2nd Aug 2010 07:00
TULLETT PREBON PLC
INTERIM RESULTS - for the six months ended 30 June 2010
Tullett Prebon plc (the "Company") today announced its preliminary results for the six months ended 30 June 2010.
Financial Highlights
- Revenue £475.8m (2009: £517.9m)- Operating profit £84.7m (2009: £100.6m)- Operating margin 17.8% (2009: 19.4%)- Adjusted Profit before tax (1) £78.6m (2009: £92.8m)- Adjusted EPS (2) 25.5p (2009: 28.5p)
Notes
1. Adjusted PBT is stated before non cash gains and losses in net finance income/
(expense). A reconciliation of the adjusted PBT to the reported PBT of £79.3m
(2009: £91.7m) is shown in the Financial Review 2. Adjusted EPS is stated before non cash gains and losses in net finance income/
(expense) net of tax
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:
"The performance of the business continues to be robust.
Revenue of £475.8m is 8% lower than reported for 2009. Underlying revenue wasunchanged compared with the same period a year ago, which is an excellentperformance against a strong comparative. The net effect of the brokerdefections in North America following the raid by BGC in the second half oflast year has been to reduce revenue by 7%. The impact of currency movementson the translation of our non-UK operations has been slightly adverse.
Operating profit for the first half was £84.7m, with an operating margin of 17.8%. Adjusted basic earnings per share were 25.5p.
An interim dividend of 5.25p per share (2009: 5.0p per share) will be paid on 18 November 2010 to shareholders on the register at 29 October 2010."
Terry Smith, Chief Executive, added:
"The world's financial markets remained unsettled during the first half withbouts of intense volatility. Market activity in June and July has beenrelatively subdued, and although it continues to be difficult to forecastmarket activity, it is likely that the unsettled financial market conditionswill persist into the second half and that there will be periods of higheractivity in the remaining months of the year.We have a well diversified and robust business and we are well positioned torespond to, and to benefit from, changes in the way in which the OTC marketsand our customers operate and are regulated. We expect to deliver a goodoutcome for the year."Enquiries:Investors and AnalystsNigel Szembel, Head of CommunicationsTullett Prebon plc44 (0)207 200 7722PressCharlotte KirkhamM:Communications44 (0)207 920 2331
Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com
TULLETT PREBON PLC
INTERIM MANAGEMENT REPORT - for the six months ended 30 June 2010
Overview
The performance of the business continues to be robust.
Risk appetite in the financial markets has started to return, although overallactivity in the markets in which we operate was generally slightly lower in thefirst half compared to the same period last year which still benefited,particularly in the first quarter, from the volatility and turbulence infinancial markets following the collapse of Lehman Brothers. Market volatilitypicked up in May, although this level of volatility did not persist into June.Revenue of £475.8m is 8% lower than reported for 2009. As expected, theunderlying revenue run rate in comparison with prior year improved over theperiod, and for the first half overall, underlying revenue was unchangedcompared with the same period a year ago. This is an excellent performanceagainst a strong comparative. The net effect of the broker defections in NorthAmerica following the raid by BGC in the second half of last year has been toreduce revenue by 7%. The impact of currency movements on the translation ofour non-UK operations has been slightly adverse.In North America we have re-established our presence in all of the majorproduct areas affected by the broker defections. We have now largely pausedour hiring in these areas in order to allow us to assess the success of thesehirings and the condition of the markets in the products concerned. Brokerheadcount on the affected desks at the end of June was around half the levelbefore the defections, and total broker headcount in North America is 12% lowerthan a year ago.Action is being taken to reduce costs and complexity in North America,including the exit of under-performing brokers, reductions in broking supportstaff, and the planned closure of six small offices in the region before theend of the year, one of which has already been effected. The offices to beclosed accounted for around 3% of group revenue in 2009, mainly from cashequities and energy products, but they made only a limited contribution tooperating profit, and their closure will allow management to focus on the twomain offices in New Jersey and New York. One-off costs relating to the costreduction actions being taken across the whole business of around £3m will beincurred, largely in the second half.We continue to develop our electronic capabilities. Our electronic brokingdevelopment is focused on the hybrid model, with electronic platforms whichcomplement and support existing voice broker liquidity. This approach isbetter suited to most OTC products, is preferred by both clients and brokers,and facilitates evolution of trade execution to meet market requirements. Ourcurrent electronic broking offering competes effectively with similar platformsprovided by our peers, and we are well placed to launch new electronicplatforms across all regions when market opportunities arise or regulationsrequire.We have also continued to develop our Information Sales and Risk ManagementServices activities. TP Match, our pure electronic FRA matching platform whichwas launched towards the end of 2009, has successfully built market share,particularly in the US dollar market. The acquisition of OTC Valuations, whichcomplements our Information Sales business and which allows us to meet theincreasing demand for independent valuation services, completed in May.Revenue from products supported by electronic platforms, together withInformation Sales and Risk Management Services revenue, accounted for one sixthof total revenue in the first half of the year. The proportion of that revenuethat is derived from voice-only execution continues to reduce, with anincreased proportion derived from trades conducted through the platforms.Operating profit for the first half was £84.7m, with an operating margin of17.8%. There is some operational leverage in the business, and the reductionin operating profit and margin compared to the first half of 2009 largelyreflects the reduction in revenue. Broker compensation as a percentage ofbroking revenue is slightly higher than a year ago due to the increased costsof employment, particularly in North America and London, as a result of theunlawful poaching raids on the business by BGC, and the initial inefficienciesas new hires build up to their full run rate of revenue. Support costs arelittle changed compared to a year ago.Our key financial and performance indicators for the first half of 2010compared with those for the first half of 2009 are summarised in the tablebelow. Change Constant 2010 2009 Reported Exchange Rates Revenue £475.8m £517.9m -8% -7% Operating profit £84.7m £100.6m -16% -15% Operating margin 17.8% 19.4% -1.6% points Broker headcount (period end) 1,624 1,647 -1%
Average revenue per broker (£'000) 283 308 -8%
-7%
Broker employment costs : broking revenue 57.9% 7.6% +0.3% points Broking support headcount (period end) 703 713 -1%
