5th Aug 2008 07:00
TULLETT PREBON PLC
INTERIM MANAGEMENT REPORT - for the six months ended 30 June 2008
Highlights
Tullett Prebon plc today announced its interim results for the six months ended 30 June 2008. The highlights are:
- Revenue ‚£468.3m (2007: ‚£371.6m) - growth of 25% at constant
exchange rates - Operating profit ‚£84.2m (2007: ‚£64.8m) - growth of 30% - Adjusted* Profit before tax ‚£73.9m (2007: ‚£58.7m) - Adjusted** EPS 22.4p (2007: 17.2p)
* excluding non cash gains and losses in net finance income/(expense)
** excluding non cash gains and losses in net finance income/(expense), net of tax, and prior year tax items
A reconciliation of adjusted PBT and adjusted Earnings to the reported figures is shown in the Business Review.
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:
"Our results for the first half of 2008 reflect the benefit of the actions wehave taken over the last 18 months in pursuit of our objectives of acceleratingthe rate of revenue growth and developing our electronic broking capabilities,as well as the favourable market conditions.Revenue for the first half of ‚£468.3m (2007: ‚£371.6m) was up 25% at constantexchange rates. Operating profit has increased by 30% to ‚£84.2m (2007: ‚£64.8m)with the operating margin increasing to 18.0% (2007: 17.4%) despite theincrease in the investment in electronic broking. Adjusted earnings per sharefor the first half were 22.4p (2007: 17.2p)."
Terry Smith, Chief Executive, added:
"The outlook for Tullett Prebon is positive. The inter-dealer broker market isgrowing and we are well diversified across both products and geographies. Thereare considerable opportunities for us, however, to continue to broaden ourproduct and geographic coverage and to deepen our liquidity pools through bothhiring brokers and acquisitions.Our customers are operating in extremely challenging market conditions, and ourindustry growth rate is expected to be lower in the second half thanexperienced in the last 12 months. Nevertheless, as a result of the actions wehave taken, we continue to expect to deliver a good outcome for the year."
Enquiries:
Nigel Szembel, Head of Communications Mobile: 07802 362088
Tullett Prebon plc
Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com.
Chairman's statement
Our results for the first half of 2008 reflect the benefit of the actions wehave taken over the last 18 months in pursuit of our objectives of acceleratingthe rate of revenue growth and developing our electronic broking capabilities,as well as the favourable market conditions.We continue to seek to enhance and broaden our product coverage and deepenliquidity pools, through a combination of new broker hires, acquisitions andproduct development. Our focus for these investments is in those product areaswhich we believe have the best potential for future revenue growth. In March wecompleted the acquisition of Primex Energy Brokers, a leading UK based brokerin a wide range of oil products, which complements and enhances our existingEnergy business. The majority of the brokers we contracted last year have nowjoined the business, and our broker headcount stands at 1,706 at the end ofJune, 7.5% higher than a year ago.Revenue for the first half of ‚£468.3m (2007: ‚£371.6m) was up 25% at constantexchange rates. Operating profit has increased by 30% to ‚£84.2m (2007: ‚£64.8m)with the operating margin increasing to 18.0% (2007: 17.4%) despite theincrease in the investment in electronic broking.Financing costs were higher in the first half of 2008 compared to a year agoreflecting the change in the Company's capital structure following the ‚£301.5mreturn of capital to shareholders in March last year. Nevertheless, adjustedprofit before tax was up 26% to ‚£73.9m (2007: ‚£58.7m). Adjusted earnings pershare for the first half were 22.4p (2007: 17.2p). An interim dividend of 4.75pper share (2007: 4p per share) will be paid on 20 November 2008 to shareholderson the register at 31 October 2008.Our customers are operating in extremely challenging market conditions, and ourindustry growth rate is expected to be lower in the second half thanexperienced in the last 12 months. Nevertheless, as a result of the actions wehave taken, we continue to expect to deliver a good outcome for the year.Keith HamillChairman5 August 2008Business reviewThe inter-dealer broker business thrives on volatility in financial markets,and the higher levels of volatility that we experienced from June last year andthroughout the second half of 2007 continued into the first half of 2008.The investments we have made to accelerate the rate of revenue growth over thelast 18 months have allowed us to fully benefit from these favourable marketconditions. Revenue growth in the first half of 2008 was 25% at constantexchange rates. Overall activity levels, measured as voice broking revenue perworking day, were slightly lower in the second quarter than in the