Last checked at 2 Aug 2011 07:00
TULLETT PREBON PLC
INTERIM RESULTS - for the six months ended 30 June 2011
Tullett Prebon plc (the "Company") today announced its results for the six months ended 30 June 2011.
Financial Highlights
* Revenue £454.8m (2010: £475.8m) * Operating profit £80.2m (2010: £84.7m) * Underlying (1) Operating profit £79.4m (2010: £87.3m) * Underlying (1) Operating margin 17.5% (2010: 18.3%) * Adjusted Profit before tax (2) £73.1m (2010: £78.6m) * Adjusted EPS (3) 24.4p (2010: 25.5p) * Interim dividend (4) 5.25p per share (2010: 5.25p per share)
Notes
1 Underlying Operating profit and margin is stated before the net credit/
charge arising in each period from the costs and income relating to the
major legal actions between the Company and BGC
2 Adjusted PBT is stated before non cash gains and losses in net finance
income/(expense). A reconciliation of the adjusted PBT to the reported PBT
of £74.6m (2010: £79.3m) is shown in the Financial Review
3 Adjusted EPS is stated before non cash gains and losses in net finance
income/(expense) net of tax
4 The interim dividend will be paid on 17 November 2011 to shareholders on
the register at 28 October 2011
Terry Smith, Chief Executive, commented:
"The financial results for the first half of 2011 demonstrate the strength ofthe business in challenging market and competitive conditions, and the benefitfrom the actions taken to re-establish the position of the business in NorthAmerica and to develop our activities in Risk Management Services andInformation Sales.The world's financial markets remain unsettled and, although it is difficult topredict market conditions accurately, it seems reasonable to expect that therewill be periods of market volatility and heightened activity in the remainingmonths of the year.The enduring strength of the business is the valuable service it provides toclients through its ability to create liquidity through price and volumediscovery to facilitate trading in a wide range of financial instruments. Webelieve that we are well positioned to continue to provide a valuable serviceto clients and that our offering can be developed to meet the various OTCmarket rules and regulations that will be introduced in both the United Statesand Europe."Enquiries:Investors and AnalystsNigel Szembel, Head of CommunicationsTullett Prebon plc44 (0)20 7200 7722PressCharlotte KirkhamM:Communications44 (0)20 7920 2331
Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com
TULLETT PREBON PLC
INTERIM MANAGEMENT REPORT - for the six months ended 30 June 2011
Overview
The financial results for the first half of 2011 demonstrate the strength ofthe business in challenging market and competitive conditions, and the benefitfrom the actions taken to re-establish the position of the business in NorthAmerica and to develop our activities in Risk Management Services andInformation Sales.The world's financial markets remain unsettled, but after a good start to theyear, market activity slowed in the second quarter. During the first halfoverall, market activity was more subdued than in the same period last year,which benefited from the increased volatility experienced in May 2010.Revenue of £454.8m was 4% lower than reported for 2010. Most of the reductionreflects the impact of the closure during the second half of last year of sixsatellite offices in North America which accounted for 2.5% of the group'srevenue in the first half of 2010, and the adverse impact of currency movementson the translation of the non-UK operations compared with the same period lastyear. Adjusting for these items, revenue was 1% lower than in the prior year,which was a good performance in the market conditions.In North America we have re-established our presence in those product areasaffected by the raid on the business in 2009. Including the twenty-six strongcredit broking team who started with the business in early January 2011, brokerheadcount on the affected desks is now largely back to the levels before thedefections in the second half of 2009. New senior management for the regionstarted in June this year. The appointment of a new Chief Executive Officer forthe region, supported by the newly created role of Chief Operating Officer, hasincreased our regional management capability at an important time as wecontinue to develop our business in the Americas.Approval from the President of Brazil for the Company's acquisition ofConven§£o, one of the leading and most respected inter-dealer brokers inBrazil, was received on 12 July 2011. The acquisition is expected to completelater this month. Conven§£o has 43 brokers facilitating client trading inderivatives, securities and exchange traded futures, and will provide the basefor further expansion in both Brazil and in other countries in South America.We have continued to develop our electronic broking capabilities. Ourelectronic broking strategy continues to focus on the hybrid model, offeringelectronic platforms which complement and support our existing strong voicebroking capability. This approach is consistent with the nature and operationof the majority of OTC product markets for which voice liquidity is essential.Our platforms also provide a pure electronic broking option for those clientswho wish to trade without any broker support, as well as "auction" capabilitythrough tpQUICKDEAL that facilitates clients trading anonymously at mid marketprice levels with instant volume matching. tpQUICKDEAL technology is alsoprovided as a standalone platform for some products.The development of our electronic interest rate swap platform, tpSWAPDEAL, hasbeen completed and the platform is in the process of being rolled out toclients. The platform is based on market leading technology supplied byMillenniumIT to provide extremely low latency trading, and has been createdwith the flexibility to give clients the ability to transact either directly orvia voice brokers, and to be adaptable to operate within both the currenttrading landscape and under the regional regulatory environments that maydevelop in the future.We have also continued to invest in our Information Sales and Risk ManagementServices activities, which have delivered significant revenue growth during thefirst half. In Information Sales we have expanded both the customer base,particularly in Asia, and the breadth of the data offered to customers. Demandfor independent pricing data, notably in risk management and compliancefunctions, continues to drive revenues. Tullett Prebon Information was namedBest Data Provider (Broker) at the Inside Market Data Awards in May 2011, aclear endorsement of our position as the leading provider of OTC priceinformation and data to market participants. In Risk Management Services thetpMATCH platform for interest rates has been extended to cover an increasednumber of currencies, and the matching platform technology, which allowsclients to execute trades to reduce risk, can