LitigationOn 18 March 2010 Judgment was handed down in the legal action that the Companyhad taken in London against BGC, two of BGC's senior directors and ten formerCompany brokers, in response to a raid by BGC in early 2009 on the Londonbusiness. The Judge held that there was an unlawful conspiracy between BGC andits two senior directors to poach the Company's employees and that the Companywas and is entitled to a 12 month injunction against all but one of the formerbrokers, and also against BGC, as well as financial remedies. The Judgedismissed BGC's counter-claim against the Company. At a Directions hearing on30 April 2010 permission for BGC to appeal was refused on 20 out of 22 grounds,and in particular, permission to appeal against the finding of conspiracy wasrefused. BGC have, however, petitioned the Court of Appeal for permission towiden the appeal. The substantive appeal hearing is expected to be heardbefore the end of the year. The Company is seeking substantial damages fromBGC. The damages trial has been fixed for 4 weeks commencing in March 2011.Legal action continues to be pursued against BGC and former employees in theUnited States. The subsidiary companies in the United States directly affectedby the raid have brought a claim against BGC in arbitration pursuant to therules of the Financial Industry Regulatory Authority ("FINRA"). This case willbe proceeding to trial in the near future. A separate action brought byTullett Prebon plc for a federal case to be heard in the United States DistrictCourt in New Jersey against BGC alleging, among other causes of action,violations of the New Jersey RICO statute has been dismissed by the judge. This dismissal was on technical grounds, in part based on the pendency of theFINRA arbitration, and did not reach the merits of the claim. We respectfullydisagree with the Judge's opinion, and have filed a notice of appeal. Thedecision has no effect on the FINRA arbitration. Legal action also continues to be pursued against former employees in Hong Kongwho have unlawfully terminated their employment with the Company in order tojoin BGC.Revenue and Operating Profit
The tables below analyse revenue and operating profit for the first half of2010 compared with the equivalent period in 2009. A significant proportion ofthe group's activity is conducted outside the UK and the reported results aretherefore impacted by the movement in the foreign exchange rates used totranslate the results of non-UK operations. In order to give a more completeanalysis of performance, revenue and operating profit growth rates for thefirst half of 2010 shown below are presented both as reported and usingtranslation exchange rates consistent with those used for 2009. The commentarybelow refers to growth rates at constant exchange rates.Revenue by product group Change Constant 2010 2009 Reported Exchange £m £m Rates Treasury Products 125.2 124.0 +1% +2% Interest Rate Derivatives 107.5 102.3 +5% +6% Fixed Income 132.7 188.3 -30% -28% Equities 38.1 38.8 -2% +1% Energy 55.6 52.3 +6% +7% Information Sales and Risk Management 16.7 12.2 +37% +37% Services 475.8 517.9 -8% -7% The increase in revenue in Treasury Products reflects strong growth in forwardFX, including non-deliverable-forwards, offset by a reduction in revenue fromcash and deposits.
The increase in revenue in Interest Rate Derivatives reflects a strong recovery in revenue from emerging market interest rate swaps and from interest rate options.
The fall in revenue in Fixed Income reflects the impact of the brokerdefections in North America together with the effect of lower market activityin credit derivatives in both Europe and North America, and in agency bonds inNorth America.In Equities, growth in equity derivatives, reflecting more active markets andthe development of the business in Asia, has been offset by lower revenue incash equities.The Energy business in Europe which covers power, gas and oil products hasdelivered strong revenue growth, benefiting from the continued buoyant marketand from broker hires, and this has offset a reduction in revenue from NorthAmerica, where the business is focused mainly on power products.The Information Sales business has continued to benefit from increasingcustomer demand for both real time and end of day data, and an expansion of thecustomer base. The post trade Risk Management Services business hasestablished significant revenue from the TP Match platform launched at the
endof last year.Revenue by region Change Constant 2010 2009 Reported Exchange £m £m Rates Europe 288.1 289.1 -0% -0% North America 135.6 183.6 -26% -23% Asia Pacific 52.1 45.2 +15% +13% 475.8 517.9 -8% -7%
Revenue in Europe is little changed compared to last year. Broking revenue is1% lower, offset by increased revenue from Information Sales and RiskManagement Services. Broker headcount in Europe is 4% higher than last June at803, and average revenue per broker is 5% lower compared with the same period ayear ago. Broking revenue has benefited from more buoyant activity in emergingmarkets products, particularly in forward FX and in interest rate swaps, butrevenue from the cash, forward FX and interest rate swap desks which wereaffected by the BGC raid in the first half of last year has been lower. InFixed Income, revenue from government bonds has been maintained but revenue hasfallen in credit products, with substantially lower market activity in creditderivatives compared to the prior year. Markets across all sectors of theEnergy business have been active, and revenue in Equities has benefited fromthe development of the alternative investments desk and from investment inequity derivatives.Revenue in North America has reduced by 23%. Most of this decline is due tolower revenue from those desks affected by the broker defections last year.Excluding this, revenue has reduced by 6%. Broker headcount in North Americahas fallen from 526 at June 2009 to 461 at June 2010. Headcount on theaffected desks fell by 77 when the brokers defected during the second half of2009, and at June 2010 headcount on those desks is still 49 lower than a yearago. Underlying broker headcount is down by 4% reflecting the closure of theFlorida office and a reduction in the number of credit derivatives brokers dueto the decline in the market. Underlying average revenue per broker is 2%lower. Revenue in Treasury Products and Interest Rate Derivatives hasbenefited from a recovery in risk appetite with particularly good growth inemerging market products, FX options and interest rate options. Fixed Incomerevenue is down sharply due to the broker defections, which were mainly fromthis product group, and also due to lower activity in the markets for agencybonds and credit derivatives.Revenue in Asia has increased by 13%. Broker headcount in Asia at the end ofJune was 360, 4% higher than a year ago, and average revenue per broker hasincreased by 9%. Market activity in Asia fell sharply in 2009 but has pickedup during the first half of this year, reflecting the return of risk appetiteand capital deployed by clients in the region. Volumes in forward FX,especially in non-deliverable-forwards for non convertible currencies and in FXoptions in regional currencies, have recovered strongly. The region has alsobenefited from good revenue growth from the development of our market leadingoil products desks in Singapore following the integration of the Aspenbusiness, and from the commencement in February this year of the operation ofthe equity derivatives business in Tokyo.Operating profit by region Change Constant 2010 2009 Reported Exchange £m £m Rates Europe 69.6 69.4 +0% +0% North America 11.7 28.7 -59% -57% Asia Pacific 3.4 2.5 +36% +36% Reported 84.7 100.6 -16% -15%
Operating margin by region 2010 2009
Europe 24.2% 24.0% North America 8.6% 15.6% Asia Pacific 6.5% 5.5% 17.8% 19.4%
Operating profit and operating margin in Europe are little changed. Revenue, the broker employment costs to revenue percentage and support costs are all very similar to the same period last year.
