TP ICAP Regulatory News (TCAP)

TULLETT PREBON PLC

PRELIMINARY RESULTS - for the year ended 31 December 2013

Tullett Prebon plc (the "Company") today announced its preliminary results for the year ended 31 December 2013. 

Financial Highlights

Underlying

· Revenue £803.7m (2012: £850.8m)

· Operating profit £115.4m (2012: £125.5m)

· Operating margin 14.4% (2012: 14.8%)

· Profit before tax £99.6m (2012: £111.3m)

· Basic EPS 36.0p (2012: 39.5p)

Reported, after exceptional items

· Profit before tax £84.4m (2012: Loss before tax £38.1m)

· Basic EPS 30.1p (2012: Basic Loss per share 28.1p)

Notes:

In order to give clarity to the operating performance of the business, the results are presented showing charges relating to exceptional items separately from the underlying results.

A table showing Underlying and Reported figures for each year is included in the Financial Review.

Commenting on the results, Rupert Robson, Chairman of Tullett Prebon plc, said:

"Market conditions were challenging throughout 2013 as the overall level of activity in the financial markets remained subdued, particularly during the second half of the year. The business has also faced higher costs relating to the regulatory readiness project. The impact of these factors on the underlying operating margin, however, has been largely offset by the actions that have been taken to reduce costs and to maintain flexibility in the cost base, to strengthen the broking business in all three regions, and to continue to develop the Information Sales and Risk Management Services businesses.

Revenue in 2013 was 6% lower than reported for 2012. Underlying operating profit in 2013 was £115.4m, 8% lower than reported for 2012. Underlying basic earnings per share were 9% lower than last year at 36.0p.

The Board is recommending an unchanged final dividend of 11.25p per share, making the total dividend for the year 16.85p per share, unchanged from that paid for 2012. The final dividend will be payable on 15 May 2014 to shareholders on the register at close of business on 25 April 2014."

Terry Smith, Chief Executive, added:

"The overall level of activity in the financial markets that we serve has been subdued for the last eighteen months reflecting persistently low volatility, the more onerous regulatory environment for our customers and the considerable uncertainty over the impact of new regulations covering the OTC derivatives markets, particularly in the United States.

Revenue in the first two months of this year is 12% lower at constant exchange rates compared with the relatively strong equivalent period last year. Market conditions worsened over the course of 2013 and it would be prudent to expect that market conditions will continue to be challenging. The actions we have taken to reduce fixed costs and to maintain flexibility in the cost base will continue to yield benefits in 2014, although this is likely to be at least partly offset by the expected increase in the run rate of costs related to the regulatory readiness project.

The business provides a valuable service to clients through its ability to create liquidity through price and volume discovery to facilitate trading in a wide range of financial instruments. The way in which this service is undertaken is in the process of change through the regulatory reforms being introduced in the United States and in Europe, and although it is currently not possible to accurately predict the impact these reforms will have, we believe that we will continue to provide a valuable service to clients. We have taken action to strengthen the business and we believe that we are well positioned to benefit from an upturn in the level of activity in the financial markets."

Forward-looking statements:

This document contains forward-looking statements with respect to the financial condition, results and business of the Company. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. The Company's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

Enquiries:

Nigel Szembel, Head of Communications

Tullett Prebon plc

+44 (0)20 7200 7722

Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com

Overview

Market conditions were challenging throughout 2013 as the overall level of activity in the financial markets remained subdued, particularly during the second half of the year. The business has also faced higher costs relating to the regulatory readiness project. The impact of these factors on the underlying operating margin, however, has been largely offset by the actions that have been taken to reduce costs and to maintain flexibility in the cost base, to strengthen the broking business in all three regions, and to continue to develop the Information Sales and Risk Management Services businesses.

The group generates revenue from commissions it earns by facilitating and executing customer orders. The level of revenue is substantially dependent on customer trading volumes which are affected by the level of volatility in financial markets, by customers' risk appetite, and by their willingness and ability to trade.

Volatility is one of the key drivers of activity in the financial markets, and despite increases in benchmark bond yields and a general steepening of yield curves over the year, measures of financial market volatility have remained low. There has been some financial market turbulence during the year but periods of higher levels of market activity were isolated and have not been sustained.

