4th Aug 2009 07:00
TULLETT PREBON PLC
INTERIM RESULTS - for the six months ended 30 June 2009
Tullett Prebon plc today announced its preliminary results for the six months ended 30 June 2009.
Financial Highlights
- Revenue 517.9m (2008: 468.3m) - growth of 11%
- Operating profit 100.6m (2008: 84.2m) - growth of 19%
- Operating margin 19.4% (2008: 18.0%)
- Adjusted Profit before tax1 92.8m (2008: 73.9m) - growth of 26%
- Adjusted EPS2 28.5p (2008: 22.4p) - growth of 27%
Notes
1. Adjusted PBT is stated before non cash gains and losses in net finance income/(expense)
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:
"Our strong financial results for the first half of 2009 reflect the robustnessof the business, the value of the service that it provides to participants inthe world's over-the-counter ("OTC") financial markets, and the benefits of theactions taken during the second half of last year to reduce fixed costs and
toincrease cost flexibility.
Revenue for the first half of 517.9m was up 11%. Operating profit has increased by 19% to 100.6m, with the operating margin increasing to 19.4%. Adjusted basic earnings per share for the first half were up 27% to 28.5p.
An interim dividend of 5.0p per share (2008: 4.75p per share) will be paid on 19 November 2009 to shareholders on the register at 30 October 2009."
Terry Smith, Chief Executive, added:
"The world's financial markets remain unsettled, and volatility in interestrate structures, currency parities and credit spreads seems likely to persist,whilst government bond issuance will continue to be at high levels. Our bankclients and their customers will continue to need to trade in flow products andto hedge risk through the use of derivatives. Transacting business throughIDBs who provide deep liquidity pools, price and volume discovery, anonymityfor trading, and cost advantages is likely to be increasingly attractive forparticipants in the wholesale OTC markets. Our business is well diversified across both products and geographies, and wehave taken action to reduce fixed costs and to increase our flexibility. Weexpect to deliver a good outcome for the year." Enquiries:
Nigel Szembel, Head of Communications
Mobile: 07802 362088Tullett Prebon plc
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 2009
Overview The strong financial results for the first half of 2009 reflect the robustnessof the business, the value of the service that it provides to participants inthe world's over-the-counter ("OTC") financial markets, and the benefits of theactions taken during the second half of last year to reduce fixed costs and
toincrease cost flexibility. There has been significant structural change in the banking industry andadjustments to the business models of many of our customers following theunprecedented events in the world's financial markets during 2008. There hasbeen a reduction in risk appetite, resulting in a move of capital away frommore complex structured products towards the more traditional "flow" products,towards cash products rather than derivatives, and towards first derivativesrather than complex secondary and tertiary derivatives. Volumes in emergingmarkets products, volatility products and equity related products have beenlower. Interest rates, foreign exchange rates and credit spreads, however,have continued to be volatile, and there has been substantial issuance ofgovernment bonds. Our expertise and the depth of our liquidity pools in thesemore traditional flow products, and the advantages of voice broking in priceand volume discovery in turbulent market conditions, have been increasinglyattractive to our customers. Revenue for the first half of 2009 of 517.9m was 11% higher than reported forthe equivalent period last year. The impact of currency movements on thetranslation of our non-UK operations is favourable to reported results, and atconstant exchange rates, revenue for the first half of 2009 is 5% lower thanlast year.
We have continued to develop our electronic capabilities and market share. Although we are not present in the pure, black box, electronic executionmarkets of spot FX and on-the-run US Treasuries, our hybrid electronicplatforms, which complement voice broking activities across a number of productgroups, continue to increase revenue, and are competitive with similarplatforms provided by our peers. We have a well established process for thedevelopment of new platforms utilising external resources which allows usquickly and effectively to scale our development activities up and down, andwhich provides flexibility in the management of costs. We are well placed todevelop and launch new electronic platforms across all regions when the marketrequires. The objectives of the cost review undertaken towards the end of last year toincrease flexibility in front office costs and to reduce absolute support costshave been achieved. Broker employment costs expressed as a percentage ofbroking revenue are little changed overall despite significant reductions inrevenue in some areas. Non-broker headcount has fallen by 12% since June2008. The operating margin has improved to 19.4%. Our key financial and performance indicators for the first half of 2009compared with those for the first half of 2008 are summarised in the tablebelow. Change 2009 2008 Reported Constant Exchange Rates Revenue GBP517.9m 468.3m +11% -5% Operating profit GBP100.6mGBP84.2m +19% +3% Operating margin 19.4% 18.0% +1.4% points Broker headcount (period end) 1,647 1,706 -3%
Average revenue per broker ( '000) 308 272 +13%
-4%
Broker employment costs : broking revenue 57.6% 57.5% +0.1% points Non-broker headcount (period end) 836 945 -12%
Revenue and Operating Profit
The tables below analyse revenue and operating profit for the first half of2009 compared with the equivalent period in 2008. 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 2009 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 2009 2008 Reported Exchange GBPm GBPm Rates Treasury Products 124.0 127.8 -3% -16%
Interest Rate Derivatives 102.3 114.1 -10% -23%
Fixed Income 188.3 128.4 +47% +24% Equities 38.8 48.7 -20% -31% Energy 52.3 40.7 +29% +13% Information Sales 12.2 8.6 +42% +39% 517.9 468.3 +11% -5%
Revenue in Treasury Products has been held back by lower volumes in FX options, and in FX forwards, including non-deliverable-forwards, in emerging markets currencies.