Operating profit in North America has fallen by 57% due to the decline inrevenue with a reduction in operating margin to 8.6%. Broker employment costsas a percentage of revenue are higher than a year ago reflecting the increasedcosts of employment in the light of competitor action and the initialinefficiencies as new hires build up to their full run rate of revenue. Thereduced scale of the business has also eroded the operating margin as the fixedcosts in the region have not reduced in line with revenue.Operating profit in Asia Pacific has increased by 36% reflecting the higherrevenue compared to a year ago with an improvement in operating margin to6.5%. Broker employment costs as a percentage of revenue are slightly higherthan a year ago due to the investment in establishing the equity derivativesbusiness in Tokyo which commenced operations in February and is still buildingup to the anticipated revenue run rate. The improvement in operating marginreflects the benefit of increased revenue on the fixed support cost base.
Financial Review
The results for the first half of 2010 compared with those for the first half of 2009 are shown in the table below.
2010 2009 £m £m Revenue 475.8 517.9 Operating profit 84.7 100.6 Cash finance expense (6.1) (7.8) Adjusted Profit before tax * 78.6 92.8 Tax (24.8) (32.5) Associates 1.0 1.0 Minority interests (0.2) (0.5) Adjusted Earnings ** 54.6 60.8 Weighted average number of shares 214.3m 213.6m Adjusted Earnings per share 25.5p 28.5p
* Adjusted PBT reconciles to reported PBT as follows: 2010 2009
£m £m Adjusted Profit before tax 78.6 92.8 Non cash finance income/(expense) 0.7 (1.1) Reported Profit before tax 79.3 91.7 ** Adjusted Earnings reconciles to 2010 2009reported Earnings as follows: £m £m Adjusted Earnings 54.6 60.8
Non cash finance income/(expense) 0.7 (1.1) Tax on non cash finance income/(expense) (0.2) 0.4
Reported Earnings 55.1 60.1 Cash finance expense
The reduction in cash finance expense reflects the lower interest rates on the fixed rate bonds which took effect in July and August last year, and lower interest on the bank debt due to lower interest rates and the lower average amount outstanding, partly offset by lower interest receivable on cash balances.
Taxation
The effective rate of tax on adjusted PBT is 31.5% (2009: 35.0%). Theeffective rate of tax reflects the estimated effective rate for the full year. The reduction in the effective rate compared with 2009 results from theincrease in the proportion of taxable profits generated in the UK versus theUS.Exchange ratesThe income statements and balance sheets of the group's non-UK operations aretranslated into sterling at average and period end exchange ratesrespectively. The most significant exchange rates for the group are the USdollar, the Euro, the Singapore dollar and the Japanese Yen. Average andperiod end exchange rates for these currencies against sterling are shownbelow. Average Period End H1 2010 H1 2009 H2 2009 30 June 31 Dec 30 June 2010 2009 2009 US dollar $1.54 $1.47 $1.64 $1.50 $1.61 $1.65 Euro €1.14 €1.10 €1.13 €1.22 €1.13 €1.17 Singapore dollar S$2.15 S$2.19 S$2.33 S$2.09 S$2.27 S$2.38 Japanese Yen ¥141 ¥140 ¥150 ¥132 ¥150 ¥159 Cash flow and financingCash flow before dividends and debt repayments and draw downs is summarised inthe table below. 2010 2009 £m £m Operating profit 84.7 100.6 Share based compensation 1.3 (0.2) Depreciation and amortisation 4.5 4.1 EBITDA 90.5 104.5 Capital expenditure (net of disposals) (5.2) (4.1) Working capital (47.0) (57.4) Operating cash flow 38.3 43.0 Exceptional items - cash payments - (6.3) Interest (0.5) (4.4) Taxation (20.1) (15.0) Defined benefit pension scheme funding (6.3) (6.3) ESOT transactions 1.7 1.5
Dividends received from associates / paid to minorities 1.4 1.9
Acquisitions/investments (2.4) (3.5) Cash flow 12.1 10.9 The normal seasonal pattern of working capital movements is for tradereceivables and net settlement balances to be higher at June than at December,and operating cash flow for the first half of the year therefore tends to belower than operating profit. The working capital cash flow in the first half also reflects an increase inthe broker sign-on prepayment balance, as new sign-on payments have been higherthan the amortisation.