Market volumes have also been adversely affected by the more onerous regulatory environment applicable to many of our customers. Regulators worldwide have been adopting an increased level of scrutiny in supervising the financial markets and have been generally tightening the capital, leverage and liquidity requirements of commercial and investment banks, and taking steps to limit or separate their activities in order to reduce risk. This has reduced risk appetite and reduced the willingness and ability of our customers to trade.

The introduction of new regulatory reforms directly affecting the operation of the OTC derivatives markets has created considerable uncertainty amongst many of our customers which has also reduced market volumes. In particular the lack of clarity about which transactions and which counterparties would fall within the scope of the swap execution facility ("SEF") rules introduced in the United States in October last year served to reduce OTC derivative market volumes and fragmented pools of liquidity.

Consistent with the lower level of market activity, revenue in 2013 was 6% lower than in 2012 both as reported and at constant exchange rates. Revenue in the second half of the year was 8% lower than in the same period in 2012.

Significant expenditure is being incurred on the regulatory readiness project which covers the development, launch and ongoing running costs of new electronic platforms and associated infrastructure, and additional compliance resources. In 2013 the charge in the income statement for these costs was equal to 2% of revenue, compared with less than 1% of revenue in 2012. The run rate of these costs is expected to increase further in 2014 to around 2.5% of current annual revenue.

The business has taken action to reduce costs and to maintain flexibility in the cost base to offset the impact of lower revenue and of higher regulatory readiness costs. We continue to benefit from the restructuring programme undertaken at the end of 2011 and during the first half of 2012 which was designed to ensure that the business was well positioned to respond to less favourable market conditions by preserving the variable nature of broker compensation in relation to broking revenue. Further actions have been taken during 2013 to reduce both fixed costs and the variable remuneration of front office staff, senior management, and support staff. Broker compensation costs as a percentage of broking revenue have reduced to 58.3% in 2013 from 59.8% in 2012.

We have continued to focus on delivering innovative products and a first class broking service to our clients, and to take action to develop the broking business in all three regions.

For the fourth consecutive year the Company was voted number one in more product categories than any other single interdealer broker in Risk magazine's 2013 annual interdealer rankings published in September. Dealers across the wholesale banking markets in all three regions in which the business operates voted Tullett Prebon number one in 34 out of 94 derivatives product categories, reflecting the Company's focus on first class service and delivery of flexible and innovative products.

The business was also named Best Broker for Forward FX for the thirteenth year running at the 2013 FX Week Best Bank Awards in November, and Fixed Income Derivatives broker of the year in the Futures and Options World awards in December.

The continued successful development of our Energy business, covering oil, gas and power products and commodities, was recognised by the Company being voted Commodities Interdealer Broker of the Year in Derivatives Week magazine's 2013 awards in September. This follows the business being voted Broker of the Year at the 2013 Energy Risk Awards in the first half of the year, and reflects the expansion of market coverage in all three regions and the quality of service provided to clients in this asset class. The Energy business has continued to innovate and to expand its product offering. The business was named Best Broker for European and North American Weather Risk Markets in the Environmental Finance annual market rankings, following the establishment of a weather derivatives desk earlier in the year.

In Europe and the Middle East we have broadened the coverage of the business in continental Europe through the recently opened offices in Madrid and Geneva, and in the Middle East through the opening of the new Dubai office and through taking full management control of the businesses in Bahrain which we are now in the process of reorganising. Revenue from the offices in continental Europe and the Middle East has continued to increase and now represents 15% of the broking revenue for the region. We have also established an office in South Africa which will initially service the local market in government bonds.

In the Americas we have continued to benefit from the acquisition in early 2012 of Chapdelaine, including from the development of a corporate bond desk alongside the activity in municipal bonds. Market conditions in Brazil were not favourable during the second half of 2013, but the business we acquired in mid 2011 has developed its activities broking US dollar denominated products in the local market. We continue to look for opportunities to establish our presence in onshore financial markets as they develop in the region, and we have recently opened an office in Mexico to support our existing activities with Mexican counterparties in the United States and to service the local market.

Much of the focus of the business in the Americas during 2013 was on the development and introduction of the Company's swap execution facility, tpSEF Inc. ("tpSEF"), which was granted temporary registration by the Commodity Futures Trading Commission ("CFTC") in September and started operating on 2 October when the Dodd-Frank Act regulatory reforms relating to SEFs came into force. tpSEF offers trade execution and reporting compliant with the new regulatory framework in the five asset classes within the scope of the legislation, utilising the electronic broking platforms that have been developed by the group including the interest rate swap platform, tpSWAPDEAL. The interest rate swap business in the region has performed well since the new rules came into force.