be extended to other assetclasses.Revenue from products supported by electronic platforms, together withInformation Sales and Risk Management Services revenue, has increased comparedwith the first half of 2010, and accounted for just less than one fifth oftotal revenue. This proportion is expected to increase further as electronicplatforms are launched in new product areas such as interest rate swaps.Operating profit for the first half was £80.2m, 5% lower than reported for2010. Excluding the net credit or charge arising in each period from the costsand income relating to the major legal actions between the Company and BGC,which are discussed below, underlying operating profit for the first half was £79.4m (2010: £87.3m) with an underlying operating margin of 17.5% (2010:18.3%). The reduction in the operating margin is primarily driven by theincrease in the broker compensation to revenue percentage, which at 58.7% inthe first half is 0.8% points higher than in the comparable period. Thisreflects the higher broker compensation to revenue percentage currently beingincurred in North America following the significant investments made inrebuilding the business, and the initial inefficiencies as new hires build upto their full run rate of revenue. Broking support costs are little changed,with broking support headcount of 688 at the end of June, 2% lower than at Junelast year.Our key financial and performance indicators for the first half of 2011compared with those for the first half of 2010 are summarised in the tablebelow. Change Constant Exchange H1 2011 H1 2010 Reported Rates Revenue £454.8m £475.8m -4% -4% Underlying Operating profit £79.4m £87.3m -9% -9% Underlying Operating margin 17.5% 18.3% -0.8% points Broker headcount (period end) 1,666 1,624 +3%
Average revenue per broker (£'000) 266 283 -6% -6%
Broker employment costs : broking 58.7% 57.9% +0.8%
revenue points
Broking support headcount (period 688 703 -2%
end) LitigationThe legal action that the Company had taken in London against BGC, two of BGC'ssenior directors and ten former Company brokers, in response to a raid by BGCin early 2009 on the London business, was settled during the period. As part ofthe settlement it was agreed that no further statement would be made by eitherside about the settlement or the dispute.Legal action continues to be pursued against BGC and former employees in theUnited States. The subsidiary companies in the United States directly affectedby the raid on the business by BGC in the second half of 2009 have brought aclaim against BGC in arbitration pursuant to the rules of the FinancialIndustry Regulatory Authority ("FINRA"). The FINRA arbitration is expected tobe heard during 2012.The claim by BGC Market Data and certain of its affiliates, alleging that theCompany misappropriated data supplied to its information sales subsidiary inviolation of a redistribution agreement, is scheduled to be heard inarbitration under the rules of the American Arbitration Association duringAugust 2011. A provision for the estimated cost of the resolution of this claimhas been included in the first half results.
OTC Market Regulation
There has been significant progress during the first half in the process of agreeing and implementing reforms designed to strengthen the financial system and to improve the operation of the financial markets.
In the United States, however, due to the delay in agreeing the definition ofcertain reference terms, it is now unlikely that the final detailed rules andregulations to apply the principles of the Dodd-Frank Wall Street Reform andConsumer Protection Act governing the regulation and operation of OTCderivatives markets will be issued by the CFTC and SEC much before the end ofthis calendar year. The implementation of the mandatory clearing requirementfor swaps and the requirement that such instruments are traded through SwapExecution Facilities (SEFs) is therefore likely to be during 2012.In Europe, the European Market Infrastructure Regulation (EMIR) is still underlegislative review. This regulation contains provisions governing the mandatoryclearing requirement and trade reporting requirements for derivatives. TheEuropean Parliament and the Council expect to reach agreement by the end of theyear. The proposed revisions to the Markets in Financial Instruments Directive,commonly known as MiFID II, which is expected to include provisions forpermissible execution venues for OTC derivative transactions, is expected to bepublished in October 2011. It is envisaged that the EMIR and MiFID II reformswill come into force during 2013.As we have previously commented, we agree with the objectives and support thedirection of these proposed reforms. We believe that their introduction will bepositive for our business as the proposals formalise the role of theintermediary in the OTC markets. We have a broad and successful electronicbroking offering and we are well positioned to successfully respond to, andbenefit from, both regulatory and market developments.
Regulatory Capital
The Company's application for a renewal of its waiver from consolidated capitalresources requirements was approved by the FSA on 8 June 2011. The renewedinvestment firm consolidation waiver runs for five years and will expire on 6June 2016. The terms of the renewed waiver are the same as those under theprevious waiver. Each investment firm within the group must be either a limitedactivity or limited licence firm and must comply with its individual regulatorycapital resources requirements. Tullett Prebon plc, as the parent company, mustcontinue to maintain capital resources in excess of the solo notional capitalresources requirements for each relevant firm within the group.
Revenue and Operating Profit
The tables below analyse revenue and operating profit for the first half of2011 compared with the equivalent period in 2010. 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 2011 shown below are presented both as reported and usingtranslation exchange rates consistent with those used for 2010. The commentarybelow refers to growth rates at constant exchange rates.Revenue by product group Change Constant H1 2011 H1 2010 Exchange £m £m Reported Rates Treasury Products 127.8 125.2 +2% +2% Interest Rate Derivatives 103.8 107.5 -3% -3% Fixed Income 126.8 132.7 -4% -3% Equities 23.7 38.1 -38% -36% Energy 53.8 55.6 -3% -3% Information Sales and Risk 18.9 16.7 +13% +15% Management Services 454.8 475.8 -4% -4%
The increase in revenue in Treasury Products reflects growth in forward FX, including non-deliverable-forwards, and in FX options, offset by a reduction in revenue from cash and deposits.
In Interest Rate Derivatives, strong growth in emerging market interest rateswaps and in interest rate options was offset by lower activity in thetraditional interest rate swaps markets, reflecting the low level of interestrates in the world's major economies throughout the period.