Similarly, the fall in revenue in Interest Rate Derivatives is heavily influenced by lower revenue in interest rate options and in emerging market interest rate swaps.
The strong growth in Fixed Income reflects the strength of our franchise andhigh volume of activity in government and corporate bonds in both Europe andNorth America.
In Equities, revenue from both equity derivatives and cash equities was lower than a year ago, reflecting lower equity market values and lower activity.
Commodity markets have continued to be volatile and our Energy business has benefited from this and from the expansion of the product coverage through the acquisition of Primex in March 2008, which added substantial liquidity in a wide range of oil products.
Our Information Sales business continues to grow, reflecting increasing demandfrom customers for both real time and end of day data, and an expansion of
thecustomer base. Revenue by region Change Constant 2009 2008 Reported Exchange GBPm GBPm Rates Europe 289.1 247.4 +17% +16% North America 183.6 165.3 +11% -17% Asia Pacific 45.2 55.6 -19% -38% 517.9 468.3 +11% -5% Revenue in Europe has increased by 16%. Broker headcount in Europe is slightlyhigher than last June at 775, and the increase in revenue reflects an increasein average revenue per broker compared with the same period a year ago. Thebusiness delivered strong revenue growth in Fixed Income and Energy, revenue inTreasury Products and Interest Rate Derivatives was broadly in line with a yearago, and revenue in Equities reduced. In Fixed Income the business hascontinued to benefit from its leading position in government bonds, and fromgains in market share in corporate bonds and credit derivatives following theactions taken in 2008 to re-establish our presence in these markets, includingthe highly successful launch of Creditdeal our electronic trading platform, inthe last quarter of last year. Energy revenue in Europe benefited from theexpansion of the product coverage through the acquisition of Primex and fromthe generally volatile commodity markets. Revenue in North America has reduced by 17%. Broker headcount has fallen by 7%since last June, to 526 and average revenue per broker has also fallen comparedwith last year. Revenue in Fixed Income was slightly higher than a year agodespite a reduction in revenue from credit derivatives, with stronger revenuein government and agency bonds, mortgage backed securities and corporatebonds. Revenue has fallen in the other product groups, reflecting loweractivity in money markets, in emerging markets products and in cash equities,and disruption and changes in some of our major customers. Revenue in Asia has reduced by 38%. Broker headcount in Asia at the end ofJune was 346, 8% lower than a year ago, and average revenue per broker hasfallen by one third. We have maintained our market share in our major productgroups across the region, but activity in the markets in Asia slowed downconsiderably in the last quarter of last year and market activity continued tobe low throughout the first half of this year. In Treasury Products, volumes inforward FX, especially in non-deliverable-forwards for non convertiblecurrencies and in FX options in regional currencies, have been considerablylower, and activity in most Interest Rate Derivative products in the region hasalso been subdued. Operating profit by region Change Constant 2009 2008 Reported Exchange GBPm GBPm Rates Europe 69.4 51.4 +35% +34% North America 28.7 23.7 +21% -10% Asia Pacific 2.5 9.1 -73% -79% Reported 100.6 84.2 +19% +3% Operating margin by region 2009 2008 Europe 24.0% 20.8% North America 15.6% 14.3% Asia Pacific 5.5% 16.4% 19.4% 18.0% Operating profit in Europe has increased by 34% with operating marginincreasing to 24.0%. Broker employment costs as a percentage of revenue havereduced compared to the same period last year reflecting the elimination in theinefficiency experienced in the first half last year resulting from the largenumber of brokers who joined the business building up to their full run rate ofrevenues, and the benefit of the actions taken in the second half last year toimprove flexibility in broker compensation. Operating margin in Europe hasalso benefited from the increased scale of the business and the actions takento reduce support costs.