In Asia Pacific, we have continued to develop the business in Hong Kong which is benefiting from the continued growth of the offshore Renminbi market and which is the centre for our equity derivatives business in the region. We have recently taken full control of our main business in Japan which was previously operated as a joint venture with a local partner, which will allow us to consolidate all of our activities in the centre into one business.

The majority of the OTC product markets are not characterised by continuous trading, and depend upon the intervention and support of voice brokers for their liquidity and effective operation. The platforms we offer provide clients with the flexibility to transact either entirely electronically or via the business's comprehensive voice execution broker network. The business has continued to develop its hybrid electronic broking offering to comply with regulatory requirements and to respond to market demand. Much of the development work during the year was focused on ensuring that platforms were ready for the implementation of tpSEF in the United States.

The product range supported by our hybrid interest rate swap platform, tpSWAPDEAL, has been broadened during the year and the platform now displays streaming prices in EUR, USD and GBP. Whilst the interdealer market for interest rate swaps continues to be executed predominantly through voice brokers, the platform provides clients with the ability to execute electronically or with voice broker support and operates as a highly efficient front end order management and trade capture system for brokers and customers. 

Revenue from the tpQUICKDEAL service which offers clients focused liquidity ("auction") sessions with real time electronic trade matching for products that are not otherwise supported by a hybrid platform, increased in the year, driven by a broader product offering and enhanced system functionality. We also benefited from increased market adoption of tpCADDEAL, a hybrid platform supporting the broking of Canadian government bonds which has become an integral part of the service provided by our Toronto office.

The Information Sales business was awarded, for the third consecutive year, the title of Best Data Provider (Broker) at the Inside Market Data Awards in May. The award is determined by an independent poll of end-users and reaffirms the industry's recognition of our position as the leading provider of the highest quality independent price information and data from the global OTC markets. The business has continued to expand its product offering and towards the end of the year started to provide data on the bond markets in China and India. The bond markets in both countries have seen significant growth in recent years and the provision of accurate, independent data to market participants will assist in the further development of the onshore capital markets in those countries.

Revenue from products supported by electronic platforms, together with Information Sales and Risk Management Services revenue, accounted for nearly one-quarter of total revenue in 2013. As more electronic platforms are launched, and more products and services are added to existing platforms, the proportion of total revenue accounted for by products supported by electronic platforms is expected to continue to increase.

Our key financial and performance indicators for 2013 compared with those for 2012 are summarised in the table below.

Underlying operating profit in 2013 was £115.4m, 8% lower than reported for 2012, with the underlying operating margin at 14.4%, 0.4% points lower than the 14.8% reported for 2012. The adverse impact on operating margins from the operational leverage effect of lower broking revenue, and from the increased costs associated with the regulatory readiness project, have been largely offset by the actions to reduce costs in broker compensation and other areas.

Average broker headcount during 2013 was 2% lower than during 2012, with the largest reduction in the Americas. Year end broker headcount at 1,687 was also 2% lower than at the end of 2012. The lower level of market activity in 2013 compared with 2012 is reflected in the reduction in average revenue per broker which, at £445k for 2013, is 4% lower than for 2012.

The benefit of the actions taken to reduce broking front office fixed costs and to preserve the variable nature of broker compensation costs is reflected in the 1.5% point reduction in broker compensation costs as a percentage of broking revenue to 58.3% for 2013. Other broking front office costs have also been reduced in line with broking revenue.

The increase in broking support headcount reflects the increased number of technology staff supporting the development, launch and ongoing operation of new platforms and the associated infrastructure, together with higher numbers of compliance staff and operations staff supporting the activity of tpSEF in the United States.

Operating Review

The tables below analyse revenue by region and by product group, and underlying operating profit by region, for 2013 compared with 2012.

Revenue

A significant proportion of the group's activity is conducted outside the UK and the reported revenue is therefore impacted by the movement in the foreign exchange rates used to translate the revenue from non-UK operations. In order to give a more meaningful analysis of revenue performance the tables below show revenue for 2012 translated at the same exchange rates as those used for 2013, with growth rates calculated on the same basis. The revenue figures as reported are shown in Note 3 to the Consolidated Financial Statements.