The overall decline in revenue in Fixed Income reflects the lower level of market activity in government bonds in Europe offset by higher revenues in credit products, particularly corporate bonds in North America, reflecting 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 reduction in revenue in Equities reflects the exit of the cash equities business that was part of the satellite office closures in the second half of last year, and a reduction in market activity and revenue in equity derivatives.
In Energy, after adjusting for the revenue from the satellite offices that were exited, revenue was unchanged compared with last year.
The Information Sales business has continued to benefit from increasingcustomer demand for both real time and end of day data, and from an expansionof the customer base. The post trade Risk Management Services business hascontinued to gain market share in electronic LIBOR reset matching through thetpMATCH platform.Revenue by region Change Constant H1 2011 H1 2010 Exchange £m £m Reported Rates Europe 269.9 288.1 -6% -7% North America 123.4 135.6 -9% -4% Asia Pacific 61.5 52.1 +18% +13% 454.8 475.8 -4% -4%EuropeRevenue in Europe was 7% lower than last year. We have continued to increasebroker headcount, particularly in corporate bonds, with total broker headcountat the end of June of 833, 4% higher than at June last year. Average revenueper broker was 9% lower than in the same period a year ago. Europe's revenuealso includes most of the revenue from Information Sales.Revenue in Treasury Products and Interest Rate Derivatives was slightly lowerthan last year, with growth in emerging markets products, and in FX options andinterest rate options, offset by lower volumes in cash and in the traditionalinterest rate swaps markets. In Fixed Income, revenue from government bonds waslower reflecting the very strong performance in the comparable period, withrevenue from credit products unchanged compared with a year ago. The quality ofthe business and the value of the service it provides to clients in creditproducts were recognised by the business being voted the number one broker inboth investment grade and high yield bonds in Credit magazine's 2011 EuropeanInterdealer Broker rankings in May this year. Revenue in equity derivatives waslower than last year reflecting the lower level of activity in the market. InEnergy, revenue from natural gas products was higher, with revenue from oilproducts and power products little changed. The new base metals desk, brokingLME contracts, commenced operation in January.
North America
Revenue in North America has reduced by 4%. Adjusting for the impact of theclosure during the second half of last year of the six satellite offices in theregion, revenue was 4% higher than a year ago. Broker headcount in NorthAmerica has increased to 466 at the end of June, 9% higher than a year agoexcluding the satellite offices, but average revenue per broker reduced by 3%on the same basis.The revenue performance by product group in North America was mixed. InTreasury Products, revenue in forward FX and FX options increased strongly,reflecting buoyant markets in those products especially in emerging marketscurrencies. In Fixed Income, revenue from credit products, primarily corporatebonds, doubled compared to a year ago reflecting the investment made in thatarea, but this was partly offset by lower activity in mortgage backedsecurities and repos. Similarly to Europe, revenue in Interest Rate Derivativesand in equity derivatives was lower, reflecting the market conditions. Revenuein Energy products, excluding the impact from the exit of the satelliteoffices, was higher, with good growth in natural gas and oil products.
Asia
Revenue in Asia has increased by 13%. Broking revenue in the region has benefited from an increase in broker headcount to 367 at the end of June, 2% higher than a year ago, and from an increase in average revenue per broker reflecting the continued recovery of market activity in the region. The increase in revenue also reflects the development of the Risk Management Services business, much of which is operated from Singapore.
The rate of growth in revenue in Asia was held back by the performance inJapan, where revenue was slightly lower than last year. We successfully dealtwith the disruption caused by the earthquake in March, and we were able toprovide full services to clients in Japan from both Tokyo and from temporarilyrelocated staff in Singapore. The relocated staff returned to the office inTokyo within two weeks. Activity in that centre, however, has not yet recoveredto the levels before the earthquake.In the other centres in the Asia Pacific region, volumes in forward FX,especially in non-deliverable-forwards for non-convertible currencies havecontinued to increase, and the region has also benefited from good revenuegrowth in interest rate derivatives in both convertible and non-convertiblecurrencies.Operating profit by region Change Constant H1 2011 H1 2010 Exchange £m £m Reported Rates Europe 65.5 69.6 -6% -6% North America 7.4 11.7 -37% -33% Asia Pacific 7.3 3.4 +115% +109% Reported 80.2 84.7 -5% -5%Operating margin by region H1 2011 H1 2010 Europe 24.3% 24.2% North America 6.0% 8.6% Asia Pacific 11.9% 6.5% 17.6% 17.8%
Operating profit in Europe has reduced by 6%. The operating profit in 2011includes a net credit arising from the costs and income relating to the majorlegal actions between the Company and BGC, compared with a net charge in thecomparable period. The underlying operating margin in 2011 was 1.6% pointslower than in 2010 mainly reflecting the impact of the reduction in revenue, asfixed costs have not reduced in line. Broker employment costs as a percentageof revenue were also slightly higher than in the same period last year.Operating profit in North America has fallen by one-third with a reduction inoperating margin to 6.0%. The fall in operating profit and margin reflects thedecline in revenue and an increase in the broker employment costs to revenuepercentage due to the general increase in the costs of employment in the lightof competitor action, the costs associated with new hires, and the initialinefficiencies as new hires build up to their full run rate of revenue. Theoperating profit in 2011 also includes a net charge relating to the major legalactions between the Company and BGC.In Asia Pacific operating profit has more than doubled reflecting the higherbroking revenue compared to a year ago, together with the growth in RiskManagement Services which has a higher operating margin than broking. Brokeremployment costs as a percentage of revenue are lower than a year ago due tothe benefit of higher revenue and the development of the scale of the equityderivatives business in Tokyo which commenced operations during the first halfof last year and was still building up to the anticipated revenue run rate.