firstquarter of this year, but revenue in the second quarter was still 22% higherthan in the same quarter a year ago.We contracted 125 new brokers in 2007, with a particular focus on building ourpresence in the faster growing sectors of the market, and most of these brokershave now joined the business. The restructuring and extension of our jointventure in Tokyo, which was completed at the end of last year, has broadenedour product coverage and provides a strong platform for further development ofour activities in both Tokyo and across the region. The acquisition of Primexin March this year adds extensive oil products broking capability whichcomplements and enhances our existing Energy business which was previouslyfocused primarily on gas and power products.We have continued to invest in the development of our electronic brokingcapabilities, supporting both pure and hybrid models. Our main pure electronicbroking platform serving the USD repo market has become well established, witha market share by volume of 30-40%. We operate a hybrid model in FX options,with the electronic broking platform supporting voice broking activity inrelated products, and this has continued to gain customer acceptance and volumeacross all three regions. We have continued the development of new platformsand expect to launch these in the second half. The gross investment in thedevelopment and management of electronic broking in the first half was ‚£11.5m(2007: ‚£6.7m).
Our key financial and performance indicators for the first half of 2008 compared with the first half of 2007 are shown below.
Six months ended 30 June 2008 30 June 2007 Change Revenue ‚£468.3m ‚£371.6m +25%* Operating margin 18.0% 17.4% +0.6% points Broker headcount (period end) 1,706 1,587 +7.5% Average revenue per broker (‚£'000) 272 228
+18%*
Broker employment costs to broker 57.5% 56.4% +1.1% pointsrevenue Broking revenue per support staff 687 566
+20%*
head (‚£'000)
* expressed at constant exchange rates
Revenue
The tables below analyse revenue for the first half of 2008 compared with theequivalent period in 2007. A significant proportion of the group's activitiesis conducted outside the UK and the reported results are therefore impacted bythe movement in the foreign exchange rates used to translate the results ofoverseas operations. Although the impact of movements in exchange ratescompared with those used for the first half of 2007 is relatively small, inorder to give a more meaningful analysis of performance, revenue is presentedbelow using exchange rates consistent with those used in 2008. The commentaryrefers to changes at constant exchange rates.Revenue by product group Six months ended Six months ended Change 30 June 2008 30 June 2007 ‚£m ‚£m Treasury Products 127.8 98.7 +29%Interest Rate Derivatives 114.1 91.0 +25%Fixed Income 128.4 109.9 +17%Equities 48.7 36.6 +33%Energy 40.7 32.4 +26%Information Sales 8.6 7.1 +21%At constant exchange rates 468.3 375.7 +25%Translation - (4.1) Reported 468.3 371.6 +26%
All the product markets in which we operate have benefited from the higherlevels of volatility compared to the first half last year. In Treasury Productswe have continued to develop our strong position in FX across all threeregions, and have seen particularly good growth in non-deliverable forwards andin emerging market currencies generally. Cash and deposit markets have alsoseen strong volumes. Interest Rate Derivatives markets have been busy,particularly at the short end, reflecting the volatile interest rateenvironment. Investor flight to quality has driven volumes in Fixed Income,particularly benefiting our strong franchise in European government bonds.Increasing use of equity derivatives and our developing position in this markethas made Equities the fastest growing product group for us in the first half.Energy volumes have been strong and we have benefited both from our acquisitionof Primex and the introduction and growth of new products. Our InformationSales business has benefited from increasing customer demand for both real timeand end of day data and the expansion of the customer base in emerging markets.Revenue by region Six months ended Six months ended Change 30 June 2008 30 June 2007 ‚£m ‚£m Europe 247.4 186.4 +33% North America 165.3 151.1 +9% Asia Pacific 55.6 38.2 +46% At constant exchange rates 468.3 375.7 +25%Translation - (4.1) Reported 468.3 371.6 +26%Revenues in Europe increased by 33%. Broker headcount in Europe has increasedby over 10% since June 2007 to 762 at the period end, reflecting the newbrokers we have hired and the 35 brokers added through the acquisition ofPrimex. Average revenue per broker has increased by 24%. All product groups inEurope have seen strong revenue growth. The business continues to benefit fromthe focus on volatility products as an asset class and from our leadingposition in the FX markets and in European government bonds. One of theobjectives