TP ICAP Regulatory News (TCAP)

TULLETT PREBON PLC

PRELIMINARY RESULTS - for the year ended 31 December 2011

Tullett Prebon plc (the "Company") today announced its preliminary results for the year ended 31 December 2011. 

Financial Highlights

·; Revenue £910.2m (2010: £908.5m)

·; Underlying Operating profit £148.4m (2010: £160.1m)

·; Underlying Operating margin 16.3% (2010: 17.6%)

·; Underlying Profit before tax £136.1m (2010: £149.0m)

·; Basic Underlying EPS 46.1p (2010: 50.1p)

·; Operating cash flow £136.8m - 92% conversion of underlying operating profit

·; Reported Profit before tax £119.2m (2010: £141.3m)

·; Reported Basic EPS 41.3p (2010: 50.5p)

Notes:

Underlying figures are stated before the net charge in each year related to the major legal actions between the Company and BGC, the restructuring charge in 2011, tax credits related to those items, and for 2010 the tax credit on capital related items.

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

Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:

"The financial results for 2011 demonstrate the strength of the business in challenging market and competitive conditions, and the value of the service the business provides to participants in the world's OTC financial markets.

Revenue for the year of £910.2m was in line with that reported for 2010. Using constant exchange rates, and adjusting for Convenção which was acquired in August 2011, and for the satellite offices in the Americas which were closed or exited during the second half of 2010, revenue was 2% higher. As market activity in 2011 was lower overall than in 2010, this was a good performance reflecting the benefit of continued investment in the business.

Underlying profit before tax of £136.1m compares with £149.0m in 2010. With a reduction in the effective rate of tax on underlying profit to 27.1%, underlying basic earnings per share were 8% lower than last year at 46.1p.

The business has again generated a strong cash flow. Operating cash flow for the year was £136.8m, representing 92% of underlying operating profit, and at the end of the year net funds amounted to £107.1m, an increase in the year of £39.3m.

The Board recognises that dividends are an important element of shareholder return and is recommending a final dividend of 11.25p per share, making the total dividend for the year 16.5p per share, an increase of 5% on the 15.75p per share paid for 2010. The final dividend will be payable on 17 May 2012 to shareholders on the register at close of business on 27 April 2012."

Terry Smith, Chief Executive, added:

"Market and competitive conditions are expected to continue to be challenging. The world's financial markets remain unsettled, however, and it seems reasonable to expect that there will be some periods of market volatility and heightened activity during 2012, as well as periods of more subdued activity.

The business has made a reasonable start to the year. Revenue in the first two months of 2012, at constant exchange rates and excluding the recent acquisitions of Convenção and Chapdelaine, is 1% lower than in the same period last year. Actions have been taken to reduce costs and to maintain flexibility in the cost base, although the business does face increased costs relating to electronic platform developments and impending regulatory changes.

The enduring strength of the business is the valuable service it provides to clients through its ability to create liquidity through price and volume discovery to facilitate trading in a wide range of financial instruments. We agree with the objectives and support the direction of the reforms designed to strengthen the financial system and to improve the operation of the financial markets. We consider that the introduction of these reforms will be positive for our business as the proposals formalise the role of the intermediary in the OTC markets. We believe that we are well positioned to continue to provide a valuable service to clients and that our offering can be developed to meet the various new OTC market regulations that will be introduced."

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

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Overview

The financial results for 2011 demonstrate the strength of the business in challenging market and competitive conditions, and the value of the service the business provides to participants in the world's OTC financial markets.

The business benefits from the increased volumes in the financial markets that occur during periods of market turbulence, but levels of activity tend to reduce sharply when volatility is overshadowed by structural uncertainty. Although the world's financial markets remained unsettled throughout the year, yield curves in the world's major developed economies flattened further, dampening activity in certain asset classes. Whilst there were periods of significant market volatility which resulted in heightened levels of activity, most notably in the first two weeks of August and the second two weeks of November, there were also some relatively prolonged periods of more subdued activity. 

Revenue in 2011 was in line with that reported for 2010. Using constant exchange rates, and adjusting for Convenção which was acquired in August 2011, and for the satellite offices in the Americas which were closed or exited during the second half of 2010, revenue was 2% higher. As market activity in 2011 was lower overall than in 2010, which is reflected in a 3% reduction in average revenue per broker, the increase in revenue reflects the benefit of continued investment in the business.

