Half-year Report

TP ICAP Group plc

LEI: 2138006YAA7IRVKKGE63

10 August 2022

TP ICAP Group plc Financial and interim management report for the six months ended 30 June 2022 (the "Period")  

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

Nicolas Breteau, CEO of the Group, said:

"We have delivered high single digit revenue growth. We have also grown revenue across all our asset classes and increased our market share. A strong performance from Rates, helped deliver an uplift in profitability.

Our transformation continues at pace, including the rollout of Fusion, our award-winning electronic platform. Our focus on diversification is reaping benefits, too. Parameta Solutions is announcing today an enhanced consensus pricing solution in partnership with PeerNova and involving many of the world's largest investment banks. Meanwhile, at Liquidnet, our Dealer-to-Client credit proposition went live, as planned, in June, initially with a small number of clients ahead of a wider campaign. Trades have already been completed and key dealers are connected electronically via API.

We are committed to delivering capital efficiencies for the Group as a strategic priority. In the first phase of a review we are conducting following our Jersey redomicile, we have identified around £100 million of cash that will be generated or freed up by the end of 2023 and used to repay debt. Following that, and as part of the ongoing assessment of the Group's balance sheet and investment requirements, the Board is committed to identifying and returning any resultant surplus capital to shareholders.

Volatility has continued across many markets. Our core franchise, the depth of our liquidity pools, and our ongoing focus on our transformation mean we are well positioned in these market conditions."

Results for the Period

Reported / statutory results:

Adjusted results:

1. Earnings before interest and tax. For reporting purposes EBIT is equivalent to operating profit.

2. Earnings before interest, tax and depreciation & amortisation

3. Attributable to equity holders of the parent

A table reconciling Reported to Adjusted figures is included in the Financial and Operating Review.

The percentage movements referred to in the sections below are in constant currency (unless otherwise indicated). Constant currency refers to prior year comparatives being retranslated at current year foreign exchange rates.

Financial highlights

· Revenue growth across all business divisions. Higher margin Rates business performing well;

· We again increased overall market share;

· Group revenue, excluding Liquidnet, up 7% (up 10% in reported currency); including Liquidnet, Group revenue up 12% (up 15% in reported currency);

· Global Broking revenue up 8%. All asset classes generated revenue uplift;

· Global Broking revenue per broker up 14%;

· Energy & Commodities revenue up 2%. Strong performance in the US and APAC partly offset by decline in European Gas and Power in a "risk off" trading environment;

· Agency Execution revenue increased by 58%. Excluding Liquidnet, revenue up 10%;

· Parameta Solutions revenue up 6%. Data & Analytics again delivered double digit revenue growth (11%);

· On track to achieve £25m of cost savings by the end of 2022;

· Adjusted EBIT up by 15% to £142m (H1 2021: £123m in constant currency);

· Reported EBIT increased by 57% to £99m (H1 2021: £63m); and increased by 74% in reported currency (H1 2021: £57m);

· Adjusted EBIT margin, prior to Russian P&L charges, increased to 16.1% (H1 2021: 12.8% in constant currency); Including Russian impact, adjusted margin was 13.1%;

· Reported EBIT margin increased to 9.2% (H1 2021: 6.1%);

Capital management highlights

· Following our Jersey redomicile, we have conducted the first phase of a review which has identified around £100 million of cash that will be generated or freed up by the end of 2023 and used to repay debt. This will increase our investment grade rating headroom and reduce future finance costs. The Board will continue to assess balance sheet and investment requirements and is committed to identifying and returning any resultant surplus capital to shareholders.

Strategic highlights

· Continued transformation progress. On track to achieve Fusion rollout targets for the end of 2022;

· Diversification programme continues, through the following three initiatives:

o Today, Parameta Solutions is announcing an enhanced consensus pricing solution, leveraging our unique observable transaction data, which we will provide for our global client base. The solution will provide clients with enhanced data for risk and regulatory capital management. This is in partnership with PeerNova, a Silicon Valley data management and analytics firm, and in conjunction with over a dozen of the world's largest investment banks.

o We are planning to launch (subject to regulatory approval) Fusion Digital Assets, an electronic marketplace for institutions.

o In May, we became the first inter-dealer broker (IDB) through Parameta Solutions to administer over the counter indices and benchmarks. Part of our strategy to deliver more data driven insights for clients, including for their risk and compliance purposes.

· The Liquidnet Dealer-to-Client (D2C) proposition launched, as planned, in June. The platform was launched with a small number of clients as the first step, ahead of a wider campaign planned for the second half. The Request for Quote protocol is live and the first trades have been completed. A number of key dealers are already connected via Application Programming Interface (API). This is an exciting growth opportunity for the Group.

· New senior executives in place to increase the pace of execution. Mark Govoni joined in May from Instinet, where he was President of US Brokerage, to lead Agency Execution. Daniel Fields, previously Global Head of Markets at Société Générale, joined in June to lead Global Broking.

Dividend

An interim dividend per share of 4.5 pence (H1 2021: 4.0 pence) will be paid on 4 November 2022 to shareholders on the register at close of business on 7 October 2022.

Near term outlook

The market environment to date in 2022 has been volatile. This has been driven primarily by monetary policy tightening to combat record levels of inflation, the war in Ukraine and recessionary risks in many countries. This has driven higher trading activity and volumes across most asset classes, which we have benefited from. However, as we often highlight, it remains difficult to predict future levels of market activity, given the highly uncertain macro and geopolitical outlook. Despite the uncertain backdrop, we are cautiously optimistic for the remainder of the year and we are well positioned. In Rates, our outlook is positive, and we will benefit further once activity shifts towards the longer-dated end of the yield curve. Within Energy & Commodities, we expect the risk-off trading environment in the European Gas & Power market to continue in the second half, particularly over the summer months. We expect improved profitability from Liquidnet in the second half.

Group revenue in July 2022 was 1% higher than the corresponding period in 2021, in constant currency.

Interim results presentation

The Group will hold an in-person presentation and Q&A at 09:30 BST today in the Peel Hunt auditorium at 100 Liverpool Street, London EC2M 2AT. For those unable to attend in person, the presentation will also be broadcast via a live video webcast. Please use the following details to attend the presentation virtually:

Webcast link:

https://streamstudio.world-television.com/854-1116-33354/en

Joining by telephone

United Kingdom (Local) 020 3936 2999

United Kingdom (Toll Free) 0800 640 6441

United States (Local) 1 646 664 1960

All other locations +44 20 3936 2999

Participant access code: 740185

Participants will be greeted by an operator who will register their details. 

Attendees via the webcast will be able to ask questions on the phone or by typing them into the online platform.

A recording of the presentation will also available via playback on our website after the event.

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 Dominic Lagan Direct: +44 (0) 20 3933 0447

Email: [email protected]  

Media Richard Newman Direct: +44 (0) 7469 039 307

Email: [email protected]  

About TP ICAP

· TP ICAP connects buyers and sellers in global financial, energy and commodities markets.