Operating margin in North America has increased to 15.6% although operatingprofit is lower due to the reduction in revenue. The improvement in operatingmargin has been achieved despite an increase in broker employment costs as apercentage of revenue arising from inefficiencies in certain desks due torevenue declines. As a result of the cost reduction actions taken last year,support and other costs have been reduced in both absolute terms and as apercentage of revenue. The reduction in revenue in Asia Pacific, our smallest region, has resulted inlower operating margin and operating profit. Asia Pacific has a relativelyhigher fixed support base compared to the other two regions, due to thedispersion of the business over a number of different locations. Althoughsupport costs have been reduced, the extent of the reduction has not matchedthe decline in revenue. The broker employment costs to revenue percentage hasalso increased compared to the same period last year, again due to lowerrevenue. Financial Review
The results for the first half of 2009 compared with those for the first half of 2008 are shown in the table below.
2009 2008 GBPm GBPm Revenue 517.9 468.3 Operating profit 100.6 84.2 Cash finance expense (7.8) (10.3) Adjusted Profit before tax * 92.8 73.9 Tax (32.5) (26.6) Associates 1.0 0.7 Minority interests (0.5) (0.5) Adjusted Earnings ** 60.8 47.5 Weighted average number of shares 213.6m 212.3m Adjusted Earnings per share 28.5p 22.4p
* Adjusted PBT reconciles to reported PBT as follows: 2009 2008
GBPm GBPm Adjusted Profit before tax 92.8 73.9 Non cash finance income/(expense) (1.1) 0.6 Reported Profit before tax 91.7 74.5 ** Adjusted Earnings reconciles to reported Earnings as 2009 2008follows: GBPm GBPm Adjusted Earnings 60.8 47.5 Non cash finance income/(expense) (1.1) 0.6 Deferred tax on non cash finance income/(expense) 0.4 (0.2) Reported Earnings 60.1 47.9
Cash Finance Income/(Expense)
The reduction in cash finance income / (expense) reflects lower interestpayable on the bank debt due to lower interest rates and lower average amountoutstanding, partly offset by lower interest receivable on cash balances due tothe lower interest rates. Taxation The effective rate of tax on adjusted PBT is 35% (2008: 36%). The reduction inthe effective rate compared with 2008 results from the increase in theproportion of taxable profits generated in the UK versus the US, together withthe full year benefit of last year's reduction in the UK statutory rate. Exchange rates
The income statements and balance sheets of the group's non-UK operations are translated into sterling at average and period end exchange rates respectively. The most significant exchange rates for the group are the US dollar and the Euro. Average and period end exchange rates for these currencies are shown below.
Average Period End H1 2009 H1 2008 H2 2008 30 June '09 31 Dec '08 30 June '08 US dollar $1.47 $1.99 $1.79 $1.65 $1.44 $1.99 Euro EUR1.10 EUR1.30 EUR1.25 EUR1.17 EUR1.03 EUR1.26 Cash flow and financing Cash flow before dividends and debt repayments and draw downs is summarised inthe table below. 2009 2008 GBPm GBPm Operating profit 100.6 84.2 Share based compensation (0.2) 2.1 Depreciation and amortisation 4.1 3.9 EBITDA 104.5 90.2 Capital expenditure (net of disposals) (4.1) (7.7) Working capital (57.4) (18.8) Operating cash flow 43.0 63.7 Exceptional items - cash payments (6.3) - Interest (4.4) (5.9) Taxation (15.0) (16.5) Defined benefit pension scheme funding (6.3) (1.8) ESOT transactions 1.5 -
Dividends received from associates / paid to minorities 1.9 0.4
Acquisitions/investments (3.5) (4.1) Cash flow 10.9 35.8 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. This pattern has been magnified this year by theunwind of the unusually high level of bonus accruals at 31 December 2008 as aresult of the high level of activity during the second half last year, and byan increase in the broker sign-on prepayment balance.
The exceptional items cash payment represents the majority of the remaining cash outflow arising from the cost reduction actions taken last year.
The increase in defined benefit pension scheme funding reflects the additionalspecial contributions agreed with the Trustees of the schemes with the aim ofeliminating the actuarial deficits in the pension schemes by 31 December 2010.
Acquisition and investment expenditure mainly comprises deferred consideration payments relating to the acquisitions of Chapdelaine and Primex.