The defined benefit pension scheme funding includes £4.5m of additional special contributions agreed with the Trustees of the schemes with the aim of eliminating the actuarial deficits in the pension schemes by 31 December 2010.
Acquisition and investment expenditure in 2010 comprises deferred consideration payments relating to the acquisitions of Primex and Aspen, and the initial consideration (net of cash acquired) for OTC Valuations.
The movement in cash and debt is summarised below.
£m Cash Debt Net At 31 December 2009 396.2 (387.2) 9.0 Cash flow 12.1 - 12.1 Dividends (21.4) - (21.4) Debt repayments / draw downs (30.4) 30.4 - Effect of movement in exchange rates 7.8 0.1 7.9 Movements in fair value / amortisation of - (0.4) (0.4)costs At 30 June 2010 364.3 (357.1) 7.2 Net funds of £7.2m at 30 June 2010 are slightly lower than the £9.0m at 31December 2009. The sterling equivalent value of the cash balances held innon-UK operating subsidiaries, principally in the United States, has benefitedfrom the movements in exchange rates.The group's borrowings at 30 June 2010 comprised the £141.1m Eurobond due July2016, the remaining £8.5m of the Eurobond due August 2014, £210m of bank debtdrawn under an amortising term loan maturing in January 2012, and a smallamount of finance leases.
OTC Market Regulation
The passing into law of the Dodd-Frank Wall Street Reform and ConsumerProtection Act in the United States is a significant development in the processof agreeing reforms designed to strengthen the financial system and to improvethe operation of the financial markets. The most pertinent section of thelegislation for the inter-dealer broker industry covers the regulation of theOTC derivatives markets.The Act empowers the appropriate Commission (the Commodity Futures TradingCommission for "swaps" and the Securities and Exchange Commission for"security-based swaps") to determine whether particular instruments should becleared through central counterparties. Financial entities trading a swapwhich is required to be cleared must execute the trade through a "swapexecution facility" or a "board of trade", and the trade information will bereported to a swap data repository which will facilitate the availability ofswap transaction and pricing data. The legislation requires the appropriate Commission to establish the detailed rules and regulations to apply theseprinciples within one year of the date of enactment.We support the principles of the legislation in this area, and we believe thatit will enhance our business. Inter-dealer brokers play a vital role in theOTC financial markets, creating liquidity through price and volume discovery,and facilitating efficient trading and risk management, and this legislationformalises that role. We believe that our business will meet the requirementsfor "swap execution facilities" and we are well placed to introduce new systemsand to make systems enhancements that may be required to comply with thedetails of the new rules as they emerge.
We particularly welcome the recognition in the legislation of the following matters on which we have previously commented:
- Central counterparty clearing is not appropriate for all financial
instruments. Only those swaps that can effectively and safely be cleared by a
central counterparty should be required to be cleared, and this should be
determined in conjunction with the clearing organisations.
- In order to maintain efficiency and market flexibility, access to clearing
should be open to all execution venues on a non-discriminatory basis.
- The provision of trade information needs to be balanced with maintaining
market liquidity. Trade reporting to a central depository would be useful in
allowing regulators to understand total market and individual participant
exposures, but too much transparency can destroy liquidity.
The European Commission is expected to propose legislation in the second halfof the year to improve the functioning of derivatives markets. We continue tobe engaged through our trade association in providing input to the discussionson various proposals, and we are confident that we are well positioned torespond to the regulations when they are issued.
Outlook
The world's financial markets remained unsettled during the first half with bouts of intense volatility. Market activity in June and July has been relatively subdued, and although it continues to be difficult to forecast market activity, it is likely that the unsettled financial market conditions will persist into the second half and that there will be periods of higher activity in the remaining months of the year.
The underlying revenue run rate in comparison with the prior year is thereforeexpected to continue to improve in the second half, and although we are notplanning to fully rebuild broker headcount in North America this year, the neteffect on revenue of the broker defections is expected to be lower in thesecond half than in the first half.We have a well diversified and robust business and we are well positioned torespond to, and to benefit from, changes in the way in which the OTC marketsand our customers operate and are regulated. We expect to deliver a goodoutcome for the year.Condensed Consolidated Income Statementfor the six months ended 30 June 2010 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 (unaudited) (unaudited) £m £m £m Revenue 5 475.8 517.9 947.7 Administrative expenses (393.8) (419.3) (781.2) Other operating income 2.7 2.0 4.3 Operating profit 5 84.7 100.6 170.8 Finance income 6 5.6 14.8 20.2 Finance costs 7 (11.0) (23.7) (34.5) Profit before tax 79.3 91.7 156.5 Taxation (25.0) (32.1) (46.9)
Profit of consolidated companies 54.3 59.6
109.6
Share of results of associates 1.0 1.0
1.8 Profit for the period 55.3 60.6 111.4 Attributable to: Equity holders of the parent 55.1 60.1 110.8 Minority interests 0.2 0.5 0.6 55.3 60.6 111.4 Earnings per share Adjusted basic 8 25.5p 28.5p 49.2p Basic 8 25.7p 28.1p 51.8p Diluted 8 25.4p 28.0p 51.2p
Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 June 2010
Six months Six months Year ended ended ended 30 June 30 June 31 2010 2009 December (unaudited) (unaudited) 2009 £m £m £m Profit for the period 55.3 60.6 111.4 Other comprehensive income:
Revaluation of available-for-sale assets - 0.5
0.9
Gain on net investment hedges - 3.6
2.5