· It is the world's leading 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 more than 60 offices across 27 countries, supporting brokers with award-winning and market-leading technology.

CEO review

Introduction

Transformation and innovation

Our transformation programme - the deployment of our electronic platform called Fusion - continues, and we are making good progress. Diversification is another key strategic focus. Here, we are making good progress too. The integration of Liquidnet is well advanced. At the same time, Parameta Solutions is expanding its range of products and services. For example, it became an FCA authorised benchmark administrator in May. Parameta Solutions has also announced today a new partnership with PeerNova, a Silicon Valley data analytics and management company, to deliver a best-in-class consensus pricing solution, leveraging our unique observable transaction data, and PeerNova's capabilities.

Innovation, and entrepreneurial focus, are key TP ICAP attributes. We are ready to launch our Fusion Digital Assets platform, subject to FCA registration accreditation. It is a good example of how we are applying our strength in depth as a leading electronic market infrastructure provider to a new asset class. The digital assets market is going through a challenging time. Our platform, and our partnership with respected partners, provides an authoritative, and secure, venue for institutions to participate in this emerging asset class.

Capital management

In the first phase of a review we are conducting, our redomicile to Jersey has enabled us to identify around £100 million of cash to be generated or freed up by the end of 2023. The cash will be used to repay debt to provide additional headroom to our investment grade credit rating, and to reduce future finance costs.

Focus on execution

We have made some key senior management appointments during the period. Mark Govoni, former President of US Brokerage at Instinet, joined us in May as the new CEO of Agency Execution, with a particular focus on driving Liquidnet's growth strategy. In June, Daniel Fields became our CEO of Global Broking. Dan's mandate is to accelerate our strategic execution and to develop our market leading franchise. Dan has significant transformation expertise and a strong background in capital markets, including as a Head of Global Markets at Société Générale. In short, both Mark and Dan bring considerable client connectivity, and a real commitment to keep transforming our business, to meet the needs of our clients.

Business Performance

Market commentary

Our broking businesses benefited from increased market volatility. This generated higher secondary market OTC trading volumes. The heightened volatility was driven by: geopolitical events (most notably the war in Ukraine); monetary policy tightening by central banks to combat multi-decade high levels of inflation; and a slowdown in GDP growth, which has increased the risk of recession in many countries. From a Rates perspective, a steep yield curve in 0-2 year maturities increased activity in this part of the curve. Energy & Commodities also benefited from volatility. But, the significant price swings in European Gas and Power during the second quarter reduced activity in this market: traders adopted a 'risk off' approach. This more cautious market approach was driven by an increase in exchange margin requirements and a severe contraction in many clients' OTC bilateral credit lines. In relation to Liquidnet, market volumes declined in the US and Asia, while in Europe, volumes increased.

High single digit revenue growth

We delivered high single digit revenue growth of 7% excl. Liquidnet. On a reported currency basis we delivered double digit revenue growth of 10% (excl. Liquidnet). We generated revenue growth across all our asset classes and again increased our overall market share. At the business division level, Global Broking recorded a strong performance, with revenues up 8%. Energy & Commodities increased revenues by 2%. There was significant growth in Oil and Power; the almost unprecedented volatility in Gas, however, led to a risk-off trading stance for many European market participants.

Agency Execution revenue increased by 58%, including Liquidnet; excluding Liquidnet, revenue was up 10%. The revenue (£114m) generated by Liquidnet increased by 100%, with the previous year including revenue from completion (23 March 2021). Revenue was in line with market activity, which was mixed across the US, Europe and Asia. Market share increased in both Europe and the US. Parameta Solutions revenue was up 6%. Data & Analytics again delivered double digit revenue growth (11%). The vast majority of its revenue is subscription-based so usually recurring and 'sticky'.

Operational leverage driving an increase in EBIT

Rates, a core franchise and our largest and most profitable asset class, saw a significant uptick in activity at the short-dated end of the yield curve. The operational leverage underpinning our business model means the increase in revenue, in Rates in particular, generated an uplift in margin. The reported EBIT margin increased from 6.1% in H1 21 to 9.2% in H1 22. Prior to the impact of P&L charges from Russian exposure (£32m), adjusted EBIT margin increased to 16.1%. The revenue uplift, and the benefits we are reaping from Fusion, saw Group revenue per broker grow by 12% (+15% in reported currency). Taking into account the impact of Russian P&L charges, adjusted EBIT margin was 13.1% compared with 12.8% (in constant currency) a year ago. Total amounts charged to the P&L have increased from £14m at 11 March 2022 to £32m at 30 June 2022. This represents our maximum expected exposure to Russian sanctions.

Our commitment to ongoing operational efficiency is delivering. We completed the relocation of Liquidnet's London based personnel to our office in Bishopsgate. This, along with other property consolidation initiatives, is generating tangible savings. We are on track to deliver our previously reported Group target for FY22 savings (£25m) as well as the separate Liquidnet synergies target for the end of 2023 (£25m), at which point we expect the integration to be complete.

Transforming our business

Our transformation programme is well-defined. Our transformation is about the delivery of three key priorities:

· Electronification;

· Aggregation; and

· Diversification

These strategic pillars underpin our business model and will deliver sustainable growth and higher quality earnings.

Delivering better technology and more liquidity for our clients

Our Fusion strategy is at the heart of our focus on the deployment of more client-led technology and the provision of more liquidity for customers across our Global Broking and Energy & Commodities businesses. Fusion is about a single login access for clients; accessing all our liquidity pools for any given asset class; and a more streamlined process with integrated analytics. The benefits are significant. For our clients, they include trade efficiency, cost, speed, risk management, etc. For TP ICAP, the advantages range from stickier client volume to better profitability, and more opportunities to gather data and deploy analytics. It is a win-win.

Fusion Planned Rollout Coverage

Fusion provides price discovery and market access in Rates and FX. It is one tool to facilitate the full trade cycle. The Fusion rollout started in 2021 and will finish in 2025. Most of the development and implementation work will be in the period 2021 - 2023.

Global Broking

About 55% of Global Broking's revenue is in scope for the Fusion rollout across the Rates, FX and Credit asset classes. Currently, our focus is on Rates and FX only, our two largest asset classes. Work will begin on Credit in 2023. We have continued to roll out Fusion in the first half across the Global Broking asset classes - this will accelerate in the second half. We are on track to deliver our 2022 targets.

Fusion is delivering tangible benefits. A Rates desk had a matching session in the first half encompassing >250 orders from >30 different traders. This would not have been possible in the traditional voice market. More broadly, in EMEA Rates, we saw a significant outperformance for Fusion conducted business compared to desks operating without this platform.