Financial Review
The results for the first half of 2011 compared with those for the first half of 2010 are shown in the table below.
H1 2011 H1 2010 £m £m Revenue 454.8 475.8 Underlying operating profit 79.4
87.3
Net credit/(charge) relating to major legal actions 0.8 (2.6) Operating profit 80.2 84.7 Net cash finance expense (7.1) (6.1) Adjusted Profit before tax * 73.1 78.6 Tax (20.8) (24.8) Associates 0.8 1.0 Minority interests (0.3) (0.2) Adjusted Earnings ** 52.8 54.6 Weighted average number of shares 216.5m 214.3m Adjusted Earnings per share 24.4p 25.5p* Adjusted PBT reconciles to reported PBT as follows: H1 2011 H1 2010 £m £m Adjusted Profit before tax 73.1 78.6 Non cash finance income 1.5 0.7 Reported Profit before tax 74.6 79.3** Adjusted Earnings reconciles to reported Earnings H1 2011 H1 2010as follows: £m £m Adjusted Earnings 52.8 54.6 Non cash finance income 1.5 0.7 Tax on non cash finance income (0.5) (0.2) Reported Earnings 53.8 55.1Finance Expense
The increase in the net cash finance expense reflects the higher interest and commitment fees payable on the new bank facilities entered into in February 2011. Non cash finance income comprises the expected return and interest on pension scheme assets and liabilities.
Taxation
The effective rate of tax on adjusted PBT is 28.5% (2010: 31.5%). The effectiverate of tax reflects the estimated effective rate for the full year. Thereduction in the effective rate compared with 2010 results from the reductionin the UK corporation tax rate to 26.5% for 2011 from 28.0% for 2010, and anincrease in the proportion of taxable profits generated in the UK and Asiarelative to the US.
Exchange rates
The income statements and balance sheets of the group's non-UK operations aretranslated into sterling at average and period end exchange rates respectively.The most significant exchange rates for the group are the US dollar, the Euro,the Singapore dollar and the Japanese Yen. Average and period end exchangerates for these currencies against sterling are shown below. Average Period End H1 H1 H2 30 June 31 Dec 30 June 2011 2010 2010 2011 2010 2010 US dollar $1.62 $1.54 $1.56 $1.61 $1.57 $1.50 Euro €1.15 €1.14 €1.19 €1.11 €1.17 €1.22 Singapore dollar S$2.04 S$2.15 S$2.08 S$1.97 S$2.01 S$2.09 Japanese Yen ¥132 ¥141 ¥131 ¥130 ¥127 ¥132Cash flow and financingCash flow before dividends and debt repayments and draw downs is summarised inthe table below. H1 2011 H1 2010 £m £m Operating profit 80.2 84.7 Share based compensation 0.6 1.3 Depreciation and amortisation 4.2 4.5 EBITDA 85.0 90.5
Capital expenditure (net of disposals) (5.6) (5.2)
Increase in sign-on prepayment (16.2) (8.9) Other working capital (29.6) (38.1) Operating cash flow 33.6 38.3 Interest (1.3) (0.5) Taxation (22.9) (20.1)
Defined benefit pension scheme funding (0.5) (6.3)
ESOT transactions - 1.7 Dividends received from associates / paid 0.9 1.4to minorities Acquisitions/investments (6.6) (2.4) Cash flow 3.2 12.1
Reflecting the normal seasonal pattern of working capital movements, tradereceivables and net settlement balances were higher, and bonus accruals werelower, at June than at December last year, resulting in operating cash flow forthe first half of the year that is lower than operating profit. The workingcapital cash flow in the first half also reflects an increase in the brokersign-on prepayment balance, as new sign-on payments in the first half werehigher than the amortisation.The triennial actuarial valuations of the two defined benefit pension schemesin the UK undertaken in 2010 concluded that each scheme has a significantfunding surplus. As a result, the group agreed with the trustees of each schemethat, with effect from February 2011 until the next actuarial valuation,contributions will be equal to the schemes' administration expenses.Acquisition and investment expenditure in the first half of 2011 includes adeferred consideration payment relating to the acquisition of Aspen, investmentin membership of the LME, and the payment of consideration to the formeremployer of the credit broking team who joined the business in North America inJanuary 2011.
The movement in cash and debt is summarised below.
£m Cash Debt Net At 31 December 2010 425.7 (357.9) 67.8 Cash flow 3.2 - 3.2 Dividends (22.6) - (22.6)
Debt repayments / draw downs (90.1) 90.1 - Debt issue costs (3.4) 3.4 - Effect of movement in exchange rates 0.2 - 0.2 Amortisation of debt issue costs - (0.7) (0.7) At 30 June 2011 313.0 (265.1) 47.9At 31 December 2010 the group's outstanding debt comprised £141.1m Eurobondsdue July 2016, the remaining £8.5m of the Eurobonds due August 2014, £210m ofbank debt drawn under an amortising term loan maturing in February 2014, and asmall amount of finance leases. In addition, the group had a committed £50mrevolving credit facility that was undrawn. On 8 February 2011 the Groupentered into new bank facilities comprising a £120m amortising term loanfacility and a committed £115m revolving credit facility, replacing the bankfacilities discussed above. The revolving credit facility remained undrawnthroughout the period.
Dividend
The interim dividend for 2011 has been set at a level equal to 50% of the final dividend paid for the previous year. This approach to setting the interim dividend is expected to continue.