The business in Europe continued to perform strongly, benefiting from the more favourable market conditions in the second half of the year, and from the investments made to strengthen market positions in Credit and Energy in London, and in broadening the base of the business in Continental Europe. The quality of the business in Europe and the value of the service it provides to clients were recognised by a number of awards during the year, including best broker for Forward FX and currency options in the FX Week awards, top broker in currencies in the Risk annual interdealer rankings, and top broker for cash bonds in the Credit interdealer broker rankings.

Significant progress has been made in the development of the business in the Americas region. We have re-established our presence in those product areas affected by the raid on the business in 2009, and with the twenty-six strong credit broking team who joined the business in New York in early January, headcount on the affected desks is largely back to the levels before the defections. New senior management for the Americas region started in June, increasing our regional management capability as we entered a phase of further investment in the region. The acquisition of Convenção, an inter-dealer broker based in São Paulo, Brazil, completed on 9 August 2011. This business provides the base for further expansion in both Brazil and other countries in Latin America. The acquisition of Chapdelaine & Co., a leading municipal bonds broker based in New York, completed in early January 2012.

The business in Asia has performed well despite the reduction in the level of market activity in Tokyo since the earthquake in March, benefiting from the investment in Hong Kong to support onshore and offshore activity in the financial markets for instruments denominated in Renminbi.

We have continued to develop our electronic broking capabilities, and we are developing platforms to provide clients with the flexibility to transact either entirely electronically or via the business' comprehensive voice execution broker network. This hybrid model is consistent with the nature and operation of the majority of the OTC product markets which depend upon the intervention and support of voice brokers for their liquidity and effective operation.

In the last quarter of the year we launched tpSWAPDEAL, our hybrid interest rate swap trading platform. The platform has streaming price support in Euro denominated interest rate swaps from our main liquidity providing banks and has been installed on the desktops of the interest rate swap client base in Europe. Trades have been successfully executed through the platform, although the interdealer market for interest rate swaps continues to be executed predominantly through voice brokers. tpSWAPDEAL runs on exchange-grade technology and can be deployed quickly for other currencies and derivative products. In addition to standard electronic platform functionality, tpSWAPDEAL has a number of features designed to replicate and enhance the advantages of the current voice market. We intend to launch similar platforms for a number of other products, which are designed to be effective within both the current trading landscape and under all currently anticipated regional regulatory environments.

We are well positioned to respond to and benefit from changes in the way in which OTC product markets operate as a result of the regulatory reforms of these markets in both the USA and Europe. Our view of the current status of the regulatory developments is set out below. We continue to believe that the direction of the regulatory reforms reinforces the role of the intermediary in the OTC markets, and that the introduction of electronic platforms reflects an evolution of the facilitation service that the business provides, rather than fundamentally changing the way in which OTC markets operate.

The Information Sales business has continued to perform strongly, benefiting from the investment that has been made to increase the breadth of the data the business offers to customers, and the increasing customer awareness of the value of independent pricing data, most notably from the risk management and compliance functions of banks and other financial institutions who are driving this demand in response to increased regulatory oversight. The business was named Best Data Provider (Broker) at the Inside Market Data Awards in May, a clear endorsement of our position as the leading provider of OTC price information and data to market participants. In the post trade Risk Management Services business, the tpMATCH platform, which assists clients in the management of interest rate risk, has been extended to cover an increased number of currencies, and towards the end of the year the business launched a platform to assist clients in their management of non-deliverable forwards date mismatches.

Revenue from products supported by electronic platforms, together with Information Sales and Risk Management Services revenue, has increased by 14% to £171m, accounting for nearly one fifth of total revenue in 2011. The proportion of that revenue that is derived from voice-only execution has reduced to one third, compared to 39% in 2010 and 55% in 2009, reflecting the increased proportion derived from trades conducted through the platforms.

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. There are two areas in which the Company has incurred exceptional items during the year: the major legal actions that the Company is engaged in, and the restructuring actions that the Company has taken to reduce costs and to maintain flexibility in the cost base. The charges related to these items are discussed below.

Our key financial and performance indicators for 2011 compared with those for 2010 are summarised in the table below.