Turning to strategic delivery, we will be launching in the second half, our offering of Asian 1-Month Non-Deliverable Forwards (NDF). A matching engine in London will host a Swap Execution Facility (SEF) market with an off-exchange market in Singapore. Singapore is the third largest FX trading centre globally and the largest in Asia. In Fusion Rates, our focus is on ensuring we have ICAP's and Tullett Prebon's inflation and interest rate swaps activity in the GBP market live on Fusion by the end of this year. We aim to bring Tullett Prebon EUR inflation onto Fusion - to a similar time frame - with volume matching and Central Limit Order Book (CLOB) functionality in place as well.

Energy & Commodities

We are the leading global OTC energy and commodities broker. We deliver for our clients through three strong brands: Tullett Prebon, ICAP and PVM. Our clients are diverse. They include banks, producers, trading companies and hedge funds.

As we noted at FY 2021, brokered energy markets are amongst the least electronified. As we build Fusion Energy, our initial focus is on the internal rollout of a new order management system (OMS). This key building block will capture all orders and trades electronically. We have also developed a client facing screen using the Fusion architecture which we are implementing for our environmental markets franchise.

We are making good progress expanding our revenue streams in two new areas: crypto assets and environmental products. We are planning to launch (subject to regulatory approval) our electronic marketplace for spot crypto asset trading. Trading will initially be in Bitcoin, with Ethereum to follow in Q3. The platform will be used by institutional clients only. Our partnership with custodians, including Fidelity Digital Assets, Zodia, BitGo and Komainu combines our market infrastructure expertise with their track record of protecting and storing assets, and settling trades. We are also working closely with a range of market makers including Virtu Financial, Flow Traders, Jane Street, Susquehanna and Hudson River Trading. These combinations provide liquidity and peace of mind for clients as they extend their participation in this emerging asset class. For us, there may well be opportunities to broaden our entry into this asset class to the tokenisation of a number of financial and physical assets over time.

The energy transition is another key opportunity for Energy & Commodities (and Parameta Solutions, too). We are developing environmental products and building an environmental hub. In February, Tullett Prebon announced that it had successfully launched an energy desk in Brazil with a specific focus on renewables. Over 80% of Brazil's energy comes from renewable sources. The desk has already seen a significant amount of interest from market participants. In the renewable certificates market, we have begun the rollout of electronic client execution capability for Norwegian Green Certificates. We are also working on launching client screens in the Australian renewables and voluntary emissions markets this year.

Delivering on diversification

We are diversifying our client base and increasing the proportion of non-broking revenue. The two key drivers of our diversification strategy are Parameta Solutions (Data & Analytics) and Liquidnet. We aim to grow these businesses organically through expanding our product range, geographical expansion and new distribution channels.

Growing our Data & Analytics business

Our Data & Analytics business is a leading provider of scarce OTC data and neutral pricing information. We commingle our proprietary trade data with third party data for the benefit of our clients. The revenue generated by the business is primarily subscription based: recurring and sticky.

Data & Analytics has a three-pronged strategy - products, clients, and distribution - to grow revenue and contribution. The focus on products involves moving up the value chain - beyond data - to include, for instance, Benchmarks and Indices and Evaluated Pricing. The client strategy includes diversifying and expanding our customer base to include more buy-side, corporates, and Energy and Commodities clients. The emphasis on distribution is about providing clients with more options to access Data & Analytics products, through more channel partners, including cloud-based solutions.

Progress has been good. Alongside the double-digit revenue growth (11%) generated by Data & Analytics, important strategic initiatives were delivered. The move up the product value chain was underlined by Parameta Solutions becoming, in May, an FCA authorised benchmark administrator. We are the first inter-dealer broker (IDB) to administer over-the-counter (OTC) indices and benchmarks. We are taking on the administration of the nine TP ICAP interest rate swaps benchmarks. They cover the mid-price interest rate swaps from our Global Broking business; Data & Analytics will be able to provide more data-driven insights for clients. This will be of considerable benefit to them, including for risk and compliance purposes.

We are announcing today another major initiative from Parameta Solutions. ClearConsensus is an enhanced consensus pricing solution, which we will provide for our global client base. The solution is being delivered in partnership with PeerNova, a Silicon Valley data management and analytics firm. We have been working with over a dozen of the world's largest investment banks to build a new approach to risk and regulatory capital management that directly addresses some of the growing pressures faced by our clients. ClearConsensus leverages Parameta Solutions' unique observable transaction data in its Evaluated Pricing (EP) service - and integrates it with PeerNova's market leading technology - to provide an efficient consensus process. This combination will transform the process of running consensus. In doing so, it will improve the client's quality of their fair value assessments, leading to more efficient capital allocation and optimisation.

Liquidnet

Liquidnet has major electronic connectivity to around 1,000 buyside clients, an established equities business and a growing fixed income franchise. Our focus here is three-fold: complete the integration of Liquidnet, ensure the core franchise is delivering, and deliver its expansion into dealer-to-client (D2C) Credit. Later, Liquidnet will also expand into D2C Rates.

The Liquidnet integration programme is going well. About two thirds of the deliverables have already been completed. We remain on track to complete the integration by the end of 2023. As noted above, delivery of the targeted Liquidnet cost synergies is on track. We believe Liquidnet Credit in the D2C market provides a meaningful opportunity for us. Our objective, as articulated at our Capital Markets Day in 2020, is to achieve a 3% - 6% market share of total corporate bond trading by the third full year post completion. Progress is good. The D2C proposition launched, as planned, in June, with a small number of select clients as a first step. During the second half, we will launch the platform to our remaining client base as part of a wider sales campaign. The onboarding process for clients has been extensively streamlined making it easier for them to join the platform. The Request For Quote protocol is live and the first trades have been completed. A number of key dealers are already connected via API. Strategically, we believe this market segment provides a material and exciting growth opportunity for us, given its current low levels of electronification.

Nicolas Breteau

Executive Director and Chief Executive Officer

10 August 2022

Introduction

The Group delivered a strong performance in the first half and continued to grow market share. Geopolitical events, monetary policy tightening and a slowdown in GDP growth resulted in increased market volatility and secondary trading volumes during the period. Revenue grew across all divisions and asset classes. A strong performance in Rates, resulted in an uplift in profitability.

Group revenue in H1 2022 of £1,080m was 15% ahead of the prior year in reported currency (12% ahead in constant currency). Excluding Liquidnet, revenue was 10% higher in reported currency (7% higher in constant currency). The Group's revenue and EBIT margin benefited from an FX tailwind in the first half, with GBP weakening by 6%, on average, against the USD.

We have taken a P&L charge of £32m in the period in respect of our exposure to sanctioned Russian clients and counterparties, an increase of £18m from the previously disclosed position at 11 March. This follows the delivery and subsequent write down of inventory. Given that most of the inventory remains restricted under sanctions, or has very limited observability on market prices, we have marked the whole portfolio to zero. These losses could potentially reverse in future.