Outlook
The world's financial markets remain unsettled and, although it is difficult topredict market conditions accurately, it seems reasonable to expect that therewill be periods of market volatility and heightened activity in the remainingmonths of the year.Broker headcount at the end of the first half was 4% higher than at the end oflast year. We will continue to invest in the development of the businessthrough broker hires, the development and introduction of electronic platformswhich complement and support our strong voice broking capability, and thecontinued extension of Information Sales and Risk Management Services. Theacquisition of Conven§£o will provide the base for expansion both in Brazil andin other countries in South America.The enduring strength of the business is the valuable service it provides toclients through its ability to create liquidity through price and volumediscovery to facilitate trading in a wide range of financial instruments. Webelieve that we are well positioned to continue to provide a valuable serviceto clients and that our offering can be developed to meet the various OTCmarket rules and regulations that will be introduced in both the United Statesand Europe.Condensed Consolidated Income Statementfor the six months ended 30 June 2011 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 (unaudited) (unaudited) £m £m £m Revenue 5 454.8 475.8 908.5 Administrative expenses (393.8) (393.8) (764.4) Other operating income 6 19.2 2.7 8.3 Operating profit 5 80.2 84.7 152.4 Finance income 7 6.5 5.6 11.3 Finance costs 8 (12.1) (11.0) (22.4) Profit before tax 74.6 79.3 141.3 Taxation (21.3) (25.0) (33.7) Profit of consolidated companies 53.3 54.3
107.6
Share of results of associates 0.8 1.0
1.5 Profit for the period 54.1 55.3 109.1 Attributable to: Equity holders of the parent 53.8 55.1 108.5 Minority interests 0.3 0.2 0.6 54.1 55.3 109.1 Earnings per share Adjusted basic 9 24.4p 25.5p 46.4p Basic 9 24.8p 25.7p 50.5p Diluted 9 24.8p 25.4p 50.3p
Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 June 2011
Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 (unaudited) (unaudited) £m £m £m Profit for the period 54.1 55.3 109.1 Other comprehensive income:
Revaluation of available-for-sale (0.5) -
0.3assets
Effect of changes in exchange rates (1.4) 12.2
9.1
on translation of foreign operations
Actuarial gains/(losses) on defined 21.4 (0.9)
14.5
benefit pension schemes
Taxation charge on components of (5.9) (3.2)
(6.8)other comprehensive income
Other comprehensive income for the 13.6 8.1
17.1period
Total comprehensive income for the 67.7 63.4
126.2period Attributable to: Equity holders of the parent 67.4 63.0 125.3 Minority interests 0.3 0.4 0.9 67.7 63.4 126.2Condensed Consolidated Balance Sheetas at 30 June 2011 30 June 30 June 31 December 2011 2010 2010 (unaudited) (unaudited) £m £m £m Non-current assets Goodwill 380.1 378.1 376.5 Other intangible assets 14.3 10.2 12.1
Property, plant and equipment 23.4 24.3
24.3 Interest in associates 3.5 3.1 3.6 Other financial assets 5.7 4.7 4.1 Deferred tax assets 11.3 14.7 13.0 Retirement benefit asset 47.0 4.8 23.6 485.3 439.9 457.2 Current assets Trade and other receivables 28,188.9 15,289.1 4,186.9 Other financial assets 28.5 33.0 35.6 Cash and cash equivalents 284.5 331.3 390.1 28,501.9 15,653.4 4,612.6 Total assets 28,987.2 16,093.3 5,069.8 Current liabilities Trade and other payables (28,186.8) (15,303.1) (4,229.4) Interest bearing loans and (29.4) (30.0) (30.1)borrowings
Derivative financial instruments - (0.1)
- Current tax liabilities (31.5) (44.9) (40.3) Short term provisions (6.2) (1.1) (0.5) (28,253.9) (15,379.2) (4,300.3) Net current assets 248.0 274.2 312.3 Non-current liabilities Interest bearing loans and (235.7) (327.1) (327.8)borrowings Deferred tax liabilities (30.7) (11.1) (19.5) Long term provisions (3.9) (9.0) (3.9) Other long term payables (5.5) (9.4) (6.5) (275.8) (356.6) (357.7) Total liabilities (28,529.7) (15,735.8) (4,658.0) Net assets 457.5 357.5 411.8 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 146.5 140.1 146.7 Retained earnings 1,426.5 1,333.4 1,380.9 Equity attributable to equity 454.4 354.9 409.0holders of the parent Minority interests 3.1 2.6 2.8 Total equity 457.5 357.5 411.8Condensed Consolidated Cash Flow Statementfor the six months ended 30 June 2011 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 (unaudited) (unaudited) £m £m £m Net cash from operating activities 11(a) 13.8 15.7 94.7 Investing activities Sale/(purchase) of other financial 7.0 (2.5) (5.2)assets Interest received 0.7 0.9 1.9 Dividends from associates 0.9 1.4 1.4 (Purchase)/sale of (1.9) - 1.7available-for-sale assets Expenditure on intangible fixed (3.8) (3.8) (7.5)assets Purchase of property, plant and (1.8) (1.4) (4.9)equipment
Proceeds on disposal of property, - 0.1
0.2plant and equipment Investment in subsidiaries (4.7) (2.4) (2.4) Net cash used in investment (3.6) (7.7) (14.8)activities Financing activities Dividends paid 10 (22.6) (21.4) (32.7) Dividends paid to minority interests - - (0.3) Sale of own shares - 1.7 1.7 Repayment of debt (210.0) (30.3) (30.3)
Funds received from debt issue 120.0 -
- Debt issue costs (3.4) - - Repayment of obligations under (0.1) (0.2) (0.3)finance leases Net cash used in financing (116.1) (50.2) (61.9)activities Net (decrease)/increase in cash and (105.9) (42.2) 18.0cash equivalents Cash and cash equivalents at the 390.1 366.1 366.1beginning of the period
Effect of foreign exchange rate 0.3 7.4
6.0changes
Cash and cash equivalents at the 11(b) 284.5 331.3 390.1 end of the period
Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2011
...................Equity attributable to equity holders of
the parent.................