Underlying operating profit of £148.4m is 7% lower than for 2010 with the underlying operating margin at 16.3% compared to 17.6% for 2010. The reduction in underlying operating margin is primarily driven by the increase in broker compensation costs as a percentage of broking revenue.

The 1.1% points increase in broker compensation costs as a percentage of broking revenue to 59.6% is due to the increased costs of employment in the Americas and to a lesser extent in Europe, reflecting the highly competitive market for brokers and the significant investment that has been made in rebuilding the business in the Americas.

The year end broker headcount of 1,667 includes the 43 brokers who joined the business through the acquisition of Convenção and the 26 credit brokers who joined the business in New York in January 2011. The business also made a number of individual broker hires during the year, but this was offset by the impact on broker headcount of the actions taken prior to the end of the year to reduce costs and increase flexibility, as discussed below.

The increase in broking support headcount reflects the 34 heads who joined the business through the acquisition of Convenção, and the increase in the second half of the year in the headcount supporting the development and administration of electronic platforms and related developments. 

Operating Review

The tables below analyse revenue by region and by product group, and underlying operating profit by region, for 2011 compared with 2010.

In order to give a more meaningful analysis of revenue performance, the tables show the revenue from Convenção, which was acquired in August 2011, and from the satellite offices in the Americas, which were closed or exited during the second half of 2010, separately. 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. The tables therefore show revenue for 2010 translated at the same exchange rates as those used for 2011, with growth rates calculated on the same basis. The revenue figures as reported are shown in note 3 to the Consolidated Financial Statements.

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

The commentary below reflects the presentation in the tables.

At constant exchange rates, and adjusting for Convenção and the satellite offices, revenue was 2% higher in 2011 than 2010.

Revenue from Treasury Products was 2% higher, reflecting good growth in forward FX, particularly in the Americas which benefited from higher levels of activity in emerging markets products, and in FX options in all three regions, which offset a decline in revenue from cash and deposits broking.

The 2% decline in revenue from Interest Rate Derivatives reflects revenue growth in emerging market interest rate derivatives and in interest rate options, offset by lower activity in the traditional major currency interest rate swaps markets, reflecting the low level of interest rates in the world's major economies throughout the period.

The 4% growth in revenue in Fixed Income reflects a strong performance in credit products in both Europe and the Americas, partly offset by lower revenue in mortgage backed securities in the Americas. The credit business in the Americas has benefited from the investments that have been made in rebuilding our presence in that area, including the twenty-six strong credit broking team who started with the business in early January 2011. The decline in revenue in mortgage backed securities reflects the reduction in the number of brokers and the lower level of market activity in those products. The traditional 'flow' European government bond business benefited from the periods of market volatility and heightened activity in the second half of the year.

Revenue in Equities is derived predominantly from the broking of equity derivatives, and the decline in revenue reflects the lower level of market activity in those products.

Although oil markets were fairly steady in 2011, revenue in Energy increased, reflecting higher activity in natural gas, and the benefit from an increase in headcount in the Americas in gas and oil products, to complement the region's traditional strength in power products.

More than half of the growth in revenue from Information Sales was generated from new customers, with the balance coming from existing customers subscribing for additional data. In Risk Management Services the revenue from the tpMATCH platform has increased significantly as clients continue to be attracted to the product flexibility and tailored service offered.

Europe

Revenue in Europe in 2011 was 2% higher than in 2010. Average broker headcount in Europe was 4% higher than in the prior year which offset a 2% decline in average revenue per broker reflecting the generally more subdued market, particularly in the first half of the year. Revenue in Europe in the second half of the year benefited from more favourable market conditions, and was 12% higher than in 2010.

Revenue in both Treasury Products and Interest Rate Derivatives was unchanged from the previous year, with growth in emerging markets products and the volatility products of FX options and interest rate options offsetting lower volumes in cash deposits, and in the traditional major currency interest rate swap markets.

In Fixed Income, revenue from government bonds, including repos and futures and options, was slightly higher than in the previous year after a strong second half. Revenue from corporate bonds and credit derivatives was up strongly, reflecting the investment in that area and favourable market conditions in the second half. The Equities business, which is the smallest product group in Europe, reported lower revenue for the year as the lower activity in equity derivatives in the first half more than offset the benefit of more favourable market conditions in the second half. The Energy business has continued to perform well benefiting from active markets, particularly in natural gas.