Excluding Liquidnet and the impact of Russia, variable front office costs increased by 5% in constant currency, below the growth in revenue (7%). Revenue per broker (productivity) increased by 15% in reported currency (+12% in constant currency). The H1 2022 contribution margin was 35.8%. Excluding the impact of Russia, the contribution margin was 38.8% (H1 2021: 38.2% in constant currency). Total management and support costs (excluding Liquidnet) were down 6% in constant currency. The adjusted EBIT margin increased to 13.1%, or 16.1% before the impact of Russian P&L charges (H1 2021: 12.8% in constant currency). Liquidnet revenue of £114m delivered a contribution of £44m (at a contribution margin of 38.6%), which, after management and support costs of £39m resulted in an adjusted EBIT of £5m. We expect improved profitability from Liquidnet in the second half.

The Group incurred significant items of £36m (post-tax) in reported earnings (H1 2021: £74m), including £21m of non-cash amortisation of intangible assets that arose on the acquisition of ICAP and Liquidnet. Reported EBIT increased from £57m in H1 2021 (reported EBIT margin of 6.1%) to £99m in H1 2022 (reported EBIT margin of 9.2%). We are reducing our guidance for significant items for FY 2022 from c.£125m (pre-tax) to c.£110m. All other FY 2022 guidance remains unchanged.

We continue to focus on managing our cost base effectively, given the inflationary headwind. We are on track to deliver Group targeted savings for 2022 of £25m, as well as our target for Liquidnet synergies (£25m) by the end of 2023, at which point we expect to complete the integration.

The redomiciliation has enabled the Group to identify opportunities to unlock capital and cash resources. In aggregate, we expect to generate or free up approximately £100m of cash by the end of 2023. The freed up cash will be used to repay debt, to increase our investment grade rating headroom, given the environment of rising interest rates. Our Revolving Credit Facility has been successfully renewed for a further 3 years, providing additional liquidity flexibility.

Despite the highly uncertain macro and geopolitical outlook, we are cautiously optimistic for the remainder of the year and we are well positioned.

Robin Stewart

Executive Director and Chief Financial Officer

10 August 2022

Key financial and performance metrics

Average broker headcount reduced by 5% from 2,760 in H1 2021 to 2,631 in H1 2022. This, together with an increase in total broking revenue, resulted in average revenue per broker (productivity) increasing by 15% in H1 2022 compared with H1 2021 (+12% in constant currency). The average contribution per broker increased by 8% (+6% in constant currency). Total Group headcount decreased by 5% to 5,153.

Performance by Primary Operating Segment (Divisional basis)

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 executive management committee under the direct authority of the Board. The ExCo members regularly review operating activity on a number of bases, including by business division and by legal ownership which is structured geographically based on the region of incorporation for TP ICAP legacy entities plus Liquidnet.

Following the redomiciliation of the Group's parent in February 2021, the operational responsibility of entities was aligned with their legal ownership and as a result the Group at that time considered that the Primary Operating Segments continued to be the geographical regions of incorporation being Americas, EMEA, APAC and Corporate/Treasury. Liquidnet, acquired in March 2021 with its own separate international legal structure, was managed separately by the CODM, representing its own separate primary operating segment, even though it itself had operations across Americas, EMEA and APAC and represented a significant component of the Agency Execution business division. 

In 2022, as a consequence of the inclusion of Liquidnet into Agency Execution, and the additional appointment of business division leadership, the balance of the CODM review of operating activity and allocation of the Group's resources had become more focused on business division. This business division view is now considered to represent the more appropriate view for the purposes of Group resource allocation and assessment of the nature and financial effects of the business activities in which the Group engages, and is consistent with the information reviewed by the CODM.

Whilst the Group's Primary Operating Segments are now by business division, individual entities and the legal ownership of such entities continue to operate with discrete management teams and decision making and governance structures. Each regional sub-group has its own independent governance structure including CEOs, board members and Sub-Group regional Conduct and Governance Committees with separate autonomy of decision making and the ability to challenge the implementation of Group level strategy and initiatives within its region. In the EMEA regional sub-group, in particular, there are also independent non-executive directors on the regional Board of directors that further strengthens the independence and judgement of the governance framework.

Income Statement

The Group presents its reported results in accordance with International Financial Reporting Standards ('IFRS'). 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 IFRS results. The Group believes that adjusted results and other APMs, when considered together with reported IFRS results, provide stakeholders with additional information to better understand the Group's financial performance and compare 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.

Reported results are adjusted for significant items (which can be either cash or non-cash costs) to derive adjusted results. A reconciliation from reported to adjusted metrics is provided in the Group income statement below. Analysis of performance by Business Division follows the Group income statement analysis.

Impact of exposure to Russian sanctions

Following the imposition of sanctions in February 2022 against certain Russian individuals, entities and their subsidiaries, we immediately ceased trading with sanctioned clients and counterparties. At our 2021 preliminary results we reported a summary of exposures, totalling £14m (see table below), that we had recognised in our P&L (as at 11 March 2022 and based on the mark to market value of inventory we owned). We also reported potential additional exposures of £12m on unsettled matched principal trades, together totalling £26m. 

Total amounts charged to the P&L in H1 2022 have increased to £32m. This charge now represents the maximum exposure to the Group on this matter.

This increase primarily reflects the delivery of previously unsettled trades and the subsequent marking of the Group's entire portfolio to zero, as most of the inventory remains restricted under sanctions or has very limited observability on market prices. This follows the ruling from the US Treasury Department in June, which prohibits all US banks from any further trading in Russian debt or equity instruments on the secondary market. The P&L charge also includes an additional £1m of trade debtors written down. There are no other sanctioned trade debtor exposures at risk to provide for at this time.

Revenue by division

1. In previous reporting, the revenue breakdown of Global Broking included Emerging Markets revenue as a separate line item. This revenue has now been reclassified to the relevant asset classes within Global Broking. Emerging Markets revenue reported in H1 2021 of £92m has been reclassified as follows: Rates: £34m; Credit £9m, FX & Money Markets £47m, Equities £2m.

2. Inter-division charges have been made by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Parameta Solutions division. The Global Broking inter-division revenues and Parameta Solutions inter-division costs are eliminated upon the consolidation of the Group's financial results.

All percentage movements quoted in the analysis of financial results that follows are in constant currency, unless otherwise stated. Constant currency refers to prior year comparatives being retranslated at current year foreign exchange rates.

Total Group revenue in H1 2022 of £1,080m was 12% higher than the prior year (+15% in reported currency). Excluding Liquidnet, Group revenue was 7% higher (+10% in reported currency). Revenue grew across all four divisions. Global Broking benefited from increased market volatility and was up 8%, growing all asset classes. Energy & Commodities increased by 2%, with strong growth in Oil and Power offsetting a decline in Gas, which was impacted by almost unprecedented volatility, leading to a risk-off trading stance for many European market participants. Agency Execution, which includes Liquidnet revenue from 23 March onwards, grew by 58%. Parameta Solutions was up 6%, with Data & Analytics continuing to deliver double-digit revenue growth (11%). Diversified (non-Global Broking) revenue as a proportion of total Group revenue was 42% in H1 2022 (H1 2021: 40%).