Share Reverse Re- Hedging Share premium acquisition Equity valuation Merger
and Own Retained Minority Total
capital account reserve reserve reserve reserve
translation shares earnings Total interests equity (unaudited) £m £m £m £m £m £m
£m £m £m £m £m £mBalance at 53.8 9.9 (1,182.3) 5.3 2.6 121.5 17.4 (0.1) 1,380.9 409.0 2.8 411.81 January2011Profit for - - - - - - - - 53.8 53.8 0.3 54.1the periodRevaluation of - - - - (0.5) - - - - (0.5) - (0.5)available- for-sale assetsExchange - - - - - - (1.4) - - (1.4) - (1.4)differences ontranslation offoreign operations Actuarial - - - - - - - - 21.4 21.4 - 21.4gains ondefined benefitpension schemes Taxation - - - - - - 1.7 - (7.6) (5.9) - (5.9)credit/(charge) oncomponents of othercomprehensive income Other - - - - (0.5) - 0.3 - 13.8 13.6 - 13.6comprehensive income for the period Total - - - - (0.5) - 0.3 - 67.6 67.4 0.3 67.7comprehensive income for the period Dividends - - - - - - - - (22.6) (22.6) - (22.6)paid in the period Credit arising - - - - - - - - 0.6 0.6 - 0.6on share-based payment awards Balance at 53.8 9.9 (1,182.3) 5.3 2.1 121.5 17.7 (0.1) 1,426.5 454.4 3.1 457.530 June 2011 ...................Equity attributable to equity holders of
the parent.................
Share Reverse Re- Hedging Share premium acquisition Equity valuation Merger
and Own Retained Minority Total
capital account reserve reserve reserve reserve translation shares earnings Total interests equity(unaudited) £m £m £m £m £m £m £m £m £m £m £m £m Balance at 53.8 9.9 (1,182.3) - 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.51 January 2010 Profit for - - - - - - - - 55.1 55.1 0.2 55.3the period Revaluation of - - - - - - - - - - - -available- for-sale assets Exchange - - - - - - 12.0 - - 12.0 0.2 12.2differences ontranslation offoreign operations Actuarial - - - - - - - - (0.9) (0.9) - (0.9)loss ondefined benefitpension schemes Taxation - - - - - - (3.1) - (0.1) (3.2) - (3.2)credit/(charge) oncomponents of othercomprehensive income Other - - - - - - 8.9 - (1.0) 7.9 0.2 8.1comprehensive income for the period Total - - - - - - 8.9 - 54.1 63.0 0.4 63.4comprehensive income for the period Dividends - - - - - - - - (21.4) (21.4) - (21.4)paid in theperiod Sale of - - - - - - - 2.3 (0.6) 1.7 - 1.7own shares Shares used to - - - - - - - 0.3 (0.3) - - -meet share award exercises Credit arising - - - - - - - - 1.3 1.3 - 1.3on share-basedpayment awards Balance at 53.8 9.9 (1,182.3) - 2.3 121.5 16.5 (0.2) 1,333.4 354.9 2.6 357.530 June 2010 ...................Equity attributable to equity holders of
the parent.................
Share Reverse Re- Hedging Share premium acquisition Equity valuation Merger
and Own Retained Minority Total
capital account reserve reserve reserve reserve translation shares earnings Total interests equity(unaudited) £m £m £m £m £m £m £m £m £m £m £m £m Balance at 53.8 9.9 (1,182.3) - 2.3 121.5 7.6 (2.8) 1,300.3 310.3 2.2 312.51 January 2010 Profit for - - - - - - - - 108.5 108.5 0.6 109.1the year Revaluation of - - - - 0.3 - - - - 0.3 - 0.3available- for-sale assets Exchange - - - - - - 8.8 - - 8.8 0.3 9.1differences ontranslation offoreign operations Actuarial - - - - - - - - 14.5 14.5 - 14.5gains on defined benefitpension schemes Taxation - - - - - - 1.0 - (7.8) (6.8) - (6.8)credit/(charge) oncomponents of othercomprehensive income Other - - - - 0.3 - 9.8 - 6.7 16.8 0.3 17.1comprehensive income for the year Total - - - - 0.3 - 9.8 - 115.2 125.3 0.9 126.2comprehensive income for the year Equity - - - 5.3 - - - - - 5.3 - 5.3component of deferred consideration Dividends - - - - - - - - (32.7) (32.7) (0.3) (33.0)paid in theyear Sale of own - - - - - - - 2.3 (0.6) 1.7 - 1.7shares Shares used - - - - - - - 0.4 (0.4) - - -to meet shareaward exercises Debit arising - - - - - - - - (0.9) (0.9) - (0.9)on share-basedpayment awards Balance at 53.8 9.9 (1,182.3) 5.3 2.6 121.5 17.4 (0.1) 1,380.9 409.0 2.8 411.831 December 2010
Notes to the Condensed Consolidated Financial Statements for the six months ended 30 June 2011
1. General information
The condensed consolidated financial information for the six months ended 30June 2011 has been prepared in accordance with the Disclosure and TransparencyRules (DTR) of the Financial Services Authority and with IAS 34 `InterimFinancial Reporting' as adopted by the European Union (EU). This condensedfinancial information should be read in conjunction with the statutory accountsfor the year ended 31 December 2010 which were prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EU.The statutory accounts for the year ended 31 December 2010 have been reportedon by the Company's auditors, Deloitte LLP, and have been delivered to theRegistrar of Companies. The report of the auditors on those accounts wasunqualified and did not contain a statement under section 498(2) or (3) of theCompanies Act 2006.The condensed consolidated financial information for the six months ended 30June 2011 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 2010, does not constitute statutoryaccounts within the meaning of section 434 of the Companies Act 2006. Thefinancial information is unaudited but has been reviewed by the Company'sauditors, Deloitte LLP, and their report appears at the end of the interimfinancial report.