of our broker recruitment last year was to establish a significantpresence in credit and credit default swaps ("CDS") in London. Fifteen creditand CDS brokers started with the business during the first half and havequickly established themselves. Our Energy activities in Europe have beenboosted by the acquisition of Primex and the growth in a number of newlyintroduced products including soft commodities, emissions, and nuclear fuelderivatives. Although London continues to be the dominant centre for theregion, our operations in the other financial centres in Europe have grownfaster than the region as a whole, reflecting the benefit of the focus broughtby the new managing director for those centres.Revenues in North America increased by 9%. Broker headcount in North America,at 568 at the period end, is 5% lower than at June last year. We have continuedto change the mix of the headcount in the business during the first half, withincreases in Equities and Energy offset by reductions in the more mature partsof the Fixed Income market where the rate of revenue growth is more modest.Average revenue per broker is up 16% on last year. The fastest growing productgroups in North America were Treasury Products and Interest Rate Derivatives.In the former we have seen a strong performance in forward FX particularly inemerging market currencies including non-deliverable forwards in Latin Americanand Asian currencies, and our Fed funds desk was also particularly active. Inthe latter we benefited from our leading position in the USD swap market whichsaw high volumes in both short and medium term products.Revenues in Asia increased by 46%. Broker headcount in Asia was 376 at theperiod end, an increase of 26% since June last year. Average revenue per brokerhas increased by 16%. The three largest financial centres in Asia areSingapore, Tokyo and Hong Kong, and these offices account for over 80% of ourrevenue in the region. The restructured joint venture in Tokyo has broadenedour product coverage with additional market leading desks which have extendedour presence in the local interest rate swap market beyond Yen products andadded forward Yen FX products to our portfolio. Our equity derivativesactivities based in Hong Kong have continued to grow strongly. We have grownrevenue in Treasury Products through our increased coverage of non-deliverableforwards in several Asian currencies, based from Hong Kong and Singapore, andfrom our regional FX Options business which has benefited from the introductionof the electronic broking platform.
Operating Profit and Margin
In order to present the most meaningful analysis of operating profit andoperating margin the tables below show profits and margins before the group'sinvestment in the development and management of our electronic brokingcapability, which now impacts all three regions. The notes to the consolidatedfinancial statements show the operating profit by region after including theinvestment in electronic broking.Operating Profit Six months ended Six months ended Change 30 June 2008 30 June 2007 ‚£m ‚£m Europe 55.1 40.4 +36%North America 30.6 27.0 +13%Asia Pacific 10.0 4.1 +144%Before investment in 95.7 71.5 +34%electronic broking Investment in electronic (11.5) (6.7) +72%broking Reported 84.2 64.8 +30%Operating Margin Six months ended Six months ended 30 June 2008 30 June 2007 Europe 22.3% 21.9% North America 18.5% 17.8% Asia Pacific 18.0% 11.5% Before investment in 20.4% 19.2% electronic broking Investment in electronic (2.4%) (1.8%) broking Reported 18.0% 17.4% Operating profit, before taking into account the investment in the developmentand management of our electronic broking capability, is 34% higher than in thefirst half of 2007. The operating margin on this basis is 20.4%, 1.2% pointshigher than in 2007. This increase reflects the operating leverage in the voicebroking business, with margins benefiting from higher revenue without acorresponding increase in support costs.All three regions have increased operating margins. Operating margins in Europehave increased despite an increase in the broker compensation to revenuepercentage, as the rate of increase in support costs is much lower than thegrowth in revenue. In North America, support costs are lower in absolute termsthan a year ago and contribution margin before support costs is higher.However, the increase in the overall margin in North America is held back bythe recognition in the first half this year of one off costs associated withoffice moves. Although support costs in Asia have increased, particularlyreflecting the change in the joint venture in Tokyo and rising premises costs,operating margins have benefited from the significant increase in the scale ofthe region.
Taking into account the investment in the development and management of our electronic broking capability, our reported margin in the first half was 18.0%, up 0.6% points from 2007.