Liquidnet revenue in H1 2022 was £114m. On a proforma basis (see table below), H1 2022 revenue was 3% lower in reported currency and 6% lower in constant currency. The revenue performance was in line with market activity, which was mixed across the three regions. Volumes declined in the US and Asia but were up in Europe. Market share increased marginally in both Europe and the US.

Market volatility from the war in Ukraine resulted in a higher volume of trading activity. This generated higher revenue and contribution during the period. However, this was broadly offset by the impact of Russian P&L charges, which totalled £32m in H1 2022.

Operating expenses

The table below sets out operating expenses, divided principally between front office costs and management and support costs. Front office costs tend to have a large variable component and are directly linked to the output of our brokers. The largest element of this is broker compensation as well as other front office costs, which include travel and entertainment, telecommunications and information services, clearing and settlement fees as well as other direct costs. The remaining cost base represents the management and support costs of the Group.

1. Includes all front office costs, including broker compensation, sales commission, travel and entertainment, telecommunications, information services, clearing and settlement fees as well as other direct costs.

2. Constant currency changes shown against adjusted numbers only, to highlight true underlying performance.

Total operating expenses were £1,001m, which was 13% higher than H1 2021 in reported currency, driven by the acquisition of Liquidnet and a 14% increase in Broking front office costs, reflecting the growth in revenue.

Total front office costs of £693m increased by 16% compared with H1 2021, (an increase of 20% in reported currency) but include an additional quarter of Liquidnet and the £32m P&L charge relating to Russian exposures. Broking front office costs, which are variable with revenue, were only 5% higher than the prior period (excluding the £32m of Russian related costs) despite the 7% growth in revenue, reflecting the benefit of cost savings achieved.

Total management and support costs of £249m were flat year-on-year and included an FX gain of £12m, reflecting the weakening of GBP against other currencies, in particular the US Dollar, on the retranslation of net financial assets, including cash. Excluding Liquidnet, management and support costs were down 6% year-on-year.

We continue to make good progress in our cost savings programme and are on track to achieve our target of £25m of P&L savings for FY 2022 (as previously disclosed in our preliminary FY 2021 results on 15 March 2022). We are also on track to deliver at least £25m of Liquidnet synergies by the end of 2023, at which point we expect the integration to be complete. We will provide a further update on progress at our FY 2022 results.

As previously noted, we face a number of headwinds in 2022, which impact our targeted savings. These include: increased costs in relation to our Brexit relocation programme; realised and unrealised losses from sanctioned Russian clients in the first half of £32m; and increasing inflationary pressures.

During H1 2022, we incurred total strategic IT investment spend amounting to £17m, split into £6m of operating expenses and £11m of capital expenditure (H1 2021: £11m - £4m of operating expenses and £7m of capital expenditure).

Capital and liquidity management

Capital management

TP ICAP successfully redomiciled from the UK to Jersey, Channel Islands, in February 2021. This, together with the progress we are making on consolidating legal entities, has enabled the Group to undertake a first phase of a review to identify opportunities to unlock cash. In aggregate, we expect to generate or free up approximately £100m of cash by the end of 2023 from short term initiatives in train. The exact timing of release for certain initiatives will be impacted by external (e.g. regulatory) dependencies. The initiatives include, but are not limited to:

· Consolidation of broker-dealer entities in the US (dependent on regulatory approval)

· Distribution of the surplus following the wind-up of the UK Defined Benefit Pension Scheme (dependent on approval from Trustees)

· Proceeds from the Liquidnet purchase price adjustment (see significant items section below)

· Sale of office space in Paris

· Closure of dormant UK regulated entities (dependent on regulatory approval)

· Restructuring of settlement and clearing arrangements

We are committed to delivering capital efficiencies for the Group. The cash generated or freed up from the above short term initiatives will be used for the repayment of debt - to increase our investment grade credit rating headroom - and to reduce future finance costs. We are also exercising prudence in the current environment of rising interest rates.

The Board will continue to assess balance sheet and investment requirements and is committed to identifying and returning any resultant surplus capital to shareholders.

Liquidity management

Following our successful debt refinancing in November 2021, we renewed our Revolving Credit Facility (RCF) for a further three years on 31 May 2022. The RCF increased from £270m to £350m, providing additional liquidity flexibility, and additional providers were added. The terms of the new facility were also improved from 2.00% to 1.75% over the reference rate.

Significant items

Significant items are cash and non-cash items that are excluded from adjusted measures to aid comparability of financial performance from period to period and to provide additional information to better understand the Group's financial performance, when considered together with reported IFRS results.

The table below shows the Significant items in H1 2022 split between cash and non-cash vs the H1 2021 total.

In H1 2022 total significant items amounted to £44m before tax and £36m post tax and associates. This compares to significant items in H1 2021 of £60m before tax and £74m post tax and associates. The decrease was driven primarily by: a £16m Liquidnet arbitration settlement in H1 2022, net of costs; a £5m impairment of an associate in the prior period; and a tax credit on significant items in H1 2022 compared with a charge in the prior period. This was partly offset by higher restructuring costs associated with the Group cost saving programme.

Significant items can be categorised into the following five areas below.

Restructuring and related costs (£24m in H1 2022; £17m in H1 2021):

Restructuring and related costs arise from initiatives to reduce the ongoing cost base and improve efficiency to enable the delivery of our strategic priorities. These initiatives are significant in size and nature to warrant exclusion from adjusted measures. Costs for other smaller scale restructuring are retained within both reported and adjusted results.

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 IFRS results.

In H1 2022, the following restructuring and related costs were considered to be significant items:

§ £10m of Liquidnet property-related costs in relation to the sub lease of floor space in London; £8m (non-cash) relates to the write off of abandoned leasehold improvements and Right of Use Assets; £2m (cash) of costs associated with assigning the sub-lease

§ £3m of Liquidnet integration costs - £2m of cash costs related to employee redundancies and a £1m non-cash item in respect of consultancy fees incurred in realising synergies

§ £11m of employee redundancy costs associated with the Group cost savings programme

Disposals, acquisitions and investments in new businesses (£18m H1 2022; £32m H1 2021):

Costs, and any related income, related to disposals, acquisitions and investments in new business are transaction dependent and can vary significantly year-on-year, depending on the size and complexity of each transaction. 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.

§ £21m for the amortisation of intangible assets (all non-cash) related to the acquisitions ICAP (£14m), Liquidnet (£6m) and other smaller acquisitions (£1m).

§ £1m of cash costs related to the Liquidnet acquisition - legal and professional fees relating to post completion matters.