The movement in cash and debt is summarised below.
m Cash Debt Net At 31 December 2008 405.2 (422.6) (17.4) Cash flow 14.9 (4.0) 10.9 Dividends (17.1) - (17.1) Debt repayments / draw downs (33.4) 33.4 - Effect of movement in exchange rates (20.2) 0.4 (19.8) Movements in fair value / amortisation of - (0.4) (0.4)costs At 30 June 2009 349.4 (393.2) (43.8) Net debt has increased from 17.4m at 31 December 2008 to 43.8m at 30 June2009 mainly due to the effect of movements in exchange rates on cash balancesheld in non-UK operating subsidiaries, principally in the United States. The group's borrowings at 30 June 2009 comprised the 150m Eurobond due August2014, 240m of bank debt drawn under an amortising term loan maturing inJanuary 2012, a small amount of finance leases, and a 4m overdraft relating tosettlement balances. On 6 July 2009 holders of 141.1m of the Eurobondexchanged their holdings for 141.1m of new notes due July 2016. More detailson the bond exchange are provided in note 13 to the condensed consolidated
financial statements.
OTC Market and Regulatory Developments
Both the US Department of the Treasury and the European Commission havepublished proposals to improve the efficiency and robustness of OTC derivativesmarkets. There are four recurring themes in these proposals: clearing ofstandardised OTC derivatives through central counterparties (CCP), reporting oftrades that are not cleared through a CCP to a central trade data repository,encouragement for standardised trades to be transacted through regulatedtransparent electronic trade execution platforms, and increased supervision andcapital requirements for firms with large OTC exposures. Whilst the OTC markets proved to be robust throughout the most turbulent periodin recent history, we support proposals for further improvement in the qualityand safety of the infrastructure that supports them, and put forward thefollowing observations. After some of the comments made in the immediate aftermath of the failure ofsome major institutions last year, we particularly welcome the acknowledgementin the proposals that bilaterally negotiated, bespoke, derivatives are animportant tool in risk management, and that many instruments cannot be andshould not be standardised or regulated out of existence. We also welcome theacknowledgement that many areas of the OTC derivatives markets, including thetwo largest and most mature sectors, interest rate derivatives and foreignexchange derivatives, already have well established infrastructure that is fitfor purpose and which operated very effectively during the height of thecrisis.As we have noted previously, whilst CCP clearing is a way of reducingcounterparty risk it is not a simple solution to the problem. CCP clearing canbe difficult to implement for anything other than very standard instruments,and the margin requirements which offer protection against failure of anindividual counterparty can absorb significant amounts of participants'liquidity. Access to CCPs needs to be open to all execution venues to ensurethe efficiency and flexibility of the markets. The ideal number of CCPs is onefrom the point of view of efficient cross collateralisation between products. Unfortunately this conflicts with the view that monopolies should not beawarded to "for profit" organisations, which is why we believe that a singleCCP operated as a "not for profit" utility, on behalf of the marketparticipants, is the best solution. Regulated transparent electronic trade execution platforms are not suitable forall products, nor are they synonymous with exchange trading. We and other IDBsoperate regulated transparent electronic trade execution platforms for a numberof different products in a number of different geographies, and we have thecapability and expertise to develop and implement platforms for otherproducts. Competition between trading venues is helpful to market efficiencyand should be encouraged. Transparency and trade reporting are double edged swords. Too muchtransparency can destroy liquidity. Trade reporting to a central depositarywould be useful in allowing regulators to understand total market andindividual participant exposures, but again, experience has demonstrated thatit would be harmful to liquidity if this information were open to all marketparticipants.
Change is likely to be gradual. Instruments that are currently negotiated on abilateral basis between banks will not suddenly migrate to electronicplatforms. The role of voice brokers in providing liquidity will continue tobe required in all but the most standardised of products. Outlook
The world's financial markets remain unsettled, and volatility in interest ratestructures, currency parities and credit spreads seems likely to persist,whilst government bond issuance will continue to be at high levels. Our bankclients and their customers will continue to need to trade in flow products andto hedge risk through the use of derivatives. Transacting business throughIDBs who provide deep liquidity pools, price and volume discovery, andanonymity for trading, is likely to be increasingly attractive for participantsin the wholesale OTC markets. Revenue in the second half of last year was boosted by the turbulence infinancial markets following the collapse of Lehman Brothers, and thoseconditions are not expected to recur. It remains difficult to forecast marketactivity and our performance by product and geography is likely to continue
tobe varied.
Our business is well diversified across both products and geographies, and wehave taken action to reduce fixed costs and to increase our flexibility. Weexpect to deliver a good outcome for the year.