Adjusted Profit before Tax and Earnings
Six months ended Six months ended 30 June 2008 30 June 2007 ‚£m ‚£mRevenue 468.3 371.6 Operating profit 84.2 64.8
Cash finance income/(expense) (10.3) (6.1) Adjusted Profit before tax * 73.9 58.7
Tax (26.6) (22.3) Associates 0.7 0.2 Minority interests (0.5) (0.3) Adjusted Earnings ** 47.5 36.3
Weighted average number of shares 212.3m 211.6m
Adjusted Earnings per share 22.4p 17.2p Six months ended Six months ended 30 June 2008 30 June 2007
* Adjusted PBT reconciles to reported PBT ‚£m ‚£m
as follows: Adjusted Profit before tax 73.9 58.7 Non cash finance income/(expense) 0.6 (1.6) Reported Profit before tax 74.5 57.1 Six months ended Six months ended** Adjusted Earnings reconciles to 30 June 2008 30 June 2007reported Earnings as follows: ‚£m ‚£m Adjusted Earnings 47.5 36.3
Non cash finance income/(expense) 0.6 (1.6) Deferred tax on non cash finance income/ (0.2) (0.1)
(expense) Prior year tax items - (0.5) Reported Earnings 47.9 34.1
The calculation of Adjusted EPS is also set out in note 8 to the consolidated financial statements.
Cash Finance Income/(Expense)The increase in cash finance income/(expense) reflects the impact for the fullsix month period this year of interest payable and fee amortisation on thefacilities drawn down in March 2007 to finance the return of capital, and therecognition in the first half of 2007 of a ‚£1.1m one-off interest receipt
onreclaimed tax.TaxationThe effective rate of tax on adjusted PBT is 36.0% (2006: 38.0%). The reductionin the effective rate compared with 2007 results primarily from the fullbenefit of a restructuring of intra-group financing arrangements, which wasimplemented during 2007.Cash Flow Six months ended Six months ended 30 June 2008 30 June 2007 ‚£m ‚£m Operating profit 84.2 64.8 Share option plan charges 2.1 2.1
Depreciation and amortisation 3.9 3.7
EBITDA 90.2 70.6
Capital expenditure (net of NBV of (7.7) (2.7)
disposals) Working capital (18.8) (25.8) Operating cash flow 63.7 42.1 Interest (5.9) 2.9 Taxation (16.5) (17.0) Pension funding (1.8) (1.4) Share option cash flows - 0.4 Transaction costs - (1.0) Dividends paid (17.0) (12.7)
Dividends paid to minorities/received from 0.4 (0.4)
associates Acquisitions/investments (4.1) (29.7)
Net cash flow before debt repayments/draw 18.8 (16.8) downs Operating cash flow for the first half of 2008 of ‚£63.7m was 51% higher thanthat for the first half of 2007. Consistent with the normal seasonal pattern ofworking capital movements, operating cash flow for the first half is lower thanoperating profit due to the increase in trade receivables from their relativelylow levels at the year end. The net working capital outflow of ‚£18.8m alsoreflects the ‚£13.2m increase in the broker sign-on prepayment balance. Capitalexpenditure is significantly higher than in the prior period reflecting thespend associated with London office moves. The interest cash outflow in thefirst half of 2008 reflects interest paid on the bank debt, partly offset byinterest received on cash balances. In 2007 the first interest payment on thebank debt was made in the second half. The dividend payment of ‚£17.0m reflectsthe 8p per share final dividend for 2007 paid in May. Acquisition andinvestment expenditure in 2008 includes deferred consideration relating to theacquisition of Chapdelaine and the cash consideration for Primex.Movement in cash and debt Cash Debt Net ‚£m ‚£m ‚£m At 31 December 2007 290.5 (450.5) (160.0)
Net cash flow before debt repayments/draw 18.8 - 18.8
downs Debt repayments/draw downs (29.9) 29.9 - Cash acquired with Primex 1.6 - 1.6
Movements in fair values/amortisation of - 0.2 0.2 costs Effect of movements in exchange rates 0.5 (0.2) 0.3
At 30 June 2008 281.5 (420.6) (139.1)
Net debt has reduced from ‚£160.0m at 31 December 2007 to ‚£139.1m at 30 June 2008 primarily due to the net cash inflow before debt repayments and draw downs. Gross debt has reduced by ‚£29.9m primarily due to the scheduled repayment of bank debt in January.