§ Losses on derivatives and foreign exchange: £4m of foreign currency exchange losses (non-cash) on the US Dollar denominated Liquidnet vendor loan note (VLN) following the weakening of GBP in the period.

§ £8m relating to the non-cash adjustment to deferred consideration; £5m of which relates to a foreign exchange loss as a result of the strengthening of the USD, and £3m related to the unwind of the discount to present value (largely Liquidnet).

§ £16m in acquisition reimbursements arising from Liquidnet following the ruling of an independent arbitration on the purchase consideration. This has been recognised in the income statement rather than as a reduction of the purchase consideration, as required by accounting rules, due the acquisition completing more than 12 months ago. Proceeds were received on 20 July 2022.

Legal and regulatory matters (£1m in H1 2022; £11m in H1 2021):

Costs, and recoveries, related to certain legal and regulatory cases are treated as significant items due to their size and nature. Management considers these cases separately due to the judgements and estimation involved, the costs and recoveries of which could vary significantly year-on-year.

H1 2022 included the following:

§ £2m of costs largely related to the cum-ex investigation by the Frankfurt and Cologne Public Prosecutors in Germany

§ £1m remeasurement gain on the Group Income Protection liabilities.

Financing (£1m in H1 2022; nil in H1 2021):

§ £1m related to the interest expense on the $50m Liquidnet Vendor Loan Notes, which is part of the Liquidnet acquisition consideration.

Tax (£8m net relief in H1 2022; £9m net charge in H1 2021):

§ £8m of tax relief in H1 2022 arises from the unwinding of tax liabilities recognised on acquired intangibles of £5m and a £3m tax benefit in relation to the Group cost savings programme. The net charge in the prior period reflected a £16m increase in deferred tax liabilities on acquisition intangibles, following the increase in the future UK corporate tax rate, which more than offset tax relief of £7m.

Significant items - 2022 guidance

We are reducing our existing guidance on the level of significant items expected to be included in FY 2022 reported results from approximately £125m (pre-tax) to approximately £110m (pre-tax). This estimate excludes income and expenses relating to legal and regulatory cases as these items are difficult to predict accurately and can vary materially year-on-year.

We continue to expect that significant items will reduce further in 2023.

Group net finance expense

The adjusted net finance expense of £26m in H1 2022, which comprised of £28m of interest expense, less £2m of interest income, a reduction of £3m compared to the £29m net charge in H1 2021, reflecting the following:

§ £2m reduced interest on Sterling Notes as a result of the refinancing in November 2021.

§ Zero costs on FX hedging compared to £2m costs related to the purchase of FX currency options on the Liquidnet acquisition in H1 2021.

§ £2m of additional interest on finance lease liabilities, marginally offset by a £1m increase in finance lease receivables income.

Group Tax

The effective rate of tax on adjusted profit before tax is 25.0% (H1 2021: 24.1%). The effective rate of tax on reported profit before tax is 29.2% (H1 2021: 107.0%). The higher rate on reported profit before tax in H1 2021 is due primarily to a £16m increase in the deferred tax liability recognised in respect of intangible assets arising on consolidation following the announcement of a future increase in the UK corporation tax rate, which was included within significant items.

Basic EPS

The average number of shares used for the H1 2022 basic EPS calculation is 778.6m (H1 2021: 737.7m) reflecting the 788.7m shares in issue at 31 December 2021, less 9.2m shares held by the TP ICAP plc Employee Benefit Trust ('EBT') at the end of the period, offset by the time apportioned movements in shares held by the EBT used to settle deferred share awards of 0.9m. The TP ICAP plc EBT has waived its rights to dividends.

The reported Basic EPS for H1 2022 was 8.2p (H1 2021: 0.1p), and adjusted Basic EPS for H1 2022 was 12.8p (H1 2021: 10.2p).

Dividend

Our policy targets dividend cover of c.2 times on adjusted post-tax earnings - a 50% pay-out ratio for the year as a whole. The dividend distribution during the year will typically be based on a pay-out range of 30-40% of H1 adjusted post-tax earnings with the balance paid in the final dividend. An interim dividend per share of 4.5 pence (H1 2021: 4.0 pence) will be paid on 4 November 2022 to shareholders on the register at close of business on 7 October 2022.

The Company offers a Dividend Reinvestment Plan (DRIP), where dividends can be reinvested in further TP ICAP Group plc shares. The DRIP election cut-off date will be 24 October 2022. 

Guidance

The guidance provided at our FY 2021 preliminary on 15 March 2022 in relation to FY 2022 remains unchanged, with the exception of significant items (see above). As we often highlight, it remains difficult to predict future levels of market activity, given the highly uncertain macro and geopolitical outlook. Despite the uncertain backdrop, we are cautiously optimistic for the remainder of the year and we are well positioned.

Group revenue in July 2022 was 1% higher than the corresponding period in 2021, in constant currency.

Performance by Primary Operating Segment (Divisional basis)

GB = Global Broking; E&C = Energy & Commodities; AE = Agency Execution, PS = Parameta Solutions, Corp/Elim = Corporate Centre, eliminations and other unallocated costs.

1. Inter-division charges have been made by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Parameta Solutions division. The Global Broking inter-division revenues and Parameta Solutions inter-division costs are eliminated upon the consolidation of the Group's financial results.

2. Revenue and contribution per broker are calculated as external revenues and contribution of Global Broking, Energy & Commodities and Agency Execution, excluding Liquidnet, divided by the average brokers for the Period. The Group revenue and contribution per broker excludes revenue and contribution from Parameta Solutions and Liquidnet.

3. Following the change in the Group's Primary Operating Segment from a regional (geographic) to a divisional basis, H1 2021 management & support costs, Adjusted EBITDA and Adjusted EBIT for each division has been restated to remove the IFRS 16 interest charge, previously charged to divisional Adjusted EBIT. The restatement aligns with IFRS statutory reporting where the IFRS 16 interest cost is disclosed within Group finance costs. This results in a reduction in management & support costs and a corresponding increase in Adjusted EBIT, as follows: Global broking: £4m; Energy & Commodities: £1m; Agency Execution: £1m. At the Corporate level, management & support costs have increased by £6m with a corresponding decrease in Adjusted EBIT. There is no restatement to the consolidated Group Adjusted EBIT.

All percentage movements quoted in the analysis of financial results that follows are in constant currency, unless otherwise stated. Constant currency refers to prior year comparatives being retranslated at current year foreign exchange rates.

Global Broking

Global Broking revenue of £636m (which represents 59% of total Group revenue) was 8% higher than the prior period (11% higher in reported currency). Market volatility during the first half drove strong secondary market volumes. This was driven by geopolitical events, inflationary pressures and monetary policy tightening by Central Banks across our main markets. As a result, revenue grew across all asset classes.

Global Broking previously reported Emerging Markets as a separate asset class. From H1 2022 onwards, the relevant desks have been allocated across the other asset classes within the division.