The commentary below reflects the presentation in the tables.

Revenue was 6% lower in 2013 than in 2012, driven by lower volumes in the traditional interdealer broker product groups of Treasury Products, Interest Rate Derivatives and Fixed Income.

Revenue from Treasury Products (FX and cash) was 8% lower, reflecting lower volumes in forward FX in all three regions, particularly in emerging markets' currencies and in non-deliverable forwards, partly offset by higher levels of activity in forward JPY in Tokyo and in CNH products in Hong Kong.

Revenue from Interest Rate Derivatives (swaps and options) was 4% lower with weaker volumes in major currency products and in interest rate options, particularly in the second half of the year. Activity in emerging markets' interest rate derivatives products, which had been strong in the first half, also weakened in the second half. 

The Fixed Income product group includes government and government agency bonds, corporate bonds and credit derivatives, and the 7% decline in revenue reflects the generally subdued levels of activity in the major bond markets, partly offset by increased revenue from corporate bonds in North America, and from the listed futures and options broking activity in Europe.

Revenue from Equities was 1% higher reflecting a good performance in equity derivatives in North America and in Hong Kong, and from the ADR and GDR conversion desk in North America.

Revenue from Energy products was 4% lower, held back by lower activity in some of the oil products and commodities markets in the second half of the year.

Revenue from Information Sales increased by 8% as a result of the continued expansion of the product offering, growth in the customer base and increased demand from existing customers for additional data. Market conditions for Risk Management Services were challenging throughout the second half reflecting low interest rate volatility, and although the tpMATCH platform has gained market share and the tpMATCH NDF platform has established a significant presence in the market, revenue from the business was lower than last year.

Europe and the Middle East

Revenue in 2013 in Europe and the Middle East was 7% lower than in 2012. Broking revenue was 8% lower than in 2012, partly offset by growth in Information Sales.

The business has continued to develop its presence in continental Europe and the Middle East through the expansion of existing offices and the opening of new offices over the past two years, staffed by a combination of new hires and transfers of existing staff from London. Revenue from the offices in continental Europe and the Middle East increased by 24% in 2013 compared with 2012. Average broker headcount for the region was 1% lower than last year, with growth in headcount in continental Europe and the Middle East more than offset by a reduction in London, with average revenue per broker 7% lower than in the prior year reflecting the lower level of market activity, particularly in the second half of the year.

Over three-quarters of the broking revenue in the region is derived from Treasury products (FX and cash), Interest Rate Derivatives and Fixed Income. Revenue from each of those product groups was lower, reflecting the lower level of market activity in each of the main product areas of forward FX, major currency interest rate swaps and government and corporate bonds. Within each of those products groups there were some areas of higher activity and revenue growth, including FX options, Eastern European interest rate swaps and bonds, and listed futures and options.

Revenue from Equities, the smallest product group in the region, was lower reflecting lower activity in equity derivatives. The region's Energy business, including commodities, has continued to perform well in generally less favourable market conditions, with growth in revenue from power products offset by quieter oil markets, and lower activity in base metals.

Americas

Revenue in the Americas was 2% lower in 2013 than in 2012.

Average broker headcount in the Americas in 2013 was 6% lower than in 2012 reflecting the continuing cost reductions in the region, with average revenue per broker 4% higher, reflecting an improvement in broker productivity and a pick up in market activity in some product areas.

Revenue from Treasury products (predominantly FX) was lower than last year reflecting the challenging market conditions for many emerging markets' products and uncertainty over the effect of the SEF rules on trading in non-deliverable forwards and FX options. Revenue from Interest Rate Derivatives was unchanged. The USD interest rate swap market moved almost entirely to SEF pools of liquidity with the result that there was much less uncertainty over the application of the rules and less fragmentation of liquidity. The performance of the Fixed Income desks was mixed, with higher revenue from corporate bonds offset by lower activity in mortgage backed securities, repos and agency bonds.

Revenue from Equities and Energy, which together represent around one-sixth of revenue in the region, was higher in 2013 than in 2012, reflecting the continued development of these areas.

Although market conditions in Brazil became more challenging during the second half of the year, revenue was only slightly lower in 2013 than in 2012, reflecting the benefit of the actions taken to broaden the coverage of the business.