Future Developments and Outlook
The outlook for Tullett Prebon is positive. The inter-dealer broker market isgrowing and we are well diversified across both products and geographies. Thereare considerable opportunities for us, however, to continue to broaden ourproduct and geographic coverage and to deepen our liquidity pools through bothhiring brokers and acquisitions.Our customers are operating in extremely challenging market conditions, and ourindustry growth rate is expected to be lower in the second half thanexperienced in the last 12 months. Nevertheless, as a result of the actions wehave taken, we continue to expect to deliver a good outcome for the year.Terry SmithChief Executive5 August 2008consolidated income statementfor the six months ended 30 June 2008 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£m Revenue 5 468.3 371.6 753.8Other operating income 3.4 2.9 14.2 Administrative expenses (387.5) (309.7) (636.2) Operating profit 5 84.2 64.8 131.8 Finance income 6 9.9 10.1 21.1Finance costs 7 (19.6) (17.8) (39.1) Profit before tax 74.5 57.1 113.8Taxation (26.8) (22.9) (40.3)
Profit of consolidated companies 47.7 34.2
73.5
Share of results of associates 0.7 0.2
0.8Profit for the period 48.4 34.4 74.3 Attributable to: Equity holders of the parent 47.9 34.1 73.4 Minority interests 0.5 0.3 0.9 48.4 34.4 74.3 Earnings per share Adjusted basic 8 22.4p 17.2p 33.5p Basic 8 22.6p 16.1p 34.7p Diluted 8 22.4p 15.9p 34.2p
consolidated statement of recognised income and expense for the six months ended 30 June 2008
Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£m
Revaluation of available for sale assets 0.2 0.1 0.1 Gain on net investment hedge - 1.4 1.0 Effect of changes in exchange rates on 0.3 (2.1) 0.2 translation of foreign operations
Actuarial (loss)/gain on defined benefit (13.6) 19.3 19.0 pension schemes
Taxation on items taken directly to 2.7 (4.3)
(3.7)
equity Net (expense)/income recognised directly (10.4) 14.4 16.6 in equity Profit for the period 48.4 34.4 74.3
Total recognised income and expense for 38.0 48.8
90.9 the period Attributable to: Equity holders of the parent 37.5 48.5 90.0 Minority interests 0.5 0.3 0.9 38.0 48.8 90.9 consolidated balance sheetas at 30 June 2008 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mNon-current assets Goodwill 370.3 356.3 355.9 Other intangible assets 4.1 2.3 2.8 Property, plant and equipment 21.8 17.0 18.7 Interest in associates 2.7 2.8 2.6 Other financial assets 2.9 2.7 2.4 Deferred tax assets 13.3 15.3 15.0
Derivative financial instruments 9.4 9.0
7.2 424.5 405.4 404.6 Current assets Trade and other receivables 16,756.2 25,147.0 6,923.4 Other financial assets 29.0 27.8 28.3 Cash and cash equivalents 252.5 216.5 262.2
Derivative financial instruments - 3.1
- 17,037.7 25,394.4 7,213.9 Total assets 17,462.2 25,799.8 7,618.5 Current liabilities Trade and other payables (16,797.4) (25,179.9) (6,972.7) Interest bearing loans and borrowings (30.4) (31.3) (30.6) Current tax liabilities (31.2) (24.9) (26.5) (16,859.0) (25,236.1) (7,029.8) Net current assets 178.7 158.3 184.1 Non-current liabilities
Interest bearing loans and borrowings (390.2) (418.5) (419.9) Retirement benefit obligations
(14.8) (5.1) (3.9) Deferred tax liabilities (0.5) (1.1) (0.3) Long-term provisions (13.7) (10.9) (14.7) Other long-term payables (17.9) (14.6) (17.5) (437.1) (450.2) (456.3) Total liabilities (17,296.1) (25,686.3) (7,486.1) Net assets 166.1 113.5 132.4 Equity Share capital 53.8 53.1 53.2 Share premium account 9.9 - - Reverse acquisition reserve (1,182.3) (1,182.3) (1,182.3) Other reserves 111.4 110.4 97.3 Retained earnings 1,170.6 1,130.7 1,162.1 Equity attributable to equity holders of 163.4 111.9 130.3 the parent Minority interests 2.7 1.6 2.1 Total equity 166.1 113.5 132.4 consolidated cash flow statementfor the six months ended 30 June 2008 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mNet cash from operating activities 10 43.5 23.1 82.8 Investing activities
(Purchase)/sale of other financial (0.7) 0.2
(0.3) assets Interest received 4.8 6.2 13.2