Rates revenue (our most profitable asset class, which comprises 45% of Global Broking revenue and 26% of total Group revenue) increased by 8% to £286m. This was a strong performance, despite market activity in the first half being concentrated in contracts with short-dated maturities, which have lower transaction values. London Clearing House notional SwapClear dealer volumes1 in H1 2022 increased by c.19%, while Clarus USD dealer-to-dealer Interest Rate Swap volumes decreased by 18%. Our outlook for Rates for the remainder of the year is positive, as monetary policy continues to tighten and de-risking of Central Bank balance sheets begins to have an impact on the shape of the yield curve at the longer-dated end. Recessionary risks, however, may keep the long end of the yield curve flat.

Revenue in FX & Money Markets was up by 10%, marginally underperforming the year-on-year increase of c.14% in CME FX Futures volumes. Credit revenue increased by 11%, outperforming the wider market, with total US corporate bond trading volumes decreasing by c.3% in H1 2022 (Source: SIFMA); total MarketAxess Post-Trade Eurobonds2 volumes also declined, by c.17% (Source: MarketAxess).

Equities revenue increased by 7%. Volumes of equity and index derivatives contracts on Euronext4 declined by 2% while volumes on Eurex3 increased by c.16%.

Revenue per broker increased by 14%, reflecting higher revenues, a reduction in the average number of brokers and the benefit of our Fusion strategy. Contribution per broker increased by 6%. Pre Russian losses, contribution per broker was 21% up on the prior period.

Total front office costs were 12% higher in the period, driven by the growth in revenue as well as the impact of provisions related to sanctioned Russian clients (£32m), partly offset by the benefits of the cost saving programme and lower number of average brokers. The resulting contribution margin was 35.2% compared with 37.7% in the prior period in constant currency (37.9% in reported currency). Before the impact of Russia, contribution margin was 40.3% in H1 2022.

Management and support costs decreased by 9%, while depreciation and amortisation was flat.

The resulting adjusted EBIT was £106m, with an adjusted EBIT margin of 16.7% (H1 2021: £95m, 16.1% in constant currency and £93m, 16.2% in reported currency). Before the impact of Russian losses (see above), the H1 2022 adjusted EBIT margin was 21.7%.

1. Dealer volumes refer to all clearing volumes subtracted by all client clearing volumes.

2. Former Trax Eurobonds, which we consider as a proxy for European credit volumes.

3. Eurex Equity derivatives and Index derivatives traded contracts.

4. Euronext stock products and index products volumes.

Energy & Commodities (E&C)

E&C revenue of £197m in H1 2022 (18% of total Group revenue) was 2% higher than H1 2021 (5% higher in reported currency), with growth in environmental markets, oil and bulk commodities being offset by lower revenues in gas. By comparison the number of oil, gas and other energy products traded on the Intercontinental Exchange ('ICE') increased by c.5% in H1 2022.

E&C markets were particularly volatile during the first quarter of 2022, providing our clients with trading opportunities. This was driven primarily by the impact of Russian sanctions, but also by supply and demand imbalances. The second quarter saw less trading activity as clients went 'risk-off' due to significant price volatility and increasing exchange margin requirements. Revenue in the US and APAC were strong, however this was offset by weaker revenues in EMEA, and particularly the gas and power markets as the significant price swings led to a severe contraction in many clients' OTC bilateral credit lines, resulting in reduced trading activity. 

The strong growth in our Environmental products has continued in the first half. Revenue in these products was up 37%, building on the growth in FY 2021 of 40%. Clients are focusing activity in this product area as part of the energy transition to a zero-emission future. 

Front office costs of £133m were 5% higher than the prior year, while management and support costs were 6% lower. Depreciation and amortisation was flat at £5m. This resulted in a contribution margin of 32.5% (H1 2021: 34.2% in both reported and constant currency).

The adjusted EBIT was £25m in H1 2022, with an adjusted EBIT margin of 12.7% (H1 2021: £25m, 13.0% in constant currency and £24m, 12.8% in reported currency).

Agency Execution

Agency Execution revenue (which represents 16% of total Group revenue) increased 58% from £106m in H1 2021 to £168m in H1 2022, driven by the inclusion of Liquidnet revenue from 23 March 2021 onwards (the date of the acquisition).

Agency Execution (excluding Liquidnet)

Agency Execution (excluding Liquidnet) revenue of £54m increased by 10% (+13% in reported currency). This was driven by a strong performance from the Relative Value business, building on the recovery in the second half of 2021, as well as from Rates. Growth was partially offset by a revenue decline in Futures, FX and Equity Derivatives.

Total front office costs increased from £36m in H1 2021 to £43m in H1 2022 reflecting the growth in revenue as well as investment to drive future organic growth in the business. The resulting contribution was £11m (H1 2021: £12m in constant currency) with a contribution margin of 20.4% (H1 2021: 25.0% in constant currency).

Management and support costs reduced by £1m to £6m, while depreciation and amortisation decreased by £1m to £1m.

The adjusted EBIT was £3m and the adjusted EBIT margin was 5.6% (H1 2021: £3m and 6.3%, in constant currency).

Liquidnet

Liquidnet revenue in H1 2022 of £114m was 100% ahead of the prior year, driven by the completion of the acquisition on 23 March 2021. On a proforma basis, H1 2022 revenue declined by 6% (3% down in reported currency). This reflected a combination of different market dynamics across the US, Europe and Asia. In the US, block market volumes decreased by 7% in H1 2022 vs H1 2021. Block volumes by Alternative Trading System (ATS) venues was up 3%. In Europe and the UK, dark market volumes increased by 21%, and Large in Scale (LIS) transaction volumes increased by 11%. In Asia, volumes on the Hong Kong Stock Exchange decreased by 38%, and volumes on the Tokyo Stock Exchange decreased by 20%.

Overall market share of the US block market increased from 1.1% in H1 2021 to 1.3% in H1 2022, and overall market share of the total US equity market increased from 0.26% to 0.27%. Liquidnet's block market share within ATS venues decreased from 13.4% in H1 2021 to 12.9% in H1 2022. European market share of LIS transactions increased to 29.2% (H1 2021: 28.4%), and overall market share of the total European equity market decreased marginally from 2.2% in H1 2021 to 2.1% in H1 2022.

Liquidnet delivered a contribution of £44m in H1 2022, with a contribution margin of 38.6% (H1 2021: 43.1%, in constant currency). The adjusted EBIT was £5m, at a margin of 4.4% (H1 2021: -3.4%, in constant currency).

Parameta Solutions

In April 2021 we launched our new brand, Parameta Solutions, which includes Data & Analytics (D&A) and Post Trade Solutions (PTS).

Total Revenue in H1 2022 of £91m (8% of total Group revenue) was 6% higher than the prior year (11% higher in reported currency), with double-digit revenue growth in D&A (11%) more than offsetting a decline in PTS from £11m in H1 2021 to £8m in H1 2022. 96% of total D&A revenue was subscription-based and therefore recurring.