Americas

Revenue in the Americas in 2011 was 3% higher than in 2010. Average broker headcount in the region was 6% higher than in 2010 which offset a decline in the average revenue per broker reflecting the reduction in market activity.

The business delivered good growth in revenue in Treasury Products, particularly in emerging markets currencies and FX options. Revenue in Interest Rate Derivatives was lower as the growth in emerging markets products was more than offset by the lower activity in the US dollar market. Within Fixed Income, revenue from corporate bonds was substantially higher reflecting the investment made in that area, but this was partly offset by lower activity and reductions in the number of brokers in mortgage backed securities. Within Energy, revenue from natural gas and oil products was higher.

Asia Pacific

Revenue in Asia Pacific has increased by 1%. The average broker headcount in the region was 2% higher, largely offsetting the reduction in average revenue per broker, with the increase in revenue reflecting the growth of the Risk Management Services business, much of which is operated from Singapore. The rate of growth of revenue in Asia Pacific was held back by the performance in Japan where the level of market activity has not fully recovered since the earthquake in March. Excluding Japan, revenue in Asia was 8% higher than in 2010.

Much of the business in Asia Pacific is focused on Treasury Products and Interest Rate Derivatives, and the underlying revenue growth reflects higher levels of activity in both cash and non-deliverable Renminbi and Taiwanese dollar denominated products in these areas, as well as the continued development of the breadth of products brokered in the region.

Underlying operating profit in Europe was down 2% and with revenue in the region 2% higher, the underlying operating margin has reduced slightly to 22.7%. The main driver of the reduction in margin is the increase in broker employment costs as a percentage of revenue, and an increase in support costs reflecting the investments being made in new offices in Continental Europe and to support higher headcount in London.

Underlying operating profit in the Americas has more than halved and the underlying operating margin has fallen to 3.8%. The main driver of the reduction in profitability is the increase in broker employment costs as a percentage of revenue reflecting the competitive environment for brokers in the region and the costs of investment in rebuilding the scale of the business.

In Asia Pacific underlying operating profit has increased by 60%, with the underlying operating margin increasing to 12.3%. Broker employment costs as a percentage of broking revenue are lower than last year reflecting the benefit of the swift action taken to respond to the lower level of revenue in Tokyo. The increase in margin also reflects the tight control of other costs in the region and the benefit of the growth in Risk Management Services which has a higher operating margin than broking.

Restructuring costs

Market and competitive conditions are expected to continue to be challenging, and in the light of this and the increased costs faced by the business relating to electronic platform developments and other costs related to impending regulatory changes, a number of actions were taken prior to the end of the year to reduce costs and to maintain flexibility in the cost base.

The actions taken prior to the year end will result in a reduction in headcount of 80, primarily in the front office, with a cost of £11.5m and an annual reduction in fixed costs of approximately the same amount.

Most of the actions taken involve the exit, or restructuring of contracts, of individual brokers in order to ensure that the business is well positioned to respond to potentially less favourable market conditions, by increasing the flexibility of front office costs. As part of this exercise the equity derivatives desk in Tokyo has been closed, with that business in Asia now serviced from Hong Kong, and the small OTC Valuations business which was part of Risk Management Services has also been closed.

Further actions are being taken in the first half of 2012 which are expected to reduce headcount by around another 80, covering a number of support staff including those affected as a result of the integration of Chapdelaine & Co., as well as some further front office headcount reductions. A charge of around £7m reflecting the cost of these actions will be included in the 2012 accounts with an annual reduction in fixed costs as a result of these actions of approximately the same amount.

Litigation

The legal action that the Company had taken in London against BGC, two of BGC's senior directors and ten former Company brokers, in response to a raid by BGC in early 2009 on the London business, was settled in the first half of the year. As part of the settlement it was agreed that no further statement would be made by either side about the settlement or the dispute.

Legal action continues to be pursued against BGC and former employees in the United States. The subsidiary companies in the United States directly affected by the raid on the business by BGC in the second half of 2009 have brought a claim against BGC in arbitration pursuant to the rules of the Financial Industry Regulatory Authority ("FINRA"). The FINRA arbitration is scheduled to be heard during 2012 and 2013. A separate action has also been brought by the Company in the New Jersey Superior Court, alleging, among other causes of action, violations under the Racketeer Influenced and Corrupt Organizations (RICO) Act.