Effect of changes in exchange rates on translation of foreign operations 12.2 (23.0)
(17.2)
Actuarial losses on defined benefit pension
schemes (0.9) (9.7) (0.5)
Taxation charge on components of other
comprehensive income (3.2) (1.3) (1.9) Other comprehensive income for the period 8.1 (29.9)
(16.2)
Total comprehensive income for the period 63.4 30.7
95.2 Attributable to: Equity holders of the parent 63.0 30.4 94.9 Minority interests 0.4 0.3 0.3 63.4 30.7 95.2 Condensed Consolidated Balance Sheetas at 30 June 2010 30 June 30 June 31 2010 2009 December (unaudited) (unaudited) 2009 £m £m £m Non-current assets Goodwill 378.1 380.9 373.5 Other intangible assets 10.2 6.6 7.4
Property, plant and equipment 24.3 24.6
25.6 Interest in associates 3.1 2.7 3.5 Other financial assets 4.7 5.4 4.8 Deferred tax assets 14.7 15.2 13.7 Retirement benefit asset 4.8 - - 439.9 435.4 428.5 Current assets Trade and other receivables 15,289.1 21,328.6 5,765.0 Other financial assets 33.0 33.4 30.1 Cash and cash equivalents 331.3 316.0 366.1
Derivative financial instruments - 3.6
- 15,653.4 21,681.6 6,161.2 Total assets 16,093.3 22,117.0 6,589.7 Current liabilities Trade and other payables (15,303.1) (21,377.8) (5,825.5) Interest bearing loans and borrowings (30.0) (34.0)
(30.2)
Derivative financial instruments (0.1) (7.9)
- Current tax liabilities (44.9) (42.8) (36.7) Short term provisions (1.1) (1.6) (1.5) (15,379.2) (21,464.1) (5,893.9) Net current assets 274.2 217.5 267.3 Non-current liabilities Interest bearing loans and borrowings (327.1) (359.2)
(357.0)
Retirement benefit obligations - (12.1)
(1.3) Deferred tax liabilities (11.1) (1.2) (8.1) Long-term provisions (9.0) (8.2) (7.8) Other long-term payables (9.4) (12.8) (9.1) (356.6) (393.5) (383.3) Total liabilities (15,735.8) (21,857.6) (6,277.2) Net assets 357.5 259.4 312.5 Equity Share capital 53.8 53.8 53.8 Share premium account 9.9 9.9 9.9 Reverse acquisition reserve (1,182.3) (1,182.3) (1,182.3) Other reserves 140.1 125.3 128.6 Retained earnings 1,333.4 1,250.0 1,300.3
Equity attributable to equity holders of the
parent 354.9 256.7 310.3 Minority interests 2.6 2.7 2.2 Total equity 357.5 259.4 312.5
Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2010
Equity attributable to equity holders of the parent Share Reverse Re- Hedging Share premium acquisition valuation Merger and Own Retained Minority Total capital account reserve reserve reserve
translation shares earnings Total interests equity (unaudited) £m £m £m £m £m £m £m £m £m £m £m Balance at 1 January 2010 53.8 9.9 (1,182.3) 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5 Profit for the period - - - - - - - 55.1 55.1 0.2 55.3 Other comprehensive income for the period - - - - - 8.9 - (1.0) 7.9 0.2 8.1 Total comprehensive income for the period - - - - - 8.9 - 54.1 63.0 0.4 63.4 Dividends paid in the period - - - - - - - (21.4) (21.4) - (21.4) Sale of own shares - - - - - - 2.3 (0.6) 1.7 - 1.7 Shares used to meet share award exercises - - - - - - 0.3 (0.3) - - - Credit arising on share-based payment awards - - - - - - - 1.3 1.3 - 1.3 Balance at 30 June 2010 53.8 9.9 (1,182.3) 2.3 121.5 16.5 (0.2) 1,333.4 354.9 2.6 357.5 (unaudited) Balance at 1 January 2009 53.8 9.9 (1,182.3) 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5 Profit for the period - - - - - - - 60.1 60.1 0.5 60.6 Other comprehensive income for the period - - - 0.5 - (19.2) - (11.0) (29.7) (0.2) (29.9) Total comprehensive income for the period - - - 0.5 - (19.2) - 49.1 30.4 0.3 30.7 Dividends paid in the period - - - - - - - (17.1) (17.1) - (17.1) Sale of own shares - - - - - - 2.6 (1.1) 1.5 - 1.5 Shares used to meet share award exercises - - - - - - 1.5 (1.5) - - - Debit arising on share-based payment awards - - - - - - - (0.2) (0.2) - (0.2) Balance at 30 June 2009 53.8 9.9 (1,182.3) 1.9 121.5 4.7 (2.8) 1,250.0 256.7 2.7 259.4 Balance at 1 January 2009 53.8 9.9 (1,182.3) 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5 Profit for the year - - - - - - - 110.8 110.8 0.6 111.4 Other comprehensive income for the year - - - 0.9 - (16.3) - (0.5) (15.9) (0.3) (16.2) Total comprehensive income for the year - - - 0.9 - (16.3) - 110.3 94.9 0.3 95.2 Dividends paid in the year - - - - - - - (27.8) (27.8) (0.7) (28.5) Sale of own shares - - - - - - 2.6 (1.1) 1.5 - 1.5 Shares used to meet share award exercises - - - - - - 1.5 (1.5) - - - Increase in minorities' equity interests - - - - - - - - - 0.2 0.2 Debit arising on share-based payment awards - - - - - - - (0.4) (0.4) - (0.4) Balance at 31 December 2009 53.8 9.9 (1,182.3) 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.5 Condensed Consolidated Cash Flow Statementfor the six months ended 30 June 2010 Notes Six months Six months Year ended ended ended 30 June 30 June 31 2010 2009 December 2009 (unaudited) (unaudited) £m £m £m Net cash from operating activities 10(a) 15.7 13.9 85.3 Investing activities
Purchase of other financial assets (2.5) (4.5)
(0.8) Interest received 0.9 1.2 5.0 Dividends from associates 1.4 1.9 1.9
Purchase of available-for-sale assets - (0.3)
(0.1)
Purchase of intangible fixed assets (3.8) (2.3)
(4.1)
Purchase of property, plant and equipment (1.4) (1.8)
(5.2)
Proceeds on disposal of property, plant
and equipment 0.1 0.1 0.2 Investment in subsidiaries (2.4) (3.2) (3.4)
Net cash used in investment activities (7.7) (8.9)
(6.5) Financing activities Dividends paid 9 (21.4) (17.1) (27.8)
Dividends paid to minority interests - -
(0.7) Sale of own shares 1.7 1.5 1.5 Repayment of debt (30.3) (30.0) (30.1)
Repayment of obligations under finance
leases (0.2) (3.4) (3.7) Eurobond issue costs - - (2.5)
Payments relating to net investment
hedges - - (12.5)
Receipts relating to net investment
hedges - - 2.5 Net cash used in financing activities (50.2) (49.0) (73.3)
Net (decrease)/increase in cash and cash
equivalents (42.2) (44.0) 5.5
Net cash and cash equivalents at the
beginning of the period 366.1 374.9 374.9 Effect of foreign exchange rate changes 7.4 (18.9)
(14.3)
Net cash and cash equivalents at the end
of the period 331.3 312.0 366.1 Cash and cash equivalents 331.3 316.0 366.1 Overdrafts - (4.0) -
Net cash and cash equivalents 10(b) 331.3 312.0
366.1
Notes to the Condensed Consolidated Financial Statements for the six months ended 30 June 2010
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the Companies Act.