D&A revenue continued to benefit from the launch of new higher value products (over 25% of H1 2022 sales are from new products); an increasingly diversified and growing client base (over 40 new clients added during the period, 35 of which were non-sellside clients); increased regional sales coverage, and multi-channel distribution methods (including through channel partners and direct-to-client through cloud-based solutions).

D&A has today announced ClearConsensus in a new partnership with Silicon Valley based, PeerNova, leveraging our unique observable transaction data, and PeerNova's leading data management and analytics capabilities, in conjunction with over a dozen of the world's largest investment banks, to provide its global clients with an enhanced consensus pricing solution. In H1 2022 Parameta Solutions became an FCA authorised benchmark administrator - the first IDB to administer over the counter (OTC) indices and benchmarks. We expect these two initiatives to be revenue accretive in the second half.

Inflation induced interest rate increases and the war in Ukraine has led to sustained intra-day volatility through H1 2022. These conditions are suboptimal for session-based risk management services such as PTS's Matchbook. Whilst 2022 to date has been challenging for Matchbook, it is developing new products including inflation matching to minimise the impact of LIBOR's cessation (approximately 42% of revenue has historically been derived from LIBOR-based products). The development of new risk reduction solutions enables the business to better diversify its revenue mix.

ClearCompress continues to deliver high levels of optimisation efficiency across a number of global solutions and eRepo, an electronic repo platform, has seen daily notional volumes executed on the platform increase in excess of 200% over the past 12 months leading to a 51% increase in revenues.

Total front office costs in Parameta Solutions increased by 9%, marginally ahead of the growth in revenue. The resulting contribution was £44m (H1 2021: £41m in reported currency and £43m in constant currency) with a contribution margin of 48.4% (H1 2021: 50.0% in both reported and constant currency).

Management and support costs reduced by £1m to £7m. Depreciation and amortisation was held flat at £1m.

The adjusted EBIT was £36m, 6% ahead of the prior year (H1 2021: £32m in reported currency and £34m in constant currency), with an adjusted EBIT margin of 39.6% (H1 2021: 39.0% in reported currency and 39.5% in constant currency).

Cash flow

The table below shows the changes in cash and debt for the period ending 30 June 2022 and 30 June 2021.

The Group's net cash flow from operating activities reduced by £61m from a £24m inflow to a £27m outflow driven primarily by the following cash flows:

§ Reported EBIT increased by £42m to £99m compared to H1 2021,

§ An increase in net matched principle balances and clearing organisation balances of £153m (H1 2021: £1m), of which £113m arose from unsettled trades that were cleared shortly afterwards.

§ Working capital outflows of £20m (H1 2021: outflow of £48m) largely resulted from an £61m increase in trade receivables from higher seasonal trading volumes and a small rise in collection times. Changes in other debtors were £15m, the result of the £16m Liquidnet acquisition reimbursement. These were offset by an increase in payables and provisions of £56m, chiefly comprising increases of £24m increase in bonus creditors and £22m in Commission Management liabilities held in Liquidnet.

§ £28m net interest paid is unchanged from H1 2021 which is the result of a £2m reduction in interest on Sterling Notes and non-recurrence of £2m of options premium, offset by a £3m increase in finance leases and £1m from the full six month inclusion of interest on the $50m Liquidnet VLN.

§ £17m of tax payments. This is lower than the £24m paid in H1 2021 as payments reflect instalments based on estimated tax liabilities which resulted in a greater weighting toward H1 in 2021.

The key investing activities in the year were:

§ Capital expenditure of £22m mainly represented technology and strategic projects. This compared with £30m in H1 2021 which included office development expenditure

§ £13m received in dividends from associates and joint ventures

The primary financing activities in the year were:

§ £22m reduction in debt drawdown of the Group's credit facilities

§ £17m of finance lease capital repayments compared with £16m in H1 2021.

§ Dividends paid to shareholders of £43m reflecting the 2021 final dividend of 5.5p.

Foreign exchange gain

§ The weakening of Sterling, particularly against the US Dollar, has resulted in a retranslation gain of £44m.

As a result of the above, the Group's cash decreased by £92m.

Debt finance

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

1. Sterling Notes are reported at their par value net of discount and unamortised issue costs and including interest accrued at the reporting date.

The Group's core debt, excluding lease liabilities, has increased to £929m. The increase was primarily due to settlement overdrafts which were elevated due to trades that failed to settle on the 30 June 2022. £111m of these settlement fails, and their related overdrafts, were cleared the following day on 1 July. Additionally, in November 2021 the Group issued a £250m par value Sterling Note maturing in November 2028, the proceeds of which were used in part to repay £184m (par value) of the January 2024 Sterling Notes, to repay short-term debt, and to finance working capital requirements.

The Group refinanced its main bank revolving credit facility in May increasing its capacity to £350m and with a new initial maturity of May 2025. As at 30 June, this facility was drawn by £25m. The Group also has access to a Yen10Bn Totan facility that, as at 30 June, was undrawn and had a maturity of February 2024. Subsequent to the end of the half-year this facility has been extended and has a new maturity of August 2024.

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 enter into formal hedges of income statement or balance sheet translation exposures. Average and period end exchange rates used in the preparation of the financial statements are shown below.

Foreign exchange translation has been a tailwind for the Group in H1 2022, caused largely by GBP depreciation against the USD, with approximately 60% of Group revenues and approximately 40% of costs in USD, resulting in a currency mismatch. The average GBP:USD rate weakened 6% year on year, while the period end rate weakened by 12%.

Pensions

The Group has one defined benefit pension scheme in the UK that is currently in the process of being wound up. The wind-up of the Scheme commenced in 2019 and is expected to be completed in Q1 2023.

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 applies the requirement of IFRIC 14, fully restricting the Group's recognition of the £46m (31 December 2021: £46m) net surplus by applying an asset recognition ceiling. Changes as a result of the application of the asset ceiling are recorded in Other Comprehensive Income.

During the wind-up period, the Group continues to restrict the recognition of the net surplus. Any benefits augmented during this period represent a past service cost and are recorded as a significant item in the Income Statement as and when such 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. There were no past service and settlement costs in H1 2022 (H1 2021: £1m).

Following the full settlement of the Scheme's liabilities and costs, the Scheme will be wound up, and the Group expects to receive the remaining asset, subject to applicable taxes at that time, currently 35%.

Regulatory capital

Since February 2021, Group level regulation falls under the Jersey Financial Services Commission. The FCA is the lead regulator of the Group's EMEA businesses, which are sub-consolidated under a UK holding Company, for which the consolidated capital adequacy requirements under CRD IV apply. This sub-group maintains an appropriate excess of financial resources.

Condensed Consolidated Income Statement

for the six months ended 30 June 2022

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2022

Condensed Consolidated Balance Sheet

as at 30 June 2022