Condensed Consolidated Income Statement
for the six months ended 30 June 2009
Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) GBPm GBPm GBPm Revenue 5 517.9 468.3 943.6 Administrative expenses (419.3) (387.5) (774.1) Other operating income 2.0 3.4 5.6 Exceptional items - - (19.5) Operating profit 5 100.6 84.2 155.6 Finance income 6 14.8 9.9 24.8 Finance costs 7 (23.7) (19.6) (43.4) Profit before tax 91.7 74.5 137.0 Taxation (32.1) (26.8) (43.3)
Profit of consolidated companies 59.6 47.7
93.7
Share of results of associates 1.0 0.7
1.3 Profit for the period 60.6 48.4 95.0 Attributable to: Equity holders of the parent 60.1 47.9 94.5 Minority interests 0.5 0.5 0.5 60.6 48.4 95.0 Earnings per share Adjusted basic 8 28.5p 22.4p 47.1p Basic 8 28.1p 22.6p 44.4p Diluted 8 28.0p 22.4p 44.0p
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2009
Six months Six months Year ended ended ended 30 June 30 June 31 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm Profit for the period 60.6 48.4 95.0 Other comprehensive income:
Revaluation of available-for-sale assets 0.5 0.2
0.5
Gain / (loss) on net investment hedges 3.6 -
(17.2)
Effect of changes in exchange rates on translation of foreign operations (23.0) 0.4
46.5
Actuarial losses on defined benefit pension
schemes (9.7) (13.6) (9.4)
Taxation (charge) / credit on components of
other comprehensive income (1.3) 2.7 9.7
Other comprehensive income for the period (29.9) (10.3)
30.1
Total comprehensive income for the period 30.7 38.1
125.1 Attributable to: Equity holders of the parent 30.4 37.5 123.6 Minority interests 0.3 0.6 1.5 30.7 38.1 125.1
Condensed Consolidated Balance Sheet
as at 30 June 2009 30 June 30 June 31 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm Non-current assets Goodwill 380.9 370.3 387.7 Other intangible assets 6.6 4.1 5.8
Property, plant and equipment 24.6 21.8
27.6 Interest in associates 2.7 2.7 3.5 Other financial assets 5.4 2.9 4.7 Deferred tax assets 15.2 13.3 18.0
Derivative financial instruments - 9.4
- 435.4 424.5 447.3 Current assets Trade and other receivables 21,328.6 16,756.2 13,547.6 Other financial assets 33.4 29.0 30.2 Cash and cash equivalents 316.0 252.5 375.0
Derivative financial instruments 3.6 -
4.6 21,681.6 17,037.7 13,957.4 Total assets 22,117.0 17,462.2 14,404.7 Current liabilities Trade and other payables (21,377.8) (16,797.4) (13,648.5) Interest bearing loans and borrowings (34.0) (30.4)
(30.6)
Derivative financial instruments (7.9) - (14.3) Current tax liabilities (42.8) (31.2) (28.9) (21,462.5) (16,859.0) (13,722.3) Net current assets 219.1 178.7 235.1 Non-current liabilities Interest bearing loans and borrowings (359.2) (390.2)
(392.0)
Retirement benefit obligations (12.1) (14.8)
(8.5) Deferred tax liabilities (1.2) (0.5) (0.6) Long-term provisions (9.8) (13.7) (11.9) Other long-term payables (12.8) (17.9) (24.9) (395.1) (437.1) (437.9) Total liabilities (21,857.6) (17,296.1) (14,160.2) Net assets 259.4 166.1 244.5 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 125.3 111.4 139.9 Retained earnings 1,250.0 1,170.6 1,220.8
Equity attributable to equity holders of the
parent 256.7 163.4 242.1 Minority interests 2.7 2.7 2.4 Total equity 259.4 166.1 244.5
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2009
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 Interest Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm 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 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 option 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 2008 53.2 - (1,182.3) 0.9 121.5 (4.4) (20.7) 1,162.1 130.3 2.1 132.4 Total comprehensive income for the period - - - 0.2 - 0.3 - 37.0 37.5 0.6 38.1 Issue of share capital 0.6 9.9 10.5 10.5 Dividends paid in the period (17.0) (17.0) (17.0) Shares used to meet option exercises 13.6 (13.6) - - Credit arising on share-based payment awards 2.1 2.1 2.1 Balance at 30 June 2008 53.8 9.9 (1,182.3) 1.1 121.5 (4.1) (7.1) 1,170.6 163.4 2.7 166.1 Balance at 1 January 2008 53.2 - (1,182.3) 0.9 121.5 (4.4) (20.7) 1,162.1 130.3 2.1 132.4 Total comprehensive income for the year - - - 0.5 - 28.3 - 94.8 123.6 1.5 125.1 Issue of share capital 0.6 9.9 10.5 10.5 Dividends paid in the year
(27.2) (27.2) (1.2) (28.4)
Shares used to meet option exercises 13.8 (13.8) - - Credit arising on share-based payment awards 4.9 4.9 4.9 Balance at 31 December 2008 53.8 9.9 (1,182.3) 1.4 121.5 23.9 (6.9) 1,220.8 242.1 2.4 244.5
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2009
