software.

 

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF TP ICAP LIMITED (PREVIOUSLY 'TP ICAP PLC') ON THE PRELIMINARY ANNOUNCEMENT OF TP ICAP LIMITED

 

As the independent auditor of TP ICAP Limited we are required by UK Listing Rule LR 9.7A.1(2)R to agree to the publication of TP ICAP Limited's preliminary announcement statement of annual results for the period ended 31 December 2020.

 

The preliminary statement of annual results for the period ended 31 December 2020 includes operational performance, strategic highlights, financial highlights, the dividend statement, the CEO review, financial review, the consolidated financial statements and disclosures required by the Listing Rules. We are not required to agree to the publication of presentations to analysts.

 

The directors of TP ICAP Limited are responsible for the preparation, presentation and publication of the preliminary statement of annual results in accordance with the UK Listing Rules.

 

We are responsible for agreeing to the publication of the preliminary statement of annual results, having regard to the Financial Reporting Council's Bulletin "The Auditor's Association with Preliminary Announcements made in accordance with UK Listing Rules".

 

Status of our audit of the financial statements

 

Our audit of the annual financial statements of TP ICAP Limited is complete and we signed our auditor's report on 09 March 2020. Our auditor's report is not modified and contains no emphasis of matter paragraph.

 

Our audit report on the full financial statements sets out the following key audit matters which had the greatest effect on our overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those key audit matters and the key observations arising from our work:

 

Name Passing revenue

Key audit matter description

Name Passing revenue is earned for the service of matching buyers and sellers of financial instruments. The Group is not a counterparty to the trade and commissions are invoiced for the service provided by the Group.

It is the largest revenue stream of the Group and accounts for approximately 70% of the Group's revenue and so a significant amount of audit time is utilised on this area. It also has a longer cash collection period than the other revenue streams of the Group. Revenue associated with past due trade debtors was £90.2m (89% of total trade debtors) at 31 December 2020.

We identified a risk of material misstatement of revenue, due to fraud or error, related to revenue incurred during the year but remain unpaid for 60 or more days as at year-end.

How the scope of our audit responded to the key audit matter

We obtained an understanding of relevant controls relating to Name Passing invoicing and cash collection. The Group's control environment continues to be decentralised and reliant on manual processes, and there are improvements required to the IT environment. As a result we did not adopt a controls reliance approach.

We agreed a sample of Name Passing transactions, which were outstanding at year-end, to cash received post year-end or where amounts remained unpaid to other evidence to corroborate the validity of the revenue booked.

We reviewed communications with counterparties and tested a sample of post year-end trade adjustments and credit notes to evaluate whether these items were accurate and valid.

Key observations

Our substantive procedures were completed satisfactorily. We consider Name Passing revenue incurred during the year, but remaining unpaid for 60 or more days as at year-end, to be appropriate.

 

Impairment of goodwill

Key audit matter description

As required by IAS 36, goodwill is reviewed for impairment at least annually. The Group has changed its annual impairment assessment from 31 December to 30 September and annually thereafter. Determining whether the goodwill of £998m is impaired requires an estimation of the recoverable amount of the Group's cash generating units ("CGUs"), or a group of CGUs, using the higher of the value in use or fair value less costs to sell.

The value in use approach was used to assess the recoverable amount of the EMEA, Americas and APAC Group of CGUs .

The value in use approach involves an estimation of future cash flows arising for the CGUs or group of CGUs and hence requires the selection of suitable discount rates and forecast future growth rates. It is therefore inherently subjective with an increased risk of material misstatement due to error or fraud. The value in use of each CGU or group of CGU can be sensitive to changes in underlying assumptions. We focused our testing on the EMEA CGU cashflows, due to the impact of Brexit, and the Asia Pacific CGU which was sensitive to the forecast future growth rate. Management have also assessed for impairment triggers between 30 September 2020 and 31 December 2020 and concluded no impairment triggers were identified.

An impairment of £21m was recorded in the year for the Asia Pacific CGU.

How the scope of our audit responded to the key audit matter

We obtained an understanding of relevant controls relating to the impairment of goodwill.

We performed detailed analysis of the Group's assumptions used in the annual impairment review, in particular the cashflow projections, forecast future growth rates, and discount rates used by the Group in its impairment tests of the group of CGUs. We challenged cash flow projections and growth rates by evaluating recent performance, trend analysis and comparing growth rates to those achieved historically and to external market data where available.

We have also assessed the impact of the UK based subsidiaries losing their regulatory permissions to service clients in a number of EU countries subsequent to the UK leaving the EU on the EMEA CGU cashflows.

We worked with our internal valuations specialists to independently derive discount rates which we compared to the rates used by the Group and we benchmarked discount rates to available external peer group data.

We performed scenario analysis, flexed key assumptions, assessed for impairment triggers between 30 September 2020 and 31 December 2020 and considered the appropriateness of the disclosures in the notes to the financial statements.

Key observations

  We concluded that the directors' valuation used in the impairment test and the recognition of an impairment charge in respect of the Asia Pacific CGUs was appropriate.

The cash flow forecasts used in the annual impairment review were consistent with the most recent financial budgets approved by the Board and were reasonable in the context of recent business performance. The growth rates used by management were reasonable.

We identified the discount rate for the EMEA CGU was not within the reasonable range calculated by our internal valuation specialist, however, the recoverable value of the EMEA CGU is not sensitive to a reasonable possible change in discount rates. We concurred with the directors' conclusion that no impairment was required.

 

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

 

Procedures performed to agree to the preliminary announcement of annual results

 

In order to agree to the publication of the preliminary announcement of annual results of TP ICAP Limited we carried out the following procedures:

(a)  checked that the figures in the preliminary announcement covering the full year have been accurately extracted from the audited or draft financial statements and reflect the presentation to be adopted in the audited financial statements;

(b)  considered whether the information (including the management commentary) is consistent with other expected contents of the annual report;

(c)  considered whether the financial information in the preliminary announcement is misstated;

(d)  considered whether the preliminary announcement includes a statement by directors as required by section 435 of CA 2006 and whether the preliminary announcement includes the minimum information required by UKLA Listing Rule 9.7A.1;

(e)  where the preliminary announcement includes alternative performance measures ("APMs"), considered whether appropriate prominence is given to statutory financial information and whether:

· the use, relevance and reliability of APMs has been explained;

· the APMs used have been clearly defined, and have been given meaningful labels reflecting their content and basis of calculation;

· the APMs have been reconciled to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period; and

· comparatives have been included, and where the basis of calculation has changed over time this is explained.

 

(f)  read the management commentary, any other narrative disclosures and any final interim period figures and considered whether they are fair, balanced and understandable.

 

Use of our report

 

Our liability for this report, and for our full audit report on the financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

 

Fiona Walker, FCA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

09 March 2021

 

 

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