Asia Pacific

Revenue in Asia Pacific was 8% lower than in 2012, with a 7% fall in broking revenue and lower revenue in the second half of the year from the Risk Management Services business which is operated from the region. Average broker headcount was little changed but average revenue per broker was 8% lower than in the previous year reflecting the lower level of market activity in most of the centres in the region.

The business in Singapore continues to suffer from the reduction in bank activity in the centre, particularly in non-deliverable forwards and in interest rate swaps. Activity in Tokyo has been aided by the significant change in monetary policy which has resulted in steeper Yen yield curves and significant movements in Yen exchange rates against other major currencies. The business in Hong Kong had another strong year, benefiting from the continued growth of the markets for offshore Renminbi products and from the development of the region's equity derivatives business particularly in Nikkei index products.

Underlying Operating profit

The revenue, underlying operating profit and operating margin by region shown below are as reported.

The underlying operating profit in Europe and the Middle East of £97.9m in 2013 was 12% lower than in the prior year, and with revenue down 6% the underlying operating margin has reduced slightly, to 20.9%. Broker employment costs as a percentage of broking revenue have fallen by 1.1% points but the benefit of this has been offset by the operational leverage effect of lower revenue, and by higher management and support costs reflecting the investments being made in technology.

In the Americas the underlying operating profit has increased to £10.4m in 2013 despite the slightly lower revenue, and the underlying operating margin has improved, to 4.4% for 2013 compared with 1.0% for 2012. Broker employment costs as a percentage of revenue have been reduced significantly, and other front office costs have also been reduced, more than offsetting the increased costs associated with the regulatory readiness project including the operation of tpSEF.

Underlying operating profit in Asia Pacific has reduced by 40% to £7.1m, and the underlying operating margin in the region has reduced to 7.0% from 10.6%. The reduction in underlying operating profit and margin primarily reflects the operational leverage effect of lower revenue. Broker employment costs as a percentage of broking revenue were slightly higher in 2013 than in 2012, and although management and support costs in the region have been reduced this was not to the same extent as the reduction in revenue. 

Litigation

Legal action continues to be pursued against BGC and former employees in the USA in response to the raid on the business by BGC in the second half of 2009. The outcome of the FINRA arbitration on the claim brought by the subsidiary companies in the United States directly affected by the raid is expected to be determined imminently. The separate action being pursued by the Company and the directly affected subsidiaries in the New Jersey Superior Court, alleging, among other causes of action, violations under the NJ RICO Act, is expected to go to trial in the second quarter of 2014.

The £15.2m charge relating to major legal actions which is included as an exceptional item in the 2013 results reflects the costs incurred in bringing these actions.

Financial Review

The results for 2013 compared with those for 2012 are shown in the tables below.

Finance income/(expense)

An analysis of the net finance expense is shown in the table below.

The net cash finance expense of £17.2m in 2013 is £2.1m higher than in 2012. The increase reflects the higher interest payable on the 5.25% Sterling Notes 2019 issued in December 2012 compared with the floating rate interest on the short term bank loan which the Notes replaced, and £0.9m of accelerated amortisation of debt issue costs related to the bank debt that was repaid.

The net non-cash finance income comprises the net of the expected return and interest on pension scheme assets and liabilities of £1.9m (2012: £1.7m), partly offset by the amortisation of the discount on deferred consideration.

Tax

The effective rate of tax on underlying PBT is 22.5% (2012: 23.6%). The 1.1% point reduction in the effective rate primarily reflects the benefit of the reduction in the UK statutory rate of corporation tax to 23.25% for 2013, 1.25% points lower than for 2012.

The tax credit on exceptional items reflects the net tax relief recognised on those items at the relevant rate for the jurisdiction in which the charges are borne. No tax relief has been recognised on the exceptional charges arising in the USA in either 2013 or 2012 due to the current low level of taxable profit in that jurisdiction. In addition, in 2012, there was no tax effect relating to the non-cash charge for the impairment of goodwill.

Exceptional items

The £15.2m (2012: £11.6m) charge relating to the major legal actions is discussed above.

The £14.8m charge in 2012 relating to restructuring costs reflected the costs of the actions taken in the first half of that year as part of the restructuring programme that started at the end of 2011 to reduce fixed costs and to maintain flexibility in the cost base.