Dividends received from associates 0.5 - 0.9 Dividends received from fixed asset - - 0.2 investments Purchase of available for sale (0.3) - (0.1) assets Purchase of intangible fixed assets (2.0) (1.5) (1.1) Purchase of property, plant and (6.6) (1.1) (5.5) equipment Acquisition of subsidiaries net of (2.2) (27.8) (25.9) cash acquired Repayment of acquisition - - 0.7 consideration Net cash used in investment (6.5) (24.0) (17.9) activities Financing activities Dividends paid (17.0) (12.7) (21.1)
Dividends paid to minority interests (0.1) (0.4) (0.9) Return of capital - (301.5) (301.5) Purchase of own shares to meet share - 0.4 (10.9) based awards (net) Repayment of debt (30.1) - - Issue of debt - 297.2 297.2
Return of capital transaction costs - (1.0) (1.0) Repayment of obligations under (0.2) (0.3)
(0.5) finance leases Net cash used in financing (47.4) (18.3) (38.7) activities
Net (decrease)/increase in cash and (10.4) (19.2)
26.2 cash equivalents Net cash and cash equivalents at the 262.1 236.2 236.2 beginning of the period
Effect of foreign exchange rate 0.5 (1.8) (0.3) changes Net cash and cash equivalents at the 252.2 215.2 262.1 end of the period Cash and cash equivalents 252.5 216.5 262.2 Overdrafts (0.3) (1.3) (0.1) Net cash and cash equivalents 252.2 215.2
262.1
notes to the consolidated financial statementsfor the six months ended 30 June 2008
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the Companies Act 1985.
The consolidated financial information for the six months ended 30 June 2008has been prepared in accordance with the Disclosure and Transparency Rules(DTR) of the Financial Services Authority and with IAS34: Interim FinancialReporting as adopted by the European Union (EU). This financial informationshould be read in conjunction with the Statutory Accounts for the year ended 31December 2007 which were prepared in accordance with International FinancialReporting Standards (IFRS) as adopted by the EU.The Statutory Accounts for the year ended 31 December 2007 have been reportedon by the Company's auditors, Deloitte & Touche LLP, and have been delivered tothe Registrar of Companies. The report of the auditors on those accounts wasunqualified and did not contain a statement under section 237(2) or (3) of theCompanies Act 1985.The consolidated financial information for the six months ended 30 June 2008has been prepared using accounting policies consistent with IFRS. The interiminformation, together with the comparative information contained in this reportfor the year ended 31 December 2007, does not constitute statutory accountswithin the meaning of section 240 of the Companies Act 1985. The financialinformation is unaudited but has been reviewed by the Company's auditors,Deloitte & Touche LLP, and their report appears at the end of the interimfinancial report.
2. Accounting policies
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The financial statements are rounded to the nearest hundred thousand pounds (expressed as millions to one decimal place - ‚£m), except where otherwise indicated.
The methods of computation and accounting policies adopted are consistent withthose followed in the preparation of the Group's annual financial statementsfor the year ended 31 December 2007 with the exception of IFRIC 14 `IAS 19 -The limit on a defined benefit asset, minimum funding requirements and theirinteraction' which is expected to be endorsed by the EU before the end of theyear and is therefore required to be implemented for the half year under IAS34. The interpretation has not had any effect on the recognition of theretirement benefit obligations by the Group.
3. Related party transactions
Related party transactions are described in the 2007 annual report and accountsin note 36 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 2008.
4. Principal risks and uncertainties
Information on the principal long term risks and uncertainties of the Group isincluded in the latest annual report and accounts which are available on theCompany's website (www.tullettprebon.com). Risks and uncertainties which couldhave a material impact on the Group's performance over the remaining six monthsof the financial year are discussed in the Business Review.