Notes Six months Six months Year ended ended ended 30 June 30 June 31 2009 2008 December 2008 (unaudited) (unaudited) GBPm GBPm GBPm
Net cash from operating activities 10 13.9 43.5
136.0 Investing activities
(Purchase)/sale of other financial assets (4.5) (0.7)
0.9 Interest received 1.2 4.8 11.5
Dividends received from associates 1.9 0.5
0.5
Purchase of available-for-sale assets (0.3) (0.3)
(0.1)
Purchase of intangible fixed assets (2.3) (2.0)
(3.4)
Purchase of property, plant and equipment (1.8) (6.6)
(13.2)
Proceeds on disposal of property, plant
and equipment 0.1 - - Acquisition of subsidiaries (3.2) (2.2) (3.8)
Net cash used in investment activities (8.9) (6.5)
(7.6) Financing activities Dividends paid (17.1) (17.0) (27.2)
Dividends paid to minority interests - (0.1)
(1.0) Sale of own shares 1.5 - - Repayment of debt (30.0) (30.1) (30.1)
Repayment of obligations under finance
leases (3.4) (0.2) (0.3) Net cash used in financing activities (49.0) (47.4) (58.6)
Net (decrease)/increase in cash and cash
equivalents (44.0) (10.4) 69.8
Net cash and cash equivalents at the
beginning of the period 374.9 262.1 262.1
Effect of foreign exchange rate changes (18.9) 0.5
43.0
Net cash and cash equivalents at the end
of the period 312.0 252.2 374.9 Cash and cash equivalents 316.0 252.5 375.0 Overdrafts (4.0) (0.3) (0.1)
Net cash and cash equivalents 312.0 252.2
374.9
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2009
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the Companies Act 1985.
The condensed consolidated financial information for the six months ended 30June 2009 has been prepared in accordance with the Disclosure and TransparencyRules (DTR) of the Financial Services Authority and with IAS34 '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 2008 which was prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EU. The statutory accounts for the year ended 31 December 2008 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 237(2) or (3) of
theCompanies Act 1985. The condensed consolidated financial information for the six months ended 30June 2009 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 2008, does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. 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 2008, exceptas described below. In the current financial year, the Group has adopted International FinancialReporting Standard 8 'Operating Segments' and International Accounting Standard1 'Presentation of Financial Statements' (revised 2007). IFRS 8 requires operating segments to be identified on the basis of internalreports about the components of the Group that are regularly reviewed by Groupmanagement to allocate resources to the segments and to assess theirperformance. The adoption of this standard has not resulted in a change to theoperating segments previously reported under IAS 14 'Segment Reporting'. IAS 1 (revised) requires the presentation of a statement of changes in equityas a primary statement, separate from the income statement and statement ofcomprehensive income. As a result, a condensed statement of changes in equityhas been included in the primary statements, showing changes in each componentof equity for each period presented. 3. Related party transactions Related party transactions are described in the 2008 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 2009. 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 18 to 21 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 2008. 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.
Information regarding the Group's operating segments is reported below:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) Revenue GBPm GBPm GBPm Europe 289.1 247.4 504.1 North America 183.6 165.3 339.6 Asia 45.2 55.6 99.9 517.9 468.3 943.6 Operating profit Europe 69.4 51.4 108.1 North America 28.7 23.7 57.8 Asia 2.5 9.1 9.2 Operating profit before exceptional items 100.6 84.2 175.1 Exceptional items - - (19.5) Reported operating profit 100.6 84.2 155.6 Finance income 14.8 9.9 24.8 Finance costs (23.7) (19.6) (43.4) Profit before tax 91.7 74.5 137.0 Taxation (32.1) (26.8) (43.3)
Profit of consolidated companies 59.6 47.7
93.7
Share of results of associates 1.0 0.7
1.3 Profit for the period 60.6 48.4 95.0
There are no inter-segmental sales included in segment revenue.
5. Segmental analysis (continued) The exceptional items in the year ended 31 December 2008 reflect the cost ofactions taken to reduce operating costs, including the costs of desk closures,redundancies and the write down of sign-on payments which were considered to beimpaired.