The claim by BGC Market Data and certain of its affiliates, alleging that the Company misappropriated data supplied to its information sales subsidiary in violation of a redistribution agreement, has been heard in arbitration under the rules of the American Arbitration Association, and the outcome of the arbitration is expected to be known imminently. A provision for the estimated cost of the resolution of this claim has been included in the 2011 results.

The £6.6m (2010: £7.7m) net charge reflects the costs incurred in bringing and defending these actions and the provision for the estimated cost of the resolution of the claim against the Company, net of the settlement received from the legal action taken in London.

Financial Review

The results for 2011 compared with those for 2010 are shown in the tables below.

Finance income / (expense)

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

The increase in the net finance expense reflects the higher interest and commitment fees payable on the new bank facilities entered into in February 2011, partly offset by an increase in the interest income on cash deposits and higher net non-cash finance income.

The net non-cash finance income comprises the net of the expected return and interest on pension scheme assets and liabilities of £2.9m (2010: £1.6m) partly offset by the amortisation of the discount on deferred consideration of £0.2m (2010: nil).

Other gains and losses

The £1.2m of other gains and losses comprises the £0.9m gain from the release of the deferred consideration related to OTC Valuations which will not be paid, and a £0.3m fair value gain arising from the consolidation of Tullett Liberty (Bahrain) which was previously accounted for as an associate.

Tax

The effective rate of tax on underlying PBT is 27.1% (2010: 28.3%). The reduction in the effective rate compared with 2010 results primarily from the reduction in the corporate tax rate in the UK by 1.5% points to 26.5%, and from the increase in the proportion of taxable profits generated in the UK and Asia relative to the US.

The tax credit on exceptional items reflects the net tax relief on those items at the relevant rate for the jurisdiction in which the charges are borne. In 2010 the tax credit on exceptional items includes the tax benefit arising in the US from the write down of goodwill under US GAAP in the local accounts.

Basic EPS

The average number of shares used for the basic EPS calculation of 216.5m (2010: 214.9m) reflects the 215.3m (2010: 215.3m) shares in issue throughout the year, plus the 1.4m (2010: nil) shares that were certain to be issued to the vendors of Primex as part of the final deferred consideration payment, less the 0.2m (2010: 0.4m) shares held on average during the year by the Employee Benefit Trust and Employee Share Ownership Trust as these Trusts have waived their 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 group's current policy is not to hedge income statement translation exposure.

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. Since October 2008 the group's policy is not to hedge balance sheet translation exposure.

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

Cash flow and financing

Cash flow before dividends and debt repayments and draw downs is summarised in the table below.

In 2011 the group has again delivered a substantial operating cash flow, representing 92% (2010: 87%) of underlying operating profit.

Around three quarters of the net capital expenditure of £12.4m relates to investment in the development of electronic platforms and associated infrastructure, with the balance related to improvements to various leasehold offices.

The initial contract prepayments balance has increased as payments in the year, including the amounts paid to the credit brokers who joined the business in early January 2011 in the Americas, were higher than the amortisation.

The other working capital inflow in 2011 primarily reflects the reduction in invoiced receivables balances at the end of the year compared to the previous year end due to good cash collections.

The exceptional items restructuring cash payments of £2.9m in 2011 are significantly lower than the £11.5m profit and loss charge. Of the total charge £2.4m is non-cash, reflecting the write down of unamortised initial contract payments and a small amount of accelerated depreciation on fixed assets. The remainder of the cash element of the charge will be paid during 2012. The exceptional items major legal actions net cash payments of £0.5m reflects the profit and loss charge less amounts which were provided in the year but not paid.

Interest payments in 2011 were in line with the profit and loss charge for net cash finance expenses adjusted for the amortisation of debt issue costs.

Tax payments in 2011 were slightly higher than in 2010 reflecting higher tax payments in Asia due to the higher level of profit, and in the UK reflecting the timing of payments.