The condensed consolidated financial information for the six months ended 30June 2010 has been prepared in accordance with the Disclosure and TransparencyRules (DTR) of the Financial Services Authority and with IAS 34 'InterimFinancial Reporting' as adopted by the European Union (EU). This condensedfinancial information should be read in conjunction with the statutory accountsfor the year ended 31 December 2009 which was prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EU.The statutory accounts for the year ended 31 December 2009 have been reportedon by the Company's auditors, Deloitte LLP, and have been delivered to theRegistrar of Companies. The report of the auditors on those accounts wasunqualified and did not contain a statement under section 498(2) or (3) of theCompanies Act 2006.The condensed consolidated financial information for the six months ended 30June 2010 has been prepared using accounting policies consistent with IFRS. Theinterim information, together with the comparative information contained inthis report for the year ended 31 December 2009, does not constitute statutoryaccounts within the meaning of section 434 of the Companies Act 2006. Thefinancial information is unaudited but has been reviewed by the Company'sauditors, Deloitte LLP, and their report appears at the end of the interimfinancial report.
2. Accounting policies
The condensed consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The Group has considerable financial resources both in the regions and at the corporate centre to comfortably meet the Group's ongoing obligations. Accordingly, the going concern basis continues to be used in preparing these condensed consolidated financial statements. The condensed consolidated financial statements are rounded to the nearest hundred thousand pounds (expressed as millions to one decimal place - £m), except where otherwise indicated.
The same accounting policies, presentation and methods of computation arefollowed in the condensed financial statements as applied in the Group's latestannual audited financial statements for the year ended 31 December 2009, exceptas described below.The Group has adopted the revised IFRS 3 'Business Combinations' standard andamendments to International Accounting Standard (IAS) 27 'Consolidation andSeparate Financial Statements'. The revisions and amendments to thesestandards apply to business combinations after 1 January 2010 and require:acquisition costs to be recognised as an expense in the income statement in theperiod in which they arise; all consideration transferred, including contingentconsideration, is recognised and measured at fair value at the acquisitiondate; subsequent remeasurement of contingent consideration is recognised in theincome statement; equity interests held prior to control being obtained areremeasured to fair value at the date of obtaining control, and any gain or lossis recognised in the income statement; changes in a parent's ownership interestin a subsidiary that do not result in a change of control are treated astransactions between equity holders and are reported in equity; and, an optionis available, on a transaction by transaction basis, to measure non-controllinginterests, previously referred to as minority interests, in the entity at fairvalue, or at the non-controlling interests' proportionate share of the netidentifiable assets of the entity acquired. The Group has also adopted amendments to IFRS 2 'Share-based Payment' relatingto group cash settled share-based payment transactions, amendments to IFRIC 9'Reassessment of Embedded Derivatives' and IAS 39 'Financial Instruments:Recognition and Measurement' relating to embedded derivatives, amendment to IAS39 'Financial Instruments: Recognition and Measurement' relating to eligiblehedged items and Improvements to IFRSs (2009). The adoption of theseamendments has not had any significant impact on the financial statements.
3. Related party transactions
Related party transactions are described in the 2009 annual report and accountsin note 37 to the consolidated financial statements. There have been nomaterial changes in the nature or value of related party transactions in thesix months ended 30 June 2010.
4. Principal risks and uncertainties
Robust risk management is fundamental to the achievement of the Group'sobjectives. The Group maintains a Risk Assessment Framework which identifiesrisks within the following eight risk categories: credit risk, market risk,operational risk, strategic and business risk, financial risk, reputationalrisk, governance risk and regulatory, legal and human resource risk. Adetailed explanation of the above risks can be found on pages 16 to 18 of thelatest annual report which is available at www.tullettprebon.com. The directorsdo not consider that the principal risks and uncertainties have changed sincethe publication of the annual report for the year ended 31 December 2009. Risks and uncertainties which could have a material impact on the Group'sperformance over the remaining six months of the financial year are discussedin the Interim Management Report.
5. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group is organised by geographic reporting segments which are used for the purposes of resource allocation and assessment of segmental performance by Group management. These are the Group's reportable segments under IFRS 8 'Operating Segments'.
Each geographic reportable segment derives revenue from Treasury Products, Interest Rate Derivatives, Fixed Income, Equities, Energy and Information Sales and Risk Management Services.
Information regarding the Group's operating segments is reported below:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 Revenue £m £m £m Europe 288.1 289.1 542.6 North America 135.6 183.6 318.0 Asia Pacific 52.1 45.2 87.1 475.8 517.9 947.7 Operating profit Europe 69.6 69.4 123.2 North America 11.7 28.7 44.4 Asia Pacific 3.4 2.5 3.2 Reported operating profit 84.7 100.6 170.8 Finance income 5.6 14.8 20.2 Finance costs (11.0) (23.7) (34.5) Profit before tax 79.3 91.7 156.5 Taxation (25.0) (32.1) (46.9)
Profit of consolidated companies 54.3 59.6
109.6
Share of results of associates 1.0 1.0
1.8 Profit for the period 55.3 60.6 111.4
There are no inter-segmental sales included in segment revenue.
5. Segmental analysis (continued)
Other segmental information Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 Segment assets £m £m £m Europe 7,279.7 8,776.9 2,090.7 North America 8,743.0 13,281.8 4,437.0 Asia Pacific 70.6 58.3 62.0 16,093.3 22,117.0 6,589.7
Segmental assets exclude all inter-segment balances.
Analysis by product group Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 Revenue £m £m £m Treasury Products 125.2 124.0 238.9 Interest Rate Derivatives 107.5 102.3 192.0 Fixed Income 132.7 188.3 317.1 Equities 38.1 38.8 74.0 Energy 55.6 52.3 100.6 Information Sales and Risk Management Services 16.7 12.2 25.1 475.8 517.9 947.7
There are no inter-segment sales included in segment revenue.
6. Finance income Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 £m £m £m
Interest receivable and similar income 0.9 2.1
3.4
Fair value gain on derivative instruments - 9.3
9.0
Expected return on pension schemes' assets 4.7 3.3
6.5
Amortisation of discount on deferred
consideration - 0.1 1.3 5.6 14.8 20.2 7. Finance costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 £m £m £m
Interest payable on bank loans 1.2 3.1
4.6 Interest payable on Eurobond 5.2 6.2 11.5 Other interest payable 0.1 0.1 0.2
Amortisation of debt issue costs 0.5 0.5
0.9 Total borrowing costs 7.0 9.9 17.2
Fair value loss on derivative instruments 0.1 10.3
10.3
Interest cost on pension schemes' liabilities 3.9 3.5
7.0 11.0 23.7 34.5 8. Earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 Adjusted basic 25.5p 28.5p 49.2p Basic 25.7p 28.1p 51.8p Diluted 25.4p 28.0p 51.2p
The calculation of basic and diluted earnings per share is based on the following number of shares in issue:
Six Six Year months months ended ended ended 31 30 30 December June June 2009 2010 2009 No.(m) No.(m) No.(m)
Weighted average shares in issue used for calculating basic and adjusted basic earnings per share 214.3 213.6
213.9 Contingently issuable shares 2.0 0.6 1.8
Issuable on exercise of options 0.8 0.6
0.7
Diluted weighted average shares in issue 217.1 214.8
216.4
8. Earnings per share (continued)
The earnings used in the calculation of adjusted, basic and diluted earningsper share are set out below: Six Six Year months months ended ended ended 31 30 June 30 June December 2010 2009 2009 £m £m £m Profit for the period 55.3 60.6 111.4 Minority interests (0.2) (0.5) (0.6)
Earnings for calculating basic and diluted earnings
per share 55.1 60.1 110.8 Expected return on pension schemes' assets (4.7) (3.3)
(6.5)
Interest cost on pension schemes' liabilities 3.9 3.5
7.0
Amortisation of discount on deferred consideration - (0.1) (1.3)
Fair value movement on derivative financial
instruments 0.1 1.0 1.3 Tax on above items 0.2 (0.4) (0.2) Prior year tax - - (5.9)
Adjusted earnings for calculating adjusted basic
earnings per share 54.6 60.8 105.2 9. Dividends Six months Six months Year ended ended ended 30 June 30 June 31 December 2010 2009 2009 £m £m £m
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2009 of 10.0p per share 21.4 - -
Interim dividend for the year ended 31 December 2009 of 5.0p per share - -
10.7
Final dividend for the year ended 31 December
2008 of 8.0p per share - 17.1 17.1 21.4 17.1 27.8
An interim dividend of 5.25p per share will be paid on 18 November 2010 to all shareholders on the Register of Members on 29 October 2010.
The trustees of the Tullett Prebon plc Employee Share Ownership Trust and the trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.
10. Notes to the Condensed Consolidated Cash Flow Statement
(a) Reconciliation of operating profit to net cash from operating activities Six Six Year months months ended ended ended 31 30 June 30 June December 2010 2009 2009 £m £m £m Operating profit 84.7 100.6 170.8 Adjustments for: Share-based compensation 1.3 (0.2) (0.4)
Depreciation of property, plant and equipment 3.3 3.1 6.1
Amortisation of intangible assets 1.2 1.0
2.1
Exchange gain on other financial assets - (0.2) -
Increase/(decrease) in provisions for liabilities
and charges 0.2 (1.0) (1.8) Outflow from retirement benefit obligations (6.3) (6.3)
(8.1)
(Decrease)/increase in non-current liabilities - (0.2)
0.7
Operating cash flows before movement in working
capital 84.4 96.8 169.4
(Increase)/decrease in trade and other receivables (31.7) (14.4) 4.4
Increase in net settlement balances (0.6) (8.5)
(0.2)
Decrease in trade and other payables (14.9) (39.4)
(41.2)
Cash generated from operations 37.2 34.5 132.4 Income taxes paid (20.1) (15.0) (30.4) Interest paid (1.4) (5.6) (16.7)
Net cash from operating activities 15.7 13.9
85.3 (b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short term highlyliquid investments with an original maturity of three months or less. Cash atbank earns interest at floating rates based on daily bank deposit rates. Shortterm deposits are made for varying periods of between one day and one weekdepending on the immediate cash requirements of the Group, and earn interest atthe respective short term deposit rates.