2. Accounting policies
The condensed consolidated financial statements have been prepared on thehistorical cost basis, except for the revaluation of certain financialinstruments. The Group has considerable financial resources both in the regionsand at the corporate centre to comfortably meet the Group's ongoingobligations. Accordingly, the going concern basis continues to be used inpreparing these condensed consolidated financial statements. The condensedconsolidated financial statements are rounded to the nearest hundred thousandpounds (expressed as millions to one decimal place - £m), except whereotherwise 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 2010, exceptas described below.The Group has adopted the amendment to IAS 32 `Financial Instruments:Presentation' regarding the classification of rights issues, the amendment toIFRIC 14 `IAS 19 - The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction' regarding prepayments of a Minimum FundingRequirement, IFRIC 19 `Extinguishing Financial Liabilities with EquityInstruments', Improvements to IFRSs (2010), and the revised IAS 24 `RelatedParty Disclosures'. The adoption of these amendments has not had anysignificant impact on the condensed consolidated financial statements.
3. Related party transactions
Related party transactions are described in the 2010 annual report and accountsin note 36 to the consolidated financial statements. There have been nomaterial changes in the nature or value of related party transactions in thesix months ended 30 June 2011.
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. A detailedexplanation of the above risks can be found on pages 16 to 19 of the latestannual report which is available at www.tullettprebon.com. The directors do notconsider that the principal risks and uncertainties have changed since thepublication of the annual report for the year ended 31 December 2010. Risks anduncertainties which could have a material impact on the Group's performanceover the remaining six months of the financial year are discussed in theInterim Management Report.
5. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group is organised by geographic reporting segments which are used for the purposes of resource allocation and assessment of segmental performance by Group management. These are the Group's reportable segments under IFRS 8 `Operating Segments'.
Each geographic reportable segment derives revenue from Treasury Products, Interest Rate Derivatives, Fixed Income, Equities, Energy and Information Sales and Risk Management Services.
Information regarding the Group's operating segments is reported below:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £mRevenue Europe 269.9 288.1 536.1 North America 123.4 135.6 259.0 Asia Pacific 61.5 52.1 113.4 454.8 475.8 908.5 Operating profit Europe 65.5 69.6 120.7 North America 7.4 11.7 22.5 Asia Pacific 7.3 3.4 9.2 Reported operating profit 80.2 84.7 152.4 Finance income 6.5 5.6 11.3 Finance costs (12.1) (11.0) (22.4) Profit before tax 74.6 79.3 141.3 Taxation (21.3) (25.0) (33.7) Profit of consolidated companies 53.3 54.3
107.6
Share of results of associates 0.8 1.0
1.5 Profit for the period 54.1 55.3 109.1
There are no inter-segment sales included in segment revenue.
Other segmental information Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £mSegment assets Europe 15,636.0 7,279.7 1,834.1 North America 13,276.5 8,743.0 3,155.0 Asia Pacific 74.7 70.6 80.7 28,987.2 16,093.3 5,069.8
Segmental assets exclude all inter-segment balances.
Analysis by product group Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £mRevenue Treasury Products 127.8 125.2 248.4 Interest Rate Derivatives 103.8 107.5 205.0 Fixed Income 126.8 132.7 249.3 Equities 23.7 38.1 67.2 Energy 53.8 55.6 105.8 Information Sales and Risk Management 18.9 16.7 32.8Services 454.8 475.8 908.56. Other operating incomeOther operating income represents receipts such as rental income, royalties,insurance proceeds, settlements from competitors and business relocationgrants. Costs associated with such items are included in administrativeexpenses.7. Finance income Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £m
Interest receivable and similar income 1.2 0.9
1.9
Expected return on pension schemes' 5.3 4.7
9.4assets 6.5 5.6 11.38. Finance costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £m
Interest payable on bank loans 1.9 1.2
2.5
Interest payable on Eurobonds 5.2 5.2 10.5 Other interest payable 0.5 0.1 0.4
Amortisation of debt issue costs 0.7 0.5
1.2 Total borrowing costs 8.3 7.0 14.6
Fair value loss on derivative instruments - 0.1
-
Interest cost on pension schemes' 3.8 3.9
7.8liabilities 12.1 11.0 22.49. Earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 Adjusted basic 24.4p 25.5p 46.4p Basic 24.8p 25.7p 50.5p Diluted 24.8p 25.4p 50.3p
The calculation of basic and diluted earnings per share is based on the following number of shares in issue:
Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 No. (m) No. (m) No. (m)
Weighted average shares in issue used for 216.5 214.3 214.9 calculating basic and adjusted basic
earnings per share Contingently issuable shares 0.3 2.0 0.2
Issuable on exercise of options 0.3 0.8
0.6
Diluted weighted average shares in issue 217.1 217.1 215.7
The earnings used in the calculation of adjusted, basic and diluted earningsper share are set out below: Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £m Profit for the period 54.1 55.3 109.1 Minority interests (0.3) (0.2) (0.6) Earnings for calculating basic and 53.8 55.1 108.5diluted earnings per share Expected return on pension schemes' (5.3) (4.7) (9.4)assets
Interest cost on pension schemes' 3.8 3.9
7.8liabilities
Fair value movement on derivative - 0.1
-financial instruments Tax on above items 0.5 0.2 0.5 Tax on capital related items - - (6.0) Prior year tax - - (1.6) Adjusted earnings for calculating 52.8 54.6
99.8
adjusted basic earnings per share
10. Dividends Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £m
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year ended 31 22.6 -
-
December 2010 of 10.5p per share Interim dividend for the year ended 31 - -
11.3
December 2010 of 5.25p per share Final dividend for the year ended 31 - 21.4
21.4
December 2009 of 10.0p per share
22.6 21.4 32.7
An interim dividend of 5.25p per share will be paid on 17 November 2011 to all shareholders on the Register of Members on 28 October 2011.