Other segmental information
Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) Total assets GBPm GBPm GBPm Europe 8,776.9 8,142.3 1,905.7 North America 13,281.8 9,257.3 12,431.9 Asia 58.3 62.6 67.1 22,117.0 17,462.2 14,404.7
Segmental assets exclude all inter-segment balances.
Product group Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) Revenue GBPm GBPm GBPm Treasury Products 124.0 127.8 246.1 Interest Rate Derivatives 102.3 114.1 220.9 Fixed Income 188.3 128.4 282.1 Equities 38.8 48.7 94.2 Energy 52.3 40.7 81.5 Information Sales 12.2 8.6 18.8 517.9 468.3 943.6
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 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm
Interest receivable and similar income 2.1 5.5
11.5
Hedge ineffectiveness on net investment hedge - 0.1
-
Fair value gain on derivative instruments 9.3 -
4.6
Expected return on pension schemes' assets 3.3 4.3
8.7
Amortisation of discount on deferred
consideration 0.1 - - 14.8 9.9 24.8 7. Finance costs Six months Six months Year ended ended ended 30 June 30 June 31 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm
Interest payable on bank loans 3.1 8.8
17.2 Interest payable on Eurobond 6.2 6.2 12.4 Other interest payable 0.1 0.2 0.3
Amortisation of debt issue costs 0.5 0.6
1.4 Total borrowing costs 9.9 15.8 31.3
Amortisation of discount on deferred
consideration - 0.3 0.5
Fair value loss on derivative instruments 10.3 -
4.5
Interest cost on pension schemes' liabilities 3.5 3.5
7.1 23.7 19.6 43.4 8. Earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) Adjusted basic 28.5p 22.4p 47.1p Basic 28.1p 22.6p 44.4p Diluted 28.0p 22.4p 44.0p
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 2009 2008 December (unaudited) (unaudited) 2008 No. (m) No. (m) No. (m)
Weighted average shares in issue used for calculating basic and adjusted basic earnings
per share 213.6 212.3 212.8 Contingently issuable shares 0.6 - 0.6
Issuable on exercise of options 0.6 1.2
1.3
Diluted weighted average shares in issue 214.8 213.5
214.7
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 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm Profit for the period 60.6 48.4 95.0 Minority interest (0.5) (0.5) (0.5) Earnings 60.1 47.9 94.5 Exceptional items - - 19.5
Gain arising on net investment hedge
ineffectiveness - (0.1) -
Expected return on pension schemes' assets (3.3) (4.3)
(8.7)
Interest cost on pension schemes' liabilities 3.5 3.5
7.1
Amortisation of discount on deferred
consideration (0.1) 0.3 0.5
Net fair value loss on derivative financial
instruments 1.0 - - Tax on above items (0.4) 0.2 (5.4) Prior year tax - - (7.3) Adjusted earnings 60.8 47.5 100.2 9. Dividends Six months Six months Year ended ended ended 30 June 30 June 31 2009 2008 December (unaudited) (unaudited) 2008 GBPm GBPm GBPm
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2008 of 8p per share 17.1 - -
Interim dividend for the year ended 31 December 2008 of 4.75p per share - -
10.2
Final dividend for the year ended 31 December
2007 of 8p per share - 17.0 17.0 17.1 17.0 27.2
An interim dividend of 5.0p per share will be paid on 19 November 2009 to all shareholders on the Register of Members on 30 October 2009.