Following the triennial actuarial valuations of both of the UK defined benefit pension schemes which concluded that each scheme had a significant funding surplus, the group agreed with the trustees of each scheme that, with effect from February 2011 until the next actuarial valuation, contributions will be equal to the schemes' administration expenses. During 2010 the group made regular contributions to match the benefits paid and the administration expenses of each scheme, and in addition made contributions of £4.5m under agreements with the trustees of the schemes aimed at eliminating the actuarial deficits.

Expenditure on acquisitions in 2011 includes the payment of consideration to the former employer of the credit broking team who joined the business in the Americas in January 2011, a deferred consideration payment relating to the acquisition of Aspen, and the initial consideration for Convenção. The expenditure on investments includes membership of the LME.

The movement in cash and debt is summarised below.

At 31 December 2011 the group held cash, cash equivalents and other financial assets of £372.8m which exceeded the debt outstanding by £107.1m.

At 31 December 2011 the group's outstanding debt comprised £141.1m Eurobonds due July 2016, £8.5m Eurobonds due August 2014, £120m drawn under an amortising bank term loan facility, and a small amount of finance leases. The term loan is subject to repayments of £30m in each of February 2012 and February 2013 with £60m maturing in February 2014. The group has a committed £115m revolving credit facility that has remained undrawn throughout the year, which will also mature in February 2014.

Pensions

The group has two defined benefit pension schemes in the UK which were acquired with Tullett and Prebon, both of which are closed to new members and future accrual.

During 2011 the market value of the schemes' assets has increased from £169.5m to £183.9m reflecting strong investment returns. Under IAS19 the value of the schemes' liabilities have increased slightly, from £145.9m to £148.4m, with the impact of a reduction in the discount rate offset by a reduction in the inflation assumption and the benefit of the change to CPI from RPI as the basis for the statutory increases in deferred pensions and pensions in payment. Under IAS19 the schemes show a net surplus at 31 December 2011 of £35.5m (2010: £23.6m).

Return on capital employed

The return on capital employed (ROCE) in 2011 was 37% (2010: 42%). 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 net pension surplus, adding back cumulative amortised 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 Services Authority ("FSA"). The group's application for a renewal of its waiver from consolidated capital resources requirements was approved by the FSA on 8 June 2011. The renewed investment firm consolidation waiver runs for five years and will expire on 6 June 2016.

OTC Market Regulation

Progress continues to be made in the process of agreeing and introducing reforms designed to strengthen the financial system and to improve the operation of the financial markets.

In the United States, the CFTC and SEC continue to make progress in the drafting of the detailed rules and regulations to implement the principles of the Dodd-Frank Wall Street Reform and Consumer Protection Act governing the regulation and operation of OTC derivatives market, and most of the final rules relating to Swap Execution Facilities (SEF) are expected to be issued by the middle of 2012. Implementation of these regulatory reforms including the mandatory clearing requirement for swaps and the requirement that such instruments are traded through a SEF is therefore likely to be phased in during the second half of the year.

In October 2011 the European Commission tabled proposals to revise the Markets in Financial Instruments Directive (MiFID). These proposals, which consist of a regulation (MiFIR) and a directive (MiFID II) complement and build on the proposals tabled in September 2010 on the regulation of OTC markets commonly known as the European Markets Infrastructure Regulation (EMIR). These various proposals are aimed at making financial markets in Europe more efficient, resilient and transparent. They contain provisions, amongst others, on mandatory clearing requirements for OTC derivatives, trade reporting, permissible trade execution venues for financial instruments including the proposed new category of an Organised Trading Facility (OTF), and governance and conduct of business requirements for all trading venues. The proposals are at various stages of the legislative process. EMIR is expected to be finalised during the first half of the year, with subsequent implementation measures due before the end of 2012, in line with the G20 timetable. MiFIR and MiFID II have passed to the European Parliament and the Council for negotiation and adoption, and the detailed technical rules are being developed by the European Securities and Markets Authority. It is envisaged that MiFIR and MiFID II will come into force during 2015.

As we have previously commented, we agree with the objectives and support the direction of these reforms. We believe that their introduction will be positive for our business as the proposals formalise the role of the intermediary in the OTC markets.

Outlook

Market and competitive conditions are expected to continue to be challenging. The world's financial markets remain unsettled, however, and it seems reasonable to expect that there will be some periods of market volatility and heightened activity during 2012, as well as periods of more subdued activity.