During the period the ordinary shares held by the Tullett Prebon plc Employee Share Ownership Trust were transferred to the Tullett Prebon plc Employee Benefit Trust 2007. The trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.
As at 30 June 2011 the Tullett Prebon plc Employee Benefit Trust 2007 held 202,029 ordinary shares (2010: 200,833 ordinary shares) and the Tullett Prebon plc Employee Share Ownership Trust held nil ordinary shares (2010: 1,196 ordinary shares).
11. Notes to the Condensed Consolidated Cash Flow Statement
a. Reconciliation of operating profit to net cash from operating activities Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £m £m £m Operating profit 80.2 84.7 152.4 Adjustments for: Share-based compensation 0.6 1.3 (0.9)
Profit on sale of other non-current - - (1.0) financial assets Loss on sale of property, plant and - - 0.2 equipment Depreciation of property, plant and 2.8 3.3 6.4 equipment Amortisation of intangible assets 1.4 1.2
3.0
Increase/(decrease) in provisions for 5.6 0.2 (5.4)liabilities and charges Retirement benefit obligation funding (0.5) (6.3)
(8.8)
Decrease in non-current liabilities (0.4) -
(1.1)
Operating cash flows before movement in 89.7 84.4 144.8working capital
Increase in trade and other receivables (29.6) (31.7) (15.0)
(Increase)/decrease in net settlement (5.8) (0.6)
0.2balances (Decrease)/increase in trade and other (15.6) (14.9) 5.6payables Cash generated from operations 38.7 37.2 135.6 Income taxes paid (22.9) (20.1) (27.5) Interest paid (2.0) (1.4) (13.4) Net cash from operating activities 13.8 15.7
94.7
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short term highlyliquid investments with an original maturity of three months or less. Cash atbank earns interest at floating rates based on daily bank deposit rates. Shortterm deposits are made for varying periods of between one day and one weekdepending on the immediate cash requirements of the Group, and earn interest atthe respective short term deposit rates.
12. Analysis of net funds
At At 1 January Cash Non-cash Exchange 30 June 2011 flow items differences 2011 £m £m £m £m £m Cash 242.4 (40.4) - 0.4 202.4 Cash equivalents 145.3 (65.9) - (0.1) 79.3 Client settlement 2.4 0.4 - - 2.8money Cash and cash 390.1 (105.9) - 0.3 284.5equivalents Other current 35.6 (7.0) - (0.1) 28.5financial assets Total funds 425.7 (112.9) - 0.2 313.0 Bank loans within one (30.0) 30.0 (29.4) - (29.4)year Bank loans after one (180.0) 63.4 28.9 - (87.7)year Loans due after one (147.6) - (0.2) - (147.8)year Finance leases (0.3) 0.1 - - (0.2) (357.9) 93.5 (0.7) - (265.1) Total net funds 67.8 (19.4) (0.7) 0.2 47.9
Client settlement money represents balances held by the Group received as a result of corporate actions relating to securities transactions.
Other current financial assets comprise short term government securities and term deposits held with banks and clearing organisations.
On 8 February 2011, the Group entered into a new £235m credit agreementconsisting of a £120m amortising term loan facility and a £115m committedrevolving credit facility. These facilities replaced the previous facilitiesoutstanding at that date, a £180m term loan and a £50m committed revolvingcredit facility that were due to mature in January 2012. The new term loan issubject to repayments of £30m in each of February 2012 and February 2013 with £60m maturing in February 2014. The committed revolving credit facility, whichhas not been drawn, will also mature in February 2014.
13. Legal Proceedings
The claim by BGC Market Data and certain of its affiliates, alleging that theCompany misappropriated data supplied to its information sales subsidiary inviolation of a redistribution agreement, is scheduled to be heard inarbitration under the rules of the American Arbitration Association duringAugust 2011. A provision for the estimated cost of the resolution of this claimhas been included in the first half results. The amount claimed against theCompany is significantly higher than the amount provided. The outcome remainsuncertain and is dependent upon the conclusion of the arbitration process.
14. Events after the balance sheet date
Approval from the President of Brazil for the Company's acquisition of Conven§£o was received on 12 July 2011. The acquisition is expected to complete during August 2011.
Directors' Responsibility Statement
The directors confirm, to the best of their knowledge, that the condensed setof financial statements has been prepared in accordance with IAS 34 `InterimFinancial Reporting' as adopted by the European Union, and that the interimmanagement report herein includes a fair review of the information required byDTR 4.2.7R and DTR 4.2.8R.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.
By order of the BoardTerry SmithChief Executive2 August 2011
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 2011 whichcomprises the Condensed Consolidated Income Statement, the CondensedConsolidated Statement of Comprehensive Income, the Condensed ConsolidatedBalance Sheet, the Condensed Consolidated Cash Flow Statement, the CondensedConsolidated Statement of Changes in Equity and related notes 1 to 14. We haveread the other information contained in the half year report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements.This report is made solely to the Company in accordance with InternationalStandard on Review Engagements (UK and Ireland) 2410 "Review of InterimFinancial Information Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone otherthan the Company for our review work, for this report, or for the conclusionswe have formed.Directors' responsibilitiesThe half year report is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the half year report inaccordance with the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half year report has been prepared in accordance with International Accounting Standard 34 `Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half year report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half year reportfor the six months ended 30 June 2011 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority.Deloitte LLPChartered Accountants and Statutory Auditor2 August 2011London, UK
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