5. Segmental analysis
The Group's primary reporting format is geographical, and its secondary reporting format is product group.
Geographical Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mRevenue Europe 247.4 184.4 377.6 North America 165.3 151.5 300.5 Asia 55.6 35.7 75.7 468.3 371.6 753.8 Operating profit Europe 51.4 40.0 75.5 North America 23.7 20.9 46.8 Asia 9.1 3.9 9.5 84.2 64.8 131.8 Product group Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mRevenue Treasury Products 127.8 96.5 204.0 Interest Rate Derivatives 114.1 89.8 180.1 Fixed Income 128.4 109.3 210.8 Equities 48.7 36.8 81.0 Energy 40.7 32.1 63.2 Information Sales 8.6 7.1 14.7 468.3 371.6 753.8
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 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£m
Interest receivable and similar income 5.5 6.8 13.4 Hedge ineffectiveness on net investment 0.1 - 0.2 hedge Expected return on pension schemes' 4.3 3.3 7.5
assets 9.9 10.1 21.1 7. Finance costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£m
Interest payable on bank loans 8.8 5.5 16.0
Interest payable on Eurobond 6.2 6.2 12.4 Other interest payable 0.2 0.3 0.9
Amortisation of debt issue costs 0.6 0.9 1.5 Total borrowing costs 15.8 12.9 30.8 Amortisation of discount on deferred 0.3 0.5 0.9 consideration Mark to market loss on equity swap - 1.5 0.7 Interest cost on pension schemes' 3.5 2.9 6.7
liabilities 19.6 17.8 39.1 8. Earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) Adjusted basic 22.4p 17.2p 33.5p Basic 22.6p 16.1p 34.7p Diluted 22.4p 15.9p 34.2p
The calculation of basic and diluted earnings per share is based on the following number of shares in issue:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) No. (m) No. (m) No. (m)
Weighted average shares in issue 212.3 211.6 211.3 Issuable on exercise of options 1.2 3.1 3.1 Diluted weighted average shares in issue 213.5 214.7 214.4
The earnings used in the calculation of adjusted, basic and diluted earnings per share, are as described below:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mEarnings 48.4 34.4 74.3 Minority interest (0.5) (0.3) (0.9)
Earnings for the purposes of the basic 47.9 34.1 73.4 and diluted earnings per share Adjusted for: Mark to market loss on equity swap - 1.5 0.7 Gain arising on net investment hedge (0.1) - (0.2) ineffectiveness Expected return on pension schemes' (4.3) (3.3) (7.5) assets Interest cost on pension schemes' 3.5 2.9 6.7 liabilities Amortisation of discount on deferred 0.3 0.5 0.9 consideration Taxation charge on above items 0.2 0.1 0.3
Prior year tax - 0.5 (5.1) Capital tax charge - - 1.6 Adjusted earnings 47.5 36.3 70.8 9. Dividends Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£m
Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 17.0 - - December 2007 of 8p per share Interim dividend for the year ended 31 - - 8.4 December 2007 of 4p per share Final dividend for the year ended 31 - 12.7 12.7 December 2006 of 6p per share 17.0 12.7 21.1
An interim dividend of 4.75p per share will be paid on 20 November 2008 to all shareholders on the Register of Members on 31 October 2008.
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 cash flow statement
a. Reconciliation of operating profit to net cash from operating activities
Six months Six months Year ended ended ended 30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mOperating profit 84.2 64.8 131.8 Adjustments for: Share based compensation 2.1 2.1 2.9
Loss on disposal of property, plant 1.1 - 0.2 and equipment Depreciation of property, plant and 3.3 3.0 5.8 equipment Amortisation of intangible assets 0.6 0.7 1.4 (Decrease)/increase in provisions for (1.1) (0.8) 2.8 liabilities and charges Outflow from retirement benefit (1.8) (1.4) (2.5) obligations (Decrease) in non-current liabilities (0.6) (0.3) - Operating cash flows before movement 87.8 68.1 142.4
in working capital (Increase) in trade and other (23.0) (19.5) (15.1) receivables
Decrease/(increase) in net settlement 3.9 (2.9) (2.3) balances Increase/(decrease) in trade and other 2.0 (2.3) 19.6 payables Cash generated from operations 70.7 43.4 144.6
Income taxes paid (16.5) (17.0) (32.9) Interest paid (10.7) (3.3) (28.9)
Net cash from operating activities 43.5 23.1 82.8
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short-term highlyliquid investments with maturity of three months or less. Cash at bank earnsinterest at floating rates based on daily bank deposit rates. Short-termdeposits are made for varying periods of between one day and one week dependingon the immediate cash requirements of the Group, and earn interest at therespective short-term deposit rates.