The business has made a reasonable start to the year. Revenue in the first two months of 2012, at constant exchange rates and excluding the recent acquisitions of Convenção and Chapdelaine, is 1% lower than in the same period last year. Actions have been taken to reduce costs and to maintain flexibility in the cost base, although the business does face increased costs relating to electronic platform developments and impending regulatory changes.

The enduring strength of the business is the valuable service it provides to clients through its ability to create liquidity through price and volume discovery to facilitate trading in a wide range of financial instruments. We agree with the objectives and support the direction of the reforms designed to strengthen the financial system and to improve the operation of the financial markets. We consider that the introduction of these reforms will be positive for our business as the proposals formalise the role of the intermediary in the OTC markets. We believe that we are well positioned to continue to provide a valuable service to clients and that our offering can be developed to meet the various new OTC market regulations that will be introduced.

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Consolidated Income Statement

for the year ended 31 December 2011

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Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

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Consolidated Balance Sheet

as at 31 December 2011

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Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

Equity attributable to equity holders of the parent

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Consolidated Cash Flow Statement

for the year ended 31 December 2011

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Notes to the Consolidated Financial Statements

for the year ended 31 December 2011

1. General information

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

2. Basis of preparation of accounts

Basis of accounting

The financial information included in this document does not constitute the Group's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 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.

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.

3. Segmental analysis

Analysis by geographical segment

(1) The charge relating to major legal actions is the net of amounts included in other income and in administrative expenses.

(2) Restructuring costs are included in administrative expenses.

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

Analysis by product group

4. 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.

5. Finance income

6. Finance costs

7. Other gains and losses

8. Earnings per share

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

The earnings used in the calculation of earnings 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 17 May 2012 to all shareholders on the Register of Members on 27 April 2012. 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. Notes to the cash flow statement

(a) Reconciliation of operating profit to net cash from operating activities

(b) Cash and cash equivalents

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 2011 cash and cash equivalents amounted to £342.0m (2010: £390.1m). 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.

11. Analysis of net funds

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

12. Acquisitions

(a) Subsidiaries acquired during the year

Convenção S/A Corretora de Valores e Câmbio ('Convenção')

On 9 August 2011 the Group acquired 100% of the share capital of Convenção, an inter-dealer broker based in Brazil. The consideration paid on completion was R$20.0m (£7.8m). Further deferred and performance related consideration is payable over the next three years, the acquisition fair value of which was estimated to be R$12.1m (£4.8m) and R$11.6m (£4.5m) respectively. The undiscounted maximum payable for deferred and performance related consideration is R$35.5m (£13.9m). Goodwill arising on the acquisition was R$41.3m (£16.2m) attributable to the expected business synergies within Americas and obtaining a pre-existing, well-respected business in the Latin American market. None of the goodwill is expected to be deductible for tax purposes.

The business combination has been accounted for using the acquisition method.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

Costs relating to the acquisition of Convenção have been recognised in administrative expenses as incurred. Costs incurred in 2011 amounted to £0.2m with £1.4m having been expensed in prior periods.

Convenção's revenue in the period since acquisition was £5.4m with earnings of £0.3m. The Group's revenue for the year, had Convenção been acquired on 1 January 2011, would have been £7.7m higher and earnings £0.4m higher.

Acquisitions after 31 December 2011

Chapdelaine & Co.

On 3 January 2012, the Group acquired 100% of the membership interests of Chapdelaine & Co., this entity being the owner of Chapdelaine Municipal Brokers Inc. and Chapdelaine & Co. Municipal Securities Inc. The initial consideration paid was US$10.2m (£6.6m) in cash. The initial fair value of the net assets acquired is estimated to be US$2.7m (£1.7m), which would result in the recognition of US$7.5m (£4.9m) to be allocated between goodwill and identifiable intangible assets.

13. Legal proceedings

The claim by BGC Market Data and certain of its affiliates, alleging that the Company misappropriated data supplied to its information sales subsidiary in violation of a redistribution agreement, was heard in arbitration under the rules of the American Arbitration Association during August 2011. A provision for the estimated cost of the resolution of this claim has been included in the 2011 results. The amount claimed against the Company is significantly higher than the amount provided. The outcome remains uncertain and is dependent upon the conclusion of the arbitration process.

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 10 May 2012 at 2.30pm.

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