The £123.0m charge in 2012 relating to goodwill impairment reflected the write down in the balance sheet carrying value of the North American business.

Basic EPS

The average number of shares used for the basic EPS calculation of 217.8m reflects the number of shares in issue at the beginning of the year, plus the 0.4m shares that are issuable when vested options are exercised (0.1m of which were issued in April 2013), less the 0.2m shares held throughout the year by the Employee Benefit Trust which has waived its rights to dividends. 

Exchange and Hedging

The income statements of the group's non-UK operations are translated into Sterling at average exchange rates. The most significant exchange rates for the group are the US dollar, the Euro, the Singapore dollar and the Japanese Yen. The balance sheets of the group's non-UK operations are translated into Sterling using year end exchange rates. The major balance sheet translation exposure is to the US dollar. The group's current policy is not to hedge income statement or balance sheet translation exposure.

Average and year end exchange rates used in the preparation of the financial statements are shown below.

Cash flow

In 2013 the group has delivered an operating cash flow of £107.7m representing 93% (2012: £72.8m and 58%) of underlying operating profit.

Capital expenditure of £17.0m relates to the investment in the development of electronic platforms and associated infrastructure as part of the regulatory readiness project, and the purchase of assets to replace those damaged by a fire.

The initial contract prepayment balance has reduced in 2013, as the payments in the year were lower than the amortisation charge.

The other working capital outflow in 2013 reflects the reduction in bonus accruals and other payroll related creditors at the end of the year compared with the balances at the end of 2012. The lower level of bonus accruals is due to the lower level of broking revenue throughout the second half of the year compared with the previous year, and the reduction in management and support staff bonuses which are paid annually.

The restructuring cash payments of £3.2m in 2013 reflects payments during the year relating to the profit and loss charges for restructuring costs in 2011 and in 2012. Most of the remaining £1.7m of restructuring costs which has not yet been paid in cash is expected to be paid during 2014. The major legal actions net cash flow of £15.2m reflects the cash payments for legal costs made during the year, in line with the charge in the income statement.

Interest payments in 2013 reflect the income statement charge for net cash finance expenses excluding the charge for the amortisation of debt issue costs.

Tax payments in 2013 of £27.5m were little changed compared with the net payments made in 2012 despite the reduction in the tax charge because in 2012 we benefited from the recovery of tax paid in previous years in the USA.

Expenditure on acquisitions and investments in 2013 reflects the payments for deferred consideration relating to the acquisitions of Convenção in Brazil, and Unified Energy Services in the USA.

The movement in cash and debt is summarised below.

At 31 December 2013 the group held cash, cash equivalents and other financial assets of £282.8m which exceeded the debt outstanding by £55.2m.

Debt Finance

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

The remaining balance of the bank amortising term loan was repaid during the first half of 2013 when the group entered into a new three year £150m revolving credit facility which matures in April 2016. The revolving credit facility remained undrawn throughout the year.

Pensions

The group has one defined benefit pension scheme in the UK following the merger during 2012 of the two schemes which were acquired with Tullett plc and Prebon Marshall Yamane. The scheme is closed to new members and future accrual.

The triennial actuarial valuation of the scheme as at 30 April 2013 was concluded in January 2014. The actuarial funding surplus of the scheme at that date was £64.2m and under the agreed schedule of contributions the Company will continue not to make any payments into the scheme.

The assets and liabilities of the scheme are included in the Consolidated Balance Sheet in accordance with IAS19. The scheme's invested assets returned 17% (net of fees) during the year, and the fair value of the scheme's assets at the end of the year was £226.1m (2012: £204.3m). The value of the scheme's liabilities at the end of 2013 calculated in accordance with IAS19 was £175.6m (2012: £162.9m). The valuation of the scheme's liabilities at the end of 2013 reflects the demographic assumptions adopted for the most recent triennial actuarial valuation. Under IAS19 the scheme shows a surplus, before the related deferred tax liability, of £50.5m at 31 December 2013 (2012: £41.4m).

Return on capital employed

The return on capital employed (ROCE) in 2013 was 24% (2012: 29%). ROCE is calculated as underlying operating profit divided by the average capital employed in the business. Capital employed is defined as shareholders' funds less net funds and the accounting pension surplus (net of deferred tax), adding back cumulative amortised and impaired goodwill and post tax reorganisation costs related to the integration of the Tullett and Prebon businesses.