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
Reconciliation of operating profit to net cash from operating activities
Six months Six months Year ended ended ended 30 June 30 June 31 2009 2008 December 2008 (unaudited) (unaudited) GBPm GBPm GBPm Operating profit 100.6 84.2 155.6 Adjustments for: -Share based compensation (0.2) 2.1 4.9
-Profit on sale of other non-current financial
assets - - (1.3)
-Loss on sale of property, plant and equipment - 1.1
2.0
-Depreciation of property, plant and equipment 3.1 3.3
6.5
-Amortisation of intangible assets 1.0 0.6
1.3
-Exchange gain on other financial assets (0.2) -
-
Decrease in provisions for liabilities and
charges (1.0) (1.1) (5.4)
Outflow from retirement benefit obligations (6.3) (1.8) (3.2)
(Decrease)/increase in non-current liabilities (0.2) (0.6)
0.7
Operating cash flows before movement in
working capital 96.8 87.8 161.1
(Increase)/decrease in trade and other
receivables (14.4) (23.0) 13.1
(Increase)/decrease in net settlement balances (8.5) 3.9
5.1
(Decrease)/increase in trade and other
payables (39.4) 2.0 26.1
Cash generated from operations 34.5 70.7
205.4 Income taxes paid (15.0) (16.5) (39.1) Interest paid (5.6) (10.7) (30.3)
Net cash from operating activities 13.9 43.5
136.0 (b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short term highlyliquid investments with original maturity of three months or less. Cash at bankearns interest 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 Condensed Consolidated Cash Flow Statement, cash and cash equivalents comprise the following:
30 June 30 June 31 December 2009 2008 2008 (unaudited) (unaudited) GBPm GBPm GBPm Cash and cash equivalents 316.0 252.5 375.0 Bank overdrafts (4.0) (0.3) (0.1) 312.0 252.2 374.9 11. Analysis of net funds At Cash Non-cash Exchange At 1 January Flow Items Differences 30 June 2009 2009 GBPm GBPm GBPm GBPm GBPm Cash 229.6 (63.3) (13.3) 153.0 Cash equivalents 142.7 23.3 (5.6) 160.4 Client settlement money 2.7 (0.1) - 2.6 Overdraft (0.1) (3.9) - (4.0) 374.9 (44.0) (18.9) 312.0 Bank loans within one year (30.0) 30.0 (29.7) - (29.7) Bank loans after one year (238.5) - 29.4 - (209.1) Loan due within one year - - - - - Loan due after one year (149.8) - (0.1) - (149.9) Finance leases (4.2) 3.4 (0.1) 0.4 (0.5) (422.5) 33.4 (0.5) 0.4 (389.2) Other financial assets 30.2 4.5 - (1.3) 33.4 Total net funds (17.4) (6.1) (0.5) (19.8) (43.8) 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 Interest Equity Six months ended 30 June 2009 GBPm GBPm GBPm GBPm GBPm GBPm Profit for the period 60.1 60.1 0.5 60.6 Revaluation of available-for-sale assets 0.5 0.5 0.5 Gains on net investment hedges 3.6 3.6 3.6 Exchange differences on translation of foreign operations (22.8) 22.8) (0.2) (23.0) Actuarial losses on defined benefit pension schemes (9.7) (9.7) (9.7) Taxation credit 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
Total comprehensive income reserve movements
Equity attributable to equity holders of the parent Hedging Revaluation and Retained Minority Total Reserve Translation earnings Total Interest Equity Six months ended 30 June 2008 GBPm GBPm GBPm GBPm GBPm GBPm Profit for the period 47.9 47.9 0.5 48.4 Revaluation of available-for-sale assets 0.2 0.2 0.2 Exchange differences on translation of foreign operations 0.3 0.3 0.1 0.4 Actuarial losses on defined benefit pension schemes (13.6) (13.6) (13.6) Taxation credit on components of other comprehensive income 2.7 2.7 2.7 Total comprehensive income for the six months ended 30 June 2008 0.2 0.3 37.0 37.5 0.6 38.1 Equity attributable to equity holders of the parent Hedging Revaluation and Retained Minority Total Reserve Translation earnings Total Interest Equity Year ended 31 December 2008 GBPm GBPm GBPm GBPm GBPm GBPm Profit for the year 94.5 94.5 0.5 95.0 Revaluation of available-for-sale assets 0.5 0.5 0.5 Losses on net investment (17.2) (17.2) (17.2) hedges Exchange differences on translation of foreign operations 45.5 45.5 1.0 46.5 Actuarial losses on defined benefit pension schemes (9.4) (9.4) (9.4) Taxation credit on components of other comprehensive income 9.7 9.7 9.7 Total comprehensive income for the year ended 31 December 2008 0.5 28.3 94.8 123.6 1.5 125.1 13. Post balance sheet event
150m Eurobond
On 6 July 2009 holders of 141,144,000 of the Group's 150,000,000 8.25%Step-up Coupon Subordinated Notes due 12 August 2014 exchanged their holdingfor 141,144,000 7.04% Guaranteed Notes due 6 July 2016. The remaining 8,856,000 8.25% Step-up Coupon Subordinated Notes due 12 August 2014, which areunsecured, are callable by Tullett Prebon Group Holdings plc at any time after12 August 2009 ('the Call Date'). After the Call Date these notes will bearinterest calculated at 3.5% over the gross redemption yield of a gilt with
acomparable maturity date.
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 Board Terry SmithChief Executive 4 August 2009
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 2009 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 13. 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 issued by the AuditingPractices Board. Our work has been undertaken so that we might state to theCompany those matters we are required to state to it in an independent reviewreport and for no other purpose. To the fullest extent permitted by law, we donot accept or assume responsibility to anyone other than the Company for ourreview work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The 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 2009 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 LLP
Chartered Accountants and Statutory Auditors
4 August 2009
London, UK
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