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise the following:
30 June 30 June 31 December 2008 2007 2007 (unaudited) (unaudited) ‚£m ‚£m ‚£mCash and cash equivalents 252.5 216.5 262.2 Bank overdrafts (0.3) (1.3) (0.1) 252.2 215.2 262.1 11. Analysis of net funds At Cash Non-cash Exchange At 1 January flow items differences 30 June 2008 2008 ‚£m ‚£m ‚£m ‚£m ‚£m
Cash in hand and at bank 177.4 5.9 - 0.5 183.8 Cash equivalents
82.4 (16.7) - - 65.7 Client settlement money 2.4 0.6 - - 3.0 Overdraft (0.1) (0.2) - - (0.3) 262.1 (10.4) - 0.5 252.2 Bank loans due within (30.0) 30.0 (29.6) - (29.6) one year Bank loans due after (267.9) - 29.3 - (238.6) one year Loan due within one year (0.1) 0.1 - - - Loan due after one year (149.2) - 0.5 - (148.7) Finance leases (3.2) 0.2 (0.2) (0.2) (3.4) (450.4) 30.3 - (0.2) (420.3) Other financial assets 28.3 0.7 - - 29.0 Total net funds (160.0) 20.6 - 0.3 (139.1) 12. Acquisition
Primex Energy Brokers Limited (subsequently renamed Tullett Prebon (Oil) Limited)
On 14 March 2008 the Group acquired 100% of the share capital of Primex EnergyBrokers Ltd ("Primex"), subsequently renamed Tullett Prebon (Oil) Limited. Theconsideration paid on completion was ‚£0.5m in cash and ‚£10.5m in shares. Afurther ‚£5.8m in shares is payable in 2011 subject to certain performancerequirements. The goodwill arising on the acquisition was ‚£17.3m at 30 June2008.
This transaction has been accounted for under the acquisition method of accounting.
The provisional fair values of assets and liabilities acquired and consideration paid were as follows:
Book value Fair value ‚£m ‚£m Net liabilities acquired Property, plant and equipment 0.2 0.2 Trade and other receivables 3.0 3.0 Cash and cash equivalents 1.6 1.6 Trade and other payables (3.7) (3.7)Long-term payable (1.2) (1.2) (0.1) (0.1) Goodwill 17.3 Total consideration 17.2 Satisfied by Shares 10.5 Deferred contingent consideration 5.8 Cash 0.5 Costs of acquisition 0.4 17.2 Net cash inflow arising on acquisition Cash consideration and costs of acquisition (0.9) Cash and cash equivalents acquired 1.6 0.7 If the acquisition of Primex had been completed on the first day of the period,the Group's revenue for the period would have been ‚£3.8m higher and the profitfor the period would have been ‚£0.3m higher. Since the date of acquisition,Primex has contributed ‚£4.6m to the Group's revenue and ‚£0.4m to the Group'sprofit for the period.13. Share capital
On 14 March 2008, Tullett Prebon plc issued 2,262,196 ordinary shares of 25p each with a fair value of ‚£10.5m to the former owners of Primex.
On 2 June 2008, Tullett Prebon plc issued 82,569 ordinary shares of 25p at par value. The shares were allotted to the Tullett Prebon plc Employee Benefit Trust 2007.
statement of directors' responsibilities
The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8.
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 Executive5 August 2008
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-yearly financial report for the six months ended 30 June2008 which comprises the consolidated income statement, the consolidatedbalance sheet, the consolidated statement of recognised income and expense, theconsolidated cash flow statement and related notes 1 to 13. We have read theother information contained in the half-yearly financial 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 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to it in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.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-yearlyfinancial report for the six months ended 30 June 2008 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.Deloitte & Touche LLPChartered Accountants and Registered Auditor5 August 2008London, UK
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