Regulatory capital

The group's lead regulator is the Financial Conduct Authority. The group has an investment firm consolidation waiver which was approved on 8 June 2011 and which will expire on 6 June 2016.

Many of the group's broking entities are regulated on a 'solo' basis, and are obliged to meet the regulatory capital requirements imposed by the local regulator of the jurisdiction in which they operate.

OTC Market Regulation

Progress continues to be made in the process of agreeing and implementing reforms designed to strengthen the financial system and to improve the operation of financial markets. Our view on the current status of the reforms is set out below. As we have previously commented, we agree with the objectives and support the direction of these reforms. Although the finalisation and introduction of the rules relating to SEFs in the USA has caused uncertainty in the market and has reduced market volumes, we believe that the reforms being implemented in the USA and Europe will be positive for our business as they formalise the role of the intermediary in the OTC markets.

USA

Title VII of the Dodd-Frank Act established a comprehensive new regulatory framework for swaps and security-based swaps that requires that swaps that are subject to the clearing requirement and are made available to trade must be executed on a SEF or designated contract market ("DCM"). The CFTC published its final rules for SEFs on 4 June 2013.

Our voice and hybrid broking activities in the USA are regarded by the CFTC as a "multiple-to-multiple swaps trading facility" and as such we are required to register as a SEF. The Company's swap execution facility, tpSEF Inc. ("tpSEF"), was granted temporary registration by the CFTC in September and started operating on 2 October when the rules relating to the capture and reporting of all trades of instruments within the scope of the rules came into effect. Third party analysis of the volume of trades reported through SEFs shows that the market shares of the interdealer brokers have been maintained at the levels before the rules were introduced.

The requirement for the mandatory execution within a SEF of trades in instruments that have been determined by the CFTC to be "made available to trade" came into force for certain interest rate swaps and certain credit default index swaps in February 2014.

Europe

In Europe, the implementation of EMIR, which contains provisions governing mandatory clearing requirements and trade reporting requirements for derivatives, is coming into effect in stages as the various technical standards are agreed. Details of all derivative contracts must be reported to recognised trade repositories from 12 February 2014, the first clearing obligations are expected to apply from the second half of 2014, subject to the authorisation of a relevant CCP, and margin requirements for non-cleared trades will apply from 1 December 2015.

The proposals to revise the Markets in Financial Instruments Directive (MiFID), through the introduction of a new directive (MiFID II) and a new regulation (MiFIR), continue to progress. MiFID II and MiFIR are expected to contain provisions governing permissible trade execution venues, and governance and conduct of business requirements for trading venues. The application of these new requirements is expected to be effective in 2016.

Outlook

The overall level of activity in the financial markets that we serve has been subdued for the last eighteen months reflecting persistently low volatility, the more onerous regulatory environment for our customers and the considerable uncertainty over the impact of new regulations covering the OTC derivatives markets, particularly in the United States.

Revenue in the first two months of this year is 12% lower at constant exchange rates compared with the relatively strong equivalent period last year. Market conditions worsened over the course of 2013 and it would be prudent to expect that market conditions will continue to be challenging. The actions we have taken to reduce fixed costs and to maintain flexibility in the cost base will continue to yield benefits in 2014, although this is likely to be at least partly offset by the expected increase in the run rate of costs related to the regulatory readiness project.

The business provides a valuable service to clients through its ability to create liquidity through price and volume discovery to facilitate trading in a wide range of financial instruments. The way in which this service is undertaken is in the process of change through the regulatory reforms being introduced in the United States and in Europe, and although it is currently not possible to accurately predict the impact these reforms will have, we believe that we will continue to provide a valuable service to clients. We have taken action to strengthen the business and we believe that we are well positioned to benefit from an upturn in the level of activity in the financial markets.

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Consolidated Income Statement

for the year ended 31 December 2013

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Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

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Consolidated Balance Sheet

as at 31 December 2013

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Consolidated Statement of Changes in Equity

for the year ended 31 December 2013

Equity attributable to equity holders of the parent

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Consolidated Cash Flow Statement

for the year ended 31 December 2013

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Notes to the Consolidated Financial Statements

for the year ended 31 December 2013

1. General information

Tullett Prebon plc is a company incorporated in England and Wales under the Companies Act.