For the purposes of the Condensed Consolidated Cash Flow Statement, cash and cash equivalents comprise the following:
30 June 30 June 31 December 2010 2009 2009 £m £m £m Cash and cash equivalents 331.3 316.0 366.1 Bank overdrafts - (4.0) - 331.3 312.0 366.1 11. Analysis of net funds At Cash Non-cash Exchange At 1 January flow items differences 30 June 2010 2010 £m £m £m £m £m Cash 189.7 (5.1) - 4.7 189.3 Cash equivalents 173.6 (36.5) - 2.7 139.8 Client settlement money 2.8 (0.6) - - 2.2 Cash and cash equivalents 366.1 (42.2) - 7.4 331.3 Other current financial assets 30.1 2.5 - 0.4 33.0 Total funds 396.2 (39.7) - 7.8 364.3 Bank loans within one year (30.0) 30.0 (29.8) - (29.8) Bank loans after one year (209.1) - 29.5 - (179.6) Loans due after one year (147.6) 0.3 (0.1) - (147.4) Finance leases (0.5) 0.2 (0.1) 0.1 (0.3) (387.2) 30.5 (0.5) 0.1 (357.1) Total net funds 9.0 (9.2) (0.5) 7.9 7.2
Client settlement money represents balances held by the Group received as a result of corporate actions relating to securities transactions.
Other current financial assets comprise short term government securities and term deposits held on deposit with clearing organisations.
12. Notes to the Condensed Consolidated Statement of Changes in Equity
Total comprehensive income reserve movements
Equity attributable to equity holders of the parent Revaluation Hedging and Retained Minority Total reserve translation earnings Total interests equity Six months ended 30 June 2010 £m £m £m £m £m £m Profit for the period - - 55.1 55.1 0.2 55.3 Revaluation of available-for-sale assets - - - - - - Exchange differences on translation of foreign operations - 12.0 - 12.0 0.2 12.2 Actuarial loss on defined benefit pension schemes - - (0.9) (0.9) - (0.9) Taxation charge on components of other comprehensive income - (3.1) (0.1) (3.2) - (3.2) Total comprehensive income for the six months ended 30 June 2010 - 8.9 54.1 63.0 0.4 63.4
12. Notes to the Condensed Consolidated Statement of Changes in Equity (continued)
Total comprehensive income reserve movements (continued)
Equity attributable to equity holders of the parent Hedging Revaluation and Retained Minority Total reserve translation earnings Total interests equity Six months ended 30 June 2009 £m £m £m £m £m £m Profit for the period - - 60.1 60.1 0.5 60.6 Revaluation of available-for-sale assets 0.5 - - 0.5 - 0.5 Gain on net investment hedge - 3.6 - 3.6 - 3.6 Exchange differences on translation of foreign operations - (22.8) - (22.8) (0.2) (23.0) Actuarial loss on defined benefit pension schemes - - (9.7) (9.7) - (9.7) Taxation charge on components of other comprehensive income - - (1.3) (1.3) - (1.3) Total comprehensive income for the six months ended 30 June 2009 0.5 (19.2) 49.1 30.4 0.3 30.7 Equity attributable to equity holders of the parent Hedging Revaluation and Retained Minority Total reserve translation earnings Total interests equity Year ended 31 December 2009 £m £m £m £m £m £m Profit for the year - - 110.8 110.8 0.6 111.4 Revaluation of available-for-sale assets 0.9 - - 0.9 - 0.9 Gain on net investment hedge - 2.5 - 2.5 - 2.5 Exchange differences on translation of foreign operations - (16.9) - (16.9) (0.3) (17.2) Actuarial loss on defined benefit pension schemes - - (0.5) (0.5) - (0.5) Taxation charge on components of other comprehensive income - (1.9) - (1.9) - (1.9) Total comprehensive income for the year ended 31 December 2009 0.9 (16.3) 110.3 94.9 0.3 95.2
Directors' Responsibility Statement
The directors confirm, to the best of their knowledge, that the condensed setof financial statements has been prepared in accordance with IAS 34 'InterimFinancial Reporting' as adopted by the European Union, and that the interimmanagement report herein includes a fair review of the information required byDTR 4.2.7R and DTR 4.2.8R.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.
By order of the BoardTerry SmithChief Executive2 August 2010
Independent Review Report to Tullett Prebon plc
Introduction
We have been engaged by the Company to review the condensed set of financialstatements in the half year report for the six months ended 30 June 2010 whichcomprises the Condensed Consolidated Income Statement, the CondensedConsolidated Statement of Comprehensive Income, the Condensed ConsolidatedBalance Sheet, the Condensed Consolidated Statement of Changes in Equity, theCondensed Consolidated Cash Flow Statement and related notes 1 to 12. We haveread the other information contained in the half year report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements.This report is made solely to the Company in accordance with InternationalStandard on Review Engagements (UK and Ireland) 2410 "Review of InterimFinancial Information Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone otherthan the Company for our review work, for this report, or for the conclusionswe have formed.Directors' responsibilitiesThe half year report is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the half year report inaccordance with the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half year report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half year report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half year reportfor the six months ended 30 June 2010 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority.Deloitte LLPChartered Accountants and Statutory Auditors2 August 2010London, UK
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