2. Basis of preparation of accounts

(a) Basis of accounting

The financial information included in this document does not constitute the Group's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The Financial Statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the going concern basis continues to be used in preparing these Financial Statements.

(b) Basis of consolidation

The Group's Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities.

(c) Adoption of new and revised Accounting Standards

The EU endorsed amendments to IAS 19 'Employee Benefits' have been adopted from 1 January 2013 with retrospective application to prior periods. The amendments to prior periods change the measurement of various components within the defined benefit pension asset, but do not change the overall value of the Group's retirement benefit asset as presented in the Consolidated Balance Sheet. Previously reported expected returns on plan assets and interest cost on plan liabilities, both included in the Consolidated Income Statement, have been replaced with a single net finance income amount based on the discount rate. Scheme administration costs, previously offset within the return on plan assets, are now included within administrative expenses. The effect on the previously reported financial information for December 2012 is set out in Note 12.

Amendments to IAS 1 'Presentation of Financial Statements', regarding the presentation of items of other comprehensive income, have been adopted during the year. This has increased the disclosure within the Statement of Other Comprehensive Income. Items within other comprehensive income, together with the related taxes, have been analysed between those that will not be reclassified to profit or loss and those that may be reclassified. The amendments have been applied retrospectively.

Additionally, the Group has adopted IFRS 13 'Fair Value Measurement', Amendments to IFRS 7 'Financial Instruments: Disclosures' regarding disclosures relating to offsetting financial assets and financial liabilities, Amendments to IAS 12 'Income Taxes' relating to deferred tax: recovery of underlying assets, and Improvements to IFRSs 2009-2011. The adoption of these Standards and Amendments has had no impact on the consolidated financial information.

3. 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:

(1) Costs are included in administrative expenses.

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

4. Exceptional items

Exceptional items comprise:

5. Other operating income

Other operating income represents receipts such as rental income, royalties, insurance proceeds, settlements from competitors and business relocation grants. Costs associated with such items are included in administrative expenses.

6. Finance income

7. Finance costs

8. Earnings/(loss) per share

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

The earnings/(loss) used in the calculation of underlying, basic and diluted earnings/(loss) per share, are set out below:

9. Dividends

In respect of the current year, the Directors propose that the final dividend of 11.25p per share amounting to £24.5m will be paid on 15 May 2014 to all shareholders on the Register of Members on 25 April 2014. This dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these Financial Statements.

The trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.

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

11. Analysis of net funds

Cash and cash equivalents comprise cash at bank and other short term highly liquid investments with an original maturity of three months or less. As at 31 December 2013 cash and cash equivalents amounted to £251.6m (2012: £281.5m). Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.

Financial assets comprise short term government securities and term deposits held with banks and clearing organisations.

12. Restatement of 2012 comparative financial information

The change to IAS 19 explained in Note 2(c) results in the following restatement of previously reported financial information for 31 December 2012.

In the Consolidated Income Statement, administrative expenses increase by £0.5m resulting in underlying operating profit reducing from £126.0m to £125.5m, and the total operating loss, including exceptional items, increasing from (£23.4m) to (£23.9m); finance income reduces by £9.9m and finance costs reduce by £7.0m; underlying profit before tax reduces from £114.7m to £111.3m and total loss before tax, including exceptional items, increases from (£34.7m) to (£38.1m); taxation reduces by £1.2m; underlying profit of consolidated companies reduces from £87.2m to £85.0m and total loss of consolidated companies, including exceptional items, increases from (£59.9m) to (£62.1m).

In the Consolidated Statement of Comprehensive Income, remeasurement of the defined benefit pension scheme increases to £4.2m from £0.8m and the taxation charge on components of other comprehensive income increases to (£2.0m) from (£0.8m) resulting in other comprehensive income increasing by £2.2m. Total comprehensive income remains unchanged at (£67.7m). Basic and diluted loss per share both increase from (27.1p) to (28.1p), underlying basic earnings per share reduce from 40.5p to 39.5p and underlying diluted earnings per share reduce from 40.4p to 39.4p.

OTHER INFORMATION

The Annual General Meeting of Tullett Prebon plc will be held at Level 37, Tower 42, 25 Old Broad Street, London EC2N 1HQ on 9 May 2014 at 2.00pm.